FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
17 November 2004
mmO2 plc
Wellington Street
Slough, Berkshire SL1 1YP, England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F..X... Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X...
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82 ________
Enclosure:
Copy of announcement regarding Interim Results sent to the
London Stock Exchange on 17 November 2004.
press release
PR0442
INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2004
Released: 17 November 2004
- - Strong first-half performance delivered across the Group(1):
- Customer base grew 15% to 22.0 million (2003 : 19.2 million);
- Group turnover grew 23% to GBP3,285 million (2003 : GBP2,680 million);
- EBITDA grew 37% to GBP851 million (2003 : GBP621 million);
- Group operating profit increased to GBP251 million (2003 : GBP66 million);
- - Basic earnings per share increased to 2.7 pence (2003 : 0.3 pence)
- - Underlying earnings per share(2) increased to 4.5 pence (2003 : 1.5 pence)
- - Group net debt reduced by GBP130 million during first half, to
GBP236 million.
- - O2 UK full-year net service revenue growth now expected to be 12 - 15%.
- - Increased network investment in Germany of EUR1.0 - EUR1.5 billion over
5 years
- - New policy of regular, sustainable dividends based on underlying EPS
- Final dividend expected to be declared in May 2005 and paid in August 2005
- Medium term target payout ratio 50%
- - Corporate reorganisation to create distributable reserves before end FY 05
(1) Continuing operations. Comparative period is 6 months to 30 September 2003.
(2) Before goodwill and UMTS licence amortisation and exceptional items.
David Arculus, Chairman of mmO2 plc, commented:
"In the first half mmO2 delivered another good performance, with strong revenue
and EBITDA growth. Over the past three years there has been a transformation in
the Group's operational and financial performance, and we are very pleased now
to be able to establish a policy of sustainable dividends, earlier than
originally expected. The Group has delivered earnings growth and positive
cash-flow, and we believe strongly that shareholders should benefit directly
from this. The new policy reflects our confidence in the company's future
prospects, and our commitment to deliver returns for shareholders."
Financial highlights
Six months Six months Year ended
ended ended 31 March
30 Sept. 2004 30 Sept. 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Turnover (1) 3,285 2,680 5,646
EBITDA (1) 851 621 1,367
Group operating profit (1) 251 66 159
Basic earnings per share (pence) 2.7 0.3 1.9
Underlying earnings per
share (pence)(2) 4.5 1.5 5.2
- --------------------------------------------------------------------------------
Capital expenditure 656 539 1,213
Net debt 236 494 366
- --------------------------------------------------------------------------------
(1) Continuing operations.
(2) Before goodwill and UMTS licence amortisation and exceptional items.
Peter Erskine, Chief Executive of mmO2 plc, commented:
"In the first half mmO2 has delivered further strong revenue and profit growth,
across all our businesses. Despite robust competition in all our mobile markets,
year-on-year we have delivered a 15% increase in the customer base, 23% revenue
growth, 37% growth in EBITDA, and a Group operating profit of GBP251 million.
Underlying earnings per share, the measure on which we intend to base our
dividends, increased three-fold, to 4.5 pence per share. Our net debt was
reduced by a further GBP130 million, to GBP236 million.
The strategic development we have announced in Germany, investing to grow the
business further and to accelerate the roll-out of our 3G network, builds on the
strength of the O2 brand and the position we have established as the most
dynamic and innovative competitor in the German market. Increasing network
investment will enable us to offer an enhanced customer experience in Germany,
with attractive and high quality mobile services delivered across our own 3G
platform. This will increase our long-term margins, driving revenue growth and
reducing operating costs.
Although the UK market remains highly competitive, our growth through the end of
the first half has remained significantly stronger than expected, and we now
expect to see full year net service revenue growth of 12-15%, higher than we had
previously anticipated. "
Performance highlights - First Half (1)
O2 UK:
- Total customer base grew by 10% to 13.86 million
- Service revenue grew by 20% to GBP1,848 million
- EBITDA grew by 21% to GBP581 million
- EBITDA margin 28.5% (2) (2003: 29.2%)
O2 Germany:
- Total customer base grew by 27% to 6.67 million, of which 58% post-pay
- At constant exchange rates, service revenue grew by 29%
- EBITDA grew by 50% to GBP163 million
- EBITDA margin improved to 18.6% (2003: 15.1%)
O2 Ireland:
- Total customer base grew by 12% to 1.43 million
- At constant exchange rates, service revenue grew by 14%
- EBITDA GBP106 million (2003 : GBP103 million)
- EBITDA margin 37.9% (2003: 39.6%)
Airwave:
- Roll-out on track, with service delivered to 40 police forces
- Revenue GBP76 million (2003 : GBP25 million)
- EBITDA GBP24 million (2003 : GBP(15) million)
(1) Comparative period: 6 months to 30 September 2003.
(2) Reflects impact of transfer to O2 UK of O2 Online/Products O2 costs,
previously reported separately.
Operational highlights - Second Quarter
Group:
- Customer base grew by 3% quarter-on-quarter, to 22.0 million
- 714,000 net new customers added (Q1 : 603,000), of which 45% post-pay
O2 UK:
- 331,000 net new customers added (Q1 : 261,000), of which 127,000 post-pay
- Blended ARPU GBP282 (Q1 : GBP279)
O2 Germany:
- 351,000 net new customers added (Q1 : 336,000), of which 186,000 post-pay
- Blended ARPU EUR371 (Q1 : EUR367)
O2 Ireland:
- 30,000 net new customers added (Q1 : 4,000), of which 5,000 post-pay
- Blended ARPU EUR560 (Q1 : EUR556)
Mobile data:
- Data as a proportion of service revenue 21.9% (Q1: 21.2%)
- Total SMS sent grew by 4.3% in the quarter to 3.359 billion
SUMMARY FINANCIAL DATA
Turnover
Six months ended Six months ended Year ended
30 September 2004 30 September 2003 31 March
2004
Continuing operations GBPm GBPm GBPm
- --------------------------------------------------------------------------------
O2 UK 2,037 1,651 3,451
O2 Germany 877 719 1,508
O2 Ireland 280 260 529
Airwave 76 25 89
Manx 25 25 50
O2 Online & Products O2 - 54 140
Eliminations (10) (54) (121)
- --------------------------------------------------------------------------------
Group total 3,285 2,680 5,646
- --------------------------------------------------------------------------------
EBITDA
Six months ended Six months ended Year ended
30 September 2004 30 September 2003 31 March
2004
Continuing operations GBPm GBPm GBPm
- --------------------------------------------------------------------------------
O2 UK 581 482 1,041
O2 Germany 163 109 225
O2 Ireland 106 103 208
Airwave 24 (15) 1
Manx 11 11 23
O2 Online & Products O2 - (25) (43)
Central resources (34) (44) (88)
- --------------------------------------------------------------------------------
Group total 851 621 1,367
- --------------------------------------------------------------------------------
Operating profit/(loss)
Six months ended Six months ended Year ended
30 September 2004 30 September 2003 31 March
2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
O2 UK 341 243 552
O2 Germany 16 (35) (70)
O2 Ireland 74 67 140
Airwave 2 (23) (30)
Manx 8 8 17
O2 Online & Products O2 - (49) (83)
Central resources (40) (44) (91)
- --------------------------------------------------------------------------------
Operating profit before
goodwill and UMTS licence
amortisation and
exceptional items, from
continuing operations 401 167 435
Operating loss from
discontinued operations - (1) (1)
Goodwill amortisation (100) (101) (201)
UMTS licence amortisation (50) - -
Exceptional items - - (75)
- --------------------------------------------------------------------------------
Group operating profit 251 65 158
Share of operating loss
of joint ventures and
associates (4) (2) -
Loss on sale of O2 Netherlands - (5) (5)
Net interest (8) (32) (58)
Tax (3) (3) 71
- --------------------------------------------------------------------------------
Retained profit for the period 236 23 166
- --------------------------------------------------------------------------------
Basic earnings per share (pence) 2.7 0.3 1.9
- --------------------------------------------------------------------------------
Underlying earnings per share (pence) 4.5 1.5 5.2
- --------------------------------------------------------------------------------
Capital expenditure
Six months ended Six months ended Year ended
30 September 30 September 31 March
2004 2003 2004
Continuing operations GBPm GBPm GBPm
- --------------------------------------------------------------------------------
O2 UK 292 217 502
O2 Germany 130 132 308
O2 Ireland 42 24 52
Airwave 128 158 243
Manx 4 1 9
O2 Online & Products O2 - 7 14
Central resources 3 - 2
- --------------------------------------------------------------------------------
Group total excluding
German network sharing agreement 599 539 1,130
German network sharing agreement 57 - 83
- --------------------------------------------------------------------------------
Group total 656 539 1,213
- --------------------------------------------------------------------------------
GROUP FINANCIAL RESULTS
Profit and loss account
In the first half Group turnover from continuing operations grew by 23% to
GBP3,285 million, driven by strong customer growth and higher ARPU across the
three mobile operating businesses, and the further roll-out of the Airwave
network. EBITDA before exceptional items increased by 37% to GBP851 million, and
the Group EBITDA margin improved to 25.9%, from 23.2% in the first half last
year.
