2002 Results - Analyst Meeting

ČESKÝ TELECOM
2002 RESULTS
Analyst Meeting 2003
Prague
March 28, 2003
ČESKÝ TELECOM does not accept liability for any misprints and other errors
CAUTIONARY STATEMENT:
Any forward-looking statements concerning future economic and financial performance
of CESKY TELECOM, a.s. contained in this Presentation are based on assumptions
and expectations of the future development of factors having material influence on
the future economic and financial performance of CESKY TELECOM, a.s. These factors
include, but are not limited to, public regulation in the telecommunications sector, future
macroeconomic situation, development of market competition and related demand for
telecommunications and other services. The actual development of these factors,
however, may be different. Consequently, the actual future results of economic and
financial performance of CESKY TELECOM, a.s. could materially differ from those
expressed in the forward-looking statements contained in this Presentation.
2
Analyst meeting 2003
Hosted and presented by
Juraj Šedivý
Executive Vice-President and CFO
• CFO since September 2001
• Joined Český Telecom in 1997
• CFO of Globtel between 1996 and 1997
• Controller at Johnson & Johnson Consumer Products in Czech/US between 1992 and 1996
• MBA degree from Rochester Institute of Technology
• Certified Management Accountant
• Masters degree in Mechanical Engineering
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
4
ČESKÝ TELECOM in 2002
Overall market environment
• Political & Macroeconomic
environment, floods
• Regulatory environment
• Competition - FOLO,
MOLO / local, intl.
ČTc strategy
• Protect revenues via customer
approach
• Focus on data, internet &
customer solutions
• Take add. cost efficiency measures
• Investment efficiencies
• Focus on margins & cash flows
Key achievements in 2002
improved EBITDA margin
growth of FCF
reduced CAPEX
Stable outlook for 2003
5
Key events
•• New
New tariff
tariff structure
structure introduced
introduced –– February
February 2002
2002
•• 100%
100% Digitalization
Digitalization –– June
June 2002
2002
•• CS
CS introduced
introduced as
as of
of 11 July
July 2002
2002
•• Domestic
Domestic bond
bond program
program &
& bond
bond issue
issue CZK
CZK 33 bn
bn /4.55%/3
/4.55%/3 years
years –– July
July 2002
2002
•• Regulator
Regulator canceled
canceled initial
initial CTc
CTc ADSL
ADSL offer
offer
•• Floods
Floods in
in August
August 2002
2002
-- Approx.
Approx. 120,000
120,000 lines
lines were
were temporarily
temporarily out
out of
of order
order
-- Quantification
Quantification and
and settlement
settlement of
of insurance
insurance claim
claim are
are ongoing
ongoing
-- Overall
Overall damage
damage will
will not
not have
have material
material impact
impact on
on the
the company‘s
company‘s
financials
financials
•• Renumbering
Renumbering of
of fixed
fixed line
line and
and mobile
mobile networks
networks in
in the
the CR
CR –– Sept.
Sept. 2002
2002
•• Mobile
Mobile penetration
penetration in
in the
the CR
CR 84%
84% at
at the
the end
end of
of 2002
2002
•• Privatization
Privatization
6
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
7
Political & Macroeconomic environment
•• General
General Elections
Elections -- coalition
coalition led
led by
by Social
Social Democrats
Democrats since
since July
July 2002
2002
•• EU
EU entry
entry -- legislative
legislative compliance
compliance with
with EU
EU seems
seems aa priority,
priority, entry
entry
expected
expected in
in 2004
2004
•• Privatization
Privatization -- canceled
canceled in
in Dec
Dec 2002,
2002, re-start
re-start expected
expected in
in 2004/2005
2004/2005
•• Minority
Minority Shareholders’
Shareholders’ Rights
Rights -- Constitutional
Constitutional court
court ruled
ruled that
that
acquisition
acquisition of
of aa majority
majority stake
stake via
via privatization
privatization constitutes
constitutes obligation
obligation to
to
buy
buy out
out minorities
minorities
•• Public
Public debt
debt levels
levels worry
worry but
but economy
economy seems
seems healthy:
healthy:
1)
--
GDP
GDP growth
growth remains
remains in
in black
black figures:
figures: 2.0%
2.0% in
in 2002
2002 1)1)
--
Unemployment
Unemployment relatively
relatively high
high 9.8%
9.8% at
at the
the end
end of
of 2002
2002
--
Inflation
Inflation still
still decreasing:
decreasing: 1.8%
1.8% (2002
(2002 vs.
vs. 2001)
2001)
--
Relatively
Relatively strong
strong Czech
Czech Koruna
Koruna
Preliminary estimate
8
Regulatory environment
•• CTO
CTO has
has addressed
addressed number
number of
of significant
significant issues
issues as
as independent
independent
regulator
regulator since
since July
July 2000:
2000:
-- Interconnection
Interconnection charges
charges (to
(to fixed
fixed networks,
networks, to
to mobile
mobile networks)
networks)
-- Internet
Internet interconnection
interconnection
-- CS
CS // CPS
CPS // NP
NP prices
prices
-- Tariffs
Tariffs
-- LRAIC
LRAIC replaced
replaced historical
historical allocations
allocations of
of costs
costs methodology
methodology
-- CTO
CTO under
under pressure
pressure from
from telco
telco operators
operators for
for lack
lack of
of transparency
transparency in
in
decisions
decisions
-- Attempt
Attempt to
to reach
reach consensus
consensus on
on ADSL
ADSL
•• LLU
LLU expected
expected to
to become
become part
part of
of the
the Telco
Telco Act
Act amendment
amendment in
in 2003
2003
9
Czech telco market dynamics
•• Mobile
Mobile market
market -- outperforms
outperforms EMEA
EMEA peers
peers (YE02
(YE02 penetration
penetration 84%)
84%)
•• Fixed
Fixed line
line market
market -- competition
competition focused
focused predominantly
predominantly on
on business
business
segment
segment
•• 77 OLOs
OLOs entered
entered the
the market
market with
with CS
CS and
and 44 with
with CPS
CPS
•• Fixed-line
Fixed-line penetration
penetration -- stable
stable for
for 3-4
3-4 years
years (approx.
