27th Oct 2006 12:30
Telefonica O2 Czech Republic, A.S.27 October 2006 Press release Telefonica O2 Czech Republic - 2006 Nine Months Financial Results Prague, 27th October 2006 Telefonica O2 Czech Republic, a.s. is pleased to announce its unauditedfinancial results for the nine months of 2006. These results are consolidatedand prepared according to International Financial Reporting Standards. Group Highlights Revenues of CZK 45.6 billion (+ 0.6%) Operating costs of CZK 24.1 billion (- 1.1%) OIBDA of CZK 22.2 billion (+ 4.1%), OIBDA margin of 48.9% Operating income of CZK 9.5 billion (+ 21.7%) Net Income of CZK 6.8 billion (+ 33.9%) Net gearing at minus 7.9% (- 19.6 p.p.) CapEx of CZK 4.0 billion (+ 26.0%) - CapEx/Revenues ratio of 8.9% Free Cash Flow of CZK 12.8 billion (- 6.6%) Group Headcount 9,936 (- 3.0%) OIBDA guidance for 2006 upgraded (to around +2% from flat) Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 45.6 billionin the first nine months of 2006, up 0.6% yoy, and up 2.0% yoy in Q3 alone.Mobile business was the key driver of this growth, while the fixed businesscontinued to decline. Total consolidated operating costs reached CZK 24.1billion, down by 1.1% yoy. Consolidated OIBDA amounted to CZK 22.2 billion, upby 4.1% yoy confirming the strong performance and tight cost control seen inprevious quarters of 2006. OIBDA margin (OIBDA over Business revenues) reached48.9% in the first nine months of 2006, compared to 47.2% in the same period of2005. OIBDA margin in Q3 reached 49.6%. Depreciation and Amortization Consolidated depreciation and amortization in the first nine months of 2006amounted to CZK 12.6 billion, a decline of 6.1% yoy, continuing the trend seenin previous quarters on the back of ongoing investment discipline. Operating Income, Income before taxes and Net income Consolidated operating income and consolidated income before taxes went up by21.7% yoy and 27.4% yoy to reach CZK 9.5 billion and CZK 9.3 billionrespectively for the first nine months of 2006, on the back of the decrease inconsolidated depreciation and amortization and financial expenses and supportedby strong OIBDA. Consolidated net income amounted to CZK 6.8 billion, up by33.9% yoy. CapEx Similar to the first half of 2006, in Q3 the Group focused its investments onthe growth areas of the business. Total consolidated CapEx amounted to CZK 4.0billion, up 26.0% yoy. While CapEx in the fixed segment increased by 28% yoy toCZK 1.9 billion and was spent largely on ADSL rollout and IPTV, CapEx in themobile segment increased by 17.5% to CZK 2.1 million, mainly due to theinvestments made in the CDMA and UMTS networks. CapEx for other subsidiariesamounted to CZK 125 million and was represented mainly by payment for Slovakmobile license. Despite increased CapEx due to the accelerated rollout of ADSL,we confirm our 2006 full year guidance of CAPEX/Revenues ratio at 10 to 12%. Free Cash Flows The total amount of the Groups' free cash flows amounted to CZK 12.8 billion inthe first nine months of 2006, down by 6.6% yoy. Operating cash flows went upslightly by 1.8% yoy, driven by the increase in OIBDA, while acceleratedinvestments into growth areas resulted in net cash used in investing activitiesincreasing by 43.1% compared to the same period of 2005. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted toCZK 9.3 billion at 30 September 2006, similar to the figure at the end of 2005and down by 21.1% compared to the same day last year. Also on 30 September 2006,the amount of cash and cash equivalents reached CZK 16.3 billion due to cashaccumulation for the dividend payment which happened on 2 October 2006. Thisresulted in net leverage of minus 7.9% and gross leverage of 10.7% compared to11.7% and 12.6% at the end of September 2005. Mobile license in Slovakia On 2 August 2006, Telefonica O2 Slovakia, a wholly owned subsidiary ofTelefonica O2 Czech Republic, was announced as winner of the tender for the 3rdmobile license in Slovakia. Based on this decision, the Telecommunication officeof the Slovak Republic awarded Telefonica O2 Slovakia the 20 years license forGSM and UMTS networks on 25 August 2006. The license award became effective on 7September 2006. Telefonica O2 Slovakia paid SKK 150 million (EUR 4.1 million)for the license. The license conditions require GSM/UMTS network operationlaunch in 6/12 months from license award. Additionally, Telefonica O2 Slovakiais required to achieve 12%/45% own network population coverage in 12/24 monthsand to build 400/800 own base stations in these periods. The new operation is considered as an organic expansion of the Telefonicabusiness in the region and will take advantage of synergies with Telefonica O2Czech Republic operations. The leverage on the Czech operation is expected inareas of network (development, monitoring, support), IT, procurement and backoffice (finance, HR, legal). Telefonica