24th Jul 2008 15:30
Telefónica O2 Czech Republic - 2008 First Half Financial Results
July 24, 2008
Telefónica O2 Czech Republic, a.s. is pleased to announce its unaudited financial results for the first half of 2008. These results are consolidated and prepared according to International Financial Reporting Standards and fully include the results of Telefónica O2 Slovakia and Deltax Systems.
"I am glad that in the first half of 2008 we delivered solid results. Mobile business continued to be the key driver of the Group's growth. Our continuous effort focusing on efficient operation enabled us to keep the manageable costs under control thus maintaining a high operational margin. In addition, a sale of a part of our real estate portfolio positively contributed our results for the first half," says Salvador Anglada, Chief Executive Officer and Chairman of the Board of Directors of Telefónica O2 Czech Republic, when commenting on the operator's financial results.
1H and 2Q 2008 Group Highlights1
|
1H 2008 |
2Q 2008 |
|
|
Group business revenues |
CZK 31.2 bn. (+ 1.1%) |
CZK 15.8 bn. (+ 0.6%) |
|
CZ Mobile service revenues |
CZK 15.9 bn (+ 5.4%) |
CZK 8.1 bn (+ 4.1%) |
|
OIBDA |
CZK 14.3 bn. (+ 1.0%) |
CZK 7.6 bn. (+ 6.5%) |
|
OIBDA margin |
46.0% (+ 0.0 p.p.) |
48.1% (+ 2.7 p.p.) |
|
Operating income |
CZK 7.8 bn. (+ 15.6%) |
CZK 4.4 bn. (+ 24.8%) |
|
Net Income |
CZK 5.8 bn. (+ 18.6%) |
CZK 3.4 bn. (+ 30.4%) |
|
CAPEX |
CZK 2.4 bn. (- 12.1%) |
CZK 1.6 bn. (- 16.7%) |
|
CAPEX/Revenues |
7.7% |
10.2% |
|
Net gearing |
-8.5%2 |
|
|
Group Headcount |
9,320 (- 0.5%) |
|
|
CZ mobile registered customers |
5,186 ths. (+ 6.0%) |
|
|
- of which contract |
2,369 ths. (+ 14.1%) |
|
|
ADSL accesses |
598 ths. (+ 13.5%) |
|
|
O2 TV customers |
98 ths. |
|
|
Fixed telephony accesses |
1,938 ths. (- 12.2%) |
|
|
SK mobile registered customers |
395 ths. |
Consolidated Financial Statements
Revenues, operating costs and OIBDA
Consolidated revenues reached CZK 31.3 billion in 1H 2008, up 0.7% yoy, being flat at CZK 15.9 billion in 2Q alone. Consolidated business revenues grew 1.1% yoy to CZK 31.2 billion in 1H 2008 and by 0.6% to CZK 15.8 billion in 2Q. The Czech mobile business with 5.4% service revenues growth in 1H 2008 and 4.1% growth in 2Q alone was the key driver of this performance. Business revenues in the domestic fixed segment went down 5.4% yoy in 1H 2008 and 5% in the quarter. Of total gain on sale of fixed assets of CZK 764 million, CZK 727 million related to the sale of a part of the company's real estate portfolio announced in May 2008. Total consolidated operating costs reached CZK 17.8 billion in 1H 2008, up by 3.4% yoy with only a 0.7% growth in 2Q alone. Consolidated OIBDA thus amounted to CZK 14.3 billion in 1H 2008, up by 1% yoy and CZK 7.6 billion (+6.5% yoy) in 2Q alone. OIBDA margin (OIBDA over Business revenues) reached 46% and 48.1% in 1H and 2Q 2008 compared to 46% and 45.4% in the same periods of 2007. The Slovak operation diluted OIBDA margin by less than 3 p.p. in 1H 2008.
Depreciation and Amortization
Consolidated depreciation and amortization amounted to CZK 6.6 billion in 1H 2008, resulting into a decline of 12.1% yoy.
