22nd Feb 2007 16:31
Telefonica O2 Czech Republic, A.S.22 February 2007 Press release Telefonica O2 Czech Republic - 2006 Full Year Financial Results Prague, 22nd February 2007 Telefonica O2 Czech Republic, a.s. is pleased to announce its audited financialresults for the fiscal year 2006. These results are consolidated and preparedaccording to International Financial Reporting Standards and include the Slovakoperation. "2006 was a very challenging year for us as the company launched its integrationprocess including re-branding project. Nevertheless, we managed to achieveexcellent financial results that actually overachieved our plans for 2006 inmany regards. The total Group revenues experienced moderate year-on-year growth,indicating turn around of the trend. In spite of increased expenses related tothe integration process, including the costs of re-branding and our activitiesin Slovakia operating profit also increased. Also, in 2007, the Group expectsstrong cash flows generation. Based on this the Board of Directors intends topropose a dividend payment of CZK 50 per share," said Jaime Smith, CEO andChairman of the Board of Directors, Telefonica O2 Czech Republic, whencommenting on the financial results. Group Highlights 2006 Revenues and OIBDA guidance achieved Revenues of CZK 61.3 billion (+ 0.4%) Operating costs of CZK 34.1 billion (+ 2.8%) OIBDA of CZK 27.9 billion (+ 2.4%), OIBDA margin of 45.8% Operating income of CZK 11.2 billion (+ 18.3%) Net Income of CZK 8.0 billion (+ 28.3%) Net gearing at 2.1% (- 4.2 p.p.) CAPEX of CZK 6.5 billion (+ 7.0%) - CAPEX/Revenues ratio of 10.6% Group Headcount 9,416 (- 6.4%) 2007 guidance - Revenue growth of 1 - 3%, OIBDA(1) decline of -1% to flat, CAPEXaround CZK 9 billion, including Slovakia (Slovakia approx. 20% of total CAPEX) 2006 Dividend of CZK 50 per share to e proposed to the AGM Consolidated Financial Statements Revenues, operating costs and OIBDA Consolidated revenues (business and recurring revenues) reached CZK 61.3 billionin 2006, up 0.4% yoy, and up 0.1% yoy in Q4 alone. The mobile business was thekey driver of this growth, while revenues in the fixed business continued todecline, although the rate of this decline slowed during the year. Revenuegrowth was slightly higher than guidance for 2006 of flat revenues. Totalconsolidated operating costs reached CZK 34.1 billion, up by 2.8% yoy and 13.2%in Q4 alone. Re-branding costs and costs related to the Slovak project incurredin Q4 were the major drivers of the OPEX increase, temporarily offsetting theongoing cost efficiencies. Consolidated OIBDA amounted to CZK 27.9 billion, upby 2.4% yoy confirming healthy performance and the tight cost control alreadyseen in previous quarters. OIBDA margin (OIBDA over Business revenues) reached45.8% in 2006, compared to 44.9% in 2005. 2005 OIBDA margin was significantlyaffected by an impairment charge of CZK 1.3 billion, while in 2006 theimpairment charge amounted to CZK 253 million. OIBDA margin excluding theseimpairment charges would reach 46.9% and 46.3% in 2005 and 2006 respectively. Depreciation and Amortization Consolidated depreciation and amortization amounted to CZK 16.7 billion in 2006,a decline of 6.0% yoy, on the back of ongoing investment discipline as a resultof the strong investment activity already made in the past, continuing the trendseen in previous quarters. Operating Income, Income before tax and Net income Consolidated operating income and consolidated income before tax went up by18.3% yoy and 25.1% yoy to reach CZK 11.2 billion and CZK 10.9 billionrespectively in 2006, on the back of the decrease in consolidated depreciationand amortization and financial expenses and supported by OIBDA growth.Consolidated net income amounted to CZK 8.0 billion, up by 28.3% yoy. CAPEX Similar to the first three quarters of 2006, in Q4 the Group focused itsinvestments on the growth areas of the business. Total consolidated CAPEXamounted to CZK 6.5 billion in 2006, up 7.0% yoy. While CAPEX in the fixedsegment increased by 40% yoy to CZK 3.1 billion and was spent largely on ADSLrollout and IPTV development, investments in the mobile segment were directedlargely to the CDMA and UMTS networks. CAPEX in the mobile segment decreased by16.9% to CZK 3.2 million in 2006, while it fell 45.9% yoy in Q4 alone due tosignificant investments in CDMA and UMTS made in 4Q 2005. CAPEX for othersubsidiaries amounted to CZK 181 million and was represented mainly byinvestments related to the launch of the Slovak operation. Despite increasedCAPEX due to the accelerated rollout of ADSL and IPTV project launch, CAPEX/Revenues ratio reached 10.6% confirming our