(approx. 36%
36% at
at YE02)
YE02)
•• Internet
Internet -- increase
increase in
in both
both PC
PC and
and Internet
Internet penetrations,
penetrations, competitive
competitive
but
but dynamic
dynamic segment
segment
•• Regulatory
Regulatory decisions
decisions -- driver
driver for
for interconnection
interconnection prices
prices to
to fixed
fixed line
line
and
and mobile
mobile networks
networks and
and to
to internet,
internet, and
and CS
CS // CPS
CPS prices
prices
10
Fixed telco competitive environment
Before 2001
Data & internet - competition
LD & ILD voice – VoIP, VSAT, call back
Key fixed line competitors
1 January 2001
Czech telco market opened
1 July 2002
CS introduced
1 January 2003
CPS & NP introduced
2003
LLU expected
11
Development of F/M penetration
84
67
42
36
37
37
37
36
19
9
1998
1999
2000
2001
2002
12
Voice Market: F-M and M-M competition
10.8
90.9
12.2
97.9
96.8
2001
2002
Český Mobil
8.2
T-Mobile
Eurotel
ČTc
2000
2001
2002
Number of Customers (in mil.)
2000
Revenues (in CZK bn.)
Note: Alternative fixed line operators are not included – fin.& oper. data are not available
Source: Company data
13
Household Equipment in the Czech Republic
100
90
80
70
60
%
50
40
30
20
10
0
Household penetration
Normální
telefonní linka
Fixed line
Mobilní
Mobiletelefon
Osobní
PC počítač
Kabelová televize
CATV
Internet
Internet
3/01
6/01
9/01 12/01 03/02 06/02 09/02 12/02
Source: Omnibus, NFO AISA, 2002.
14
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
15
Fixed-line Operational Overview
2001
2002
Chg.
3,842
3,661
(5%)
of which ISDN channels (thous.)
261
389
49%
Internet users (thous.)
481
702
46%
Employees (thous.)
15.2
13.7
(10%)
Lines per employee
253
267
6%
95
100
37
36
Number of fixed lines (thous.)
Digitalisation in %
Penetration of population in %
16
Telephone Lines, Digitalisation
(telephone lines in thous., digitalisation in %)
3,734
64%
1998
3,839
77%
3,854
86%
3,842
3,661
95%
100%
2001
2002
100%
digitalization
at the end of
June 2002
Analogue
Digital
1999
2000
Note: Total number of telephone lines incl. ISDN channels
17
Tariffs
••
••
33 tariff
tariff programs
programs are
are regulated
regulated by
by
CTO
CTO
New
New tariff
tariff structure
structure introduced
introduced in
in
Feb
Feb 02:
02: Home
Home and
and Business
Business tariff
tariff
programs;
programs; higher
higher monthly
monthly fees
fees incl.
incl.
free
free credits,
credits, lower
lower call
call rates
rates F2F
F2F and
and
F2M
F2M and
and internet
internet dial-up
dial-up access
access
••
No
No changes
changes in
in 2003
2003
••
Tariffs
Tariffs re-balanced
re-balanced except
except for
for
monthly
monthly fees
fees
••
AD
AD remains
remains an
an issue
issue
••
Non
Non regulated
regulated tariff
tariff programs
programs make
make
room
room for
for effective
effective tariff
tariff changes
changes
Monthly Fees (in CZK)
399
399
Regulated standard tariffs
Business
Home
299
299
Business free credit
Home free credit
225
175
175
135
100
100
1998
100
90
1999
2000
2001
2002
90
2003
18
Traffic - significant changes
Other
Internet
F2M
ILD
LD
Local
% of total outgoing
minutes in 2002
2%
48%
4%
2%
13%
31%
1998
1999
2000
2001
2002
19
ISDN services
389
••
Attractive
Attractive pricing
pricing helped
helped growth
growth in
in
ISDN
ISDN channels
channels in
in 2002
2002
••
Penetrated
Penetrated mainly
mainly in
in business
business
segment
segment
••
ISDN
ISDN adds
adds were
were mostly
mostly generated
generated
by
by migration
migration from
from PSTN
PSTN to
to ISDN
ISDN
••
Increased
Increased Internet
Internet traffic
traffic on
on newly
newly
migrated
migrated ISDN
ISDN lines
lines
••
Increasing
Increasing residential
residential Internet
Internet
penetration
penetration should
should turn
turn into
into aa key
key
driver
driver of
of ISDN
ISDN growth
growth
ISDN channels (in thous.)
261
122
57
17
1998
1999
2000
2001
2002
20
IOL/Quick Internet Users
(in thous.)
702
Quick
IOL
481
185
22
1998
45
1999
Note: Paid (IOL) and free (Quick) Internet access
2000
2001
2002
21
21.8
267
253
20.1
17.3
222
15.2
13.7
191
171
1998
1999
2000
2001
2002
Lines per Employee
Number of Employees (in thous.)
Employees & Efficiency
22
New customer segmentation
Business
solutions group
• 140 government
clients
• Integrated solutions
• Connectivity
Corporate
segment
Business
segment
Residential
segment
• Covering TOP 1,600
largest clients
• majority uses data
solutions
• alternative offers from
OLO
• Strong competitors
GTS, Aliatel
• Data VPN development
partly covering long
distance traffic
•Alternative means
( facilities)
facilities) for company
communication
• All business clients
including SOHO
• Frequent contact by
competition
• The most threatened
segment by CS a CPS
• Main competitor Aliatel
• Major potential market
for ADSL (Revenues
(Revenues )
•Covering all individual
clients – households
• Growing internet
penetration of
households
• Responsive to CPE
initiativesmobile
substitution
• DialDial-up connection to
internet
• Major potential market
for ADSL ( # lines )
• Main competit.
competit. TELE2
23
Fixed line services - Strategy for 2003
• Revenue Retention at Voice Services
Evolution of strategy
• Revenue Growth Strategy focused on
- Internet penetration stimulation (ISDN)
- Data services (ADSL, IP Call, Frame Relay, etc.)