Operating Income, Income before tax and Net income
Consolidated operating income and consolidated income before tax went up by 15.6% yoy and 16.5% yoy reaching CZK 7.8 billion in 1H 2008, on the back of the growth in OIBDA and continuing decrease in consolidated depreciation and amortization. Consolidated net income amounted to CZK 5.8 billion, up by 18.6% yoy in 1H 2008 with a 30.4% growth to CZK 3.4 billion in 2Q alone.
CAPEX
Total consolidated CAPEX amounted to CZK 2.4 billion in 1H 2008, down 12.1% and to CZK 1.6 billion in 2Q alone. CAPEX was mainly related to GSM network rollout and systems deployment in Slovakia, while in the Czech Republic it was spent on mobile broadband and GSM networks capacity and coverage increase, ADSL and IPTV rollout, fixed access network improvement and information systems upgrade.
Free Cash Flows
In 1H 2008, the Groups' free cash flows amounted to CZK 5.3 billion, down by 45.3% yoy. This was driven mainly by increase in income tax paid due to different timing of 2007 corporate income tax liability settlement, the CZK 2 billion payment related to the dispute with T-Mobile and higher CAPEX accounted for in 4Q 2007 which was paid in 1H 2008.
Cash and Debt levels
The group's consolidated financial debt (long-term and short-term) amounted to CZK 9 billion on 30 June 2008. The amount of cash and cash equivalents and short term financial investments reached CZK 15.1 billion at the end of 2Q 2008. This resulted in net leverage of minus 8.5% and gross leverage of 12.3% compared to minus 0.4% and 11.2% at 31 December 2007. In July, i.e. after the end of 1H 2008, the company repaid CZK 6 billion of domestic bonds.
Czech Republic Overview
The Company's activities in the second quarter of 2008 continued to focus on new and enhanced products and services in the growth areas. These include broadband based services including bundles, ICT and comprehensive customer solutions in the fixed segment. In the mobile segment Telefónica O2 continued to focus on voice traffic stimulation and marketing of its mobile data services. In addition, the Company continued to encourage prepaid to contract migration with the aim of developing the ARPU potential of these customers.
CZ Mobile Segment Overview3
Total business revenues in the mobile segment increased by 4.5% yoy in 1H 2008 to CZK 16.6 billion with a 3% growth to CZK 8.4 billion in 2Q alone. Mobile service revenues went up 5.4% yoy to 15.9 billion in 1H 2008 and by 4.1% to CZK 8.1 billion in the quarter.
Revenues from voice services (monthly fees, traffic and interconnection) increased in total by 3.5% yoy to CZK 12.3 billion in 1H 2008.
The total number of registered mobile customers increased by 6% yoy to 5,186 thousand at 30 June 2008. The total number of contract customers reached 2,369 thousand at the same date, up by 292 thousand yoy, representing 14.1% growth following the active prepaid to contract migration strategy. Net adds of contract customers amounted to 63 thousand in 2Q 2008 and contract customers accounted for 45.7% of the total customer base at the end of June 2008, up from 42.4% a year ago and 43.8% at 2007 year end.
The number of prepaid registered customers amounted to 2,817 thousand at the end of June 2008 and was flat compared to the same day last year, while it decreased by 36 thousand in 2Q 2008 alone. Under the methodology, which defines a prepaid customer as generating revenue in the last 3 months, the number of mobile active prepaid customers amounted to 2,366 thousand at 30 June 2008
The blended monthly average churn rate reached 1.6% in 1H 2008, down from 1.7% in 1H 2007, while it was 1.5% in 2Q 2008 0.2 p.p. down compared to 1Q 2008.
Revenues from monthly fees increased by 9.1% yoy to CZK 3.8 billion in 1H 2008, driven by a 14.1% yoy growth in the contract customer base. In 2Q alone, this category of revenues went up 8.9% yoy to CZK 1.9 billion.
Traffic revenues increased by 1.8% yoy to CZK 5.9 billion in 1H 2008, on the back of 12% growth in outgoing traffic volumes. Average MOU per subscriber improved to 120 minutes in 1H 2008, up from 115 minutes in the same period of 2007 (122 minutes in 2Q 2008 compared to 117 minutes in 1Q08 and 120 minutes in 2Q 2007), mainly due to the growing number of contract customers generating higher average traffic per customer and attractiveness of tariffs designed to stimulate traffic which were well accepted among the customers. By the end of June 2008, over 50 thousand customers subscribed for one of the O2 Neon or O2 Cool tariffs, the flat rate based tariffs introduced in May.