year end target of 10 to 12%. Free Cash Flows The total amount of the Groups' free cash flows amounted to CZK 18.4 billion in2006, down by 1.4% yoy. Operating cash flows went up by 3.4% yoy to CZK 24.5billion, driven by the increase in OIBDA, while accelerated investments intogrowth areas resulted in net cash used in investing activities increasing by26.4% compared to 2005. Cash and Debt levels The group's consolidated financial debt (long-term and short-term) amounted toCZK 9.4 billion at 31 December 2006, down by 2.8% compared to the end of 2005.The amount of cash and cash equivalents reached CZK 7.5 billion on the same day.This resulted in net leverage of 2.1% and gross leverage of 10.6% compared to6.3% and 10.1% at 2005 year end. Mobile Segment Overview Activities in the mobile segment continued to focus on offering data, Internetand value added services including content. At the same time we improved theattractiveness of our traditional voice packages with the aim of increasingvoice traffic. This strategy is clearly reflected in the financial andoperational results of the mobile segment for 2006. In addition, we continued toencourage prepaid to postpaid migration with the aim of developing the ARPUpotential of these customers. Total business revenues in the mobile segment increased by 6.1% yoy and amountedto CZK 30.9 billion in 2006. Total data revenues (revenues from value addedservices and Internet & data) accounted for 20.8% of service revenues in 2006compared to 19.7% in the previous year. Revenues from voice services (monthly fees, traffic and interconnection)increased in total by 4.4% yoy to CZK 22.9 billion, while the increase in Q4alone was 6.6% compared to 5.1% and 2.5% in Q3 and Q2 respectively. In the competitive Czech mobile market, where SIM card penetration reachedalmost 121% at year end we managed to increase the total number of mobilecustomers by 4.0% yoy to 4,864 thousand at the end of 2006. Net additionsreached 188 thousand in 2006 (compared to 282 thousand in 2005), with a strongperformance in Q4 alone of 93 thousand net additions on contract and 11 thousandon prepay. The total number of contract customers reached 1,875 thousand at 31December 2006, up by 329 thousand yoy, which represents 21.3 % growth followingthe active prepaid to contract migration strategy. Contract customers accountedfor 38.5% of the total customer base at the end of 2006, up from 33.1% a yearago. The number of prepaid customers decreased by 141 thousand in 2006, with net addsof 11 thousand in Q4 alone. The total number of prepaid customers thus amountedto 2,989 thousand at the end of 2006, down by 4.5% yoy. Under the methodology,which defines a prepaid customer as generating revenue in the last 3 months, thenumber of mobile prepaid customers amounted to 2,640 thousand at 31 December2006, down by 4.7% yoy. The blended monthly average churn rate amounted to 1.5% in 2006, up from 1.3% in2005, while it reached 1.4% in Q4 2006. Revenues from monthly fees increased by 9.0% yoy to CZK 6.4 billion, mainly as aresult of the 21.3% yoy growth in the contract customer base. Traffic revenues increased by 1.4% yoy to CZK 11.5 billion, while total trafficusage increased by 21.0% yoy in 2006. Average MOU per subscriber improved to 102minutes in 2006, up from 92 minutes (10.9% yoy) in 2005, mainly due to thegrowing number of contract customers generating higher average traffic percustomer and traffic stimulation activities. Interconnection revenues amounted to CZK 5.0 billion in 2006, up by 5.9% yoy,mainly due to a 9.6% growth in incoming traffic driven by increased mobile tomobile traffic. In Q4 2006, blended monthly ARPU(2) reached CZK 528, up by 2.7% yoy, while itreached CZK 511, up by 0.2% yoy, for the whole of 2006. Contract monthly ARPUreached CZK 982 in Q4 2006 down by 8.9% yoy, while it amounted to CZK 989 in2006, 15.1% down. The main reason for lower contract ARPU is the dilution causedby customer migration from the prepaid to the contract segment. Prepaid monthlyARPU increased 2.1% yoy to CZK 248 in Q4 2006, while it went down 2% yoy to CZK239 in 2006. Total revenues from value added services (including SMS, MMS and content)increased by 8.5% yoy to CZK 4.4 billion as a result of the growing volume ofSMS and MMS messages. O2 customers sent and received in total 2,858 million SMSin 2006, up by 13.5% yoy. Revenues from Internet and Data recorded a 24.5% yoy increase and reached CZK1.7 billion. The total number of data customers (GPRS and CDMA) increased by22.6% to 168 thousand at 31 December 2006. The total number of CDMA basedservice customers amounted to 94 thousand (up by 34.3% yoy) and