Product and
technology
focus
• Integrated customer solutions
• Partnerships / alliances
• Divisional Operational excellence
• Call Centre Optimatisation – Active Sales Channel
Customer focus
– Value Added
• Sales efficiency through sales Channel Optimatisation
24
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
25
Consolidated Financial Overview
Revenues
Operating Costs excl. D&A
EBITDA
Depreciation & Amortisation
EBIT
Net interest & Other charges
EBT
Net Income
EBITDA Margin in %
2001
55.9
28.7
27.2
17.0
10.1
1.3
8.8
6.1
48.6
2002
52.9
26.7
26.2
19.1
7.1
1.0
6.1
4.3
49.5
Chg.
(5%)
(7%)
(4%)
12%
(30%)
(28%)
(30%)
(30%)
Loans & Overdrafts
CAPEX
27.0
18.9
22.0
11.3
(18%)
(40%)
Note: consolidated, audited under IFRS, in CZK bn.
26
Revenues, EBITDA, EBITDA margin
(in CZK bn.)
57.2
55.9
51.9
48%
50%
52.9
45.9
47%
49%
49%
EBITDA margin
25.7
26.7
27.2
26.2
22.2
Revenues
98
99
00
Note: consolidated, audited under IFRS
EBITDA
01
02
98
99
00
01
02
27
Revenue Breakdown
2001
8%
38%
10%
13%
26%
Other 1) (+15%)
Eurotel consolidation
(-1%)
Data, Internet, ISDN &
VAS (+37%)
Subscr. Charges
(+46%)
Rev. from operators
(-34%)
CZK 55.9 bn.
1)
9%
Call Revenues (-35%)
25%
7%
2002
-5%
Other includes Connection charges, Equipment, Leased lines & Other Revenues
Note: audited under IFRS
26%
14%
5%
20%
CZK 52.9 bn.
28
PSTN Subscription & Call Revenues
28.4
-15%
24.2
21.2
13.7
10.6
7.3
2001
Subscription (+46%)
2002
Call revenues (-35%)
Note: unconsolidated, audited under IFRS
(CZK bn.)
• Tariff change in Feb 2002 monthly rentals include free call
credits – one-off effect on PSTN
call and subscription revenues
distribution
• No. of lines down by 5% to 3.6 mil.
while ISDN channels up by 49% to
389 thous. as of 2002
• Revenues from ISDN lines
reported within revenues from
data services
• Cheaper tariffs increased internet
dial-up traffic from 39% to 48% of
total outgoing traffic in 2002
29
Revenues from other network operators (CZK bn.)
3.9
- 34
Domestic operators
%
1.9
2.6
1.1
2.0
2001
International (-27%)
Note: unconsolidated, audited under IRFS
1.5
2002
Domestic (-41%)
• Decrease in interconnect prices
to fixed networks
• Mobile penetration increased
from 67% to 84% - more M2M
calls
International operators
• Strength of CZK
• Further decline in settlement
rates
• Very competitive segment
30
Data, ISDN, Internet and other services (CZK bn.)
7.3
5.3
%
7
+3
0.4
• IOL/Quick users up 46% to 702 thous.
• Revenues up 55% to CZK 429 mil.
• IOL recognized quality provider
0.3
4.5
2.9
Internet
• Channels up 49% to 389,000
Internet
• Revenues up 55% to CZK 4,509 mil.
ISDN
• Reduced prices & aggressive marketing
Other
2.1
ISDN
2.4
Other 1)
• Revenues up 11%
• Declining prices for DNS
2001
1)
2002
Other includes DNS, Data transm., VAS and other telephony
Note: Unconsolidated, audited under IFRS
• Increasing demand for VAS
31
Leased Line Revenues (CZK bn.)
2.4
+ 12%
2.7
• Growth driven by wholesale
segment
• Competitive mkt. in retail
• Customer move from classic
voice services to leased line &
data services
• Declining prices
2001
Note: unconsolidated, audited under IFRS
2002
32
Eurotel - consolidation (CZK bn.)
14.0
-1%
13.9
• Total number of users up by 20% to
CZK 3,891 thous.
• Number of net adds down by 39% to
653 thous. users
• Interconnection prices to mobile
networks down to CZK 3.66/min at
the end of 2001
• Increasing M2M traffic
• Highly competitive 3-operator
market
2001
2002
• VAS and data usage continued to
rise
33
Operating Cost Breakdown
2001
3%
2002
- 7%
Staff (+0%)
3%
26%
Material (-8%)
26%
9%
36%
CZK 28.7 bn.
Note: Legend is yoy % change in absolute values
Consolidated, audited under IFRS
21%
28%
7%
Payments to network
operators (-23%)
Equipment & material COS
(-26%)
40%
Energy, Repairs, Mainten
& Other (+3%)
CZK 26.7 bn.
34
Payments to other network operators (CZK bn.)
7.4
-2 3 %
Domestic
5.7
4.9
•
CTO set lower interconnect
fees for both F&M networks
•
F2M outgoing traffic down
by 2% to 530 mil. minutes
•
Increasing M2M traffic
3.9
2.5
2001
International (-28%)
Note: consolidated, audited under IFRS
International
1.8
2002
•
Termination rates declines
•
Outgoing intl. traffic from
ČTc network down by 14%
to 205 mil. minutes
•
Strength of CZK
Domestic (-20%)
35
Employees
15,194
ČTc
- 10
13,717
• Consolidated Staff cost yoy 0%
at CZK 7.6 bn.
%
• Changing structure of
employees at CTc
Eurotel
• Fixed line efficiency increased
6% to 267 lines per CTc empl.
+ 1%
2,420
2001
2,447
• Eurotel’s efficiency up 19% to
1,590 mobile users per ET
empl.
2002
36
Balance sheet
2001
2002
Chg.