Interconnection revenues (excluding revenues from the company's fixed segment) amounted to CZK 2.6 billion in 1H 2008, down by 0.5% yoy. They decrease 2.1% in 2Q alone mainly due to the decrease in revenues from roaming visitors due to the reduction in EU termination rates.
In 1H 2008, blended monthly ARPU4 reached CZK 516, up by 0.4% yoy from CZK 514 in 1H 2007 (CZK 523 in 2Q 2008 compared to CZK 529 in 2Q 2007). Contract monthly ARPU reached CZK 858 in 1H 2008, compared to CZK 914 in 1H 2007 (-6.1% yoy), while it was CZK 862 in 2Q 2008, down from CZK 918 in 2Q 2007. The main reason for the lower contract ARPU is the dilution caused by customer migration from the prepaid to the contract segment. Prepaid monthly ARPU decreased by 1.2% yoy to CZK 240 in 1H 2008 from CZK 243 in 1H 2007 (CZK 251 and CZK 243 in 2Q 2007 and 2Q 2008).
Total revenues from value added services (including SMS, MMS and content) increased by 10.1% yoy to CZK 2.5 billion in 1H 2008 (+10.8% yoy in 2Q alone compared to 9.4% yoy growth in 1Q) as a result of the growing volume of SMS and MMS messages. In 1H 2008, O2 customers sent and received in total 1,621 million SMS, up by 8% yoy.
Revenues from Internet and Data recorded a 9.6% yoy increase and reached CZK 1 billion in 1H 2008 (+6.8% yoy to CZK 505 million in 2Q alone). The total number of data customers (GPRS, CDMA and UMTS flat rate) increased by 19.6% to 212 thousand at 30 June 2008 with 7 thousand net additions in 2Q alone. Data ARPU improved by 3.7% yoy to CZK 112 in 1H 2008. Non-SMS data ARPU represented 44% of total data ARPU in 1H and 2Q 2008 compared to 42% in the same periods of 2007 as a result of the growth in mobile data customers.
CZ Fixed Segment Overview5
Total business revenues in the fixed line segment went down by 5.4% to CZK 14.1 billion in 1H 2008 and by 5% to CZK 7.2 billion in 2Q alone compared to a 5.9% yoy decrease in 1Q. This improvement has been achieved despite weaker performance of ICT business, which reported strong revenues in 2Q 2007. The 2Q 2007 was impacted by accounting of several contracts with the state administration. The company expects ICT to contribute more to fixed revenues in 4Q this year. Traditional fixed revenues (access and voice services) performance confirmed a positive trend of slow down of fixed telephony accesses and traffic decline and fell 10.3% yoy in 1H 2008, with 12.4% and 8.2% yoy decline in 1Q and 2Q 2008.
Revenues from traditional access decreased by 16.2% yoy to CZK 4.2 billion in 1H 2008 (down by 15.7% in 2Q and 16.6% in 1Q) on the back of 12.2% decline in the number of fixed telephony accesses, which amounted to 1,938 thousand at the end of June 2008, mainly as the result of the strong fixed to mobile substitution effect. However, the decline in fixed telephony accesses decelerated between 2Q 2007 and 2Q 2008. The net lines decrease reached 58 thousand in 2Q 2008 compared to 73 thousand in 1Q08 and 81 thousand in 2Q 2007. For the 1H 2008 lines net losses improved by 33% yoy. This is a result of improving the number of gross adds and lower number of disconnections following the Company's effort to enhance the quality of fixed lines via broadband and bundled offers. Total number of customers subscribed for one of the bundled products (O2 Duo, O2 Trio and O2 Duo Mobil) reached some 143 thousand at the end of June 2008.
