27th Apr 2006 10:45
Cesky Telecom A.S.27 April 2006 > PRESS RELEASE - 27. 04. 2006 > 2006 FIRST QUARTER FINANCIAL RESULTS CESKY TELECOM, a. s., is pleased to announce its unaudited financial results forthe first quarter of 2006. These results are consolidated and prepared accordingto International Financial Reporting Standards. CESKY TELECOM's Group Highlights Revenues of CZK 14.8 billion (+0.5%) Operating costs of CZK 7.8 billion (+ 0.8%) OIBDA of CZK 7.2 billion (+ 0.9%), OIBDA margin of 48.9% Operating income of CZK 3.0 billion (+ 24.8%) Net Income of CZK 2.1 billion (+ 23.1%) Net gearing at 2.8% (- 20.8 p.p.) Capex of CZK 1 billion Free Cash Flow of CZK 3.3 billion (- 13.7%) Group Headcount 10,116 (- 9.3%) Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 14.8 billionin the first quarter of 2006, 0.5% up yoy, and confirmed the improving trend,which have been seen from the second half of 2005. Total consolidated operatingcosts reached CZK 7.8 billion, up by 0.8% yoy. Similarly to the same period ofthe previous year, the amount of one-off items included in the results for thefirst three months of 2006 was negligible. The consolidated OIBDA amounted toCZK 7.2 billion, up by 0.9% yoy with OIBDA margin (OIBDA over Business revenues)at 48.9%, compared to 48.5% in the first quarter of 2005. Depreciation and Amortization Consolidated depreciation and amortization in the first three months of 2006amounted to CZK 4.2 billion, down by 11.3% yoy. The significant decrease is aresult of low CAPEX in recent years and changes in certain intangible assetsamortization. Operating Income, Income before taxes and Net income Consolidated operating income and consolidated income before taxes went up by24.8% yoy and 27.8% yoy and reached CZK 3 billion and CZK 2.9 billionrespectively in the first quarter of 2006, at the back of decrease of theconsolidated depreciation and amortization. Consolidated net income amounted toCZK 2.1 billion, up by 23.1% yoy. Capex Similarly to the previous reporting periods, the major investments were made inthe growth areas in the first quarter of 2006. Total consolidated CAPEX amountedto CZK 972 million, 36.7% up yoy. While CAPEX in fixed line business increasedby 17% yoy to CZK 470 million and was spent largely into ADSL advancement, CAPEXin Eurotel increased by 61.4% to CZK 502 mil., mainly due to the investmentsmade in UMTS network. Despite increased CAPEX due to accelerated rollout of ADSLin the first quarter of 2006 compared to the same period of 2005, we confirm our2006 full year guidance of CAPEX/Revenues ratio at 10 to 12%. Free Cash Flows The total amount of free cash flows generated by the CESKY TELECOM Group reachedCZK 3.3 billion in the first quarter of 2006.While operating cashflows remained stable yoy, accelerated investments into growth areas resultedinto seasonally higher investments cash outflows and overall free cash flows by13.7% lower compared to the first quarter of 2005. Debt levels CESKY TELECOM Group's consolidated debt (long-term and short-term) amounted toCZK 9.6 billion at 31 March 2005, the same as at the end of 2005 and down by58.0% compared to the same day last year. This number represents gross leverageof 9.9% and net leverage of 2.8% compared to 25.3% and 23.6% at the end of March2005. Fixed Line Business Overview* Our activities in the fixed line business in the first quarter of 2006 wereprimarily focused on development and marketing of new Internet and dataservices. This helped us to actively respond to the increasing demand from ourcustomers for broadband Internet, data and other value added services. Thusrevenues from broadband Internet, data and other telco services accounted for23.2% of the business revenues in the first quarter of 2006, compared to 21.5%in the same period of the previous year. At the same time, we continued toconcentrate on revenue retention in traditional voice and data services. Revenues Total revenues (business and recurring revenues) in fixed line business wentdown by 4.9% yoy to CZK 7.7 billion in the first quarter 2006. Business revenuesdecreased by 5.5% to CZK 7.5 billion, driven mainly by a decline in traditionalvoice services which had not been fully compensated by the increase in broadbandInternet based services, data and value added services. The overall number of CESKY TELECOM's fixed lines amounted to 3,073 thousand atthe end of March 2006, down by 7.1% compared