Fixed Assets
Current Assets
- Cash and cash equiv. 1)
Total Assets
140.8
18.3
7.5
159.1
131.2
25.1
15.3
156.4
(7%)
38%
104%
(2%)
Equity
- share capital
- reserves
Liabilities
- Debt
107.0
32.2
74.8
52.0
27.0
111.3
32.2
79.1
45.0
22.0
4%
0%
6%
(13%)
(18%)
18%
6%
Net gearing 2)
1)
incl. Held-to-maturity investments and Available-for-sale investments
2)
Net gearing = (Interest bearing debt – cash & cash equivt.) / Equity
Note: figures in CZK billion, consolidated, audited under IFRS
37
Debt & Gearing
39
Interest bearing debt
37
Gross & Net gearing
43%
33
32
38%
28
32%
27
26
35%
25%
22
20
29%
20%
25%
18%
7
6%
98
99
Debt
00
01
Net debt
02
98
99
Gross gearing
Note:Gross gearing = Interest bearing debt / Equity
Net gearing = (Interest bearing debt – Cash and cash equivalents) / Equity
00
01
02
Net gearing
38
CAPEX (CZK bn.)
18.9
- 40
Fixed line CAPEX
•
Regulatory driven CAPEX: CS,
CPS & NP, renumbering, 100%
digitalization as precondition of
implementation of regulatory
requirements
•
Business driven CAPEX:
network maintenance CAPEX,
streamlining of processes, new
services; based on efficiency
requirements
%
5.0
11.3
2.6
13.8
8.7
2001
ČESKÝ TELECOM (-37%)
2002
Eurotel CAPEX:
Eurotel (-49%)
•
Business driven CAPEX
•
No UMTS investments
Note: Capex as per balance sheet, consolidated, under IFRS
39
Cash Flow
Net cash from operating activities
Net cash used in investing activities
- purchase of PPE
- purchase of intangible assets
- marketable securities 1)
- other 2)
Free cash flow
3)
Net cash from financing activities
Effect of exchange rate changes
2001
2002
Chg.
22.5
21.4
(5%)
(11.4)
(12.7)
(5.2)
5.6
0.9
(13.6)
(9.1)
(2.0)
(4.0)
1.4
20%
(29%)
(61%)
(171%)
53%
5.5
11.7
112%
(7.6)
(0.1)
(4.6)
0.0
(39%)
n/m
1)
Sum of cash purchase of and proceeds from marketable securities
2)
Proceeds from sale of Tang. fixed assets, Purchase of investments and Interest received
3)
Net cash from operations – Net cash used in inv. activities excl. Marketable securities
Note: figures in CZK billion, consolidated, audited under IFRS
40
Cash from investing activities & FCF (in CZK bn.)
Net cash from investing activities 1)
Free cash flow 2)
11.7
33.2
4.1
18.1
16.9
99
Purchase of PPE
00
5.5
00
01
17.0
9.7
98
5.6
01
Purchase of intangible assets
98
99
02
02
Other 3)
(15.7)
1) Excluding
marketable securities
2) Net cash from operating activities – Net cash from investing activities excl. marketable securities
3) Proceeds from sale of tangible fixed assets and Interest received
Note: Consolidated, audited under IFRS
41
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
42
Analyst Presentation
Eurotel
March 2003
Presentation by
Robert Bowker, Chief Financial Officer
Garrison Macri, Chief Commercial Officer
March 28, 2003
Page 1
Topics covered today
1. Introduction
2. Key results
3. Market overview
4. Financial results
5. Strategy and marketing objectives 2003
March 28, 2003
Page 2
Terrence Valeski
Chief Executive Officer and
Managing Director
•
•
•
•
•
•
CEO of Eurotel since December
2000
Chief Marketing Officer of BT
Wireless (British Telecom, 1999 2000)
Chief Operating Officer of Blu,
Italy (British Telecom Joint
Venture w ith Benetton
& Autostrada,1999)
Chief Operating Officer and
Managing Director of Telfort
Mobile (a British Telecom joint
venture in the Netherlands, 1997
– 1998)
President & General Manager of
Pacific Bell Wireless (Northern
California region,1994 – 1997)
Degree in Liberal arts - University
of Arizona
Robert Mitford Bow ker
Chief Financial Officer
Garrison Macri
Chief Commercial Officer
•
•
•
•
•
•
Joined Eurotel in September
2000 as Deputy Chief
Financial Officer
Deputy Chief Financial
Officer
of Eurotel Bratislava in
Slovakia (responsible for a
successful high yield bond
financing and subsequent
registration w ith the SEC)
Between 1996 and 1999
various positions w ith
PricewaterhouseCoopers
focusing primarily on
the telecommunication
industry
Qualified Chartered
Accountant
Degree in Business
Economics
•
•
•
•
•
Joined Eurotel in September 2002
as Chief Commercial Officer
Director of Brand and Marketing
Services of BT Wireless/O2,
England (2001-2002)
Vice President Marketing & Sales of
Mobex Communications, Inc.,
California (1998-2001)
Executive Director of Marketing
Communications of Southw estern
Bell Corp, California (1995-1997)
10 years international and US
based advertising agency
experience
Degree in Communications and
Liberal arts from Syracuse
University, USA
March 28, 2003
Page 3
Organizational structure
CEO&Managing Director
Terrence Valeski
Executive Dir. External Affairs
Jaroslav Kubišta
General Counsel
Ľuboš Bôrik
Executive HR Director
Josef Fidler
Chief Operating
Officer
Paul Long
Chief Financial
Officer
Robert Bowker
Chief Commercial
Officer
Garrison Macri
Chief Technical
Officer
Niels Mikkelsen
Quality,Security&PMO
Director
Deputy Chief Financial
Officer
Executive Director New
Product Development
Deputy Chief Technical
Officer
Václav Kadeřábek
Marcela Perlíková
Lena Minitch
Pavel Kolář
Chief IT Officer
Zbyněk Noháč
Executive Customer
Care Director
Ivan Balcar
Strategy Director
Parantha Narendran
Business Development
Director
Justin Stockton
System Development
Integration Director
Doru Balas
March 28, 2003
Page 4
Chief Sales
Officer
Zuzana Řezníčková
2002 commentary
•
Significant shareholder value generated through maintenance
