27th Oct 2005 14:00
Cesky Telecom A.S.27 October 2005 > PRESS RELEASE - 27. 10. 2005 > 2005 NINE-MONTH FINANCIAL RESULTS CESKY TELECOM, a.s., is pleased to announce its unaudited financial results forthe first nine months of 2005 prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The results include the full consolidationof Eurotel, a 100% owned mobile subsidiary and are fully comparable onyear-on-year basis. CESKY TELECOM's Group Highlights Revenues of CZK 45.2 billion (-2.9%) Operating costs (excl. D&A) of CZK 24.2 billion (+ 0.6%) EBITDA of CZK 21.0 billion (- 6.6%), EBITDA margin 47% EBIT of CZK 7.4 billion (+ 6.7%) Net Income of CZK 4.8 billion (+ 6.5%) Net gearing at 11% Capex of CZK 3.2 billion Capex to Revenues 7.1 % Free Cash Flow of CZK 13.7 billion (- 5.7%) Group Headcount 10,246 (- 12.5%) "The fact that already 19 percent of group revenues during the first 9 months of2005 came from Internet, broadband, data, and value added services compared to16 percent in the same period of last year documents that we are successfullyresponding to rapidly changing telecommunications market and the preferences ofour customers. It is our advantage that we can face challenges of thisconversion as a member of Telefonica group and benefit from its global marketingexperience and technical know how", said Juraj Sedivy, CFO and 1st Vice-Chairmanof the Board of Directors. Consolidated Financial Statements Revenues, costs and EBITDA Total consolidated revenues of CESKY TELECOM Group in the first nine months of2005 amounted to CZK 45.2 billion, down by 3% yoy and 1.5% yoy on a quarterlybasis, mainly due to performance in mobile in absolute terms and fixed linebusiness improving trends on comparative terms with 1H 2005. Total consolidatedoperating costs (excluding depreciation and amortization) reached CZK 24.2billion, with a 5.4% yoy decrease in the third quarter (+ 3.6% yoy in Q2),mainly in the fixed line business. Consolidated EBITDA reached CZK 21 billionwith a 2.8% yoy increase in Q3. No significant one-off cost items were posted inQ3 results. As a result, the EBITDA margin reached 47% in the first nine monthsof 2005, up by 2 p.p. in the first half of 2005. Depreciation and Amortization Consolidated depreciation and amortization in the first nine months of 2005amounted to CZK 13.4 billion, down by 14% yoy. The significant decrease is aresult of low CAPEX and changes in goodwill and certain intangible assetsamortization, reported earlier this year. CZK 180 million represents one-offdepreciation charge related to changed estimates of economic life of certainequipment in the fixed line business. EBIT, EBT and Net Income Consolidated earnings before interest and tax (EBIT) and consolidated earningsbefore tax (EBT) went up by 7% yoy and reached CZK 7.4 billion and CZK 6.9billion respectively in the first nine months of 2005, at the back of decreaseof the consolidated depreciation and amortization. EBIT went up by 42% yoy in 3Qcompared to a 16% yoy decrease in 2Q. Consolidated net income amounted to CZK4.8 billion, up by 6% yoy. Debt levels CESKY TELECOM Group's consolidated debts amounted to CZK 11.7 billion at 30September 2005, down by 59% compared to the same period last year. This numberrepresents gross leverage of 12% and net leverage of 11%. Significant cash flowsgenerated by both CESKY TELECOM and Eurotel and distribution of Eurotel'sretained earnings to CESKY TELECOM in Q2 and Q3 amounting in total to CZK 5.7billion enabled the reduction of consolidated debt by CZK 16.8 billion. Thisreduction related mainly to the repayment of the acquisition financing of thepurchase of the remaining 49% of Eurotel in November 2003. In Q3, CESKY TELECOMalso repaid CZK 4 billion of domestic bonds, issued in July 2002. Capex CESKY TELECOM Group continues in its conservative CAPEX management. Totalconsolidated capex for the first nine months of 2005 amounted to CZK 3.2billion, down by 7% yoy. Out of the total capex, CZK 1.5 billion was spent inthe fixed line segment and CZK 1.7 billion in Eurotel. The Capex to revenuesratio of 7.1% reflects the timing of capex spending and is below the full yearlevel indicated previously. Free Cash Flow The total amount of free cash flows generated by the CESKY TELECOM Group reachedCZK 13.7 billion, down by 