to 31 March 2005. PSTN linesrecorded a 6.9% decrease and reached 2.6 million, while number of ISDN channelswent down by 8.5% to 441 thousand. As a result, revenues from monthlysubscriptions and connection charges decreased by 7.1% to CZK 2.8 billion. Revenues from traditional voice services (communication traffic andinterconnection) declined in total by 4.6% yoy to CZK 2.6 billion. Revenues fromcommunication traffic declined by 16.3% yoy to CZK 1.4 billion. This is a resultof lower voice traffic generated by CESKY TELECOM's customers in the firstquarter of 2006, which decreased by 6.1% yoy. Fixed to mobile substitution,lower number of the fixed lines and increased competition are the main driversbehind the decreasing voice traffic. Interconnection revenues increased by 13.4% to CZK 1.2 billion in the firstquarter of 2006, mainly due to growth in revenues from international operators,as a result of higher international transit traffic. Revenues from the broadband services amounted to CZK 576 million in the firstquarter of 2006, up by 47.7% yoy. From this, CZK 492 million representedrevenues from retail broadband and CZK 84 million from wholesale services. CESKYTELECOM recorded 64 thousand net adds to ADSL connections in the first quarterof 2006 compared to 26 thousand net adds in the first quarter of 2005.Thisprogressive increase was supported by successful marketing campaign launched on1 February 2006 when CESKY TELECOM introduced its offer of four times increasedspeed of broadband connections for unchanged price. From that day, CESKY TELECOMtook on average 8 thousand orders per week with a record number of 10,000 ordersin 10th week, while in 2005 the average number of orders per week reached 6,000.Until the end of March, CESKY TELECOM fulfilled about 80% of the orders madeduring two months of the new offer. The average number of installations per weekreached 6,000 in the first quarter of 2006 compared to 4,200 orders in the sameperiod of 2005. A record number of installations was recorded during the 11thweek, when the company completed 10,000 of them. The total number of ADSLconnections reached 338 thousand at 31 March 2006, compared to 274 thousand atthe end of 2005. Out of the total connections, CESKY TELECOM's retail customersrepresented 84%. Revenues from dial up (narrowband) Internet decreased by 50.4% yoy to CZK 192million. Dial up Internet traffic went down by 53.4% yoy to 455 million minutesin the first quarter of 2006, as a result of continuing dial up trafficmigration to ADSL broadband Internet access and other fast Internet servicealternatives. Revenues from data services decreased by 5.3% yoy to CZK 1 billion, mainly dueto decline in revenues from leased lines, which went down by 10.3% yoy to CZK609 million. Data network services increased by 2.6% yoy and reached CZK 440million due to the growth of IP Connect and IP VPN connections and introductionof new ADSL based data services. Equipment revenues amounted to CZK 158 million, down by 11.2% yoy. Revenues fromIT services and business solutions reached CZK 108 million in the first quarterof 2006 compared to CZK 24 million in the same period of 2005. OPEX The fixed line operating costs (excluding non-recurring items) went down by 2.6%yoy in the first three months of 2006 and amounted to CZK 4.2 billion. Thecontrollable operating costs (costs of subcontracts) decreased even by 8.7% yoyand confirmed the management's effort to realize further cost efficiencies. Supplies expenses grew by 13.9% yoy to CZK 1.7 billion. Interconnection costsincreased slightly by 3.8% to CZK 1.2 billion, cost of goods sold went up by13.7% to CZK 83 million as a result of increased activity in broadband services,while other supplies increased by 67% to CZK 369 million. Personnel costs, including headcount reduction costs, amounted to CZK 1.2billion, down by 12.2% yoy as a result of decrease in CESKY TELECOM's headcountby 12.2% yoy to 7,572 at the end of March 2006. The productivity measured bynumber of fixed lines per employee improved by 5.8% yoy to 406 lines at the endof the period. The cost of subcontracts (external services) decreased in total by 8.7% yoy andreached CZK 1.3 billion in the first quarter of 2006. Out of this cost category,the reduction is reported in all items except utilities (material and energy)supplies, which increased by 7.5% yoy to CZK 158 million, and marketing andsales which