Revenues from traditional voice services (voice traffic and interconnection) declined in total by 4.1% to CZK 4.4 billion in 1H 2008 but were flat in 2Q 2008 compared to 2Q 2007 compared to 8% yoy decline in 1Q. Revenues from voice traffic declined by 8.1% yoy to CZK 2.2 billion in 1H 2008, as a result of lower voice traffic generated by our customers, which decreased at the same time by 14.6% yoy to 1,226 million minutes. In 2Q alone, voice traffic revenues decreased 6.3% yoy and traffic went down by 12.9% yoy. Interconnection revenues (excluding revenues from the company's mobile segment) were flat in 1H 2008 and amounted to CZK 2.3 billion (-6.1% and +6.5% yoy in 1Q and 2Q alone) driven by decrease in revenues from incoming voice which was compensated by international transit traffic and an increase in the number of ULL.
Revenues from Internet & broadband increased in total by 8.3% yoy to CZK 2.1 billion in 1H 2008 (+6.9% in 2Q alone) as a result of 13.9% growth in revenues from broadband based services (ADSL, IPTV and content) confirming the company's strategy to focus on ADSL and IPTV based services and premium content. Revenues from broadband services amounted to CZK 2 billion in 1H 2008, up by 13.9% yoy. Of this, CZK 1.9 billion represented revenues from retail broadband (up 17.5% yoy) and CZK 175 million from wholesale ADSL services (down 14.2% yoy). The total number of ADSL accesses (retail and wholesale) reached 598 thousand at 30 June 2008, compared to 527 thousand a year ago (up 13.5% yoy). The total number of O2 TV's customers increased to 98 thousand at the end of 2Q 2008.
Revenues from data services decreased in total by 3.5% yoy to CZK 2 billion in 1H 2008 as a result of 18.6% decline in revenues from leased lines to CZK 891 million, while revenues from data network services increased by 13.8% yoy to CZK 1.1 billion as a result of the growth of IP Connect and IP VPN connections.
Revenues from ICT services and business solutions (including contribution from recently acquired Deltax Systems) reached CZK 832 million in 1H 2008, 2.7% up yoy while they went down 15.2% yoy in 2Q alone. In 2Q 2007, this category of revenues benefited from several projects for government customers. Equipment sales amounted to CZK 207 million, down by 4.6% yoy due to the lower number of units sold and special discount offers. Other business revenues went up by 23.8% yoy to CZK 416 million.
Slovakia
In 2Q 2008, the key activities in Slovakia continued to focus on improving further the customer mix towards more valuable customers and disconnecting non-active or non-paying customers. In postpaid segment Telefónica O2 Slovakia launched promotions which adjusted to the customer calling pattern and were more advantageous to both the customers calling above and below monthly threshold of minutes included in the monthly fee. In prepaid the company introduced SMS promotion and on-net calling promotion targeting student and other communities. Furthermore in June Telefónica O2 Slovakia launched a roaming promotion enabling advantageous calling from most visited summer holiday destinations.
As expected and previously reported, part of the prepaid customers acquired in the initial year of commercial operations were using the service irregularly resulting in limited activity level. Number of registered (13 months activity criteria) prepaid customers reached 320 thousand while number of postpaid customers amounted to 75 thousand resulting in 395 thousand registered mobile customers in Slovakia at 30 June 2008. Under the criterion taking into account the revenue generating transactions in the last 3 months, the number of mobile active prepaid customers amounted to 200 thousand
Telefónica O2 Slovakia continued a rollout of its own network infrastructure and by the end of June 2008 the company put in operation 635 BTS which enabled it to capture more than 70% of customer generated traffic on its network. In April, the company also opened extension of its call centre in Banská Bystrica.
Group Operating Expenses
Total Group operating costs (including the Slovak operation) amounted to CZK 17.8 billion in 1H 2008, up by 3.4% yoy, while they went up only 0.7% yoy to CZK 9 billion in 2Q alone. This confirms the Group's effort focused on efficient operating expenditures spending.