Operating profit from continuing operations, before goodwill, UMTS licences and
exceptional items, more than doubled to GBP401 million, compared to GBP167
million in the first half last year. UMTS licence amortisation of GBP50 million
was charged in the half-year, reflecting the commercial launch of UMTS-based
services by O2 Germany at the start of May. No UMTS licence amortisation was
charged by O2 UK or O2 Ireland.
There were no exceptional charges in the first half. The Group's share of the
operating results of its joint ventures and associates in the first half was a
net loss of GBP4 million, compared to a loss of GBP2 million last year, mainly
reflecting the costs of growing the Tesco Mobile customer base. The Group's net
interest charge was reduced significantly, to GBP8 million, from GBP32 million
in the first half last year. This was due to a number of factors, including the
fall in net debt, and narrowing of the spread between the interest payable on
the Group's gross debt and the interest receivable on its cash balance. In
addition, the Group's foreign exchange hedging strategy resulted in a reduction
in interest payable of GBP8 million.
Profit before tax was GBP239 million in the first half, compared to GBP26
million in the same period last year. The tax charge was GBP3 million. Basic
earnings per share in the half-year were 2.7 pence, compared to 0.3 pence for
the first half last year. Underlying earnings per share, before goodwill and
UMTS licence amortisation, and exceptional items, grew to 4.5 pence, from 1.5
pence in the same period last year.
Distribution policy update
To reflect the Group's continuing growth in earnings and cash-flow, at the time
of the Preliminary Results announcement in May 2005 the Board expects to declare
an inaugural final dividend for the current financial year, to be paid in August
2005, following approval by shareholders at the Annual General Meeting.
Going forward, the Board is committed to implement a policy of regular,
sustainable dividends, growing by reference to the Group's underlying earnings
per share (i.e. before goodwill and UMTS licence amortisation), with a
medium-term target payout ratio of 50%. From the beginning of the 2005/06
financial year the Board intends to pay an interim dividend in January and final
dividend in August, split approximately one-third/two-thirds.
To ensure the Group has sufficient distributable reserves to support this
distribution policy, the Group will undertake a corporate reorganisation,
through a Court approved Scheme of arrangement and reduction of capital. The
Scheme will be subject to shareholder approval at an EGM, expected to become
effective before the end of the current financial year.
Capital expenditure and net debt
Group capital expenditure in the first half increased by GBP117 million, to
GBP656 million, and included a further payment of GBP57 million in respect of
the network sharing agreement in Germany. Higher spending in the UK and Ireland
was driven by increased investment in the UMTS network roll-out.
Group net debt was further reduced, to GBP236 million at the end of the first
half, compared to GBP366 million at the start of the year, and GBP494 million at
the same time last year, with the increased capital expenditure more than offset
by EBITDA growth.
Investment programme - O2 Germany
Building on its operational and financial turnaround over the past three years
and its strengthened position in the market, O2 Germany will now aim to grow its
business further, and will increase investment in its UMTS network. During the
five-year period from April 2004 O2 Germany is now expected to incur total
capital expenditure in the range EUR3.0 to EUR3.5 billion, aiming to deliver 3G
network quality and long-term population coverage that is competitive with the
market leaders. This is EUR1.0 to EUR1.5 billion higher than under the previous
strategy, and the cash-flow impact will to a significant extent be offset by a
reduction in operating costs, and further revenue growth. Growing the business
rapidly, and reducing operating costs, will position O2 Germany to deliver
higher long-term margins.
BUSINESS REVIEW
O2 UK
Interim results
In the first half O2 UK delivered further strong growth, with net service
revenue up by 20% year-on-year to GBP1,848 million. The termination rate cut
incurred at the beginning of September reduced first half service revenue by
approximately GBP20 million. Equipment and wholesale revenue grew by 62% to
GBP189 million. Total revenue in the first half was GBP2,037 million, 23% ahead
of the first half last year.
EBITDA increased by 21% to GBP581 million and the EBITDA margin was 28.5%. First
half EBITDA included the O2 Online/Products O2 costs which had previously been
reported separately, and which reduced the reported EBITDA margin by
approximately 1%. The 28.5% EBITDA margin in the first half was therefore
slightly ahead of last year, on a like-for-like basis. The revenue impact of the
termination rate cut was partially offset by a reduction in termination payments
to other mobile network operators, with no significant impact on O2 UK's EBITDA
margin.
First half operating profit, before exceptionals and goodwill, increased by
GBP98 million to GBP341 million. No UMTS licence amortisation was charged in the
first half.
Service revenue growth in the first half was driven by growth of the customer
base and by higher ARPU. The total customer base at the end of the first half
grew by 10% to 13.86 million, and the proportion of contract customers in the
base increased to 35%, from 34.3% at the end of the first half last year.
Blended ARPU at the end of the first half grew to GBP282, from GBP272 at the
start of the year, and GBP259 at the same time last year.
Voice and data both contributed to O2 UK's service revenue growth. Blended
average voice minutes of use per customer was 131 minutes per month, 6.5% higher
than at the start of the year, and 13.9% higher than at the same time last year.
Blended data ARPU was GBP62 on a 12-month rolling basis, compared to GBP55 at
the start of the year.
Subscriber acquisition and retention costs accounted for 15.6% of first half
total revenue, compared to 15.8% in the first half last year. However the first
half EBITDA margin before SAC and SRC was reduced to 44.1%, from 45.0% last
year, reflecting the inclusion of the costs of O2 Online/Products O2 from the
start of the current year.
Capital expenditure in the first half increased by GBP75 million, to GBP292
million. This mainly reflected acceleration of O2 UK's UMTS network roll-out
programme, which accounted for approximately one third of total capital spending
in the first half. O2 UK's new customer relationship and billing system
accounted for around 15% of the total.
Second quarter key performance indicators
A total of 331,000 net new customers were added in the quarter, of which 127,000
were contract customers. Contract ARPU improved to GBP541, from GBP537 in the
first quarter, and pre-pay ARPU increased to GBP145, from GBP143 in the first
quarter, reflecting O2 UK's continued success in attracting higher value
customers in both markets. The termination rate cut at the start of September
reduced second quarter blended rolling ARPU by GBP2.