went up by 32% yoy to CZK 202 million. Network & IT repairs andmaintenance decreased by 12.6% yoy to CZK 403 million and rentals, buildings andvehicles costs reached CZK 198 million almost the same as in the first quarterof 2005. Other subcontract costs including consultancy fees went down by 32.5%yoy to CZK 257 million. Taxes, comprising taxes other than income tax, fees and provisions decreased by29% yoy to CZK 49 million. OIBDA of CESKY TELECOM including business revenues, other revenues,non-recurring revenues and costs amounted to CZK 3.5 billion in the firstquarter of 2006, down by 6.1% yoy, representing an OIBDA margin (OIBDA overbusiness revenues) of 46.9%, compared to 47.2% in the first quarter of 2005. Mobile Business Overview* Results of Eurotel in the first quarter of 2006 confirmed its strong financialand operational performance. Similarly to the fixed line business, main effortsfocused on the offer of the new data, Internet and value added servicesincluding content, while improving the attractiveness of traditional voicepackages. Revenues This trend is clearly reflected in changing Eurotel's revenue structure. Totalbusiness revenues of Eurotel increased by 6.5% yoy and amounted to CZK 7.5billion. Data revenues (revenues from value added services and Internet & Data)accounted for 21.2% of service revenues in the first quarter of 2006 compared to19.1% in the same period of the previous year. Non-SMS data made 8.2% of servicerevenues in the first quarter of 2006 compared to 6.9% in the same period of theprevious year. Eurotel's revenues from voice services (monthly fees, traffic andinterconnection) increased in total by 3% yoy to CZK 5.5 billion. The total number of Eurotel's customers amounted to 4,695 thousand at the end ofMarch 2006, which represents an 8.5% yoy increase. The net additions reached 19thousand in the first three months of 2006, while Eurotel loss 68 thousandcustomers in the same period of 2005. The number of contract customers (GSM,CDMA and NMT) reached 1,643 thousand, up by 498 thousand yoy, which represents a43.5 % growth. Despite the fact that SIM card penetration has been continuouslygrowing and reached 112% of the population at the end of 2005, the net additionsof contract customers reached 97 thousand in the first quarter of 2006, comparedto 87 thousand in Q1 2005. The contract customers accounted for 35% of the totalcustomer base, compared to 26.5% at the end of March 2005 and 33% at the end of2005. Successful migration of pre-paid customers to contract services played animportant role in the growth of the contract customer numbers. Decrease in number of prepaid customers was substantially influenced bymigrations of customers from prepaid to contract segment, as a result of Eurotelmarketing activities in this area. Total number of prepaid customers amounted to3,052 thousand at the end of March 2006, which shows a decrease by 129 thousand(4.1%) compared to the same date of the previous year. Under the methodology,which defines a prepaid customer as customer generating revenue in the last 3months, the number of Eurotel's prepaid customers at 31 March 2006 amounted to2,771 thousand, down by 5.8% yoy. The blended monthly average churn rate amounted to 2.2% in the first quarter of2006, compared to 2.4% in the same period of the previous year. Revenues from monthly fees increased by 12.3% yoy to CZK 1.6 billion as a resultof significant growth in contract customers base. Traffic revenues decreased by 1.3% yoy to CZK 2.6 billion, while the trafficusage increased by 22.4% yoy in the first three months of 2006. The reason ishigher share of contract customers with monthly packages, which include freeminutes and market pressure on revenue per minute. The increased voice trafficcan be attributed to increasing number of customers and success of usagestimulation activities. Interconnection revenues amounted to CZK 1.3 billion in the first quarter of2006, up by 1.7% yoy, mainly due to higher volume of incoming traffic. In the first three months of 2006, blended ARPU reached CZK 490 compared to CZK484 in the first quarter of 2005. Contract ARPU reached CZK 996 in the firstquarter of 2006 compared to CZK 1,237 in the same period of the previous year,while prepaid ARPU decreased from CZK 233 to CZK 226 in the same period. AverageMOU per subscriber recorded a positive development in the first quarter of 2006with 96 