the total numberof GPRS customers reached 74 thousand (up by 10.4% yoy) at that date. Data ARPUreached CZK 108 in 2006 compared to CZK 102 in the previous year. Non-SMS dataARPU represented 41% of total data ARPU in 2006 compared to 39% in 2005 as aresult of the growth in CDMA and GPRS customers, growth in MMS and the launch ofUMTS services in December 2005. Equipment sales (including connection fees) decreased by 0.6% in 2006 to CZK 1.6billion as a result of the lower number of handsets sold and lower connectionfees charged to new contract customers. Other business revenues (IT services and other revenues) increased by 73.1% yoyto CZK 303 million, partly because of higher commercial activities in this area(introduction of new services) leading to the growth of customers. Fixed Segment Overview In 2006, activities in the fixed segment continuously focused on the developmentand marketing of new Internet and data services, like ADSL and IPTV. Despite ourfocus on reducing the decline of revenues from traditional voice services, thefixed to mobile substitution of voice traffic continued. As a result, revenuesfrom Internet, broadband, data and other value added telecommunication servicesaccounted for 27.7% of business revenues in 2006, compared to 26.3% in 2005. Inaddition, a significant improvement was reported in revenues from IT servicesconfirming our increasing activities in the ICT/Business Solution area. Weexpect these services to be a relevant revenue source in the future. Total business revenues in the fixed segment decreased by 5.1% yoy to CZK 29.9billion driven by the shift from traditional voice services which was not fullycompensated by the increase in revenues from broadband Internet based services,data and value added services. The total number of fixed telephony accesses(3) amounted to 2,402 thousand as atthe end of 2006, down by 17.4% yoy mainly as the result of the strong fixed tomobile substitution effect. Revenues from traditional access decreased by 6.5%yoy to CZK 10.5 billion in 2006, although the impact of the residential monthlyfees increase saw this trend begin to slow, with a 2.3% decrease in Q4 alone. Revenues from traditional voice services (voice traffic and interconnection)declined in total by 9.6% yoy to CZK 10.0 billion. Revenues from voice trafficdeclined by 16.2% yoy to CZK 5.5 billion, as a result of lower voice trafficgenerated by our customers, which decreased by 7.0% yoy to 3,336 millionminutes. However, the unification of local and long distance rates effective asof 1 April 2006 helped long distance traffic to increase slightly by 0.3% in2006. Interconnection revenues were flat in 2006 compared to 2005 and amounted to CZK4.4 billion. While revenues from domestic operators went down as a result of adecrease in interconnection charges and lower incoming traffic, revenues frominternational operators went up due to higher international transit traffic. Revenues from Internet & broadband increased in total by 9.7% yoy to CZK 3.4billion and by 17.9% in Q4 alone. This turn around in the revenue trend is dueto the strong growth of broadband revenues, which more than offset decreasingrevenues from narrowband, confirming our successful strategy to focus on growingservices based on ADSL technology. Narrowband Internet represents a decreasingproportion of Internet revenues with limited downside potential. Revenues from broadband services amounted to CZK 2.7 billion in 2006, up by49.9% yoy. Of this, CZK 2.4 billion represented revenues from retail broadband(up 51.7% yoy) and CZK 396 million from wholesale services (up 39.9% yoy).Telefonica O2 Czech Republic recorded 196 thousand net additions to ADSLaccesses in 2006 compared to 172 thousand net additions in 2005. Thisprogressive increase was supported by a successful marketing campaign that beganin Q1. The total number of ADSL accesses reached 470 thousand at 31 December2006, compared to 274 thousand at the end of 2005 (up 71.5% yoy). On 1 September2006, Telefonica O2 Czech Republic entered the multimedia entertainment marketwith the launch of O2 TV service, an IPTV based product. By the end of 2006, O2TV had 15,600 customers, and it was recently announced that this figure hadincreased to 20,000. Revenues from narrowband Internet decreased by 50.4% yoy to CZK 610 million in2006. In the same period, dial up Internet traffic went down by 58.1% yoy to1,181 million minutes, as a result of continuing dial up traffic migration toADSL broadband Internet access and other fast Internet service alternatives. Revenues from data services decreased by 4.1% yoy to CZK 4.2 billion, mainly dueto a decline in revenues