of market leadership but at the same time retaining Eurotel’s
price premium
•
Aggressive cost control implemented, particularly in CAPEX
•
This has resulted in a world class EBITDA margin of 48% and
free cash flow of CZK 7.0 billion in 2002
•
As a result Eurotel has no bank debt and approximately CZK
7.4 billion in cash and cash equivalents (February 2003)
•
Mistakes made by the Telco industry have not been replicated
in Eurotel
Revenue and market share at the expense of margin
Excessive CAPEX spend and dilution of shareholder
value
•
Some dilution in market share but necessary in order to
maximize shareholder value
March 28, 2003
Page 5
2002 key results
1. 3,891,473 customers (+20% YOY)
2. Service revenues CZK 22.099 bn (+7% YOY)
3. EBITDA CZK 13.712 bn (+3% YOY)
4. Net income CZK 6.271 bn (+3% YOY)
March 28, 2003
Page 6
Penetration comparison
Wireless penetration development with launch dates of first GSM network
Rate of penetration
9 0%
85%
84%
Slov enia ( Jun 9 6)
8 0%
Czech Re p. (Ju l 96)
7 0%
68%
Slov akia ( Jan 9 7)
Pola nd (Sep 96 )
6 0%
Romania (Apr 97)
5 0%
5 3%
Hung ary ( Mar 9 4)
4 0%
35%
3 0%
2 3%
2 0%
1 0%
0%
1
2
3
4
5
6
7
years since launch
Note: Latest penetration levels as of December 31, 2002
Source: Mobile Communications
March 28, 2003
Page 7
8
9
Mobile revenues as % of GDP in 2001
Czech Republic is a high spender on mobiles
Mobile revenues
as % of GDP
3%
2.6%
2.4%
1.8%
2%
1%
1.3%
1.2%
1.0%
1.3%
1.4%
1.5%
1.9%
1.5%
0.8%
March 28, 2003
Page 8
lic
ub
ep
ry
ch
ze
C
Source: ING Barings, ABN Amro, Company data
R
ga
un
H
G
re
e
ce
ia
ak
Sl
ov
nd
la
Po
ai
n
Sp
ria
Au
st
d
er
la
n
ly
itz
K
U
ce
an
Fr
Ita
Sw
G
er
m
an
y
0%
Eurotel customers
Subscriber growth maintained
Registered customers
(in thousands)
3,891
4,000
3,238
3,000
2,171
3,104
2,000
2,534
1,070
1,000
0
1,529
588
490
96
428
64
511
69
578
64
654
745
50
42
1998
1999
2000
2001
2002
NMT
Postpaid
Prepaid
March 28, 2003
Page 9
Total minutes of use
Minutes of use growth 13% in 2002 y-o-y
Minutes
(in millions)
4,184
4,500
3,697
4,000
3,500
2,928
3,000
2,500
1,961
2,000
1,500
1,268
1,000
500
0
1998
1999
2000
2001
March 28, 2003
Page 10
2002
Total SMS
SMS growth 43% in 2002 y-o-y
SMS
(in millions)
600
552
500
484
487
501
1Q02
2Q02
3Q02
429
383
400
324
300
278
200
100
0
1Q01
2Q01
3Q01
4Q01
March 28, 2003
Page 11
4Q02
Blended ARPU
Blended ARPU stabilizing
ARPU
(in CZK)
700
600
606
614
620
1Q02
2Q02
3Q02
588
607
4Q02
FY 2002
500
400
300
200
100
0
March 28, 2003
Page 12
Postpaid churn
Churn at world class level
Annual postpaid
churn
20%
16%
15%
17%
15%
15%
13%
10%
5%
0%
1998
1999
2000
2001
March 28, 2003
Page 13
2002
Monthly churn rate for 2002
Churn rates stable at low levels during the year
Monthly churn
1.6%
1.4%
1.2%
1.2%
1.1%
1.0%
0.8%
1.0%
0.9%
0.6%
0.4%
0.2%
0.0%
Jan
2002
Feb
2002
Mar
2002
Apr
2002
May
2002
Jun
2002
Prepaid churn
Jul
2002
Aug
2002
Sep
2002
Oct
2002
Postpaid churn
March 28, 2003
Page 14
Nov
2002
Dec
2002
Eurotel - T-Mobile CR comparison in 2002
(in millions of EUR)
For the year ended December 31,2002
Eurotel T-Mobile CR
B/W B/W in %
Revenues
935
700
235
34%
EBITDA
445
308
137
44%
Net income
204
94
110
117%
20
16
4
25%
3,891
3,510
381
11%
ARPU (in EUR)
Customers (in thousands)
Notes:
1) Financial figures of T-Mobile CR prepared under IAS
2) Average CZK/EUR rate of 30.812 used in calculation
Source: T-Mobile CR and Deutsche Telekom reports
March 28, 2003
Page 15
Income statement
(in millions of CZK)
For the years ended December 31,
2002
2001
Change
Total revenues
Gross profit
Gross margin in %
28,800
19,825
69%
30,063
18,670
62%
(4%)
6%
EBITDA
EBITDA margin in %
13,712
48%
13,250
44%
3%
EBIT
EBIT margin in %
9,116
32%
9,056
30%
1%
Net income
Net income in %
6,271
22%
6,068
20%
3%
Note:
Financial figures are audited and prepared under US GAAP
March 28, 2003
Page 16
M
o
TE b iF
M on
do (
S o T m R om
I
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a
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(
)
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s ic
)
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a
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(
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TCz
la
M
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)
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ta
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ti
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(S a
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2002 EBITDA margin benchmarking
Eurotel is at the upper end of the profitability scale
EBITDA margin
60%
50%
48%
44%
40%
30%
20%
10%
8%
0%
Source: Company reports
March 28, 2003
Page 17
Revenue breakdown
(in millions of CZK)
For the years ended December 31,
2002
2001
Change
Recurring revenues
Interconnect revenues 1)
Net service revenues 2)
Non - recurring revenues
Total revenues
26,869
4,770
22,099
26,563
5,817
20,746
1%
(18%)
7%
1,931
3,500
(45%)
28,800
30,063
(4%)
Notes:
1) Interconnect revenues include MOU and SMS
2) Recurring revenues less interconnect revenues
March 28, 2003
Page 18
Recurring revenues
(in millions of CZK)
For the years ended December 31,
2002
2001
Change
Recurring revenues
Interconnect revenues 1)
Net service revenues
2)
26,869
4,770
22,099
26,563
5,817
20,746
1%
(18%)
7%
Recurring gross margin
Recurring gross margin in %
20,976
78%
19,614
74%
7%
ARPU total (CZK)