minutes, up from 83 minutes in the same period of the previous year and92 minutes in 2005. The total revenue from value added services (including SMS, MMS and content)increased by 15.0% yoy to CZK 1.1 billion. Eurotel customers sent and receivedin total 690 million SMS in the first quarter of 2006 , up by 15.4% yoy. Revenues from Internet and Data recorded a 23.9% yoy increase and reached CZK378 million. At the end of March 2006, the total number of Eurotel Data Expresscustomers amounted to 79 thousand (up by 36 thousand yoy) and total number ofEurotel Data Nonstop customers was 68 thousand (up by 9.7% yoy). Higher number of sold handsets led to a 13.3% yoy increase in the equipmentsales (including connection fees) to CZK 384 million. Other business revenues (IT services and other revenues) increased by 85% to CZK74 million. OPEX Total operating costs of Eurotel increased by 4.8% yoy to CZK 4 billion in thefirst quarter of 2006, mainly as a result of increase in supplies expense. Onthe other hand, the controllable operating costs (costs of subcontracts)decreased by 6.9% yoy. Supplies expenses, which comprise interconnection and roaming, cost of goodssold and other supplies reached CZK 2.4 billion, 11.2% up yoy. The major item inthis category relates to interconnection and roaming costs, which amounted toCZK 1.5 billion, 11.6% up yoy due to higher off-net outgoing traffic. Cost ofgoods sold increased by 2.9% and amounted to CZK 742 million. Other purchasesand cost of sales increased by 75.9% to CZK 146 million. The number of Eurotel's employees as of 31 March 2006 amounted to 2,483, almostsame as at the end of March 2005 and at the end of 2005. The staff costsdecreased by 10.5% yoy to CZK 441 million. The cost of subcontracts in Eurotel decreased by 6.9% yoy to CZK 972 million inthe first three months of 2006. Marketing and sales expenses decreased by 1.7%to CZK 413 million. Network & IT repairs and maintenance went down by 24.4% yoyto CZK 170 million. Cost of rentals, buildings and vehicles amounted to CZK 193million, down by 4.5% yoy. Utilities supplies went up by 39.2% and reached CZK71 million. Other subcontracts (consultancy fees and other) amounted to CZK 125million, down by 14.4% yoy. Taxes comprising taxes other than income tax, fees and provisions amounted toCZK 178 million in the first quarter of 2006, which represents a 64.8% yoyincrease. OIBDA of Eurotel reached CZK 3.6 billion in the first quarter of 2006representing a 8.3% yoy increase with an OIBDA margin of 47.9%, up by 0.8 p.p.yoy. 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 Group of operating companies, including recently acquired one of theEuropean leading mobile operator, O2. The commercial and underlying technicaldevelopment leading to introduction and marketing of the new services andproducts (e.g. UMTS, IPTV, IP based value added services, content, integratedbusiness solutions), further operational efficiencies facilitated by process andorganizational redesign based on sharing the best practice, synergies in thepurchasing leading to decreased cost of resources and opex and capex savings,are the key areas of experience sharing and cooperation with the new majorityshareholder. New range of convergent product offering and integrated customer service andresulting synergies will be achieved via proposed integration of CESKY TELECOMand Eurotel into the new telecommunication company Telefonica O2 Czech Republic,which was communicated at the beginning of March 2006. The integratedorganization is expected to become effective in mid-2006 after the approval byshareholders at Annual General Meeting held on 27th April 2006 and all requiredpreparatory and legal steps have been completed. The new company will use the O2brand for all customer segments, with Telefonica endorsement in allcommunications. The Group's management expects net present value of thesynergies related to fixed-mobile integration to reach EUR 375 to 450 million,in addition to EUR 250 million of synergies resulting from CESKY TELECOM Groupbeing a part of Telefonica Group. 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 ZABKA Press Spokesman Tel: +420 271 463 359 Fax: +420 271 469 896 e-mail: [email protected] 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 thatamounts 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 ExchangeRelated Shares:
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