Everything Everywhere interim results for 6 months ended 30 June 2012

Significant progress integrating legacy businesses while driving consistent commercial momentum

  • Q2 service revenue growth of +3.4% (Q1 2012: +2.9%) year-on-year (yoy) excluding regulated MTR cuts; including impact of MTR cuts –1.1% (Q1 2012: -2.5%)
  • H1 adjusted EBITDA1 margin stable at 20.3% with additional 1.9ppts of margin invested in customer retention following 9% yoy increase in contract renewals
  • Continued strong customer loyalty with low postpaid churn at 1.2% (Q2 2011: 1.1%); successfully upgrading customers to higher value postpaid plans, with average access fees +2.0% yoy
  • Further improving customer value mix; postpaid base +6.5% yoy; Q2 postpaid net adds 150k (Q2 2011: 236k); 50% of customers now on postpaid agreements (Q2 2011: 46%) that deliver average of 5 times higher ARPU (Average Revenue Per User) compared to prepaid; prepaid down 313k in-line with industry trends
  • Rapid smartphone adoption drives data revenue growth; postpaid smartphone penetration up 11 ppts yoy at 72% (Q2 2011: 61%) with 91% (Q2 2011: 85%) of new postpaid customers selecting smartphones; non-messaging data revenue up 11 ppts yoy at 29% (Q2 2011: 18%) of ARPU; non-voice revenues (data and messaging) up 8ppts yoy to 47% (Q2 2011: 39%) of ARPU
  • Progress on business integration delivering cost savings surpassing £316m (71%) of £445m annual gross opex savings target; on track for synergy savings of £3.5bn+ NPV by 2014
    -  Network Optimisation started with 1,390 redundant sites switched off, with cost savings accelerating in the  second half
    -  Commenced retail transformation; plan to remove 30 overlapping stores
    -  Corporate function restructuring measures completed

First half unless otherwise noted

Six months ended 30 June 2012

H1 year-on-year change (%)

Q2 year-on-year change (%)

Service revenue

£2,989 m

(1.8%)

(1.1%)

Service revenue change (ex. regulation)

 

3.1%

3.4%

Adj. EBITDA

£673 m

(1.3%)

 

Adj EBITDA margin

20.3%

0.0ppts

 

Q2 Postpaid Net Adds

150k

 

(36%)

Q2 Postpaid Churn

1.2%

 

0.1ppts

 

Olaf Swantee, Chief Executive Officer of Everything Everywhere, commented: “In the first half, we delivered a solid commercial performance, with good underlying revenue growth. We are making strong progress integrating the legacy Orange and T-Mobile businesses to create cost efficiencies and deliver planned synergy targets, while investing in significant network upgrades to further improve our customer experience.”

Operating Review
Everything Everywhere made significant progress integrating the legacy businesses while driving commercial momentum in the first half of the year against a background of economic uncertainty, regulatory pressures and a highly competitive environment. We further improved the quality of our customer base, drove greater efficiencies in our operations, and continued to invest in our network, differentiating Everything Everywhere in our marketplace and underpinning our future growth and profitability.

Our Customers: Driving market leadership and customer loyalty
Excluding the impact of regulated MTR cuts, underlying service revenue in Q2 2012 was +3.4% yoy (Q1 2012: +2.9%); including the impact of MTRs Q2 service revenue was –1.1% yoy at £1,486 million.   Underlying growth was driven by a 6.5% yoy increase in postpaid customers, including 150k net postpaid additions in Q2.

50% of our customers are now on postpaid plans. With postpaid customers generating five times more ARPU than prepaid, this continues to improve the value mix of our customer base and resulted in underlying blended (combining pre- and postpaid) ARPU growth of 5.1% yoy.   Customer retention remains very strong, with sustained low customer churn of 1.2% in Q2 (Q1 2012: 1.2%). Across the business, 79% of our postpaid customers are now on two year contracts, up from 67% a year ago.

Our Company: Operational Excellence 
We made good progress with business integration.  This resulted in the business maintaining a stable EBITDA margin at 20.3% (H1 2011: 20.3%) following an incremental investment in retention of 1.9ppts driven by 9% yoy increase in contract renewals.

In the first half, we advanced several integration programmes including: progressing plans to reduce our head office property by 38%; integrating key IT systems; consolidating warehouses and our handset supply chain; and integration of our retail estate, with plans to close 30 stores. We are also rapidly progressing our Network Optimisation programme, which will deliver significant cost savings over the next two years. It is now ahead of plan, with 1,390 sites turned off in the first half, with cost savings accelerating in H2.  We are on track to achieve £3.5bn+ NPV in synergies by 2014.

Our future: Creating a platform for growth through smartphones and data
Smartphone penetration and data revenues were again strong, illustrating the continuing improvement in the quality of our revenue streams and driving the underlying growth of the business.   The proportion of postpaid customers using smartphones rose to 72% (Q2 2011: 61%) and 91% of new postpaid customers opted for smartphones (Q2 2011: 85%). Non voice revenues (data and messaging) grew to 47% of ARPU revenues (Q2 2011: 39%), with non-messaging data reaching 29% of ARPU (Q2 2011: 18%).   Fixed broadband continues to gain momentum, delivering 11% yoy revenue growth, driven by strong multiproduct adoption, with 97% of new fixed broadband customers taking line rental and mobile.

Capital structure and dividend
We continued to progress the process commenced last year to move our funding to a standalone basis, which included repayment of the remaining shareholder loans put in place on the formation of Everything Everywhere. Under our successful bond issuance programme we raised Euro 500 million in January and £450 million in March; we remain committed to our financial policy of achieving, in the medium term, a leverage ratio of below 1.75-2x EBITDA.  We paid in H1 2012 £543 million in dividends to our shareholders while ensuring we have the long term funding to achieve our operational goals.

-ends-
1 Adjusted EBITDA is EBITDA before restructuring costs, brand and management

Media Contacts: 
Dan Perlet
dan.perlet(at)everythingeverywhere.com

Everything Everywhere Press office: 
everything.everywhere(at)golinharris.com or 0870 373 1500

Investor Relations Contacts: 
Deutsche Telekom Investor Relations:
investor.relations(at)telekom.de or +49 228 181 888 80

France Telecom – Orange investor relations: 
didier.kohn(at)orange.com or +33 1 44 44 72 53

Debt Programme Contact:
M:Communications
Everythingeverywhere(at)king-worldwide.com

About EE

EE is the most advanced digital communications company in Britain, providing mobile and fixed line services to 27 million customers, and will soon become the first company in the UK to provide 4G mobile services alongside fixed-line fibre.

EE is the company that runs the Orange and T-Mobile brands in the UK, and will be launching its new superfast 4G brand – EE – in the coming weeks.

Its 4G service will cover a third of the population by the end of 2012 and its fibre service will cover 50% of the population by the end of the year.
EE’s mobile service currently provides coverage to 99% of the population with 2G and 98% of the population with 3G

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