O2 Slovakia will use the O2 brand. Thecommercial launch is expected in 1Q 2007. Change of segmental financial results disclosure After the merger of CESKY TELECOM and Eurotel into one company as of 1 July2006, all inter-company transactions between fixed (CESKY TELECOM) and mobile(Eurotel) segments became intra-company (inter-segment). Therefore it wasdecided to exclude intra-company transactions from segment financial results asof 3Q 2006 with effect from 1 January 2006. As a result, the financial resultsof the fixed and mobile segments for the nine months of 2006 are disclosedexcluding inter-segment revenues and costs. In addition, the results for ninemonths of 2005 have been adjusted accordingly to allow for relevant comparison. However we have not adjusted mobile ARPU calculation for inter-segment revenues.Reported ARPU henceforth includes the full amount of revenues (includingrevenues from fixed segment), which allows for comparison with other Czechmobile operators. Fixed Segment Overview(1) Our activities in the fixed segment in the third quarter of 2006 werecontinuously focused on the development and marketing of new Internet and dataservices. As a result, revenues from broadband Internet, data and othertelecommunication services accounted for 27.1% of business revenues in the firstnine months of 2006, compared to 26.0% in the same period of the previous year.At the same time, we continued to concentrate on revenue retention intraditional voice and data services. Revenues Total business revenues in the fixed segment decreased by 4.8% yoy to CZK 22.5billion. This was driven mainly by a continued decline in revenues fromtraditional voice services which was not fully compensated by the increase inrevenues from broadband Internet based services, data and value added services. As of Q3 2006, the company's approach to disclosure of fixed telephony accesseshas changed by excluding so called "incoming only lines" from the total numberof fixed telephony accesses. An incoming only line is a win back tool, which isoffered to customers who decide to disconnect. These customers can keep the lineallowing incoming calls only for a period of 6 months with a monthly fee of CZK1. The total number of fixed telephony accesses excluding incoming only linesamounted to 2,537 thousand as at the end of September 2006, down by 15.5% yoy.The number of incoming only lines amounted to 209 thousand. This decrease in fixed telephony accesses resulted in a decline in revenues fromtraditional access by 7.8% yoy to CZK 7.9 billion in first nine months of 2006,while they decreased by 7.8% and 1.7% in Q2 and Q3 alone. This revenue streamwas positively impacted by the rebalancing of residential monthly fees as of 1May 2006. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 7.1% yoy to CZK 7.6 billion. Revenues from voice trafficdeclined by 13.3% yoy to CZK 4.3 billion, as a result of lower voice trafficgenerated by our customers in the first nine months of 2006, which decreased by5.8% yoy. However, the unification of local and long distance rates effective asof 1 April 2006 helped long distance traffic to increase by 2.8% in the firstnine months of 2006. Interconnection revenues increased by 2.5% to CZK 3.3 billion in the first ninemonths of 2006, mainly due to the growth in revenues from internationaloperators, as a result of higher international transit traffic. Revenues from Internet & broadband increased in total by 7.0% yoy to CZK 2.5billion. The turn around in revenue trends is due to the strong growth ofbroadband revenues, which more than offset decreasing revenues from narrowband.Narrowband Internet represents a decreasing proportion of Internet revenues withlimited downside potential. Revenues from broadband services amounted to CZK 2.0 billion in the first ninemonths of 2006, up by 48.8% yoy. Of this, CZK 1.7 billion represented revenuesfrom retail broadband and CZK 290 million from wholesale services. Net additionsto ADSL accesses in the first nine months of 2006 reached 153 thousand comparedto 119 thousand net additions in the same period of 2005. This progressiveincrease was supported by a successful marketing campaign in 1Q. The totalnumber of ADSL accesses reached 427 thousand at 30 September 2006, compared to274 thousand at the end of 2005 and 221 thousand at 30 September 2005. Wemaintained our broadband ADSL market share at 85%, while our market share on netadditions from 30 September to 2005 to 30 September 2006 amounted to 90.7%. On 1September, Telefonica O2 Czech Republic launched its IPTV offer under the O2 TVbrand name. The product is based on the Imagenio platform, the product whichTelefonica developed and offers in Spain. By the end of September 2006, O2 TVhad 2,806 customers, and we recently announced that this figure had increase to5,000. Revenues from narrowband Internet decreased by 48.9% yoy