6% yoy, mainly as a result of decreasein EBITDA. Mandatory buyout offer After the approval by the Czech Securities Commission, Telefonica, the majorityshareholder of CESKY TELECOM, launched the mandatory tender offer to theminority shareholders on 29 July 2005 for the price of CZK 456 per share. Theoffer was valid from 30 July 2005 until 19 September 2005. Telefonica acquired18.3% of the shares in the tender offer and increased its stake in CESKY TELECOMto the current level of 69.4%. Fixed Line Business Overview* The results of the fixed line business in the first nine months of 2005 furtherdocument continuous shift from the traditional voice services to broadbandInternet, data and other value added services. The Internet, data services,value added services, other telecommunication services and leased lines share ofthe total revenues increased to 22% in the first nine months of 2005, comparedto a 18% share in the same period of the previous year. While the overall revenues in the fixed line segment declined by 8% yoy to CZK24 billion in the first nine months of 2005, the ordinary revenue afterexclusions of one-off revenue items posted in 2004 is showing improving trendsover the second and the third quarters in 2005. The overall number of CESKY TELECOM's fixed lines amounted to 3,189 thousand atthe end of September 2005, down by 5% compared to the end of 2004. PSTN linesrecorded a 5% decrease in the first nine months of 2005 and reached 2.7 million,while number of ISDN channels went down by 7% to 457 thousand in this period. As a result, revenues from monthly subscriptions and connection chargesdecreased by 6% to CZK 8.5 billion. Revenues from communications voice services declined by 24% yoy to CZK 5.8billion. This category of revenues recorded a 22% decrease in Q3 2005 comparedto the same period of the previous year, while it went down by 24% yoy and 26%yoy in Q2 and Q1 respectively. This is a first result of the elimination ofcredits as part of tariff rebalancing made in 2Q 2005. CESKY TELECOM records continuously high demand for broadband Internet, data andother value added services among its customers. Total revenues from Internet,data, value added and other services increased by 23% yoy to CZK 3.3 billion.The major increase in this revenues category was seen at revenues from thebroadband services, which amounted to CZK 1 billion in the first nine months of2005, compared to CZK 305 million in the same period of the previous year. CESKYTELECOM recorded 120 thousand net adds to ADSL connections in the first ninemonths of 2005 and its market share on new adds increased to 82% at the end of3Q 2005 from 60% in the same period of 2004. Net adds of ADSL connections in theQ3 reached 58 thousand, which is almost equal to numbers registered in the firsthalf, as a result of successful introduction of new Internet Expres packages inthe market. The total number of ADSL connections reached 221 thousand at 30September 2005, compared to 101 thousand at the end of 2004. Out of the totalconnections, CESKY TELECOM's retail customers represented about 80%. InternetExpress services are now available in 1,287 locations in the Czech Republicrepresenting potential coverage of more than 90% of fixed lines operated byCESKY TELECOM. Revenues from data network services increased by 5% yoy to CZK1.3 billion while revenues from Internet (ISP subscription and fixed internetconnectivity) and other telecommunications services went down by 11% yoy to CZK394 million and to 651 million, mainly as a result of migration from leasedlines to ADSL broadband Internet access. Revenues from leased circuits declinedmoderately by 4% yoy to CZK 2 billion. Revenues from other network operators grew in total by 24% yoy to CZK 3.5billion during the first nine months of 2005. This was mainly due to a 48% yoyincrease (up from 23% yoy increase in 1H 2005) in revenues from internationaloperators which reached CZK 1.9 billion, mainly as a result of the extension ofinternational carrier transit services provided in the Central and EasternEurope marketspace representing 67% of revenue from international operators.Revenues from domestic network operators increased slightly by 3% to CZK 1.5billion. Equipment sales and sales of material amounted to CZK 291 million, up by 