O2 UK continued to make gains in the business market, with investment in direct
channels and development of specific propositions for targeted customer segments
proving successful. These included the "O2 Welcome" service for corporate
customers and the "Business Zones" proposition for the SME segment. In the
contract consumer market, additions to the "X" range of O2 branded handsets and
promotions such as "Happy Hour" attracted high-value customers. Contract churn
deteriorated in the quarter to 27%, on a 12-month rolling basis, compared to 26%
at the end of March. Contract SAC was slightly higher than in the second quarter
last year, but was more than offset by the improved contract ARPU being
generated across the base.
Targeted tariff propositions and the handset mix continued to attract high value
pre-pay customers, particularly in the youth market. The development of new
"Bolt-on" packages, and propositions such as "O2 Thanks" and the new "X" range
of devices, kept the pre-pay offer fresh. The intensity of competition was
reflected in pre-pay churn, which increased again in the quarter. However
pre-pay SAC was stable.
The importance of O2's own channels continued to increase, and accounted for 48%
of gross sales in the second quarter, compared to 40% in the second quarter last
year. The O2 brand continued to drive high value customer acquisition in target
market segments, and this was recognised in November when O2 UK won the IPA's
2004 Grand Prix for advertising and brand effectiveness.
The total number of text messages sent in the quarter grew by 5.2%
quarter-on-quarter, to 2.47 billion. Data as a proportion of O2 UK's total
service revenue increased to 23.0%, from 21.3% in the first quarter. The growth
of picture messaging continued, with 9.8 million messages sent by O2 UK
customers in the quarter, compared to 6.4 million in first quarter. Non-SMS data
accounted for 2.4% of total service revenue in the quarter, double the
proportion in the same quarter last year.
O2 Germany
Interim results
O2 Germany continued to grow strongly during the first half, with service
revenue up 29% at constant exchange rates, to EUR1,184 million (2003: EUR921
million). Total revenue was GBP877 million, compared to GBP719 million in the
first half last year. First half EBITDA increased to GBP163 million, from GBP109
million in the same period last year, and the EBITDA margin improved to 18.6%,
from 15.1% last year.
The operating profit before goodwill, UMTS licence and exceptionals was GBP16
million, compared to a loss of GBP35 million last year. O2 Germany started to
amortise its UMTS licence in May, and the total first half charge was GBP50
million.
The main driver of revenue growth was the continuing rapid growth in customer
numbers. A total of 687,000 net new customers were added during the first half,
taking the total base to 6.67 million at the end of the period, compared to 5.25
million at the same time last year. The customer mix continued to improve, with
contract customers comprising 57.9% of the base at the end of the first half, up
from 56.8% last year.
Blended ARPU of EUR371 at the end of the first half was EUR5 higher than at the
start of the year, and EUR17 ahead of the same time last year. ARPU growth in
the first half was driven mainly by data, with data ARPU increasing to EUR76,
from EUR71 at the start of the year, reflecting further strong growth in text
messaging. Voice usage also continued to grow, with minutes of use per customer
increasing by 6% compared to the same period last year, to 120 minutes/month.
The main driver of O2 Germany's continuing success in attracting high value
contract customers remains the Genion Homezone service. At the end of the first
half 75% of O2 Germany's contract customers subscribed to this service. Contract
churn remained stable during the first half, but contract acquisition cost per
subscriber increased, reflecting competitive pressure in the contract consumer
market.
O2 Germany increased its focus on the pre-pay market in the first half,
accelerating the rate of growth of the pre-pay base, while holding pre-pay ARPU
steady at EUR138. Pre-pay churn remained stable during the first half, but the
increased focus on this market was reflected in an increase in pre-pay
acquisition costs per customer. At the end of the period a distribution and
marketing joint-venture with Tchibo was announced, to further build O2 Germany's
position in the pre-pay market.
Subscriber acquisition and retention costs represented 20.4% of total revenue in
the first half, compared to 19.2% in the first half last year. The first half
EBITDA margin before SAC and SRC improved to 39.0%, from 34.3% in the first half
last year and 37.5% in the second half. National roaming payments in the first
half were GBP35 million, compared to GBP32 million last year.
Capital expenditure in the first half was flat, year-on-year, at GBP130 million,
excluding a payment of GBP57 million to T-Mobile in respect of the extended
network sharing agreement. O2 Germany's investment in its own UMTS network
accounted for approximately 40% of capital expenditure in the first half.
Second quarter key performance indicators
A total of 351,000 net new customers were added in the quarter, of which 186,000
were contract customers. Pre-pay ARPU was unchanged quarter-on-quarter, at
EUR138. Contract ARPU in the second quarter recovered by EUR3, to EUR540,
following the EUR3 decline reported in the first quarter. Blended ARPU in the
second quarter was EUR4 ahead, at EUR371.
Data ARPU accounted for around half of the quarter-on-quarter improvement in
total ARPU, improving by EUR2 to EUR76. A total of 556 million text messages
were sent in the second quarter, 5% higher than in the first quarter, and 31%
more than in the second quarter last year. Mobile data accounted for 20.4% of
second quarter service revenue.
Investment programme
Building on its operational and financial turnaround over the past three years
and its strengthened position in the market, O2 Germany will now aim to grow its
business further, and will increase investment in its UMTS network. During the
five-year period from April 2004 O2 Germany is now expected to incur total
capital expenditure in the range EUR3.0 to EUR3.5 billion, aiming to deliver 3G
network quality and long-term population coverage that is competitive with the
market leaders. This is EUR1.0 to EUR1.5 billion higher than under the previous
strategy, and the cash-flow impact will to a significant extent be offset by a
reduction in operating costs, and further revenue growth. Growing the business
rapidly, and reducing operating costs, will position O2 Germany to deliver
higher long-term margins.
O2 Ireland
Interim results
In the first half O2 Ireland's service revenue grew by 14% at constant exchange
rates, to EUR401 million. Total revenue was GBP280 million, compared to GBP260
million last year. EBITDA in the first half was GBP106 million, compared to
GBP103 million in the same period last year, and the EBITDA margin reduced to
37.9%, from 39.6% in the first half of last year. This reflected the higher
level of customer additions during the period, an increase in retention
spending, and some additional UMTS network operating costs. Operating profit
before goodwill and exceptionals increased by 10% in the first half, to GBP74
million. No UMTS licence amortisation was charged in the first half.
The main driver of growth was new customer acquisition, with the base growing by
12% year-on-year to 1.425 million, of which 27.6% were contract customers.
Blended ARPU grew by 1.6%, to EUR560. This was driven by both voice and data,
with average minutes of use per customer increasing to 203 per month, from 192
at the same time last year, and data ARPU 8% higher than at the start of the
year, at EUR119.
Second quarter key performance indicators
A total of 30,000 net new customers were added in the quarter, of which 5,000
were contract customers. Second quarter blended ARPU was EUR560, compared to
EUR556 in the first quarter. Contract ARPU grew by 2.4% quarter-on-quarter, to
EUR1,078. Pre-pay ARPU was EUR360, compared to EUR361 in the first quarter.
Blended data ARPU was EUR119, EUR1 higher than in the first quarter. The number
of text messages was broadly flat, quarter on quarter, at 323 million, and data
as a proportion of service revenues fell to 19.0% from 21.8% in the first
quarter, reflecting the stronger growth of voice usage in the quarter.
O2 Airwave
The network roll-out continued on track, and by the end of the first half the
service had been successfully delivered to 40 of Britain's 51 police forces. The
build programme remains on track to complete roll-out of the network to the
remaining police forces by the end of the financial year.