to CZK 504 million inthe first nine months of 2006. In the same period, dial up Internet traffic wentdown by 57.0% yoy to 989 million minutes, as a result of continuing dial uptraffic migration to ADSL broadband Internet access and other fast Internetservice alternatives. Revenues from data services decreased by 4.4% yoy to CZK 3.1 billion, mainly dueto a decline in revenues from leased lines, which went down by 11.1% yoy to CZK1.8 billion. Revenues from data network services increased by 6.0% yoy andreached CZK 1.3 billion due to the growth of IP Connect and IP VPN connectionsand the introduction of new ADSL based data services. Equipment sales amounted to CZK 436 million, down by 18.5% yoy. Revenues from ITservices and business solutions reached CZK 394 million in the first nine monthsof 2006 compared to CZK 139 million in the same period of 2005 representing 183%yoy growth. OpEx Operating costs in the fixed segment amounted to CZK 12.4 billion in the firstnine months of 2006, down by 3.2% yoy. Supplies expenses grew by 6.7% yoy to CZK 4.4 billion. Interconnection costsdecreased slightly by 1.0% to CZK 3.1 billion, cost of goods sold went down by16.2% yoy to CZK 202 million and showed a similar development to equipmentsales, while other supplies increased by 44.5% to CZK 1.1 billion. Personnel costs, including headcount reduction costs, amounted to CZK 3.8billion, down by 10.4% yoy in the first nine months of 2006. The cost of external services decreased in total by 3.2% yoy and reached CZK 4.0billion. Marketing and sales went up by 60.5% yoy to CZK 751 million due tohigher marketing activities related to new ADSL offers and higher marketingspending related to the re-branding project, which was launched on 1 September2006. Network & IT repairs and maintenance increased by 3.0% yoy to CZK 1.3billion, while rentals, buildings and vehicles costs reached CZK 614 million, upby 4.4% yoy due to higher maintenance costs. Utilities supplies increased by4.4% yoy to CZK 332 million. Other external services including consultancy feesand other external services went down by 31.8% yoy to CZK 1.1 billion as aconsequence of overall savings in these items. Taxes, comprising taxes other than income tax, fees and provisions decreased by48.4% yoy to CZK 116 million. OIBDA in the fixed line business including business revenues, other revenues,non-recurring revenues and costs amounted to CZK 10.9 billion in the first ninemonths of 2006, down by 2.5% yoy. Mobile Segment Overview(2) Activities in the mobile segment were to a large extent focused on offeringdata, Internet and value added services including content. At the same time weimproved the attractiveness of our traditional voice packages with the aim ofincreasing voice traffic. This strategy is clearly reflected in the financialand operational results of the mobile segment for the first nine months of 2006.In addition, we continued to encourage prepaid to postpaid migration with theaim to better exploit the ARPU potential of these customers. Revenues Total business revenues in the mobile segment increased by 5.9% yoy and amountedto CZK 22.8 billion in the first nine months of 2006. Total data revenues(revenues from value added services and Internet & Data) accounted for 19.7% ofservice revenues in the first nine months of 2006 compared to 18.3% in the sameperiod of the previous year. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 3.7% yoy to CZK 17.0 billion. The total number of mobile customers amounted to 4,760 thousand at the end ofSeptember 2006, which represents a 6.0% yoy increase. Net additions reached 84thousand in the first nine months of 2006, with net losses of 10 thousandcustomers in Q3 alone. This was largely a result of NMT voice customers, whowere disconnected at the end of June 2006 and had not migrated to GSM servicesby the end of September 2006. The migration of customers from the prepaid tothe contract segment continued in Q3, however the net loss in prepaid customerswas not fully compensated by net additions of contract customers. The number ofcontract customers reached 1,782 thousand at 30 September 2006, up by 394thousand yoy, which represents 28.4 % growth following the active prepaid tocontract migration strategy. Despite the fact that SIM card penetration has beencontinuously growing and reached 115% of the population at the end of June 2006,the net additions of contract customers reached 236 thousand in the first ninemonths of 2006 with 55 thousand in Q3 alone. Contract customers accounted for37.4% of the total customer base at the end of September 2006, up from 30.9% ayear ago and 36.2% at the end of June 2006. The number of prepaid customers decreased by 152 thousand in the first ninemonths of 2006, with net losses of 65 thousand in Q3 alone. The total number ofprepaid customers thus amounted to 2,978 thousand at the end of September 