44%yoy, reflecting the increased commercial activities in this area. Other revenuesreached CZK 508 million in the first nine months of 2005 and represent a 64%decrease compared to the same period in 2004. Compared to the first nine months of 2004, there were no one-off items includedin the revenues in the first three quarters of 2005. The fixed line operating costs in the first nine months of 2005 went down by 4%compared to the same period in 2004 and amounted to CZK 13.6 billion. On aquarterly basis, the operating costs went down by 11% yoy in Q3. Thecontrollable operating costs (operating costs excluding costs of sales)decreased even by 6% yoy in the first nine months of 2005 and confirmed themanagement's effort to increase the control over the costs. Staff costs amounted to CZK 4.3 billion, down by 4% yoy, including severancepayments of CZK 212 million. The number of fixed line business employees wasreduced by 12% in the first nine months of 2005 compared to 2004 year end andreached 7,780 at the end of the period. The operational efficiency measured bynumber of fixed lines per employee improved by 11% yoy to 412 lines as at theend of September 2005. Out of the other controllable operating costs in the first nine months of 2005,the reduction is reported in all items except for consultancy costs, which wentup by 23% to CZK 258 million, mainly due to consultancy services related to thetransformation and privatization process. Material and energy consumption wentdown moderately by 2% yoy to CZK 681 million, repairs and maintenance slightlyby 1% yoy to CZK 1.3 billion, marketing and sales by 5% yoy to 382 million andoperating lease payments and building expenses by 10% yoy to CZK 394 million.Other operating costs went down by 17% yoy to CZK 1.8 billion. There were noone-off items recorded in the operating costs in 3Q 2005. Payments to other network operators amounted to CZK 3.8 billion, up by 5% yoy.While the payments to international operators increased by 41% yoy to CZK 1.8billion, due to increase in the international carrier transit servicesrepresenting 67 % of payments to international operators, payments to domesticnetwork operators declined by 15% to CZK 2 billion. Equipment and material cost of sales declined by 30% yoy to CZK 280 million andcommissions and subcontractors related costs went down by 4% to CZK 319 million. EBITDA in the wireline business amounted to CZK 10.4 billion, representing anEBITDA margin of 43% in the first nine months of 2005, up by 1 p.p. compared tothe first half of 2005. Mobile Business Overview* In the competitive environment of the Czech mobile market, Eurotel confirmed itsstrong financial and operational performance in the first nine months of 2005.Similarly to the wireline business, the customers in the mobile market alsocontinue to demand data, Internet and value added services including content.This trend is clearly reflected in changing Eurotel's revenue structure. For thefirst nine months of 2005, total Eurotel revenues increased by 1% yoy andamounted to CZK 22.2 billion. In Q3, the revenues went up by 4% yoy, mainly as aresult of the growth in data and Internet revenues. Eurotel's communication traffic revenues and subscription charges increased intotal by 1% yoy to CZK 12.9 billion, while the total usage traffic increased by7% yoy in the first nine months of 2005. The increased voice traffic and revenuecan be attributed to increasing number of customers and success of usagestimulation activities such as "unlimited weekend calling" promo. The total number of Eurotel's customers at the end of September 2005 amounted to4,489 thousand, which represents a 2% increase compared to the end of 2004 and8% yoy increase. By the end of September 2005, 468 thousand of postpaidcustomers subscribed for the new voice tariffs, which Eurotel introduced on 1February 2005. Out of this total number, 127 thousand represented new customersof Eurotel, 215 thousand existing postpaid customers migrating from othertariffs and 126 thousand migrated from prepaid services. Despite the fact thatSIM card penetration has been continuously growing and exceeded 106% of thepopulation at the end of the first half of 2005, Eurotel's postpaid netadditions during the first nine months of 2005 amounted to 306 thousand