Revenue in the first half increased to GBP76 million, from GBP25 million last
year. EBITDA was GBP24 million, compared to a loss of GBP15 million in the same
period last year, and Airwave delivered its first operating profit, GBP2
million, compared to a loss of GBP23 million in the first half last year.
Capital expenditure in the first half was GBP128 million, compared to GBP158
million last year.
O2 Airwave has been short-listed for the national contracts to supply
communications services to the UK's Fire and Ambulance services. Despite some
delays in the tendering process, these contracts are currently expected to be
awarded to the winning bidder during the first half of 2005. O2 Airwave is also
bidding for a number of other contracts.
OUTLOOK STATEMENT
Year ending 31 March 2005:
- - O2 UK
The UK market remains intensely competitive, and the migration of the BT own-use
customers off the network will put further pressure on subscriber growth in the
second half. However O2 UK's performance through the end of the first half and
into the second half has been stronger than expected, in spite of the
approximately 30% cut in termination rates implemented at the beginning of
September. Voice and data usage have continued to grow, without being subject to
significant yield erosion. The Group therefore now expects O2 UK to report net
service revenue growth for the full year in the range 12-15%, compared to the
previously guided range of 9-12%.
The Group continues to expect the full-year EBITDA margin in 2004/05 to remain
stable, on a like-for-like basis. O2 UK commenced amortisation of its UMTS
licence at the start of October, and the charge for the full year is expected to
be GBP57 million.
- - O2 Germany
For the full-year the Group continues to expect O2 Germany to deliver further
strong revenue growth, and to achieve an EBITDA margin in the high teens.
- - O2 Ireland
For the full-year the Group continues to expect O2 Ireland to report further
steady growth of service revenue and EBITDA, and a broadly stable EBITDA margin
for the full year.
- - Capital expenditure
The Group continues to expect capital expenditure for the full year to be in the
range GBP1.3 - GBP1.4 billion. The increase over the previous year mainly
reflects higher UMTS investment in the UK.
Capital expenditure in the full year by O2 Germany is now expected to be
slightly higher than last year, reflecting the start of the acceleration of the
roll-out of the UMTS network.
Airwave's capital expenditure in the full year is now expected to be in line
with last year, rather than higher, as previously guided. This reflects the
delays in concluding the Fire and Ambulance contracts, for which Airwave had
expected to incur capital expenditure in the current financial year.
O2 Germany - five-year investment programme
During the five-year period from April 2004 the Group expects O2 Germany to
incur total capital expenditure in the range EUR3.0 to EUR3.5 billion, which is
EUR1.0 to EUR1.5 billion higher than under the previous strategy, and aims to
achieve UMTS network quality and population coverage that is competitive with
the market leaders. The cash flow impact of the increase in capital expenditure
over the five-year period will to a significant extent be offset by a reduction
in operating costs, and further revenue growth.
Capital structure
The Group intends to maintain financial ratios consistent with an investment
grade credit rating of strong BBB/Baa. At the end of the first half the Group
had net debt of GBP236 million and operating lease commitments of approximately
GBP1.8 billion. Following the recently completed renewal and re-pricing of its
banking facilities, the Group now has a GBP1.0 billion revolving credit
facility, maturing in October 2009, which represents a reduction of GBP825
million in its overall bank facilities.
The Board will continue to review the company's balance sheet, in the light of
the medium-term capital requirements of the business and its commitment to
investment grade credit status.
CORPORATE RE-ORGANISATION
As a consequence of the structure of the demerger in 2001, mmO2 currently lacks
distributable reserves. This could restrict the Group's ability to pay future
dividends. Therefore, the Group proposes to implement a corporate
reorganisation, by way of a Court approved Scheme of arrangement under s.425 of
the Companies Act 1985.
Under the Scheme it is intended that a new parent company will be created,
NewCo, which will acquire all of the shares in mmO2 plc, by issuing new NewCo
shares. At the same time NewCo will effect a capital reduction, in order to
provide it with the distributable reserves required to support the distribution
policy described above.
The Board also intends to explore options to offer the large number of very
small shareholders the opportunity to monetise their holdings without incurring
transaction costs. This would reduce the administrative costs that would be
incurred in making regular dividend payments. In addition, the Board intends to
review the status of its US ADR programme, which has been in decline over the
past three years.
The Scheme will require Court and shareholder approval, which will be sought at
a meeting to be convened by the Court, and an EGM. The Scheme is expected to
become effective before the end of the current financial year.
Cautionary statement Regarding Forward-Looking Statements
This document contains certain forward-looking statements. We may also make
written or oral forward-looking statements in:
- - our periodic reports to the US Securities and Exchange Commission, also
known as the SEC, on Forms 20-F and 6-K;
- - our annual report and accounts and half-yearly reports;
- - our press releases and other written materials; and
- - oral statements made by our officers, directors or employees to third
parties.
We have based these forward-looking statements on our current plans,
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions about us.
Forward-looking statements speak only as of the date they are made.
Statements that are not historical facts, including statements about our beliefs
and expectations are forward-looking statements. Words like "believe,"
"anticipate," "expect," "intend," "seek," "will," "plan," "could," "may,"
"might," "project," "goal," "target" and similar expressions often identify
forward-looking statements but are not the only ways we identify these
statements.
These statements may be found in this document generally. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
the above-mentioned sections.
If any one or more of the foregoing assumptions are ultimately incorrect, our
actual results may differ from our expectations based on these assumptions.
Also, the sector and markets in which we operate may not grow over the next
several years as expected, or at all. The failure of these markets to grow as
expected may have a material adverse effect on our business, operating results
and financial condition and the market price of our ordinary shares and ADSs.
The information on our web site, any web site mentioned in this document or any
web site directly or indirectly linked to our or any other web site mentioned in
this document is not incorporated by reference into this document and you should
not rely on it.
Interim statement for the six months ended 30 September 2004
Group profit and loss account
Six months ended 30 September 2004 (unaudited)
Note Six months Six months Year
ended ended ended
30 September 30 September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Turnover: group and
share of joint
ventures and associates 3,374 2,794 5,859
Group's share of joint
ventures and associates
turnover (89) (66) (165)
- --------------------------------------------------------------------------------
Group turnover 2,3 3,285 2,728 5,694
Net operating expenses
(including exceptional
items) (3,034) (2,663) (5,536)
EBITDA 1 851 621 1,367
Depreciation before
exceptional items (413) (449) (926)
Goodwill amortisation (100) (101) (201)
Other amortisation (87) (6) (7)
- --------------------------------------------------------------------------------
Operating profit before
exceptional items 251 65 233
Exceptional items 4 - - (75)
- --------------------------------------------------------------------------------
Group operating profit 3 251 65 158
Group's share of operating
loss of joint ventures and
associates (4) (2) -
- --------------------------------------------------------------------------------
Total operating profit 247 63 158
Loss on sale of business -
discontinued operations 4 - (5) (5)
Net interest payable and
similar charges (8) (32) (58)
- --------------------------------------------------------------------------------
Profit on ordinary
activities before taxation 239 26 95
Tax on profit on ordinary
activities 5 (3) (3) 71
- --------------------------------------------------------------------------------
Retained profit after
taxation for the period 236 23 166
- --------------------------------------------------------------------------------
Basic and diluted
earnings per
share (pence) 6 2.7 0.3 1.9
- --------------------------------------------------------------------------------
1 EBITDA is our earnings before interest, tax, depreciation, amortisation and
exceptional items, excluding our share of operating profits and losses of our
joint ventures and associates. EBITDA is not a measure of financial performance
under UK or US GAAP and may not be comparable to similarly titled measures of
other companies, because EBITDA is not uniformly defined. EBITDA should not be
considered by investors as an alternative to Group operating profit or profit on
ordinary activities before taxation as an indication of operating performance,
or as an alternative to cash flow from operating activities as an indication of
cash flows. EBITDA is one of the key financial measures used by the Group for
evaluating financial performance.
