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
20 July 2005
O2 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 1st Quarter Results sent to the
London Stock Exchange on 20 July 2005
O2 PLC ANNOUNCES FIRST QUARTER KEY PERFORMANCE INDICATORS AND ADOPTS
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Released: 20 July 2005
Peter Erskine, Chief Executive of O2 plc, commented:
"All our mobile businesses have delivered another good quarter, driven by the
continued growth of the customer base, to 24.6 million, 15.5% higher than at the
same time last year. Underlying voice and data trends remain robust, although
voice ARPU growth in the UK and Germany continues to be restrained by the 2004
termination rate cuts. The initial impact of our initiatives to reduce UK churn
is encouraging, with short-term churn metrics improving for both our contract
and pre-pay customer bases.
At the end of the first quarter we are increasingly confident that all our
businesses will again deliver all their growth and margin targets in 2005/06."
Key performance indicators (KPI) for the three-month period ending 30 June 2005
(including the impact of adoption of IFRS):
Service revenue:
- - O2 UK net service revenue grew by 3% year-on-year (including termination
cut);
- - O2 Germany service revenue grew by 24% year-on-year (at constant currency);
- - O2 Ireland service revenue grew by 15% year-on-year (at constant currency).
Customer numbers:
- - O2 added 646,000 customers, taking the total base to 24.6 million
- O2 UK added 232,000 customers;
- O2 Germany added 412,000 customers;
Average revenue per user (ARPU), including impact of IFRS adoption in O2 UK:
- - O2 UK blended ARPU GBP271 (Q4: GBP273; Q1 '04/'05: GBP269)
- - O2 Germany blended ARPU EUR356 (Q4: EUR363; Q1 '04/'05: EUR367)
- - O2 Ireland blended ARPU EUR571 (Q4: EUR565; Q1 '04/'05: EUR556) Mobile data:
- - SMS volume grew by 34% year-on-year, to 4.31 billion
- - Data as a proportion of service revenue stable at 26.0%
- - 34% of O2 customers used non-SMS data services.
International Financial Accounting Standards ("IFRS")
O2 plc is required, under EU Regulations, to adopt International Financial
Reporting Standards as its primary basis of accounting for the year ending 31
March 2006. IFRS has replaced UK Generally Accepted Accounting Principles ("UK
GAAP"), under which O2 has prepared and presented its financial statements up to
31 March 2005.
The principal effects on O2's reported financial information arise from the
following differences in accounting under IFRS compared with UK GAAP:
- - recognition of mobile number portability ("MNP") revenue on a net basis;
- - cessation of goodwill amortisation;
- - recognition of all employee benefits, principally pension obligations;
- - inclusion of a charge for employee share schemes based on fair value;
- - recognition of certain financial instruments at fair value;
- - recognition of certain deferred tax liabilities;
- - de-recognition of dividends not declared at period end.
The impact on financial results and key performance indicators ("KPIs") for the
year ended 31 March 2005, compared with the UK GAAP reported results, are as
follows:
- - O2 UK revenue reduced by GBP108 million, to GBP3,922 million;
- - O2 UK 12-month rolling blended ARPU reduced by GBP8, to GBP273;
- - EBITDA reduced by GBP8 million, to GBP1,760 million;
- - O2 UK EBITDA margin increased from 29.4 % to 30.2%;
- - Underlying earnings(1) GBP727 million (UK GAAP: GBP735 million);
- - Underlying earnings(1) per share 8.4 pence (UK GAAP: 8.5 pence);
- - Basic earnings per share of 5.7 pence (UK GAAP: 3.5 pence);
- - Group net debt increased by GBP1 million, to GBP79 million;
- - Net assets reduced by GBP86 million, to GBP10,195 million.
(1) Before goodwill and UMTS licences amortisation and exceptional items
O2 UK - Mobile Number Portability (MNP)
O2 UK receives income and incurs a related expense on calls which are "ported"
to another mobile operator. Porting arises when an O2 customer leaves O2 and
joins another network and takes their existing mobile number to their new
network. All calls received by that customer are still routed via the O2 network
to the network of the new operator. For all incoming calls to the O2 network, O2
receives a termination fee per minute and is required to pass that fee to the
new operator. The receiving operator pays O2 a small commission for conveying
the call.
