O2 increased net profit by 2.5%, despite its costs grew due to European roaming regulation

• Due to European regulation,O2 recorded higherroaming costs, while it is not able to book them in relevant revenue
• In addition to the continuous customers' demand for digital television O2 TV and mobile data, successful financial services proposition is positively reflected in the financial results
• Consolidated revenue thus increased by 0.6% in the first nine months 2017 to CZK 27.9 billion; net profit grew by 2.5% to CZK 4.1 billion
• O2 Spolu (O2 Together) tariffs' offer designed to families and groups remains strategic priority for O2, which it will further develop
• O2 as the first operator in the Czech Republic developed Smart Box device, which combines the fastest modem, the most powerful Wi-Fi router and smart household centre.

"This year, as the first operator in the Czech republic, we introduced a device, which we completely developed in-house. O2 Smart Box brings to the households the most powerful Wi-Fi modem and Internet HD, which enables watching videos in HD quality. At the same time it enables connect smart household devices like security sensors, fire alarm or sockets remote control. From the beginning of its sale, O2 Smart Box accounts for more than a half of all fixed broadband sold modems. Majority of the new customers enjoys our smart household heart together with internet connection," comments Tomáš Budník, Chief Executive Officer and the Chairman of the Board of Directors of O2 Czech Republic on the results, and adds: "Our customers transferred by 94% more mobile data compared to last year. This has been significantly supported also by O2 Spolu tariffs with large data portion and by a new product designed for a young generation - a 10 GB mobile data tariff.. "

In line with the expectations the customers used mobile services abroad much more compared to previous years. "Since June till August O2 customers, who travelled abroad within Europe, call twice more and consumed seven times more data compared to last year. Due to this growth we have to bear higher related costs in total amount of hundreds Czech koruna, which we have to pay in cash to international operators. At the same time, we are not able to fully book them into our revenue,"< /em> explains Tomáš Kouřil, company's Chief Financial Officer and Vice-Chairman of the Board of Directors. Such a development is in line with the Czech Telecommunications Office analysis' conclusion, which states, that the new roaming regulation might have a negative impact on operators' economy, or it can lead to the future domestic price increase.

However, so far, O2 has been able to compensate higher roaming related costs. "In addition to the traditional growth areas like mobile data or pay TV, we are successfully selling our financial services. Revenue from financial services reached already close to CZK 130 million year to date and help partially compensate negative European regulation impact," adds Tomáš Kouřil.

Operating overview

Mobile segment

As of 30 September 2017, total number of mobile customers reached 4.917 million, same as last year. The number of contract customers increased by 1.6% year-on-year reaching 3.383 million. In the last twelve months their number grew by 53 thousand and they represented already 68.8% of the mobile customer base, up by 1.1 percentage point. Number of prepaid customers reached 1.534 million.

O2 Spolu tariff, which O2 has been offering as the only market operator since May 2017 as part of its strategy focused on bundles proposition designed to small customers groups, is being demanded by both, current as well as new customers. Tariff, which brings families, friends and small entrepreneurs flexible bundle of up to 4 SIMs with unlimited voice and SMS, mobile data and digital TV in one package, helped to increase number of mobile contract as well as O2 TV customers. A big data portion included in the tariff contributed to a 94% mobile data consumption year-on-year. Number of internet in handset service went up by 29.2% year-on-year to 2.246 million.

Already 61% of handsets in O2 network is a smartphone and 42% of them supports LTE technology. Over 80% customers with LTE handset also exchanged the SIM card with a new one supporting this technology.

Fixed segment

Number of O2 TV service customers provided on O2 fixed line (IPTV) as well as on internet connection from any provider (OTT) reached 230 thousand and as at 30 September 2017, up by 4.5% year-on-year. A complementary service MULTI which enables customers watching TV on more TV sets at one time became very popular. Already 35 thousand customers subscribed for this service and thus O2 can show off with close to 265 thousand active set top boxes. More and more customers also enjoy watching O2 TV Sport with a 24 hours access. For CZK 69 fee they gain an access to the most attractive sporting events. O2 TV Sport for a day can also subscribed anyone at the O2 TV Free channel, which is available in terrestrial broadcasting via HbbTV application. During recent football derby Slavia - Sparta the current individual event view record has been broken with 239 thousand viewers.

Number of xDSL fixed internet customers reached 742 thousand at the end of September 2017. Thanks to internet speed increase through installation of remote DSLAMs, the share of customers enjoying VDSL technology on total xDSL base reached already over to 70%. For households with insufficient internet speeds over xDSL, O2 has been offering an unlimited 4G LTE wireless connection since March. Combining both technologies, O2 covers 99% of all addresses in the Czech Republic. And customers like and demand Home Internet, which is confirmed by fact, that at the end of third quarter, over 770 thousand of them subscribed for this technology agnostic service.

Total number of fixed voice lines reached 654 thousand at the end of June 2017.

Slovakia

Number of mobile customers in Slovakia increased by 2.8% year-on-year to 1.916 million, of which contract base grew 6.9% to 1.118 million. Their share in total base increased by 2.3 percentage point to 58.4%. Similarly to the trends in the Czech Republic, number of customers with LTE handsets has been growing also in Slovakia. Thanks to that, mobile data consumption increased by 64% year-on-year.

Financial overview

Total consolidated operating revenuereached CZK 27.893 billion in the first nine months 2017, up 0.6% year-on-year. Operating revenue in the Czech Republic totalled CZK 22.822 billion, representing a 0.4% year on year decline. Fixed business operating revenue declined by 6.9% year-on-year to CZK 8.006 billion, and O2 TV revenue with 10.2% growth remains the growth area. Mobile operating revenue reported a 3.5% growth to CZK 14.816 billion with European roaming regulation's negative impact since the third quarter. Excluding roaming mobile operating revenue would grow 3.9% year-on-year in the first nine months 2017. Out of other mobile services, the year on year decline of voice and SMS/MMS revenue slowed down and was more than compensated by mobile data and hardware revenue increase. Financial services (hardware & travel insurance, electronic sales recording solutions) were one of the fastest growing businesses, with overall CZK 126 million revenue in January to September 2017.

In Slovakia, revenue reached CZK 5.230 billion, up 6.0% year-on-year. Year on year comparison has been negatively impacted by strengthening CZK versus EUR. Thus revenue denominated in euros improved by 7.9% to EUR 197 million. Similarly to the Czech Republic, higher data and hardware revenue were the key growth drivers.

EBITDA decreased by 0.6% year-on-year to CZK7.804 billion in the first nine months 2017 as growth in roaming related costs driven by European regulation was not fully compensated by savings in other cost categories. In the Czech Republic, EBITDA declined by 1.9% to CZK 6.048 billion, while Slovakia reported a 3.7% increase to CZK 1.756 billion (+5.6% to EUR 66.1). Consolidated net profit improved by 2.5% year-on-year reaching CZK 4.114 billion.

KEY FINANCIAL AND OPERATING INDICATORS

Financial indicators for the Group

Operating indicators - Czech Republic

Operating indicators - Slovakia