Group statement of total recognised gains and losses
Six months ended 30 September 2004 (unaudited)
Note Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Profit for the financial
period 9 236 23 166
Currency translation
differences arising on
foreign currency net
investments in subsidiaries
less translation
differences on debt
designated as a hedge of
foreign currency net
investments 9 71 75 (144)
- --------------------------------------------------------------------------------
Total recognised
gains relating to the
period 307 98 22
- --------------------------------------------------------------------------------
Group balance sheet
As at 30 September 2004 (unaudited)
Note 30 September 30 September 31 March
2004 2003 2004
As restated* As restated*
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Fixed assets
Intangible assets 7,309 7,524 7,354
Tangible assets 4,218 3,959 3,996
Investments 4 4 5
- --------------------------------------------------------------------------------
11,531 11,487 11,355
- --------------------------------------------------------------------------------
Current assets
Stocks 108 71 84
Debtors 1,131 1,067 943
Investments 1,163 927 993
Cash at bank and in hand 30 41 23
- --------------------------------------------------------------------------------
2,432 2,106 2,043
Creditors: amounts
falling due within
one year (1,920) (1,703) (1,678)
- --------------------------------------------------------------------------------
Net current assets 512 403 365
- --------------------------------------------------------------------------------
Total assets less
current liabilities 12,043 11,890 11,720
- --------------------------------------------------------------------------------
Creditors: amounts
falling due after
more than one year (1,423) (1,441) (1,375)
Provisions for
liabilities and
charges (217) (287) (251)
- --------------------------------------------------------------------------------
Net assets 10,403 10,162 10,094
- --------------------------------------------------------------------------------
Capital and reserves
Called up share capital 9 9 9 9
Share premium 9 4 - 3
Other reserves 9 10,513 11,580 11,074
Profit and loss account 9 (123) (1,427) (992)
- --------------------------------------------------------------------------------
Equity shareholders' funds 10,403 10,162 10,094
- --------------------------------------------------------------------------------
* Restated on the adoption of UITF 38 "Accounting for ESOP trusts" as disclosed
in note 9.
Reconciliation of operating profit to operating cash flows
Six months ended 30 September 2004 (unaudited)
Six months Six months Year
ended 30 ended 30 ended 31
September September March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Group operating profit 251 65 158
Depreciation and amortisation charges 600 556 1,136
Loss on disposal of fixed assets - 1 5
Increase in stocks (23) (2) (17)
Increase in debtors (169) (203) (88)
Increase in creditors 156 157 142
(Decrease)/increase in provisions (28) 5 55
- --------------------------------------------------------------------------------
Net cash inflow from
operating activities 787 579 1,391
- --------------------------------------------------------------------------------
Group cash flow statement
Six months ended 30 September 2004 (unaudited)
Note Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash inflow from operating
activities 787 579 1,391
Returns on investments
and servicing of finance 18 (24) (62)
Taxation (4) (7) (13)
Capital expenditure
and financial investment (637) (480) (1,114)
Acquisitions and disposals
(six months ended 30
September 2003 and year ended
31 March 2004: net of GBP10
million cash disposed of
with O2 Netherlands) - (5) (6)
- --------------------------------------------------------------------------------
Cash inflow before
management of liquid
resources and financing 164 63 196
Management of liquid
resources 7,8 (147) (80) (191)
Financing (10) (10) (50)
- --------------------------------------------------------------------------------
Increase/(decrease) in cash
in the period 7,8 7 (27) (45)
- --------------------------------------------------------------------------------
Group net debt
As at 30 September 2004 (unaudited)
Note 30 September 30 September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash at bank and in hand 30 41 23
Current asset investments 1,163 927 993
- --------------------------------------------------------------------------------
1,193 968 1,016
Euro medium term
notes (net of issue costs) (1,056) (1,028) (1,012)
Loan notes (7) (17) (8)
Obligations under
hire purchase contracts (333) (379) (325)
Other loans and borrowings (33) (38) (37)
- --------------------------------------------------------------------------------
Net debt 7,8 (236) (494) (366)
- --------------------------------------------------------------------------------
1. Basis of preparation
The interim statement is prepared in accordance with the accounting policies
expected to apply for the financial year ending on 31 March 2005. These policies
are unchanged from those set out in the Annual Report and Financial Statements
of the Group for the year ended 31 March 2004 with the exception of the adoption
by the Group of UITF Abstract No. 38 "Accounting for ESOP trusts" as disclosed
in note 9.
The interim statement is unaudited and does not constitute statutory financial
statements, but has been reviewed by the auditors whose report is reproduced on
page 23. The interim statement for the six months ended 30 September 2004 was
approved by the Directors on 16 November 2004.
The Group profit and loss account, statement of total recognised gains and
losses and the cash flow statement for the year ended, and the balance sheet and
statement of net debt as at, 31 March 2004 as presented in this interim
statement are extracts from the statutory financial statements for that year,
which have been delivered to the Registrar of Companies. The report of the
auditors on the financial statements for the year ended 31 March 2004 was
unqualified and did not contain a statement under either section 237(2) or
section 237(3) of the Companies Act 1985.
2. Segmental analysis
The segmental disclosures in respect of profit and loss account items are
presented below.
Group Depreciation and Total operating
turnover amortisation profit/(loss)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Six months ended 30 September 2004
Continuing operations
Mobile telecommunications
UK 2,037 315 262
Germany 877 198 (35)
Ireland 280 57 49
- --------------------------------------------------------------------------------
Total mobile telecommunications 3,194 570 276
Other businesses UK 101 25 10
Central overheads
and adjustments - 5 (39)
Inter-segment eliminations (10) - -
- --------------------------------------------------------------------------------
Group total 3,285 600 247
- --------------------------------------------------------------------------------
Definition of segments
In the year ended 31 March 2004, the Group undertook a restructuring of its
central functions and rationalised its property portfolio. This included the
transfer of O2 Online, Products O2 and certain other central functions to the
Group's operating businesses in the UK, Germany and Ireland. In the six months
ended 30 September 2004, the activities of O2 Online and Products O2 which were
previously reported as the "mobile internet services" segment, are reported
within the segments in which they now reside. As the information is not readily
available, the comparatives have not been restated and these businesses are
reported separately in line with day-to-day managerial and budgetary control at
that time.
2. Segmental analysis continued
Depreciation Total
Group and operating
turnover amortisation 1 profit/(loss)
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Six months ended 30 September 2003
Continuing operations
Mobile telecommunications
UK 1,651 314 164
Germany 719 144 (35)
Ireland 260 62 41
- --------------------------------------------------------------------------------
Total mobile telecommunications 2,630 520 170
Mobile internet
services UK 54 24 (49)
Other businesses UK 50 11 (15)
Central overheads
and adjustments - - (42)
Inter-segment eliminations (54) - -
- --------------------------------------------------------------------------------
2,680 555 64
Discontinued operations
Mobile telecommunications
The Netherlands 48 1 (1)
- --------------------------------------------------------------------------------
Group total 2,728 556 63
- --------------------------------------------------------------------------------
Year ended 31 March 2004
Continuing operations
Mobile telecommunications
UK 3,451 638 346
Germany 1,508 295 (72)
Ireland 529 120 87
- --------------------------------------------------------------------------------
Total mobile telecommunications 5,488 1,053 361
Mobile internet
services UK 140 42 (93)
Other businesses UK 139 37 (13)
Central overheads
and adjustments - 3 (96)
Inter-segment eliminations (121) - -
- --------------------------------------------------------------------------------
5,646 1,135 159
Discontinued operations
Mobile telecommunications
The Netherlands 48 1 (1)
- --------------------------------------------------------------------------------
Group total 5,694 1,136 158
- --------------------------------------------------------------------------------
1 In the year ended 31 March 2004, depreciation includes a charge of
GBP2 million included within exceptional operating costs.
