O2 compensated pressure on traditional services profitability and European roaming regulation impact by proposition of new services

• The number of new customers of O2 Home Internet is growing. Thanks to the use of all available technologies, the service is available to 99% of the Czech households
• O2 manages to sell other services thanks to the successful proposition of tariffs for households, groups of friends and small entrepreneurs. These tariffs provide flexibility to combine up to four SIMs with unlimited voice and SMS, mobile data, digital TV and newly also Internet HD in one package
• In addition to the continuing customers' demand for the digital television O2 TV and mobile data, a positive financial impact was seen from the successful financial services proposition
• Consolidated revenue thus increased by 0.5% to CZK 37.7 billion in 2017, EBITDA by 0.6% to CZK 10.5 billion; net profit grew by 6.2% to CZK 5.6 billion

"The growth in key parameters has been driven mainly by new propositions which we introduced in 2017. Since February, our unlimited home internet has been available to 99% of the households in the Czech Republic. Our new O2 Smart Box device provides broadband internet connection and quality home Wi-Fi coverage. At the same time it has become the most accessible centre of smart household on the market. This is one of the key areas which we intend to develop this year as well," comments Jindřich Fremuth, Chief Executive Officer and the Chairman of the Board of Directors of O2 Czech Republic on the results, and adds: "Thanks to the uptake in LTE-enabled smartphone sales and demand for our O2 Spolu tariffs, mobile data traffic generated by O2 customers grew by 106% in 2017."

"2017 has been a year of higher capital expenditures. We managed to extend the period for which we can use O2 brand and acquired new spectrum licences. In Slovakia, thanks to the higher investments into our own network we have become the leader in coverage of 4G LTE broadband mobile network," explains Tomáš Kouřil, company's Chief Financial Officer and Vice-Chairman of the Board of Directors, and adds: "In 2017, we were able to maintain flat EBITDA year-on-year and increase net profit by 6.2%. The growth was largely driven by the successful proposition of our new services. Net income included also the sale of our stake in Taxify."

Operating overview

Mobile segment

As of 31 December 2017, the total number of mobile customers reached 4,938thousand, the same as at the end of 2016. The number of contract customers increased by 2.2% year-on-year reaching 3,429 thousand. In 2017, the number grew by 73 thousand and they represented 69.4% of the mobile customer base, up by 1.5 percentage point. The number of prepaid customers reached 1,510 thousand.

The O2 Spolu tariff, which has been offered solely by O2 since May 2017 as part of its strategy focused on bundled proposition designed for small groups of customers, is in demand by both current as well as new customers. The tariff, which brings families, friends and small entrepreneurs flexible bundle of up to 4 SIMs with unlimited voice and SMS, mobile data, digital TV and newly also Internet HD in one package, helped to increase the number of mobile contracts as well as O2 TV customers. A big data portion included in the tariff together with customers' upsell to other tariffs with higher data package and growing number of customers with LTE smartphones contributed to a 106% mobile data consumption growth year-on-year. The number of mobile internet users went up by 25.3% year-on-year to 2,228 thousand.

In O2 network, smartphones already account for 63% of handsets and 46% of handsets support LTE technology. Close to 90% of customers with LTE handset have already replaced their SIM card with a new one supporting the technology.

Fixed segment

The number of O2 TV customers provided over O2 fixed line (IPTV) as well as over internet connection from any provider (OTT) reached 237 thousand as at 31 December 2017, up by 7.5% year-on-year. In 2017, the number grew by 16 thousand. A complementary MULTIservice which enables customers to watch TV on multiple TV sets at once has become very popular. Close to 36 thousand customers have already subscribed for this service, thus O2 can show off with close to 275 thousand active set top boxes. In November 2017, O2 moved My Menu service to the O2TV.cz web page. It is based on the visual style of My Menu on O2 TV home screen for O2 TV set-top-box subscribers. More and more customers also enjoy watching O2 TV Sport through a 24-hour access package. For CZK 69 they get an access to the most attractive sporting events. O2 TV Sport for a day can also be used by anyone on the O2 TV Free channel, which is available via terrestrial broadcasting through HbbTV application.

The number of xDSL fixed internet customers reached 729 thousand at the end of December 2017. Thanks to internet speed increase through installation of remote DSLAMs, the share of customers enjoying VDSL technology on total xDSL base has already reached close to 75%. In October, O2 increased the speed of Internet Premium HD tariff from 80 Mbit/s to 100 Mbit/s while maintaining the price. For households with insufficient internet speeds over xDSL, O2 has been offering an unlimited broadband connection using 4G LTE technology since March. Thanks to the combination of both technologies, O2 covers 99% of all addresses across the Czech Republic. The customers' demand and interest in this service is confirmed by the fact that at the end of 2017, over 770 thousand of them actively used the unlimited internet connection regardless of technology.

The total number of fixed voice lines reached 613 thousand as at the end of December 2017.

Slovakia

The number of mobile customers in Slovakia increased by 2.3% year-on-year to 1,937 thousand at the end of December 2017. The number of contract customers grew by 5.9% to 1,141 thousand. Their share in total customer base thus increased by 2 percentage points to 58.9%. Similarly to the Czech Republic, the number of customers with LTE handsets keeps growing in Slovakia. Thanks to that, mobile data consumption went up 55% year-on-year in 2017.

Financial overview

Total consolidated operating revenue reached CZK 37,709 million in 2017, up 0.5% year-on-year. Operating revenue in the Czech Republic declined by 0.4% to CZK 30,778 million. Fixed business operating revenue declined by 6.7% year-on-year to CZK 10,785 million, and O₂ TV revenue with a 10.2% growth remained the key growth area. Mobile operating revenue reported a 3.4% growth to CZK 19,993 million despite a negative impact of the European roaming regulation, which has been reflected in the financial results since the third quarter. The roaming regulation contributed also the continuous decline in voice, SMS and MMS revenue, which was more than compensated by growing mobile data and hardware sales revenue. Financial services (hardware & travel insurance and electronic sales recording solutions) were one of the fastest growing businesses with CZK 185 million revenue in 2017.

In Slovakia, revenue reached CZK 7,128 million, up 5.0% year-on-year. The year-on-year comparison has been negatively impacted by strengthening of CZK against EUR. Thus revenue denominated in euros improved by 7.8% to EUR 271 million. Similarly to the Czech Republic, higher data and hardware sales revenue were the key growth drivers.

EBITDA improved by 0.6% year-on-year to CZK10,513 million in 2017 as growth in roaming related costs driven by European regulation and higher costs of hardware sold were more than compensated by savings in other cost categories. In the Czech Republic, EBITDA declined by 0.9% to CZK 8,097 million, while Slovakia reported a 6.1% increase to CZK 2,417 million (+8.9% to EUR 92 million). Consolidated net profit improved by 6.2%year-on-year reaching CZK 5,587 million.

KEY FINANCIAL AND OPERATING INDICATORS

Financial indicators for the Group

Operating indicators - Czech Republic

Operating indicators - Slovakia