ARPU GSM prepaid (CZK)
ARPU GSM postpaid (CZK)
607
305
1,825
818
401
2,235
(26%)
(24%)
(18%)
Registered customers (in thousands)
3,891
3,238
20%
Notes:
1) Interconnect revenues include MOU and SMS
2) Recurring revenues less interconnect revenues
March 28, 2003
Page 19
Value added services
As a percent of revenues value added services are high
indicating a potential for growth in data
(in millions of CZK)
15.0%
14.7%
1,200
13.6%
13.1%
1,000
10.5%
800
10.2%
14%
10.9%
12%
10%
600
400
13.8%
615
706
638
788
848
831
881
918
8%
6%
4%
200
0
16%
2%
45
48
53
66
73
84
90
111
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
Other VAS revenues
SMS revenues
VAS/Recurring revenues
March 28, 2003
Page 20
0%
Non-recurring revenues
(in millions of CZK)
Non-recurring revenues
Non-recurring margin
Gross adds (in thousands)
For the years ended December 31,
2002
2001
Change
1,931
(1,151)
3,500
(944)
(45%)
22%
921
1,212
(24%)
March 28, 2003
Page 21
Te
no
rM
ob
ile T -M
d o ob
m ile
e
So T EM st i G e
c rm
ne d
(
ra o m N o an
rw y
do e
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t ic S p
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(
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g
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et
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la
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s
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ob W ( Ro ce)
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ch ( U )
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r
A o T e b il ic
T&
lB eU
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( C lo
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ch a k
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2002 Capex/Sales benchmarking
Eurotel has minimized CAPEX
Capex/Sales ratio
45%
20%
Source: Company reports
43%
40%
35%
30%
25%
25%
16%
15%
10%
5%
0%
March 28, 2003
Page 22
Cash flow
(in millions of CZK)
For the years ended December 31,
2002
2001
Change
Cash flow provided by operations
Cash flow used in working capital
Income tax paid
Interest paid
14,088
739
(3,005)
(4)
13,550
(1,004)
(1,528)
(201)
4%
(174%)
97%
(98%)
Cash flow provided by operating activities
11,818
10,817
9%
Cash flow used in investing activities
(4,838)
(8,050)
(40%)
6,980
2,767
152%
Free cash flow
March 28, 2003
Page 23
Free cash flow
We have guided Eurotel through the rapid growth phase in to a
mature market that exists today enhancing cash generation without
sacrificing market position
(in millions of CZK)
11,818
10,817
12,000
10,000
7,217
8,000
6,000
2,000
0
8,050
5,531
5,865
4,000
4,838
8,054
6,875
6,980
5,377
154
1,352
1,179
1998
1999
2000
Free cash flow
Investing cash flow
2,767
2001
2002
Operating cash flow
March 28, 2003
Page 24
Cash and cash equivalents
Eurotel cash pile is growing
$ 252m
(in millions of CZK)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Dec Jan Feb Mar Apr May Jun
Jul Aug Sep Oct Nov Dec Jan Feb
2001 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2003 2003
March 28, 2003
Page 25
Balance sheet
(in millions of CZK)
For the years ended December 31,
2002
2001
Change
Cash and cash equivalents
6,417
230
2,690%
Other current assets
5,997
7,092
(15%)
Non-current assets
29,986
29,914
0%
Total assets
42,400
37,236
14%
Long term debt
2,028
2,282
(11%)
Deferred tax liabilities
3,500
3,363
4%
Current liabilities
7,178
8,178
(12%)
Total liabilities
12,706
13,823
(8%)
1,650
1,650
0%
Retained earnings and other
28,044
21,763
29%
Equity
29,694
23,413
27%
Contributed capital
March 28, 2003
Page 26
Eurotel Return on Invested Capital
High ROIC maintained
30%
25%
25%
25%
1998
1999
23%
24%
25%
2000
2001
2002
20%
15%
10%
5%
0%
March 28, 2003
Page 27
2002 Return on Invested Capital benchmarking
Higher than most comparable companies
45%
40%
35%
30%
25%
25%
20%
15%
10%
5%
oT
ur
E
March 28, 2003
A
)
a)
(U
S
ss
lo
ire
le
(S
A
T&
T
W
va
el
B
ra
ti s
la
ng
ra
O
E
Note:
Vodafone Group – data for the nine months ended December 31, 2002 annualised
Page 28
va
ki
nc
(F
ra
e
(B
is
ta
r
M
ob
e)
um
)
el
gi
ol
an
(P
TC
P
s
el
la
H
te
t
S
d)
)
re
(G
G
e
af
on
od
V
ec
e
ec
re
tu
g
or
P
e
af
on
od
V
e
al
e)
(G
TE
m
O
ur
C
os
ch
ze
C
ot
el
(
re
bl
ep
u
R
(S
M
TE
V
ec
ic
)
)
pa
in
ly
)
(It
a
M
TI
od
af
on
e
S
w
ed
en
0%
Strategy and Marketing
objectives 2003
Presentation by
Garrison Macri, Chief Commercial Officer
March 28, 2003
Page 29
Penetration of SIM cards and share of
providers by age groups
Penetration among very young people:
estimate: 40-45%
Overall penetration = 83%.
New customers
102
99
above-average penetration
average penetration
below-average penetration
93
73
49
20
15-25
26-35
36-45
46-55
56-65
> 65
age of users
March 28, 2003
Page 30
Marketing objectives 2003
• Focus on retention and loyalty of valuable customers
• Maintain quality leadership in all customer touch
points – Customer Experience
• Position Eurotel as leading mobile lifestyle services
provider
• Grow customer base while focusing on high value
market segments
March 28, 2003
Page 31
Service revenue priorities
Voice
SMS
-
- Group SMS
- Highly device, configuration,
- Segmented Mass Marketing
training and support dependent
SMS B2C SMS
price and service comprehension
- Premium SMS
also critical (x emails for x MB
- Mass Media SMS interactive per click billing etc)
based programming
- Instant Messaging etc.