Joint ventures and associates
Total turnover for the six months ended 30 September 2004 was GBP3,374 million
(year ended 31 March 2004: GBP5,859 million; six months ended 30 September 2003:
GBP2,794 million) and included GBP89 million (year ended 31 March 2004: GBP165
million; six months ended 30 September 2003: GBP66 million) representing the
Group's share of the turnover of its joint ventures and associates in the UK
mobile telecommunications business. The Group's share of the operating loss of
its joint ventures and associates was GBP4 million (year ended 31 March 2004:
nil; six months ended 30 September 2003: GBP2 million).
3. Analysis of continuing and discontinued operations
The results for the six months ended 30 September 2004 derive entirely from
continuing operations. The analysis of results for the prior periods presented
is:
Continuing Discontinued
operations operations Total
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Six months ended 30 September 2003
Group turnover 2,680 48 2,728
EBITDA 621 - 621
Group operating profit/(loss) 66 (1) 65
- --------------------------------------------------------------------------------
Year ended 31 March 2004
Group turnover 5,646 48 5,694
EBITDA 1,367 - 1,367
Group operating profit/(loss) 159 (1) 158
- --------------------------------------------------------------------------------
4. Exceptional items
In the year ended 31 March 2004, the Group incurred an exceptional operating
charge of GBP75 million in respect of the restructuring described in note 2 and
included provisions relating to redundancies and the termination of property
leases. This charge gave rise to a cash outflow of GBP17 million in that year.
On 14 April 2003, the Group announced that it had agreed the sale of its
wholly-owned Dutch subsidiary, O2 Netherlands, to Greenfield Capital Partners,
an independent private equity and corporate finance group with existing
interests in the fixed telecoms sector, for EUR25 million cash. This sale was
completed on 3 June 2003 and took the form of the sale of all the issued shares
of O2 Netherlands. The total loss on sale arising on completion was GBP1,369
million which, after utilisation of the provision recognised in 2003, resulted
in a non-operating exceptional loss of GBP5 million.
5. Tax on profit on ordinary activities
Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
United Kingdom - current tax - (1) -
- deferred tax (5) (1) (84)
Overseas - current tax 7 5 13
- deferred tax 1 - -
- --------------------------------------------------------------------------------
Tax charge/(credit) on profit on
ordinary activities 3 3 (71)
- --------------------------------------------------------------------------------
6. Earnings per share
Earnings per share has been calculated for all periods by dividing the profit
for the period by the weighted average number of ordinary shares in issue during
that period, as follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2004 2003 2004
- --------------------------------------------------------------------------------
Profit for the period
(GBP million) 236 23 166
- --------------------------------------------------------------------------------
Basic weighted average
share capital (number
of shares, million) 8,672 8,670 8,671
Dilutive potential
ordinary shares
(number of shares,
million) 83 38 44
- --------------------------------------------------------------------------------
Diluted weighted
average share capital
(number of shares,
million) 8,755 8,708 8,715
- --------------------------------------------------------------------------------
Basic and diluted
earnings per share
(pence) 2.7 0.3 1.9
- --------------------------------------------------------------------------------
Underlying earnings per share has been calculated using the basic weighted
average share capital and the underlying profit for the period calculated as
follows:
Six months Six months
ended 30 ended 30 Year ended
September September 31 March
2004 2003 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Profit on ordinary
activities after taxation 236 23 166
Goodwill amortisation 100 101 201
UMTS licence amortisation 50 - -
Exceptional items - 5 80
- --------------------------------------------------------------------------------
Underlying earnings 386 129 447
- --------------------------------------------------------------------------------
Underlying earnings
per share (pence) 4.5 1.5 5.2
- --------------------------------------------------------------------------------
7. Analysis of net debt
At At
1 April Cash Other non-cash 30 September
2004 flow movements 2004
GBPm GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Cash at bank and in 23 7 - 30
hand
Current asset 993 147 23 1,163
investments
- --------------------------------------------------------------------------------
1,016 154 23 1,193
Debt due after one (1,043) - (37) (1,080)
year
Debt due within one (14) 5 (7) (16)
year
Obligations under hire
purchase contracts (325) 6 (14) (333)
- --------------------------------------------------------------------------------
(366) 165 (35) (236)
- --------------------------------------------------------------------------------
8. Reconciliation of net cash flow to movement on net debt
Six months ended 30 Six months ended 30 Year ended 31
September 2004 September 2003 March 2004
GBPm GBPm GBPm
- --------------------------------------------------------------------------------
Increase/(decrease) in cash
in the period 7 (27) (45)
Management of liquid
resources 147 80 191
Cash outflow from decrease
in net debt 11 10 53
- --------------------------------------------------------------------------------
Decrease in net debt
resulting from
cash flows 165 63 199
Other non-cash
movements (35) (8) (16)
- --------------------------------------------------------------------------------
Decrease in net debt in
the period 130 55 183
Net debt at beginning of
period (366) (549) (549)
- --------------------------------------------------------------------------------
Net debt at
end of period (236) (494) (366)
- --------------------------------------------------------------------------------
9. Reconciliation of movements in shareholders' funds
Called up Share Other Profit Total equity
share premium reserves and shareholders'
capital loss funds
account
GBPm GBPm GBPm GBPm GBPm
- --------------------------------------------------------------------------------
At 1 April 2003 as
previously reported 9 - 12,087 (2,030) 10,066
Prior period
adjustment
relating to
UITF 38 - - - (3) (3)
- --------------------------------------------------------------------------------
At 1 April 2003 (as
restated) 9 - 12,087 (2,033) 10,063
Retained
profit for the
year - - - 166 166
Transfer from
profit and
loss account - - (1,013) 1,013 -
Shares issued
on share scheme
exercise - 3 - - 3
Share schemes
charge for the
period - - - 6 6
Currency
translation
differences - - - (144) (144)
- --------------------------------------------------------------------------------
At 31 March 2004 (as
restated) 9 3 11,074 (992) 10,094
Retained
profit for the
period - - - 236 236
Transfer from
profit and
loss account - - (561) 561 -
Purchase of
mmO2 plc
ordinary
shares - - - (1) (1)
Shares issued
on share
schemes
exercise - 1 - - 1
Share schemes
charge for the
period - - - 2 2
Currency
translation
differences - - - 71 71
- --------------------------------------------------------------------------------
At 30 September 2004 9 4 10,513 (123) 10,403
- --------------------------------------------------------------------------------
Prior period adjustment
The profit and loss account includes GBP3 million of own shares held at 30
September 2004 (31 March 2004: GBP2 million; 1 April 2003: GBP5 million).
The Group has adopted UITF Abstract 38 ("UITF 38") "Accounting for ESOP trusts"
in the six months ended 30 September 2004, which requires that a company's own
shares held through an ESOP trust be shown as a deduction from shareholders'
funds until such time as the shares vest unconditionally. Previously these
shares were recorded at cost less amortisation charged to date and shown as a
fixed asset investment.
The comparative figures in this interim statement have been restated to reflect
the adoption of UITF 38. The aggregate impact on the previously reported
figures, at 1 April 2003, is to reduce total equity shareholders' funds by GBP3
million (31 March 2004: increase total shareholders' funds by GBP3 million).