2006,down by 4.0% yoy. Under the methodology, which defines a prepaid customer asgenerating revenue in the last 3 months, the number of mobile prepaid customersamounted to 2,635 thousand at 30 September 2006, down by 4.4% yoy. The blended monthly average churn rate amounted to 1.5% in the first nine monthsof 2006, the same as in the first nine months of 2005, while it reached 1.5% inQ3 2006 and 1.1% in Q3 2005. Revenues from monthly fees increased by 9.0% yoy to CZK 4.7 billion, mainly as aresult of the 6.0% yoy growth in the contract customer base. Traffic revenues increased by 1.2% yoy to CZK 8.5 billion, while traffic usageincreased by 21.4% yoy in the first nine months of 2006. The increased voicetraffic can be attributed to the increasing number of customers and the successof traffic stimulation activities. Interconnection revenues amounted to CZK 3.8 billion in the first nine months of2006, up by 3.0% yoy, mainly due to an 8.7% growth in incoming traffic. In Q3 2006, blended ARPU reached CZK 519, flat compared to Q3 2005, but up fromCZK 490 in Q1 2006 and CZK 507 in 2Q 2006. Blended ARPU for the first ninemonths of 2006 reached CZK 505 compared to CZK 508 in the same period of 2005.Contract ARPU reached CZK 989 in Q3 2006, flat compared to Q2 2006 and down fromCZK 1,137 in Q3 2005, while it amounted to CZK 991 and CZK 1,200 in the firstnine months of 2006 and 2005. The main reason for lower contract ARPU is thedilution caused by customer migration from the prepaid to the contract segment.Prepaid ARPU increased from CZK 226 in Q1 2006 and CZK 239 in Q2 2006 to CZK 243in Q3 2006, while it fell from CZK 244 in the first nine months of 2005 to CZK236 in the same period of 2006. Average MOU per subscriber recorded a positivedevelopment in the first nine months of 2006 at 100 minutes, up from 90 minutesin the same period of 2005. Total revenues from value added services (including SMS, MMS and content)increased by 9.7% yoy to CZK 3.3 billion. Mobile customers sent and received intotal 2,080 million SMS in the first nine months of 2006, up by 13.5% yoy. Revenues from Internet and Data recorded a 26.2% yoy increase and reached CZK1.2 billion. The total number of data customers (GPRS and CDMA) increased by32.2% to 160 thousand at 30 September 2006. The total number of CDMA basedservice customers amounted to 89 thousand (up by 64.8% yoy) and the total numberof GPRS customers reached 71 thousand (up by 6.0% yoy) at that date. Data ARPUreached CZK 106 in the first nine months of 2006 compared to CZK 99 in the sameperiod of the previous year. Equipment sales (including connection fees) rose 5.9% in the first nine monthsof 2006 and amounted to CZK 1.1 billion. Other business revenues (IT services and other revenues) increased by 50.0% toCZK 192 million. OpEx Total operating costs of the mobile segment increased by 0.7% yoy to CZK 11.7billion in the first nine months of 2006, mainly as a result of the increase ininterconnection expenses. Supplies expenses, which comprise interconnection and roaming, cost of goodssold and other supplies reached in total CZK 6.8 billion, up 6.6% yoy. The majoritem in this category relates to interconnection and roaming costs, whichamounted to CZK 4.4 billion, up 8.6% yoy due to higher traffic volumes to othermobile networks. Cost of goods sold decreased by 0.5% and amounted to CZK 2.0billion due to the lower number of handsets sold. Other supplies increased by29.5% to CZK 356 million. Staff costs decreased by 19.8% yoy to CZK 1.4 million, largely as a result ofone-off items expensed in the first half of 2005. The cost of subcontracts decreased by 2.5% yoy to CZK 3.0 billion in the firstnine months of 2006. Network & IT repairs and maintenance went down by 18.1% yoyto CZK 553 million and cost of rentals, buildings and vehicles amounted to CZK552 million, down by 8.0% yoy. Marketing and sales expenses went up 3.7% yoy toCZK 1.3 billion, utilities supplies went up by 27.5% and reached CZK 181 millionand other subcontracts (consultancy fees and other) went up 2.6% yoy andamounted to CZK 395 million. Taxes comprising taxes other than income tax, fees and provisions amounted toCZK 555 million in the first nine months of 2006, which represents a 14.7% yoyincrease. OIBDA in the mobile segment reached CZK 11.2 billion in the first nine months of2006, up by 11.9% yoy. Outlook for the rest of 2006 In the last quarter of 2006, our activities will continue to actively addressthe current trends in the Czech telecommunication market, specifically in theareas of broadband, Internet, data and value added services. At the same time,we will maintain a focus on revenue retention in voice and traditional dataservices. The integration process will continue internally and as well externally throughthe implementation of ongoing integration projects. These include mainly saleschannels and customer care