Supplies expenses grew by 0.2% yoy to CZK 8.2 billion in 1H 2008 with a 3% decrease in 2Q alone. Interconnection costs increased by 6% yoy to CZK 5.7 billion in 1H 2008 and by 4.6% in the quarter driven by interconnection charges recorded in Slovakia and higher outgoing mobile traffic in the Czech Republic. Cost of goods sold went down by 5.4% yoy to CZK 1.5 billion. Other supplies decreased by 16.9% to CZK 1.1 billion in 1H 2008 and by 26.9% yoy in the quarter on the back of decline in subcontracts for ICT projects.
Personnel costs, including headcount reduction costs, amounted to CZK 3.6 billion in 1HQ 2008, down 0.2% yoy, while they decrease 2.5% yoy in 2Q alone. The total number of Group employees (including Deltax) reached 9,320 at 30 June 2008, down 0.5% yoy. Telefónica O2 Czech Republic headcount went down by 4.2% yoy to 8,598 at that day.
The cost of external services increased in total by 7.3% yoy and reached CZK 5.4 billion in 1H 2008 with a 6.2% growth in 2Q alone. Marketing and sales in total went down by 1.7% yoy to CZK 1.6 billion. Network & IT repairs and maintenance decreased by 6.1% yoy to CZK 1.2 billion in 1H 2008 as a result of continuing synergies from fixed/mobile integration and improved efficiency in IT services outsourcing. Rentals, buildings and vehicles costs reached CZK 1.1 billion, up by 32.7% yoy mainly due to higher rental and service costs related to the movement into the new headquarters, rental costs of Deltax, rental costs incurred in Slovakia and increasing proportion of leased cars, while utilities supplies increased by 20.8% yoy to CZK 477 million on the back of electricity price increase and impact of Slovak operation. Other external services including consultancy fees, call centers and other external services went down 18.6% yoy to CZK 766 million in 1H 2008 with a 27.5% decrease in the quarter.
Taxes, comprising taxes other than income tax, fees and provisions increased by 65% yoy to CZK 528 million mainly as a result of bad debt provisions created in Slovakia in 1Q, while their amount decreased significantly in 2Q.
Outlook for the rest of 2008
In the fixed line business the Company's effort will continue to focus on slowing down of the fixed lines cancellation rate. The Company believes in continuing enhancement of ADSL and IPTV propositions that will further increase the value of the fixed line proposition and eventually reduce churn. Broadband services will be the fundamental product of the bundles. We see a strong potential in the area of ICT and integrated customer solutions primarily for corporate and government customers, where the Company will continue to focus its efforts in 2H 2008. As mentioned earlier in the text, the ICT revenues are expected to contribute more in the fourth quarter. The acquisition of Deltax Systems will further strengthen the Company's position on the fast growing ICT market. The strategy in the mobile segment continues to focus on ARPU sustainment via onward prepaid to postpaid migration and growing non-SMS mobile data and Internet revenues through broadband based services.
The Company will continue to support the gradual deployment of the Slovak operation. Commercial activities in Slovakia will primarily focus on the improvement of customer mix via increasing proportion of postpaid customers and acquisition of new ones with the aim to increase their activity. After the expected and previously reported disconnections of certain part of the prepaid customers acquired in the initial year of commercial operations made in 1H 2008, the company expects a regular churn level.
The main aspects of financial management of the Telefónica O2 Czech Republic Group will remain focused on profitable growth, efficient and selective CAPEX levels and strong free cash flows.
Following the presented results for the first half of 2008 and in the context of a more challenging operating environment, the company will reach its 2008 full year guidance range. In 2008 we expect Group revenues6 to grow by 2 to 4% and OIBDA7 to grow from 0% to 2% compared to 2007. CAPEX is expected to be around CZK 9 billion in total.
Attachment:
The consolidated balance sheet and income statement of Telefónica O2 Czech Republic prepared in accordance with International Financial Reporting Standards.
Contacts
|
Martin Žabka Press spokesman Telefónica O2 Czech Republic, a.s. t 800 163 342 (800 1 media) |
About Telefónica O2 Czech Republic
Telefónica O2 Czech Republic is a major integrated operator in the Czech Republic. It is now operating more than seven million lines, both fixed and mobile, making it one of the world's leading providers of fully converged services. The organization offers the most comprehensive portfolio of voice and data services in this country. It is paying special attention to the exploitation of the growth potential, particularly in the data and Internet sector. Telefónica O2 Czech Republic operates the largest fixed and mobile network including a 3rd generation network, CDMA (for data), and UMTS, enabling voice, data and video transmission. Telefónica O2 Czech Republic is also a notable provider of ICT services.