Group Conferencing
Three-way calling
Call W aiting
Seamless International
Calling
- Voice to text and text to
voice has some appeal
Email / Internet
March 28, 2003
Page 32
Service revenue priorities
• Eurotel will also remain a leader in marketing value
added services:
-
SMS
Ringtones Icons, Infotext
Chat
MMS (GPRS)
Games (Java)
-
GSM Banking
ATM Banking
Micro Payments
E-mail / Internet
(GPRS/HSCSD)
- Video Streaming
- Media Messaging
- (UMTS trials)
March 28, 2003
Page 33
Continuously connected One 2 One and
Many 2 Many
• High perceived value to end users and businesses
• Mobile phone becoming primary communication tool
F rie n d Zo n e
B rin g ing pe op le
to g e th e r
March 28, 2003
Page 34
Devices Development Path
MobileWorld
World
Mobile
ComputerWorld
World
Computer
Competencies
Competencies
•RF mobile technology
•Voice based devices
•Mobile customer base knowledge
•OS environment for PC
•Data applications for PC
•Data and SW usage knowledge
New development
New development
•Higher processing power of mobile
chipsets
•Mobile chipsets for Laptops, e,g.
Intel Centrino
•New 2D, 3D graphic processors
•Miniaturizations of the laptop
•Higher operating and HDD memory
•Integration WLAN standards
•Bigger size of the screens
• Integration of SIM to PCMCI cards
•More colors on display
Challenges
Challenges
•Mobile behavior understanding
•Knowledge of data users behavior
•Data transport technology
•Optimizing OS and User interface for
mobile use
•Implementing Standard OS
environment
•Integration of RF with OS
•Integrating voice technology
•Data applications management
•Portability of PCs (size and battery
life)
•Extending battery life
•Heat dissipation
March 28, 2003
Page 35
Trends for Hardware and Software
• Symbian Platforms versus Microsoft Pocket PC
– More Smartphones coming this year
– Smartphone platform battle will continue between
main handset vendors and Microsoft
• This new innovative technology enables:
–
–
–
–
Integrated W LAN capability
Breakthrough mobile performance
Extended battery life
Thinner, lighter designs
March 28, 2003
Page 36
Core – Data phones specialities
Eurotel´s Exclusive phone
•
Sharp GX-13
–
–
full exclusivity
MMS, Integrated camera, Java
Other
•
SonyEricsson P800
–
–
•
Nokia 7650
–
•
high-tech communicator, Symbian Platform 7
E-mail, messaging programs, PC compatible,
Bluetooth, MMS, integrated camera
Best offer on the market for 8.995 CZK
Eurotel Data Phone
–
–
–
Microsoft Pocket PC platform
Easy integration to Exchange Email and MS apps
Full Internet support
Strategy
• W e intend to offer all the latest and most innovative devices
• Intention to offer preset handsets in our stores (W AP, MMS,
GPRS)
• Competitive strategy (price parity with competition)
March 28, 2003
Page 37
Prepaid – Data phone specialities
ONLY In Eurotel Prepaid portfolio
•
Nokia 7650
–
•
SonyEricsson T68i
–
•
256 Colors screen, MMS, e-mail client, Java, GPRS Bluetooth
Nokia 7210
–
•
4k Colors screen, MMS, Camera, e-mail client, Java, GPRS
Bluetooth
4k Colors screen, MMS, e-mail client, Java, GPRS, IrDa
Among W AP phones, there is no special discriminator neither on the
side of Eurotel, T-Mobile or Oskar.
Strategy
• W e intend to offer all the latest and most innovative devices (Nokia
7210, 7650 in our prepaid offer)
• Intention to offer preset handsets in our stores (W AP, MMS)
• Competitive strategy (price parity with competition)
March 28, 2003
Page 38
Address Book
•
User chooses who to
communicate with, and then
what type of communication
•
A single address book for all
communication and messaging
services
•
•
•
•
Enables multiple entries choice
for one-to-many communication
Handset – Network sync
Web interface
ADDRESS BOOK
Adams Michael
Clark Julie
Jones Lisa
Mitchell Gavin
Call
Presence information can assist
selecting communication mode
March 28, 2003
Page 39
Select
Msg
My Inbox
•
Single point of access to all
types of messages
•
Supported by a single storage
in the network for all messages
•
Choice of sorting and
managing the messages:
by type, time and sender
•
Managing both
person-to-person and
application-to-person
messages (e.g. direct deposit)
MY INBOX
Voice Mail
(3)
Email
Image (MMS)
Infotainment
Video
March 28, 2003
Page 40
(2)
Communities
Intimate
Extended Family
+ Friends
Associates
March 28, 2003
Page 41
Public
Eurotel Data Offers
De vic e s
Co n te n t
Ta riffs
Eu ro te l
In d iv id u a l
Consistent Eurotel Brand Values
March 28, 2003
Page 42
EUROTEL MOBILE MEDIA
MOBILE INFORMATION
MOBILE ENTERTAINMENT
! news
! games
• consistently most used
service across all platforms
• 25% all wap traffic
! weather
! music + ringtones
! sport
! erotics
• significant early use on MMS
and videos
• interest peaks around
time of events (Olympics,
W orld Cup)
! cartoon + comics
! traffic
! movies
! ticketing
voice
voice
sms
sms
wap
wap
ussd
ussd
mms
mms
java
java
video
video
3G
3G
March 28, 2003
Page 43
Eurotel MobileMedia: new section
W e’re bringing together all our content
services, across technologies, under a
new concept…
Eurotel MobileMedia
March 28, 2003
Page 44
New pages with at-a-glance overview
Find what interests you
See how you can get it on your phone
Or view what is available over
each technology
March 28, 2003
Page 45
Happy Hours
Happy Hours – end of promo, only till March 15
• Description:
All voice calls between 20:00 and 24:00 will be charged by 50% of
current price.
Promo is valid for calls to Eurotel, CTc, T-mobile and Oskar
networks from
all 3 Go tariffs.