comparedto 100 thousand for the same period last year. Total number of GSM postpaidcustomers reached 1,311 thousand at the end of September 2005, 30% up comparedto the end of 2004. GSM postpaid customers accounted for 29% of total customersat the end of September 2005, compared to 23% at the end of 2004. Total number of GSM prepaid customers amounted to 3,091 thousand at the end ofSeptember 2005, which shows a decrease by 235 thousand (7%) compared to the endof 2004. This decrease was substantially influenced by significant migrations ofcustomers from prepaid to postpaid segment; a 148 thousand originally prepaidvoice customers migrated to postpaid in the first nine months of 2005 as aresult of Eurotel marketing activities in this area. Under the methodology, which defines a prepaid customer as customer generatingrevenue in the last 3 months, the number of Eurotel's prepaid customers amountedto 2,756 thousand, down by 3% yoy, as of 30 September 2005. A continuous increase in multiple SIM card users together with lower ARPUgenerated by new customers had a negative impact on the blended ARPU. In thefirst nine months of 2005, ARPU reached CZK 508 compared to CZK 527 in the sameperiod last year, but 1% higher than in the first half of 2005. Average MOU persubscriber was 90 minutes in the first nine months of 2005, up from 89 minutesin the same period of the previous year. Connection charges decreased by 34% yoy to CZK 69 million, due to loweractivation fee charged to new customers. At the end of September 2005, the total number of Eurotel Data Express (anunlimited high-speed Internet access service based on CDMA technology) customersamounted to 54 thousand (up by 42 thousand yoy) and total number of Eurotel DataNonstop (unlimited mobile Internet access service based on GPRS technology)customers was 67 thousand (up by 18% yoy). Eurotel customers sent and receivedin total 1,832 million SMS in the first nine months of 2005. The total revenuefrom SMS, MMS, Internet, data and VAS increased by 21% yoy to CZK 3.4 billion,accelerated from 18% yoy increase in the first half of 2005. This category ofrevenues accounted for 15% of total wireless revenues in the first nine monthsof 2005 compared to 13% in the same period of the previous year. Lower number of sold handsets led to an 11% yoy decrease in the equipment salesand sales of materials to CZK 976 million. 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. Revenues from other network operators decreased by 3% to CZK 4.9 billion.Revenues from domestic operators went down by 2% to CZK 3.7 billion and revenuesfrom international operators decreased by 5% and reached CZK 1.2 billion. Operating costs (excluding depreciation and amortization) of Eurotel increasedby 4% yoy to CZK 11.8 billion, but went down by 1% yoy in Q3 as a resultof decrease in majority of the controllable items. Payments to other network operators went up by 3% and amounted to CZK 4.4billion in the first nine months of 2005. Equipment and material cost of salesdecreased by 10% yoy to CZK 1.9 billion. Commissions and subcontractors related costs grew by 64% yoy to CZK 410 milliondue to higher gross adds of new customers in 2005. The number of Eurotel's employees as of 30 September 2005 amounted to 2,466, by1% lower than at the end of 2004. The staff costs increased by 33% yoy to CZK1.7 billion, as a result of one-off items posted in Q2 which were commented in1H 2005 earnings announcement. Repairs and maintenance increased by 3% yoy toCZK 700 million, marketing and sales decreased by 12% to CZK 753 million andmaterial and energy consumed decreased by 16% to CZK 384 million. Otheroperating costs including consultancy, operating lease payments and other costsincreased in total by 8% to CZK 1.6 billion. EBITDA of Eurotel reached CZK 10.4 billion in the first nine months of 2005,which represents a moderate 2% yoy decrease while maintaining a high EBITDAmargin reaching 47%. Mid term outlook The CESKY TELECOM Group will continue to actively address the changes and trendsin the Czech telecommunication market, specifically in the areas of broadband,Internet, data and value added services. The primary goal of our activities isto best meet our customer needs and to enable them to effectively use ourservices for the