About Telefónica O2 Europe
Telefónica Europe is a business division of Telefónica comprising mobile, fixed, and DSL operations in the UK, Ireland, the Isle of Man, Germany, the Czech Republic, and Slovakia. With the exception of Isle of Man, all the operating businesses use 'O2' as their consumer brand. Telefónica Europe also has 50% ownership of the UK and Irish Tesco Mobile and German Tchibo Mobilfunk joint venture businesses. Telefónica Europe is headquartered in Slough, UK, and has 43 million mobile and fixed customers.
|
INCOME STATEMENT |
Jan - June 2008 |
Jan - June 2007 |
|
Business revenues |
31,160 |
30,820 |
|
Other recurring revenues |
116 |
250 |
|
Revenues |
31,276 |
31,070 |
|
Internal expenses capitalized in fixed assets |
199 |
291 |
|
Operating expenses |
(17,805) |
(17,218) |
|
Other operating income/(expenses) |
(22) |
(5) |
|
Gain on sale of fixed assets |
764 |
32 |
|
Impairment of fixed assets |
(87) |
10 |
|
OIBDA |
14,325 |
14,180 |
|
Depreciation and amortization |
(6,570) |
(7,471) |
|
Operating Income |
7,755 |
6,709 |
|
Net financial income (expense) |
(3) |
(55) |
|
Income before tax |
7,752 |
6,654 |
|
Income tax |
(1,951) |
(1,763) |
|
Net Income |
5,801 |
4,891 |
|
BALANCE SHEET |
30.6.2008 |
31.12.2007 |
|
Non-current assets |
86,544 |
94,191 |
|
- Intangible assets |
8,285 |
8,485 |
|
- Goodwill |
13,448 |
13,320 |
|
- Property, plant and equipment and investment property |
64,487 |
71,809 |
|
- Long-term financial assets and other non-current assets |
324 |
577 |
|
- Deferred tax assets |
- |
- |
|
Current assets |
28,920 |
19,033 |
|
- Inventories |
596 |
853 |
|
- Trade and other receivables |
13,109 |
8,548 |
|
- Current tax receivable |
80 |
8 |
|
- Short-term financial investments |
118 |
48 |
|
- Cash and cash equivalents |
15,017 |
9,576 |
|
Non-current assets classified as held for sale |
129 |
328 |
|
Total assets |
115,593 |
113,552 |
|
Equity |
72,521 |
82,792 |
|
Non-current Liabilities |
6,697 |
9,017 |
|
- Long-term financial debt |
2,749 |
3,062 |
|
- Deferred tax liabilities |
3,133 |
3,353 |
|
- Long/Term Provisions |
508 |
2,150 |
|
- Other long/term liabilities |
307 |
452 |
|
Current Liabilities |
36,375 |
21,743 |
|
- Short-term financial debt |
6,205 |
6,207 |
|
- Trade and Other payables |
10,140 |
11,080 |
|
- Current tax payable |
275 |
870 |
|
- Short-term provisions and other liabilities |
19,755 |
3,586 |
|
Liabilities assoc. with non-current assets classified as held for sale |
- |
- |
|
Total Equity and Liabilities |
115,593 |
113,552 |
1 Comparative period 6 months and 3 months to 30 June 2007
2 Long and short term financial debt less cash and cash equivalents and short-term fin. investments over equity
3 Figures are shown net of inter-segment charges between fixed and mobile segment
4 Including inter segment revenues
5 Figures are shown net of inter-segment charges between fixed and mobile segment
6 In terms of guidance calculation, Revenues represent business revenues only
7 In terms of 2008 guidance calculation, OIBDA excludes other exceptional revenues/expenses not foreseeable in 2008. For comparison purpose, the equivalent other exceptional revenues/expenses registered in 2007 are also deducted from reported figures (the only unforeseeable expense deducted from 2007 OIBDA was the impairment charge).
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