Per second billing (60+1)
Launched together with Happy hours 15.1.2003
Description:
-
Per second billing after 1st minute
-
For tariffs Fun Go and Quatro Go
-
Only for voice (not roaming, international calls)
-
Permanent change from 15.1.2003
March 28, 2003
Page 46
Eurotel Individual tariff
• SMP
– anybody can create their own tariff and thus save
money
March 28, 2003
Page 47
Data strategy for business
•
easy wireless access to free mail, internet
•
synchronised office application
•
accessible wireless e-mail while abroad (HSCSD Roaming, GPRS
roaming, Global Access)
•
secure GSM access to company Intranet (MIS)
•
complex voice & data corporate solution (One Port)
•
system integration pre/post sales support
March 28, 2003
Page 48
Eurotel VPN
• Eurotel VPN groups all company mobile phones into one
virtual private network
• Customer gets advantageous rates for intra-company calls.
• Advanced functionality of VPN enables customer to create
caller groups according to his communication needs
– Restrictions on out- and inbound calls
– Time-based calling restrictions
• VPN includes special functions as
– Shorthand dialing
– Private calls marking
– Combination of VPN advantages with landline phones
March 28, 2003
Page 49
OnePort
Background:
•
•
Eurotel OnePort brings customer Internet connection, secured mobile
Intranet access and data interconnection of branches in one complex
solution.
Competitors do not offer similar service so far.
Objectives:
• Increase Revenue from VAS services
• Increase Penetration of OnePort
• Increase Retention – OnePort sets longterm partnership with customer
Project Descriptions:
• ATL communication of the service
• Main benefit for customer: „More savings for your company“
March 28, 2003
Page 50
Benefit Programme – More Care
Background:
• Improve information provided about collected points to
customers (proactive communication), On-line
redemptions of rewards for faster processing of
customers orders (specially for Eurotel offer within
Benefit program)..
Objectives:
• Increase loyalty / retention
Project Descriptions:
• ATL and BTL communication
March 28, 2003
Page 51
In Summary
• Network / Technology Eurotel
– GSM – GPRS – HSCSD
UMTS
• Devices / Applications
• Content
• Marketing
= # 1 Operator in Czech Republic !
March 28, 2003
Page 52
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
1
Year 2003
•• CPS
CPS and
and NP
NP introduced
introduced as
as of
of 11 January
January 2003
2003
•• No
No change
change of
of regulated
regulated tariffs
tariffs at
at the
the beginning
beginning of
of 2003
2003
•• ADSL
ADSL wholesale
wholesale &
& retail
retail offer
offer –– March
March 2003
2003
•• Repayment
Repayment of
of Eurobond
Eurobond issue
issue in
in the
the amount
amount of
of cca
cca CZK
CZK 12
12 bn.
bn. –– May
May
2003
2003
•• Regular
Regular AGM
AGM –– 13
13 June
June 2003
2003
•• Completion
Completion of
of establishment
establishment of
of international
international network
network access
access points
points in
in all
all
neighboring
neighboring countries
countries and
and Hungary
Hungary –– YE
YE 2003
2003
•• Shareholders’
Shareholders’ decision
decision on
on key
key issues
issues (privatization,
(privatization, Eurotel
Eurotel acquisition
acquisition
and
and divided
divided payment)
payment) and
and on
on new
new CEO
CEO expected
expected by
by September
September 2003
2003
•• Change
Change of
of telecommunication
telecommunication act
act to
to comply
comply with
with EU
EU standards
standards (incl.
(incl.
LLU)
LLU) expected
expected in
in 2003
2003
2
ČESKÝ TELECOM’s foreign markets presence
• NETWORK - Own intl. optical network with access points in all neighbouring
countries, DWDM technology supplied by Lucent Technologies.
• SERVICES - high speed connections between ČR and abroad and transit
services to several countries
Germany
Poland
Frankfurt
Warsaw
ČR
Slovakia
Praha
Bratislava
Austria
Vienna
Hungary
Budapest
Stage 1 - 1Q 2003
Stage 2 – by YE03
3
Group Strategy
•• Maintain
Maintain and
and protect
protect fixed
fixed voice
voice market
market by
by further
further improvement
improvement in
in customer
customer
approach
approach
•• Strengthen
Strengthen and
and reinforce
reinforce customer
customer value
value proposition
proposition to
to all
all segments
segments for
for both
both
fixed
fixed and
and mobile
mobile through
through continued
continued innovation
innovation of
of services
services and
and solutions
solutions
•• Focus
Focus on
on growth
growth segments
segments such
such as
as data
data &
& internet
internet
•• Exploit
Exploit opportunities
opportunities in
in voice-to-data
voice-to-data convergence
convergence and
and continued
continued demand
demand for
for
VAS
VAS based
based on
on wide
wide &
& broad
broad band
band and
and provision
provision of
of integrated
integrated services
services for
for
large
large corporates,
corporates, state
state institutions,
institutions, and
and administration
administration
•• Compensate
Compensate competitive
competitive pressures
pressures on
on revenues
revenues and
and margins
margins by
by reinforcing
reinforcing
further
further operational
operational and
and financial
financial efficiency
efficiency while
while focussing
focussing on
on EBITDA
EBITDA and
and
cash-flow
cash-flow
•• Continue
Continue to
to support
support shareholders
shareholders in
in their
their decision
decision over
over the
the use
use of
of free
free cash
cash
4
Outlook for 2003
•
Continued generation of significant free cash
•
EBITDA margins in high 40s
•
Continued focus on operating efficiencies
•
Investments to further decline
•
Depreciation to remain flat
•
Potential to address strategic issues if key shareholders make decision
5
Peer Comparison (2002)
1)
MATÁV
TPSA
OTE
KPN
1,673
2,431
4,161
4,313
12,784
Costs
845
1,423
2,506
2,587
8,113
EBITDA
828
1,008
1,655
1,726
4,671
D&A
603
504
1,174
711
10,252
Net Gearing
6%
43%
113%
70%
275%
EBITDA Margin
Lines per fixed line
employee
49%
42%
40%
40%
36%
267
313
262
368
382
Fixed penetration
36%
38%
28%
53%
50%
84%
68%
35%
85%
74%
CTc
Revenues
Mobile penetration
2)
Note:
all financials in EUR mil.
1) 51% proportional consolidation
2) country‘s mobile penetration
Source: Company reports
6
Analyst meeting 2003
1. Executive summary
2. Czech telecommunications market
3. Fixed-line & Internet Business
4. Consolidated financial data
5. Eurotel
6. Group strategy, Outlook
7. Q & A
7