Press release
Q3 results for the 3 month period to 30 September 2008
OPERATIONAL HIGHLIGHTS
- The Group continues to perform strongly in a challenging environment, with a limited impact so far from the wider economy. For the first nine months of the year Telefónica Europe delivered like for like revenue growth of 5.9%, with 3.4% growth in operating income before depreciation and amortization (OIBDA¹), fully in line with full year guidance.
- Total mobile customer base 40.4 million (+8.6% year on year) with 14.5% growth in the contract customer base, and 1.5 million contract customers added in the first 9 months; SIM only tariffs continue to be popular, with a base of over 3 million customers across the group at the end of September; iPhone 3G a huge success, with the UK business selling twice as many in half the time compared to the original iPhone; additional products that address customer needs in the current economic environment will be launched in the coming quarters.
- Telefónica O2 UK again outperformed the market, growing revenue 8.7% and OIBDA 5.5% in the third quarter on a like for like basis, reflecting strong customer growth with a record 278 thousand contract net additions in the quarter, driven by market leading levels of churn and the strength of propositions such as Simplicity and iPhone 3G. The small business segment also delivered a record quarter, benefiting from a new regional structure and sales of combined voice and data packages;
- Telefónica O2 Germany added 402k mobile customers in the quarter, with an improved mix of higher value customers on contract. The migration program, offering existing customers new, better value tariffs, now 85% complete. The trend of quarter on quarter growth in both revenues and OIBDA continued, growing 2.4% and 7.6% respectively. Year on year, revenue grew 0.7% while OIBDA was 2.4% lower reflecting the focus on acquiring higher value customers;
- Telefónica O2 Czech Republic grew revenues by 5.1% in the quarter. The mobile business in the Czech Republic recorded 2.2% service revenue growth in the third quarter, while in the fixed business, the trend of sequential improvements in fixed line losses continued (45k in Q3 2008 vs. 58k in Q2 and 74k in Q1);
- Telefónica O2 Ireland posted an improved performance on customer growth, adding 26 thousand customers in the quarter, with a record 38 thousand on contract, driven by the new O2 Clear tariffs and mobile broadband.
- Non-SMS data revenue €648 million year to date, +38.7% year on year (constant currency);
- 2008 guidance maintained: revenue growth 4% - 7%, OIBDA growth 2% – 6%
| Revenue growth (local currency)³ | Q1 2008 | Q2 2008 | Q3 2008 |
|---|---|---|---|
| Telefónica O2 UK | 12.6% | 11.1% | 8.7% |
| Telefónica O2 Germany | 1.5% | 3.8% | 0.7% |
| Telefónica O2 Czech Republic | 1.6% | 0.6% | 5.0% |
| Telefónica O2 Ireland | -2.1% | -5.1% | -3.4% |
| Mobile ARPU (local currency)³ | Q1 2008 | Y-o-Y growth | Q2 2008 | Y-o-Y growth | Q3 2008 | Y-o-Y growth |
|---|---|---|---|---|---|---|
| Telefónica O2 UK | £23.6 | 5.5% | £23.9 | 2.0% | £24.3 | 0.0% |
| Telefónica O2 Germany | €17.7 | -13.4% | €17.6 | -15.8% | €17.3 | -16.8% |
| Telefónica O2 Czech Republic | CZK509 | 1.7% | CZK523 | -1.1% | CZK524 | -3.0% |
| Telefónica O2 Ireland | €43.4 | -1.9% | €43.2 | -7.5% | €43.7 | -7.1% |
³ Comparative period is 3 months to 31 March 2007 / 3 months to 30 June 2007 / 3 months to September 2007
Matthew Key, Chairman & Chief Executive of Telefónica Europe, commented:
“In a challenging environment, Telefónica Europe has continued to perform well, adding almost 850 thousand mobile customers in the quarter, with over 60% on contract, including record highs for both UK and Ireland on contract net additions. So far this year the Group has added 2.2 million mobile customers, with 1.5 million on contract, and 620 thousand fixed customers. Like for like revenue growth in the first nine months was 5.9%, with 3.4% growth in operating income before depreciation and amortization (OIBDA1). The total customer base of 44.9 million has grown 9.9% year on year, in highly competitive markets.
In the UK we outperformed the market again in the third quarter with revenue growth of 8.7% and 278 thousand net customer additions on contract, a record for the business, driven by continued improvements in churn, which is now market leading in the UK, and strength across all market segments. In particular the small business segment delivered a best ever quarter, benefiting from a new regional strategy to bring us closer to customers, a market leading set of partner programs designed to jointly address growing market segments and the introduction of bespoke service offerings (Premium Business) targeted at larger businesses. Converged products have driven sales with over 90% of connections in some regions on combined voice and data packages. In Home broadband net additions accelerated to 73 thousand customers, and we were very pleased that independent market surveys continued to rate O2 as the fastest broadband with the highest customer satisfaction. The operating environment is more challenging today than at the start of the year, so we will continue to focus on delivering propositions that customers value and which make O2 stand out in the market – to that end we were delighted that The O2 received its 10 millionth visitor in October making it the most popular music venue in the world.
In Germany, the third quarter saw a focus on quality customer growth. Net mobile customer additions were 402 thousand in the quarter, with the mix of higher value tariffs on contract improving to around 80% and in the first nine months over 1.5 million mobile customers have been added, with 43% on contract. Mobile service revenue was 2.2% higher quarter on quarter, but recorded a decline of 2.8% year on year due to the continuing migration of existing customers onto better value tariffs. Currently over 85% of contract customers who are likely to migrate to new tariffs have already done so, and the remainder are expected to have moved by the end of the year. We also continue to build the foundations for sustainable growth, investing in our own network and distribution, opening around 40 additional shops in the quarter.
The Czech Republic business delivered group revenue growth of 5.1% in the quarter, including contributions from Universal Service, with 2.2% service revenue growth in the Czech mobile business, which maintained quarterly net contract additions at 60 thousand. In the fixed line business, line losses improved again to 45 thousand in the quarter compared to 72 thousand last year and 58 thousand in the second quarter. ADSL lines stood at 552 thousand at the end of September, growth of 14.3% year on year, and there has been a good response to our new ADSL offers, with a speed upgrade to 8 Mbps. We will continue to develop our fixed and mobile propositions to give customers more choice and value.
In a competitive market Telefónica O2 Ireland traded well in the quarter, adding 26 thousand customers in total, with 38 thousand on contract, an all time record for the business, driven by our new O2 Clear contract tariffs and mobile broadband.
With year to date growth for the Group of 5.9%, and 3.4% growth in OIBDA, both on a like for like basis, we remain confident of achieving our full year guidance”
¹ Assuming constant exchange rates and excluding the consolidation of Airwave in the first quarter of 2007. Capital gain from the sale of Airwave is also excluded, as well as gains related to the real estate sale in the Czech Republic, restructuring and similar charges and the result of the application of provisions made in respect of potential contingencies deriving from the past disposal of shareholdings, once these risks had dissipated or had not materialized.
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