from leased lines, which went down by 10.9% yoy to CZK2.3 billion. Revenues from data network services increased by 6.2% yoy andreached CZK 1.8 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 593 million, down by 23.2% yoy due to the lowernumber of handsets sold and other equipment and special discount offers.Revenues from IT services and business solutions reached CZK 584 million in 2006compared to CZK 231 million in 2005, as a result of our growing activities inICT and IT services. Group Operating Expenses Due to the integration of CESKY TELECOM and Eurotel into one company and thegradual alignment of the systems (including accounting systems), it has becomeincreasingly difficult to allocate properly operating costs related to the fixedand mobile segments without a risk of distorting the profitability ratios.Therefore the Company has decided to report and comment on group operating costsonly and to discontinue segment OIBDA reporting as from Q4 2006. Furtherreporting of fixed and mobile operating costs and OIBDA would be misleading. Total Group operating costs amounted to CZK 34.1 billion in 2006, up by 2.8%yoy, while they reached CZK 10 billion in Q4 alone, up by 13.2% yoy. Thisincrease is to a large extent the result of higher marketing and sales costs andother subcontracts (external services) related to the re-branding and operatingcosts related to activities in Slovakia. Supplies expenses grew by 2.2% yoy to CZK 15.4 billion. Interconnection costsincreased by 3.2% yoy to CZK 10.0 billion due to higher activities in transitbusiness and growth in mobile off-net traffic generated by our customers. Costof goods sold went down by 12.6% yoy to CZK 3.1 billion on the back of lowersales of handsets, while other supplies increased by 24.5% to CZK 2.3 billiondue to higher capitalized material costs and subdeliveries. Personnel costs, including headcount reduction costs, amounted to CZK 7.1billion, down by 9.4% yoy in 2006 as a result of one-off items recorded in 2005and headcount reduction. The total number of Group's employees reached 9,416 at31 December 2006, down 6.4% yoy. Telefonica O2 Czech Republic headcount wentdown by 7.3% yoy to 9,265 during this period. The cost of external services increased in total by 12.4% yoy and reached CZK10.6 billion. Marketing and sales went up by 20.2% yoy to CZK 3.1 billion due tohigher marketing activities related to new ADSL offers and higher marketingspend related to the re-branding project, which was launched on 1 September2006. Network & IT repairs and maintenance increased by 7.5% yoy to CZK 2.6billion, while rentals, buildings and vehicles costs reached CZK 1.7 billion, upby 2.7% yoy due to higher maintenance costs. Utilities supplies increased by23.5% yoy to CZK 746 million due to higher energy costs. Other external servicesincluding consultancy fees and other external services went up 12.7% yoy to CZK2.4 billion in 2006 with an increase of 188.9% in Q4 alone due to re-brandingcosts and costs incurred in Slovakia. Taxes, comprising taxes other than income tax, fees and provisions increased by17.2% yoy to CZK 1.1 billion. Outlook for 2007 In 2007, the Company's activities will continue to address the current trends inthe Czech telecommunication market, specifically in the areas of broadband,data, value added services and convergent products. At the same time, we willmaintain a focus on revenue retention in traditional voice and data services inthe both fixed and mobile segments. Reducing the fixed lines cancellation rate remains among the top priorities for2007. The introduction of new convergent services offering a combination offixed and mobile voice services, broadband services and IPTV should increase thevalue of the fixed line proposition and eventually reduce churn. Broadbandservices will be the fundamental product of the bundles with the main focus onvalue proposition accompanied by quality of service, coverage expansion and onfurther customer care improvements. The Company will also continue to roll outour newly introduced IPTV service, improve the provisioning and customer careand increase the attractiveness of the product through the offer of newchannels, movies and interactive services. 