The adoption of UITF 38 has no effect on the profit and loss account.
Hedging strategy
The Group's treasury policy, including the approach to foreign currency
translation risk, is described in the Operating and financial review and
prospects on page 37 of the 2004 Annual Report and Accounts.
9. Reconciliation of movements in shareholders' funds continued
The overseas businesses of the Group, O2 Germany and O2 Ireland, conduct
substantially all their business in their domestic currency, Euros. As
anticipated in the 2004 Annual Report and Accounts, the cash flows in these
overseas businesses and the improved visibility of the future financial profile
of the Group has led us to increase the level of hedging of our overseas assets.
This was achieved through the redenomination of our existing Euro debt and the
use of EUR1,800 million forward foreign exchange contracts, which commenced in
June 2004.
The redenomination of existing debt realised a one-off cash inflow of GBP22m
which, when combined with the revaluation of the relevant Euro denominated debt
at that time, had no material impact on net debt. The ongoing effect of the
hedge implementation is that the Euro borrowings, which are a component of net
debt, are exposed to foreign exchange rate fluctuations and the interest charge
is impacted by the forward foreign exchange contracts, which has reduced the
current period interest charge by GBP8 million. Additionally, the foreign
exchange gains or losses, arising on the retranslation of the Euro borrowings
and on the forward foreign exchange contracts, are recognised in the statement
of total recognised gains and losses as they hedge certain assets of the
overseas businesses. The statement of total recognised gains and losses is
presented on page 14.
Full disclosure will be provided in the Group's 2005 Annual Report and Accounts
in accordance with FRS No. 13: "Derivatives and other financial instruments:
Disclosure".
10. International Financial Reporting Standards
The Council of the European Union announced in June 2002 that listed companies
in Europe would be required to adopt International Financial Reporting Standards
(IFRS) for accounting periods beginning on or after 1 January 2005. The adoption
of IFRS will apply to the Group for the first time for the half year ending 30
September 2005 and the year ending 31 March 2006.
In 2003, the Group formed a project team to manage the transition from existing
UK Generally Accepted Accounting Principles (UK GAAP) to IFRS. The project is
sponsored by the Chief Financial Officer and involves specialists from both the
Group Finance function as well as representatives from each of the Group's
operating businesses.
The initial phase of the project has been completed. This involved a high level
assessment of potential issues, the preparation of a project plan and
identification of the key work streams in the operating businesses and at a
group level, supported by work programmes in these areas. The Group has also
considered which, if any, of the optional transitional provisions within IFRS 1
"First time adoption of International Financial Reporting Standards" to adopt.
The second phase of the project, which is currently underway, involves the
restatement and reconciliation of opening balances to IFRS and the adjustment of
reporting systems to capture new data requirements for ongoing IFRS reporting.
We expect to publish full IFRS reconciliations in mid-2005 after the 31 March
2005 year end reporting is complete.
Our work on the project to date indicates that the major areas of difference
between UK GAAP and IFRS which will impact the Group include the following:
Goodwill
IFRS 3 "Business combinations" prohibits the annual amortisation of goodwill and
instead subjects such goodwill to an annual impairment review. The carrying
value of the Group's goodwill at the date of transition to IFRS is fixed and the
amortisation ceases from that date.
Intangible assets
IAS 38 "Intangible assets" considers, inter alia, whether an asset which
incorporates both tangible and intangible elements should be classed as a
tangible fixed asset or an intangible fixed asset. The treatment is determined
by an assessment of which element is more significant. It is likely that certain
of the Group's software, which is currently classed as a tangible fixed asset,
will be reclassified to intangible fixed assets.
Pension accounting
Under UK GAAP, the Group accounts for its pension schemes using SSAP 24 "Pension
costs" and has elected under the transitional rules of FRS 17 "Retirement
benefits" to make disclosures only. IAS 19 "Employee benefits" is similar, but
not identical to, FRS 17. IAS 19 and FRS 17 are conceptually different to SSAP
24 as they require any defined benefit pension scheme surplus or deficit to be
recognised on the Group's balance sheet.
10. International Financial Reporting Standards continued
On transition to IFRS, the Group expects to recognise the full assets and
liabilities of its defined benefit pension schemes on its balance sheet.
Thereafter, IAS 19 requires a portion of the surplus or deficit of defined
benefit pension schemes to be recognised on the Group balance sheet, based on
the application of a "corridor". This "corridor" is defined as the greater of
10% of the scheme's assets or liabilities, and actuarial gains and losses below
this threshold are not required to be recognised. Any actuarial gains and losses
exceeding the corridor are recognised in the profit and loss account over a
period representing the expected average remaining working lives of employees
participating in the scheme. Additionally, the profit and loss account charge
comprises an operating cost and an interest cost.
In April 2004, the IASB issued an exposure draft amending IAS 19 to allow
actuarial gains and losses to be recognised in full in the statement of changes
in equity, rather than in the profit and loss account, in the period in which
they arise.
The Group's principal pension scheme, the mmO2 Pension Plan, operates for the
majority of UK employees and is divided into defined benefit and defined
contribution sections. The defined benefit section comprises mainly active
members because all deferred and pensioner members at 30 June 2002 remained in
the BT Pension Scheme following the Group's demerger from BT in November 2001.
The assets of the mmO2 Pension Plan at 31 March 2004 were GBP278 million.
Accounting for share schemes
The Group has historically accounted for share scheme costs under UK GAAP using
the intrinsic value. IFRS 2 "Share based payments" requires the value of all
share based payments to be measured, and an expense recognised in the profit and
loss account, based on fair value. The fair value of the share schemes is
estimated using a valuation model and involves complex mathematical modelling.
It is often, but not always, the case that the fair value is higher than the
intrinsic value. Additionally, under UK GAAP, Inland Revenue approved SAYE
schemes are exempt from the requirement to recognise a charge whereas under IFRS
there is no such exemption.
Financial instruments
IAS 39 "Financial instruments: recognition and measurement" details how to value
and account for all financial instruments, including derivative instruments such
as interest rate swaps, cross currency swaps and forward contracts used by the
Group to reduce exposure to interest rate and currency risk.
Under IAS 39 all financial instruments are required to be recognised on the
balance sheet at fair value. If a derivative financial instrument is designated
as a "hedge", the movement in the fair value of the derivatives can be
recognised directly through reserves, which offsets the opposite movement in the
fair value of the hedged item, also in reserves. All other movements in the fair
value of financial instruments must be recognised as an income or expense in the
profit and loss account.
The Group has prepared documentation in line with the provisions of IAS 39 for
all hedging instruments and has established an ongoing procedure for testing the
effectiveness of these hedges which should permit the Group to adopt hedge
accounting for its financial instruments.
Deferred taxation
IAS 12 bases the calculation of the deferred tax assets and liabilities on the
difference between tax carrying values and balance sheet carrying values, rather
than the income statement approach required by FRS 19. As a result the scope of
IAS 12 is wider than that of FRS 19. The principal difference likely to affect
the Group is expected to be the deferred tax treatment of undistributed earnings
of subsidiaries, joint ventures and associates. The Group is also currently
assessing the tax effect of adjustments arising from the other differences
between UK GAAP and IFRS referred to above.
Independent review report by the auditors to mmO2 plc
Introduction
We have been instructed by the company to review the financial information which
comprise the profit and loss account, the balance sheet, the cash flow
statement, the statement of total recognised gains and losses and the related
notes. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2004.
PricewaterhouseCoopers LLP 16 November 2004
Chartered Accountants
London
The maintenance and integrity of the mmO2 plc web site is the responsibility of
the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information may differ from legislation in other jurisdictions.