integration, regional network operations integration,alignment of controlling, budget and reporting processes and cultural alignment.At the same time we will benefit from the global experience and closeinteraction with Telefonica, O2 and other Telefonica Group of operatingcompanies. Our main activities will continue to focus on the introduction andmarketing of new services and products in both fixed and mobile segments, newconvergent products, further operational efficiencies facilitated by a neworganizational structure and synergies leading to revenue growth and OpEx andCapEx savings. We will also support the set up of the Slovak operation to be able to launchoperations in 1Q 2007. We expect the Slovak project to affect the Groupfinancial results from 2007. The key strategic effort of the management is to maintain the leading positionin a highly competitive and changing Czech telecommunication market. The mainaspects of financial management of the Telefonica O2 Czech Republic Group willremain focused on above average OIBDA margins, efficient CAPEX levels and strongfree cash flows. We expect Group revenues to be flat in 2006 compared to 2005,and OIBDA to grow around 2% yoy from flat as previously guided Attachment: The consolidated balance sheet and income statement of Telefonica O2 CzechRepublic prepared in accordance with International Financial ReportingStandards. Contact for further information:MARTIN ZABKAPress Spokesmantel: 800 163 342 (800 1 MEDIA)fax: 271 469 896e-mail: [email protected] 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. Telefonica O2 Czech Republic is part of the O2 Group within Telefonica SA. Ituses O2 brand for all consumer-facing activities. In all communications thiswill be supported by Telefonica's endorsement. About O2 O2 comprises mobile network operators in the UK and Ireland, along withintegrated fixed/mobile businesses in Germany and the Czech Republic. It alsoowns 50% of the Tesco Mobile and Tchibo Mobilfunk joint venture businesses inthe UK and Germany respectively as well as having 100% ownership of Be, aleading UK fixed broadband provider. In addition, the group includes O2 Airwave,which supplies secure digital communications to the emergency services and otherpublic safety organisations. O2, a Telefonica company, is headquartered in Slough, UK, and has more than 37million customers across Europe. About Telefonica Telefonica is one of the largest telecommunications companies in the worldin terms of market capitalisation. Its activities are centered mainly onthe fixed and mobile telephony businesses with broadband as the key tool forthe development of both. The company has a significant presence in 19 countries and a customer basethat amounts more than 191 million accesses around the world. Telefonicahas a strong presence in Latin America, where the company focuses animportant part 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, NewYork, 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 2006 Jan - Sep 2005Revenues 45,602 45,346Internal expenses capitalized in fixed assets 622 406Operating expenses (24,072) (24,329)Other operating expenses (46) (34)Gain on sale of fixed assets 87 69Impairment of fixed assets (42) (180)OIBDA 22,151 21,278 Depreciation and amortization (12,630) (13,453)Operating Income 9,521 7,825 Net financial income (expense) (196) (503) Income before taxes 9,325 7,322Income taxes (2,477) (2,209)Minority interest - 1 Net Income 6,848 5,114 BALANCE SHEET 30.9.2006 31.12.2005 - Intangible assets 8,519 9,526 - Goodwill 13,320 13,320 - Property, plant and equipment and investment property 80,409 88,003 - Long-term financial assets and other non-current assets 421 510 Current assets 26,262 12,492 - Inventories 945 716 - Trade and other receivables 8,982 8,013 - Current tax receivable - 124 - Short-term financial investments 64 - - Cash and cash equivalents 16,271 3,639 Non-current assets classified as held for sale 212 360 Total assets 129,143 124,211Equity 87,335 94,975 - Equity attributable to equity holders of the parent 87,335 94,975 Non-current Liabilities 16,823 18,421 - Long-term financial debt 9,250 9,324 - Deferred tax liabilities 4,950 5,721 - Long/Term Provisions 1,709 2,111 - Other long/term liabilities 914 1,265 Current Liabilities 24,985 10,815 - Short-term financial debt 88 307 - Trade and Other payables 6,496 6,850 - Current tax payable 522 251 - Short-term provisions and other liabilities 17,879 3,407 Liabilities associated with non-current assets classified as held for - -sale Total Equity and Liabilities 129,143 124,211 -------------------------- (1) Figures are shown net of inter-segment charges between fixed and mobilesegment (2) Figures are shown net of inter-segment charges between fixed and mobilesegment This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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