competitive price. At the same time, CESKY TELECOM Group willcontinue to concentrate on revenue retention in voice and traditional dataservices 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 EBITDA margins,efficient CAPEX levels and strong free cash flows. Attachment: The consolidated balance sheet and income statement of CESKY TELECOM Group wereprepared in accordance with International Financial Reporting Standards. For further information please contact: VLASTIMIL SRSEN tel: (+420) 2 7146 3359 fax: (+420) 2 7146 9896 e-mail: [email protected] CESKY TELECOM, a. s, is a leading telecommunications company in the CzechRepublic. Through subsidiary Eurotel Praha, spol. s r. o., it is also animportant provider of mobile telecommunication services. For more information onthe company and its service offer visit www.telecom.cz, a web site selected asthe BestWeb 2003 in the WebTop100 poll. CESKY TELECOM puts great emphasis on the use of the growth potential of data andInternet services. According to a research carried out by the GfK agency, ITmanagers consider CESKY TELECOM the best provider of data services in the CzechRepublic. The company also wants to become the leader of complex e-commerceservices. CESKY TELECOM regularly places at the top of the Signum Temporis chart ofcompanies with the most open information policies in the Czech capital market.In 2003 and 2001, voters from among the professional public, mediarepresentatives and nine members of the Signum Temporis board selected CESKYTELECOM as the contest's absolute winner. CESKY TELECOM, a. s., is one of the most important companies in the Czechcapital market in terms of market capitalisation and transaction volume. Thecompany's GDR shares are traded at the London Stock Exchange as well. CESKYTELECOM's rating has been among the best scores awarded to Czech companies fromrenowned international rating agencies. Telefonica Telefonica is one of the largest telecommunications operator in the world interms of market capitalisation. Its activities are centered mainly on the fixedand mobile telephony businesses with broadband as the key tool for thedevelopment of both of these. Telefonica has a significant presence in 17countries and a customer base that amounts to more than 145 million accesses.Telefonica has a strong presence in Latin America, where the companyconcentrates 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, New York, Lima,Buenos Aires and Sao Paulo. Attachment: Consolidated balance sheet and income statement of CESKY TELECOM underInternational Financial Reporting Standards. Consolidated financial statementsare based on full consolidation of Eurotel. All figures in CZK million. BALANCE SHEET 30.9.2005 31.12.2004 Fixed Assets 113,388 123,874 - Property, plant and equipment 89,566 98,835 - Intangible fixed assets 10,404 11,617 - Goodwill 13,320 13,320 - Available-for-sale and held-to-maturity investments 87 90 - Investments 11 12 Current Assets 10,477 10,329 - Inventories 519 843 - Receivables and prepayments 9,159 8,811 - Cash and cash equivalents 1) 799 675 Total Assets 123,865 134,203Total Equity 95,033 90,199Equity 95,033 90,193 - Share capital 32,209 32,209 - Reserves 62,824 57,984Minority interest - 6 Liabilities 28,832 44,004 - Loans and overdrafts 11,664 25,482 - Creditors 8,176 9,523 - Provisions 8,992 8,999 Total Equity and Liabilities 123,865 134,203 INCOME STATEMENT Nine months to Nine months to 30.9.2005 30.9.2004 Revenues 45,178 46,528Operating costs excl. depreciation and amortization (24,170) (24,037)EBITDA 21,008 22,491 Depreciation and amortization (13,430) (15,556)Impairment charge (180) -EBIT 7,398 6,935 Interest expense (621) (961)Interest income 32 66Other financial charges (80) (56)Net foreign exchange gains/(losses) 2) 166 430Profit/Loss Before Tax 6,895 6,414 Income Tax (2,095) (1,908)Group profit/loss before minority interest 4,800 4,506 Minority interest 1 3Net Profit/Loss after Tax 4,801 4,509 1) Including available-for-sale and held-to-maturity investments 2) Including fair-value gains/(losses) on financial instruments -------------------------- * before consolidation adjustments * before consolidation adjustments This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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