Cesky Telecom Reports H1

Cesky Telecom reports half-year net income of CZK 2.6B, down 23.2%

July 25, 2005

5 Min Read

PRAGUE, Czech Republic -- CESKY TELECOM, a.s., is pleased to announce its unaudited financial results for the first half of 2005 prepared in accordance with International Financial Reporting Standards (IFRS). The results include the full consolidation of Eurotel, a 100% owned mobile subsidiary and are fully comparable on year-on-year basis.

CESKY TELECOM’s Group Highlights

  • Revenues of CZK 30.0 billion (-3.6%)

  • Operating costs (excl. D&A) of CZK 16.5 billion (+ 3.5%)

  • EBITDA of CZK 13.5 billion (- 11.1%),

  • EBITDA margin 45%

  • EBIT of CZK 4.3 billion (- 9.6%)

  • Net Income of CZK 2.6 billion (- 23.2%)

  • Net gearing at 17%

  • Capex of CZK 2.0 billion

  • Capex to Revenues 6.6%

  • Free Cash Flow of CZK 9.1 billion (- 6.7%)

  • Group Headcount 10,470 (- 12%)

“Presented results of CESKY TELECOM Group reflect gradual shift from voice centered fixed line services to broadband and data related offerings, high penetration of mobile segment, and continuous competitive pressures in both, fixed and mobile segment. Results were also influenced by several one-off cost items recognized in the second quarter 2005”, said Juraj Šedivý, CFO and 1st Vice-Chairman of the Board of Directors.

Consolidated Financial Statements

Revenues, costs and EBITDA
Total consolidated revenues of CESKY TELECOM Group in the first half of 2005 amounted to CZK 30 billion, down by 3.6% yoy. Total consolidated operating costs (excluding depreciation and amortization) reached CZK 16.5 billion, were influenced by one-time charges related to contingency reserves, extraordinary compensation and severance payments and resulted in consolidated EBITDA of CZK 13.5 billion, down by 11.1% yoy. Despite the impact of several one-off cost items posted in the second quarter 2005 on EBITDA, achieved 45% EBITDA margin ranks CESKY TELECOM Group above the industry peers average.

Depreciation and Amortization
Consolidated depreciation and amortization in the first half of 2005 amounted to CZK 9.2 billion, down by 12% yoy. The significant decrease is a result of lower CAPEX and changes in goodwill and certain intangible assets amortization, reported earlier this year.

EBIT, EBT and Net Income
Given the decrease of the consolidated EBITDA, consolidated earnings before interest and tax (EBIT) and consolidated earnings before tax (EBT) went down by 10% yoy and reached CZK 4.3 billion and CZK 3.9 billion respectively in the first half of 2005. Net income amounted to CZK 2.6 billion, down by 23% yoy.

Debt levels
CESKY TELECOM Group’s consolidated debts amounted to CZK 16.5 billion at 30 June 2005, down by 47% compared to the same period last year. This number represents gross leverage of 18% and net leverage of 17%. Significant cash flows generated by both CESKY TELECOM and Eurotel enabled the reduction of consolidated debt by CZK 14.6 billion. A substantial part of this was repayment of syndicated loan facility used for acquisition of the remaining 49% stake of Eurotel in November 2003 and general corporate purposes of the Group.

The CESKY TELECOM Group strategy has been continuously focused on maintaining capex efficiency. Total consolidated capex for the first half of 2005 amounted to CZK 2 billion, down by 13% yoy. Out of the total capex, CZK 1 billion was spent in the fixed line technology segment and CZK 1 billion in Eurotel. The Capex to revenues ratio of 6.6% reflects the timing of capex spending and is substantially below the indicated full year 12% level.

Free Cash Flow
The total amount of free cash flows generated by the CESKY TELECOM Group reached CZK 9.1 billion, down by 7% yoy, as a result of decrease in EBITDA and cash payment of income tax.

Regulatory framework
During the first half of 2005, the Czech Telecommunication Office (CTO) issued several price decisions, which will impact on future results of CESKY TELECOM Group and the telecommunication market in general. The most important decision on rebalancing allowed CESKY TELECOM to adjust its access related tariffs closer towards their cost base. While CTO marginally decreased the price of basic residential package, low end residential package (Mini), and basic business packages, it at the same time ruled to remove the free call credit from the package, allowing thus partial rebalancing of the residential tariffs and effectively full rebalancing of business tariffs. The decision further reduced per-minute rates mainly for long distance calls.

The other decisions of CTO related to ADSL wholesale charges, LLU prices, dial-up Internet interconnection charges and termination charges for calls to both fixed and mobile networks. In view of CESKY TELECOM Group, these decisions will have positive impact on telecommunication market in the Czech Republic.

Privatization and subsequent events
The process of privatization of 51.1% stake in CESKY TELECOM held by the National Property Fund of the Czech Republic was concluded on 16 June 2005. Telefónica SA paid the purchase price of CZK 82.6 billion (CZK 502 per share) and became the majority shareholder of the company. Annual general meeting of CESKY TELECOM took place on 23 June 2005. The general meeting recalled the members of the Supervisory board except for those elected by the employees and elected ten new members. Annual general meeting decided not to distribute the dividend for 2004.

Following the general meeting, Mr. Jaime Smith was appointed CEO and chairman of the Board of Directors of CESKY TELECOM, where he replaced Gabriel Berdár. Mr. Salvador Anglada replaced Michal Heøman in the positions of CEO and statutory representative of Eurotel and a member of the Board of Directors of CESKY TELECOM.

Outlook for the second half of 2005
The CESKY TELECOM Group will continue to actively pursue the opportunities in growth areas and address changes and trends in the telecommunication industry, specifically in the areas of broadband, Internet, data and value added services with the primary goal to best meet its customer needs. The CESKY TELECOM Group will continue to concentrate on revenue stimulation in voice and traditional data services areas.

With a support and market knowledge of the new majority shareholder Telefónica SA, the key strategic effort of the management is to maintain its leading position in the Czech telecommunication market. The main aspects of financial management of the CESKY TELECOM Group will remain focused on above average EBITDA margins, efficient CAPEX levels and strong free cash flows.

Cesky Telecom a.s.

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