In accordance with current market practice, mmO2 is issuing the following update prior to entering the Close period for its Interim Results to September 30 2003, which are scheduled to be announced on November 17 2003.
For the first half the company expects to deliver financial results that demonstrate its continued momentum in the three markets in which it operates:
O2 UK
The company has previously stated that in the current financial year it expects O2 UK to deliver service revenue growth of 10% and to achieve a 30% EBITDA margin. In the first half O2 UK is expected to report service revenue growth in the mid-teens, driven by continuing strong growth of the customer base, and higher ARPU. The first half EBITDA margin is expected to demonstrate further steady progress towards the full-year target of 30%, while reflecting the costs of growing the business. Service revenue growth is expected to slow significantly in the second half, as the termination rate cuts imposed by the regulator take effect. These cuts will also impact the second half EBITDA margin, which is however expected to continue to improve, enabling O2 UK to deliver its full-year target of 30%, and 10% service revenue growth.
O2 Germany
The company has previously stated that it expects O2 Germany to deliver further rapid growth, and achieve a double-digit EBITDA margin in the current financial year. In the first half O2 Germany is expected to report strong customer and ARPU growth, which is expected to continue through the second half. In the first half O2 Germany is expected to achieve a mid-teens EBITDA margin, ahead of its target for the full year. The momentum it has built up in the market is expected to enable O2 Germany to sustain this EBITDA margin through the second half.
Other Businesses
In the first half O2 Ireland is expected to report further steady growth of service revenue and EBITDA. The Airwave investment programme remains on track, with approaching half of the UK's police forces having taken delivery of the system. In the first half, O2 Online and the central resource costs are expected to be in line with the prior year. The company will consider further potential cost saving opportunities across the Group in the second half.
Capital expenditure
The company has previously stated that it expects to report capex of £1.3 billion in the current financial year. Although the capex profile is expected to be weighted towards the second half of the year, reflecting acceleration of the UMTS investment programme, the total expenditure in the full year is now expected to be 5-10% below previous guidance.
Peter Erskine, chief executive of mmO2 commented:
"The strong customer and ARPU growth that we reported across the Group in the first quarter was sustained into the second quarter, and our first half results will reflect this.
"In the UK, we remain focused on delivering our full-year target of 10% service revenue growth and a 30% EBITDA margin, although we expect the market to become more competitive in the second half. In Germany we continue to grow market share, and our EBITDA margin improvement is already ahead of our original expectations for the full-year. We expect this performance to be sustained through the second half, despite an increasingly competitive market environment. Across the Group we will pursue further operational efficiencies.
"Capex and cash-flow continued to be tightly controlled in the first half, and investment efficiencies identified. We expect 3G investment to increase during the second half, as we move towards the initial launch of UMTS-based services, when the conditions in our markets are right for this."