Appendix: Key Performance Indicators
1. Customer numbers
Net
Customers Customers Customers Customers additions Customers
at 30 at 31 at 31 at 30 during at 30
September December March June period September
2003 2003 2004 2004 2004
000's 000's 000's 000's 000's 000's
- --------------------------------------------------------------------------------
O2 UK
Pre-pay 8,289 8,574 8,687 8,799 204 9,003
Post-pay 4,334 4,479 4,577 4,726 127 4,853
- --------------------------------------------------------------------------------
Total 12,623 13,053 13,264 13,525 331 13,856
- --------------------------------------------------------------------------------
O2 Germany
Pre-pay 2,271 2,354 2,516 2,643 165 2,808
Post-pay 2,980 3,232 3,466 3,675 186 3,861
- --------------------------------------------------------------------------------
Total 5,251 5,586 5,982 6,318 351 6,669
- --------------------------------------------------------------------------------
O2 Ireland
Pre-pay 901 992 1,010 1,007 25 1,032
Post-pay 373 378 381 388 5 393
- --------------------------------------------------------------------------------
Total 1,274 1,370 1,391 1,395 30 1,425
- --------------------------------------------------------------------------------
Manx
Pre-pay 46 40 42 44 1 45
Post-pay 21 21 21 21 1 22
- --------------------------------------------------------------------------------
Total 67 61 63 65 2 67
- --------------------------------------------------------------------------------
mmO2
Group
Pre-pay 11,507 11,960 12,255 12,493 395 12,888
Post-pay 7,708 8,110 8,445 8,810 319 9,129
- --------------------------------------------------------------------------------
Total 19,215 20,070 20,700 21,303 714 22,017
- --------------------------------------------------------------------------------
Pre-pay
percentage 59.9% 59.6% 59.2% 58.6% 55.3% 58.5%
Post-pay
percentage 40.1% 40.4% 40.8% 41.4% 44.7% 41.5%
- --------------------------------------------------------------------------------
2. Average revenue per user(1) (ARPU) - GBP
3 months ended: 30 31 31 30 30
September December March June September
2003 2003 2004 2004 2004
GBP GBP GBP GBP GBP
- --------------------------------------------------------------------------------
O2 UK (2)
12 month rolling
Pre-pay 133 137 141 143 145
Post-pay 508 512 525 537 541
Blended 259 264 272 279 282
Monthly average
Pre-pay 12 12 12 12 13
Post-pay 45 43 45 46 46
Blended 23 23 23 24 24
- --------------------------------------------------------------------------------
O2 Germany
12 month rolling
Pre-pay 90 93 96 95 94
Post-pay 363 373 375 368 366
Blended 239 249 254 252 251
Monthly average
Pre-pay 8 8 8 8 8
Post-pay 32 31 30 30 31
Blended 21 21 20 20 21
- --------------------------------------------------------------------------------
O2 Ireland
12 month rolling
Pre-pay 236 245 248 247 244
Post-pay 700 725 736 721 731
Blended 372 385 388 381 380
Monthly average
Pre-pay 22 21 20 20 21
Post-pay 65 60 61 59 66
Blended 34 33 32 31 33
- --------------------------------------------------------------------------------
(1) ARPU in all businesses includes revenue from inbound roaming.
(2) O2 UK ARPU includes Mobile Number Portability (MNP) revenue.
3. Data ARPU (blended 12 month rolling) - GBP
31 March 30 June 30 September
2004 2004 2004
GBP GBP GBP
- --------------------------------------------------------------------------------
O2 UK 55 59 62
O2 Germany 49 51 52
O2 Ireland 75 81 81
- --------------------------------------------------------------------------------
4. Average revenue per user(1) (ARPU) - Euro
3 months ended: 30 31 31 30 30
September December March June September
2003 2003 2004 2004 2004
EUR EUR EUR EUR EUR
- --------------------------------------------------------------------------------
O2 Germany
12 month rolling
Pre-pay 133 135 138 138 138
Post-pay 538 539 540 537 540
Blended 354 360 366 367 371
Monthly average
Pre-pay 12 12 11 11 11
Post-pay 46 45 44 45 46
Blended 31 31 30 31 32
- --------------------------------------------------------------------------------
O2 Ireland
12 month rolling
Pre-pay 349 355 357 361 360
Post-pay 1,037 1,048 1,061 1,053 1,078
Blended 551 556 559 556 560
Monthly average
Pre-pay 31 31 29 30 31
Post-pay 92 87 89 89 98
Blended 49 47 45 46 49
- --------------------------------------------------------------------------------
Euro rates
Quarterly 1.4310 1.4341 1.4718 1.5007 1.4880
Annually 1.4802 1.4461 1.4405 1.4594 1.4736
- --------------------------------------------------------------------------------
(1) ARPU in all businesses includes revenue from inbound roaming.
5. Data ARPU (blended 12 month rolling) - Euro
31 March 30 June 30 September
2004 2004 2004
EUR EUR EUR
- --------------------------------------------------------------------------------
O2 Germany 71 74 76
O2 Ireland 110 118 119
- --------------------------------------------------------------------------------
6. Voice minutes of use (mou) - blended monthly average(1)
12 months ended: 31 March 30 September 31 March 30 September
2003 2003 2004 2004
- --------------------------------------------------------------------------------
O2 UK 107 115 123 131
O2 Germany 109 113 118 120
O2 Ireland 188 192 197 203
- --------------------------------------------------------------------------------
(1) Includes total incoming and billable outgoing minutes.
7. Data as percentage of service revenues
3 months ended: 30 31 31 30 30
September December March June September
2003 2003 2004 2004 2004
% % % % %
- --------------------------------------------------------------------------------
O2 UK 19.4 21.2 22.3 21.3 23.0
O2 Germany 19.1 19.8 20.7 20.9 20.4
O2 Ireland 18.4 21.1 23.6 21.8 19.0
- --------------------------------------------------------------------------------
O2 Group 19.2 20.9 22.0 21.2 21.9
- --------------------------------------------------------------------------------
12 months ended: 30 31 31 30 30
September December March June September
2003 2003 2004 2004 2004
% % % % %
- --------------------------------------------------------------------------------
O2 Group 19.0 19.8 20.1 20.9 21.5
- --------------------------------------------------------------------------------
8. SMS messages
3 months ended: 30 31 31 30 30
September December March June eptember
2003 2003 2004 2004 2004
million million million million million
- --------------------------------------------------------------------------------
O2 UK 1,861 2,106 2,309 2,348 2,470
O2 Germany 423 468 507 532 556
O2 Ireland 272 301 339 321 323
Manx 21 16 19 19 10
- --------------------------------------------------------------------------------
O2 Group 2,577 2,891 3,174 3,220 3,359
- --------------------------------------------------------------------------------
mmO2 Contacts:
Richard Poston David Boyd
Director, Corporate Communications Head of Investor Relations
mmO2 plc mmO2 plc
richard.poston@o2.com david.boyd@o2.com
t: +44 (0)1753 628039 t: +44 (0)1753 628230
David Nicholas John Crosse
Communications Director Investor Relations Manager
mmO2 plc mmO2 plc
david.nicholas@o2.com john.crosse@o2.com
t: +44 (0) 771 575 9176 t: +44 (0)1753 628198
Simon Gordon
Press Relations Manager
mmO2 plc
simon.gordon@o2.com
t: +44 (0)771 007 0698
mmO2 press office: 01753 628402
All mmO2 Group news releases can be accessed at our web site: www.mmo2.com
(end)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
mmO2 plc
Date: 17 November 2004 By:___/s/ Robert Harwood___
ROBERT HARWOOD
Assistant Secretary