Under UK GAAP O2 UK recognised the termination fee on a gross basis and thus
included these amounts in both revenue and cost of sales. Under IFRS O2 will
recognise the termination payments on a net basis. This adjustment is solely a
reclassification which does not alter profit or cash flow.
However, in the year ended 31 March 2005 the adjustment reduces O2 UK's total
revenue and operating costs by GBP108 million each, increases O2 UK's EBITDA
margin by 0.8 percentage points to 30.2%, and reduces 12-month rolling blended
ARPU by GBP8.
A summary of the quarterly and half-yearly changes for O2 UK for the year ended
31 March 2005 is presented in Appendices 1 and 2.
A full description of the differences between UK GAAP and IFRS, and the impact
on O2 plc's primary financial information for the 12 months ended 31 March 2005
and 6 months ended 30 September 2004, is presented in detail in O2 plc Release
ref. PR0518.
FIRST QUARTER Operating review
O2 UK (including the impact of adoption of IFRS)
First quarter net service revenue grew by 3% year-on-year. The impact of the 30%
termination rate cut in September 2004, and the loss of the BT contract during
the second half of last year, reduced net service revenue by approximately 8%
compared to the first quarter of 2004/05.
The business demonstrated continuing underlying momentum. A total of 232,000 net
new customers were added in the quarter, taking the base to 14.616 million, 8.1%
higher than at the same time last year. Blended ARPU was GBP271, GBP2 lower than
at the end of the previous quarter but GBP2 higher than in the first quarter
last year, despite the approximately GBP15 impact of the September 2004
termination rate.
The initiatives introduced to reduce churn are demonstrating encouraging
progress in both the pre-pay and contract markets. The level of contract
upgrades is running well ahead of the same time last year, and the initial
response rate to the pre-pay Reward offer is ahead of expectations. The churn
metrics are starting to improve, with the monthly churn rate declining for both
the contract and pre-pay customer bases.
O2 Germany
Service revenue grew by 24% at constant currency in the first quarter, driven by
the continuing high level of net customer additions. A total of 412,000 net new
customers were added in the quarter, taking the base to 8.388 million, 33%
higher than at the same time last year. The 17% termination rate cut in December
2004 reduced service revenue by approximately 3% compared to the first quarter
of 2004/05.
Blended ARPU remained the highest in the German market, at EUR356, down from
EUR363 in the previous quarter, partly reflecting the impact of the termination
rate cut. The changing customer mix also affected blended ARPU, due to the
recent strong growth of the pre-pay customer base. Contract ARPU of EUR527 was
EUR4 lower than the previous quarter, reflecting the recent rapid growth of new
O2 Active customer propositions, in addition to the ongoing success of the
high-ARPU Genion Homezone range of services.
A total of 268,000 net new pre-pay customers were added in the quarter, well
ahead of the growth achieved in the same quarter last year. Pre-pay ARPU
remained broadly flat at EUR139, in spite of the December 2004 termination rate
cut. The Tchibo Mobile joint venture continued to perform well, with 83,000 net
new customers added in the quarter.
O2 Ireland
Service revenue in the first quarter grew by 14.6% at constant currency, driven
by both customer growth and improving ARPU. The customer base remained broadly
flat quarter-on-quarter, but was 9.7% higher than at the same time last year.
Twelve-month rolling blended ARPU of EUR571 was 2.7% higher than in the first
quarter of 2004/05, reflecting strong underlying voice and data usage trends.
O2 Airwave
In July Airwave was awarded the contract to provide a communications service to
all Ambulance Trusts in England. The total value of the contract for network
access and provision and integration of equipment is approximately GBP390
million over 13 years. Airwave will invest approximately GBP75 million over a
three-year period, of which around 50% will cover non-network expenditure. The
Scottish and Welsh Ambulance Service Trusts are scheduled to decide on their
choice of communications solutions in the near future. O2 Airwave is also
short-listed for the Fire Service national communications contract, and 78 other
public safety organisations are already signed up to the service.
OUTLOOK
At the end of the first quarter, the Group is increasingly confident that all
its operating businesses will deliver all of their revenue, margin and capital
expenditure targets for the year ending 31 March 2006:
- - O2 UK
The Group expects mid-single digit growth in net service revenue, reflecting the
remaining five months' impact of the September 2004 termination rate cut, and
continuing competition in what is now a highly penetrated mobile market.