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 sustainment via onwardprepaid to postpaid migration and growing mobile data and Internet revenuesthrough CDMA and HSDPA based services. Maximum customer experience andsatisfaction remain the principal goal and the customer is at the heart of allactivities we do. The fixed/mobile integration process will continue internally and as wellexternally through the realization of ongoing integration projects with the aimof achieving significant synergies leading to revenue growth and OPEX and CAPEXsavings. These include mainly sales channels and customer care integration,regional network operations integration and controlling, budget and reportingprocesses alignment. At the same time we will continue to benefit from theglobal experience and close interaction with Telefonica, O2 and other TelefonicaGroup operating companies, largely in the areas of procurement and processimprovement and new product development. At the beginning of February 2007, Telefonica O2 Slovakia launched thecommercial operation in Slovakia. The Company will continue to support thegradual deployment of the Slovak operation including the development of systems,processes and network rollout to achieve a quality and customer experience equalto O2 in the Czech Republic while applying a cost conscious approach. Theoperational target for 2007 is to gain 5% market share. 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 OIBDA growth, efficient CAPEX levels and strong free cashflows. In 2007 we expect Group revenues to grow by 1 to 3% and OIBDA(4) to decline by-1% to 0% compared to 2006. The expected negative impact of the Slovak isalready included in this range. CAPEX is expected to be around CZK 9 billion intotal, with around 20% of this figure invested in Slovakia(5). The Board of Directors of Telefonica O2 Czech Republic intends to propose at theAnnual General Meeting which is to be held at the end of April 2007 a dividendpayment of CZK 50 per share, i.e. a total dividend amount of CZK 16,104 million.This proposal is based on the Company's intention not to hold surplus cashbalances in the current environment and is consistent with its investmentstrategy to lock its investments into the growing areas (broadband, mobile,business services and Slovakia). 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, 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. The company recentlywon a mobile licence in Slovakia, where it launched its services on 2 February2007. Telefonica O2 Europe also owns 50% of the Tesco Mobile and TchiboMobilfunk joint venture businesses in the UK and Germany respectively as well ashaving 100% ownership of Be, a leading UK fixed broadband provider. Inaddition, the group includes the Isle of Man fixed/mobile operator, ManxTelecom, and O2 Airwave, which supplies secure digital communications to theemergency services and other public safety organisations. Telefonica O2 Europe, part of the Telefonica group, is headquartered in Slough,UK, and has more than 37 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 ofover 200 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 - Dec 2006 Jan - Dec 2005 Revenues 61,311 61,040Internal expenses capitalized in fixed assets 911 594Operating expenses (34,100) (33,186)Other operating expenses (61) (63)Gain on sale of fixed assets 98 116Impairment of fixed assets (253) (1,261)OIBDA 27,906 27,240 Depreciation and amortization (16,746) (17,808)Operating Income 11,160 9,432 Net financial income (expense) (220) (684) Income before tax 10,940 8,748Income tax (2,920) (2,500)Minority interest - 1 Net Income 8,020 6,249 BALANCE SHEET 31.12.2006 31.12.2005 - Intangible assets 8,308 9,526 - Goodwill 13,320 13,320 - Property, plant and equipment and investment property 78,755 88,003 - Long-term financial assets and other non-current assets 415 510 - Deferred tax assets 26 - Current assets 16,850 12,492 - Inventories 987 716 - Trade and other receivables 8,336 8,013 - Current tax receivable - 124 - Short-term financial investments 66 - - Cash and cash equivalents 7,461 3,639 Non-current assets classified as held for sale 203 360 Total assets 117,877 124,211Equity 88,481 94,975 Non-current Liabilities 16,495 18,421 - Long-term financial debt 9,156 9,324 - Deferred tax liabilities 4,495 5,721 - Long/Term Provisions 2,037 2,111 - Other long/term liabilities 807 1,265 Current Liabilities 12,901 10,815 - Short-term financial debt 207 307 - Trade and Other payables 7,849 6,850 - Current tax payable 730 251 - Short-term provisions and other liabilities 4,115 3,407 Liabilities associated with non-current assets classified as held for - -sale Total Equity and Liabilities 117,877 124,211 -------------------------- (1) 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). (2) including inter segment revenues (3) excluding incoming only lines (4) 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). (5) Guidance assumes constant exchange rates as of 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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