The EBITDA margin is expected to remain broadly stable, reflecting the
competitiveness of the market, and O2 UK's programme to allocate substantial
resources to develop additional customer-facing capabilities, and achieve higher
long-term customer retention.
(Note that the change in the definition of service revenue under IFRS does not
have a material impact on either the service revenue growth or EBITDA margin
guidance.)
- - O2 Germany
The Group expects to deliver further strong service revenue growth, mainly
driven by continued rapid growth of the customer base. The EBITDA margin is
expected to improve further, to around 20%, reflecting O2 Germany's continuing
prioritisation of revenue growth, as well as the impact of UMTS network running
costs and the continued costs of national roaming.
- - Group capital expenditure
Capital expenditure is expected to be broadly in line with the total incurred in
2004/05 (excluding the network sharing agreement payments in Germany), with
higher UMTS network investment, particularly in Germany, offsetting the
reduction in Airwave capital expenditure due to completion of the police network
roll-out.
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 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.
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.
1. Customer numbers
Customers Customers Customers Customers Net Customers
at 30 at 30 at 31 at 31 additions at 30
June September December March during June
2004 2004 2004 2005 period 2005
000's 000's 000's 000's 000's 000's
- -------------------------------------------------------------------------------
O2 UK
Pre-pay 8,799 9,003 9,341 9,472 126 9,598
Post-pay 4,726 4,853 4,875 4,912 106 5,018
- -------------------------------------------------------------------------------
Total 13,525 13,856 14,216 14,384 232 14,616
- -------------------------------------------------------------------------------
O2 Germany
Pre-pay 2,643 2,808 3,253 3,620 268 3,888
Post-pay 3,675 3,861 4,145 4,356 144 4,500
- -------------------------------------------------------------------------------
Total 6,318 6,669 7,398 7,976 412 8,388
- -------------------------------------------------------------------------------
O2 Ireland
Pre-pay 1,007 1,032 1,118 1,130 (11) 1,119
Post-pay 388 393 398 403 8 411
- -------------------------------------------------------------------------------
Total 1,395 1,425 1,516 1,533 (3) 1,530
- -------------------------------------------------------------------------------
Manx
Pre-pay 44 45 41 41 6 47
Post-pay 21 22 22 22 (1) 21
- -------------------------------------------------------------------------------
Total 65 67 63 63 5 68
- -------------------------------------------------------------------------------
O2 Group
Pre-pay 12,493 12,888 13,753 14,263 389 14,652
Post-pay 8,810 9,129 9,440 9,693 257 9,950
- -------------------------------------------------------------------------------
Total 21,303 22,017 23,193 23,956 646 24,602
- -------------------------------------------------------------------------------
Pre-pay percentage 58.6% 58.5% 59.3% 59.5% 60.2% 59.6%
Post-pay percentage 41.4% 41.5% 40.7% 40.5% 39.8% 40.4%
- -------------------------------------------------------------------------------
2. Non-SMS data users (90 day active)
Customers Customers Customers Customers Customers
at 30 at 30 at 31 at 31 at 30
June September December March June
2004 2004 2004 2005 2005
000's 000's 000's 000's 000's
- ------------------------------------------------------------------------------
O2 UK 3,516 3,758 4,901 5,728 5,975
O2 Germany 1,314 1,487 1,753 1,906 1,891
O2 Ireland 286 333 411 516 493
- ------------------------------------------------------------------------------
O2 Group 5,116 5,578 7,065 8,150 8,359
- ------------------------------------------------------------------------------
% total
customer base 24.0% 25.3% 30.5% 34.0% 34.0%
- ------------------------------------------------------------------------------
3. Average revenue per user(1) (ARPU) - GBP
30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- ----------------------------------------------------------------------------
O2 UK (2)
12 month rolling
Pre-pay 137 139 139 138 137
Post-pay 521 525 530 527 523
Blended 269 273 275 273 271
Quarterly monthly average
Pre-pay 12 12 11 11 11
Post-pay 45 45 43 43 44
Blended 23 23 22 22 23
- ----------------------------------------------------------------------------
O2 Germany
12 month rolling
Pre-pay 95 94 94 95 95
Post-pay 368 366 366 362 361
Blended 252 251 251 248 244
Quarterly monthly average
Pre-pay 8 8 8 8 8
Post-pay 30 31 31 29 30
Blended 20 21 21 20 19
- ----------------------------------------------------------------------------
O2 Ireland
12 month rolling
Pre-pay 247 244 243 244 244
Post-pay 721 731 750 762 787
Blended 381 380 382 385 391
Quarterly monthly average
Pre-pay 20 21 21 20 20
Post-pay 59 66 66 63 68
Blended 31 33 33 31 33
- ----------------------------------------------------------------------------
(1) ARPU in all businesses includes revenue from inbound roaming.
(2) Adjusted for the effect of adoption of International Financial Reporting
Standards (IFRS).
4. Data ARPU (blended 12 month rolling) - GBP
30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- ----------------------------------------------------------------------------
O2 UK 59 62 65 68 72
O2 Germany 51 52 53 54 54
O2 Ireland 81 81 81 82 83
- ----------------------------------------------------------------------------
5. Average revenue per user(1) (ARPU) - Euro
30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- ----------------------------------------------------------------------------
O2 Germany
12 month rolling
Pre-pay 138 138 138 140 139
Post-pay 537 540 539 531 527
Blended 367 371 370 363 356
Quarterly monthly average
Pre-pay 11 11 12 12 11
Post-pay 45 46 45 41 44
Blended 31 32 31 28 29
- ----------------------------------------------------------------------------
O2 Ireland
12 month rolling
Pre-pay 361 360 359 358 357
Post-pay 1,053 1,078 1,106 1,118 1,149
Blended 556 560 564 565 571
Quarterly monthly average
Pre-pay 30 31 30 29 29
Post-pay 89 98 94 91 100
Blended 46 49 48 45 48
- ----------------------------------------------------------------------------
Euro rates
Quarterly 1.5007 1.4880 1.4384 1.4427 1.4744
Annually 1.4594 1.4736 1.4747 1.4669 1.4609
- ----------------------------------------------------------------------------
(1) ARPU in all businesses includes revenue from inbound roaming.
6. Data ARPU (blended 12 month rolling) - Euro
30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- ----------------------------------------------------------------------------
O2 Germany 74 76 78 79 79
O2 Ireland 118 119 120 120 121
- ----------------------------------------------------------------------------
7. SMS messages
3 months ended: 30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
million million million million million
- --------------------------------------------------------------------------
O2 UK 2,348 2,470 2,834 3,097 3,234
O2 Germany 532 556 628 674 703
O2 Ireland 321 323 343 363 357
Manx 19 10 11 11 11
- --------------------------------------------------------------------------
O2 Group 3,220 3,359 3,816 4,145 4,305
- --------------------------------------------------------------------------
8. Data as percentage of service revenues
3 months ended: 30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- -----------------------------------------------------------------------------
O2 UK(1) 22.0 23.7 25.7 28.6 28.2
O2 Germany 20.9 20.4 22.3 23.2 22.6
O2 Ireland 21.8 19.0 20.9 23.2 21.9
- -----------------------------------------------------------------------------
O2 Group(1) 21.7 22.4 24.3 26.5 26.0
- -----------------------------------------------------------------------------
12 months ended:
% %
- -----------------------------------------------------------------------------
O2 Group(1) 23.7 24.8
- -----------------------------------------------------------------------------
(1) Adjusted for the effect of adoption of International Financial Reporting
Standards (IFRS)
9. Non-SMS data as percentage of service revenues
3 months ended: 30 30 31 31 30
June September December March June
2004 2004 2004 2005 2005
GBP GBP GBP GBP GBP
- -----------------------------------------------------------------------------
O2 UK(1) 2.1 2.5 2.9 3.8 3.6
O2 Germany 2.8 3.1 3.8 4.4 4.7
O2 Ireland 1.2 1.4 1.6 1.9 1.8
O2 Group(1) 2.2 2.6 3.0 3.8 3.8
- -----------------------------------------------------------------------------
(1) Adjusted for the effect of adoption of International Financial Reporting
Standards (IFRS)
APPENDIX 1 - Re-statement of O2 UK quarterly KPI's affected by IFRS
1. ARPU - 12 month rolling (GBP)
3 months ended: 30 30 31 31
June September December March
2004 2004 2004 2005
GBP GBP GBP GBP
- ----------------------------------------------------------------------------
IFRS
Pre-pay 137 139 139 138
Post-pay 521 525 530 527
Blended 269 273 275 273
UK GAAP as previously reported
Pre-pay 143 145 145 143
Post-pay 537 541 545 542
Blended 279 282 283 281
Effect of restatement
Pre-pay (6) (6) (6) (5)
Post-pay (16) (16) (15) (15)
Blended (10) (9) (8) (8)
- ----------------------------------------------------------------------------
2. ARPU - monthly average (GBP)
3 months ended: 30 30 31 31
June September December March
2004 2004 2004 2005
GBP GBP GBP GBP
- ----------------------------------------------------------------------------
IFRS
Pre-pay 12 12 11 11
Post-pay 45 45 43 43
Blended 23 23 22 22
UK GAAP as previously reported
Pre-pay 12 13 12 11
Post-pay 46 46 44 44
Blended 24 24 23 23
Effect of restatement
Pre-pay - (1) (1) -
Post-pay (1) (1) (1) (1)
Blended (1) (1) (1) (1)
- ----------------------------------------------------------------------------
3. Data as percentage of service revenues
3 months ended: 30 30 31 31
June September December March
2004 2004 2004 2005
GBP GBP GBP GBP
- ----------------------------------------------------------------------------
O2 UK
IFRS 22.0 23.7 25.7 28.6
UK GAAP as previously reported 21.3 23.0 25.0 27.7
Effect of restatement 0.7 0.7 0.7 0.9
- ----------------------------------------------------------------------------
APPENDIX 2 - Re-statement of O2 UK revenues under IFRS and impact on EBITDA
margin
Year ended 31 March 2005 IFRS
UK GAAP adjustments IFRS
GBP million GBP million GBP million
- ---------------------------------------------------------------------------
Service revenue 3,627 (120) 3,507
Other revenue 403 12 415
- ---------------------------------------------------------------------------
Total revenue 4,030 (108) 3,922
Operating costs (1) (2,847) 108 (2,739)
- ---------------------------------------------------------------------------
EBITDA 1,183 0 1,183
- ---------------------------------------------------------------------------
EBITDA margin 29.4% 0.8% 30.2%
- ---------------------------------------------------------------------------
(1) Excluding depreciation, amortisation and exceptional items.
Under UK GAAP O2 UK recognised the MNP termination fees of GBP108 million on a
gross basis and thus included these amounts in both revenue and cost of sales.
Under IFRS O2 will recognise the termination payments on a net basis. This
adjustment is solely a reclassification which does not alter profit or cash
flow.
In addition the commission received by O2 UK from the receiving operator, of
GBP12 million, has been re-classified from Service revenue to Other revenue.
This adjustment has no effect on the O2 UK's total revenue.
Six months ended 30 Sept. 2004 IFRS
UK GAAP adjustments IFRS
GBP million GBP million GBP million
- ---------------------------------------------------------------------------
Service revenue 1,848 (63) 1,785
Other revenue 189 5 194
- ---------------------------------------------------------------------------
Total revenue 2,037 (58) 1,979
Operating costs (1) (1,456) 58 (1,398)
- ---------------------------------------------------------------------------
EBITDA 581 0 581
- ---------------------------------------------------------------------------
EBITDA margin 28.5% 0.9% 29.4%
- ---------------------------------------------------------------------------
(1) Excluding depreciation, amortisation.
O2 plc contacts:
Richard Poston David Boyd
Director, Corporate Affairs Head of Investor Relations
O2 plc O2 plc
richard.poston@o2.com david.boyd@o2.com
t: +44 (0)1753 628039 t: +44 (0)1753 628230
David Nicholas John Crosse
Director of Communications Investor Relations Manager
O2 plc O2 plc
david.nicholas@o2.com john.crosse@o2.com
t: +44 (0) 771 575 9176 t: +44 (0)1753 628198
O2 press office: 01753 628402
All O2 Group news releases can be accessed at our web site: www.o2.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.
O2 plc
Date:20 July 2005 By:___/s/ Robert Harwood___
ROBERT HARWOOD
Assistant Secretary