O2 Czech Republic : January to December 2016 Financial Results – Press release (31 January 2017)

Press release

31 January 2017

• Net profit grew by 4% to CZK 5.3 billion in 2016, operating profit EBITDA increased slightly to CZK 10.5 billion. The company thus met its targets
• Consolidated revenue reached CZK 37.5 billion, up 0.4%. So the company was able to maintain stable revenue also in the second year following the separation
• Number of mobile contract customers in the Czech Republic grew by 119 thousand in 2016
• O2 intends to partially compensate future roaming regulation negative impact by new services in insurance and electronic sales reporting areas
• While average mobile data consumption per O2 customer increased 4.5 times in last three years, average spend for mobile services went down by 11% in the same period; 1 GB unit price for customer thus declined by 80%
• The Board of Directors intends to propose to shareholders a 2016 dividend of CZK 17 per share; on top of dividend payment it considers proposing distribution of part of share premium of CZK 4 per share.

"Telecommunication market continues being very competitive. In addition, since May our financial results reflect new roaming regulation negative impact. Nevertheless for the second consecutive year from infrastructure separation, we have been able to maintain flat revenue and increase net profit. O2 TV and mobile data remain the key growth areas," comments Tomáš Budník, Chief Executive Officer and the Chairman of the Board of Directors of O2 Czech Republic on the results.

"To be able to respond in the future to growing needs of our customers, we grew our investments by one third year on year in 2016.In last three years we spent only in the Czech Republic roughly CZK 23 billion of direct costs on development and operations of our mobile network, of that close to CZK 5.5 billion represented national budget revenue, adds Tomáš Budník.

"Regulation will impact also our future financial results, hence we are entering also new areas of financial services. Revenue from insurance and electronic sales reporting solution will

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partially compensate lower roaming revenue," amends Tomáš Kouřil, company's Chief Financial Officer and Vice-Chairman of the Board of Directors.

"At the general meeting, we intend to propose to the shareholders dividend for 2016 and distribution of part of share premium in the total amount of CZK 21 per share," concludes Tomáš Budník.

O2 Czech Republic today reports its unaudited operating and financial results for 2016. Consolidated figures include results of all daughter companies.

As of 31 December 2016, total number of mobile customers reached 4.941 million, up by 1% year-on-year. The number of contract customers increased by 3.7% year-on-year reaching

1.585 million customers, with slower decline during 2016.

In 2016, O2 continued through CETIN expanding coverage and increasing the capacity and speed of its mobile 4G LTE network. At the end of 2016 the population coverage reached already 99%. In Prague and Brno, the operator commenced to increase the speed and capacity of mobile data networks by aggregating multiple frequency bands and deployment of 2CC and 3CC technologies. At the end of 2016 the 2CC technology was deployed at 493 out of 534 base stations in Prague. 3CC expansion in the course of 2017 will be focused mainly on small sites with high traffic. In other areas of the Czech Republic 4G LTE technology was newly installed at about 1,500 stations in 2016 to increase population coverage and speed in accordance with the license terms. In December, O2 as the first operator launched in the real environment in Prague 4.5G technology which enables data transfers with theoretical speeds of up to 1.2 Gbps. This can be achieved through aggregation of multiple frequency bands (800 LTE FDD, LTE FDD 1,800, 2,600 LTE FDD, LTE TDD 2,600), and their supplementation with 4x4 MIMO technology and 256QAM. With this step O2 is thus preparing for the 5G arrival.

Helped by broadband network rollout and tariff proposition with increased data package mobile data traffic increased by almost 80% year-on-year to close to 30,600 terabytes.

Number of internet in handset service went up by 15% year-on-year to 1.778 million.

Already 56% of handsets in O2 network is already a smartphone and one fourth supports LTE technology. Number of customers with LTE smartphone and with USIM card, which supports the new technology, reached almost 850 thousand at the year end.

Number of O2 TV service customers provided on O2 fixed line as well as on internet connection from any provider reached 221 thousand (IPTV and OTT) as at 31 December 2016, up by 6.1% year-on-year. A complementary service MULTI which enables customers watching TV on more TV sets at one time became very popular. Already 34 thousand customers subscribed for this service and thus O2 can show off with over 250 thousand active set top boxes. Unique features (time shift, recording etc.), and also own O2 TV Sport channel with multidimension drive increasing demand for digital television. Following the August launch of a new O2 TV Football channel dedicated to the most popular sport in the country, as of beginning of January 2017, O2 new O2 TV Tennis channel that will bring in 2017 customers a record number of 3,800 hours of live broadcasts. It will exclusively broadcast 47 tournaments of WTA women's series, as well as 14 men's ATP tournaments and January's Australian Open Grand Slam. During the year O2 will add to a channel dedicated to ice hockey.

The customers also like watching O2 TV via internet and mobile application, or in restaurants. At 2016 year-end O2 TV service has been available already in over 1,100 restaurants, pubs and vars. Number of viewers, who actively watch O2 TV via internet and mobile application, continues growing and in December these means of watching TV were already used by over 360 thousand watchers.

Number of xDSL fixed internet customers reached 769 thousand at the end of 2016. Thanks to internet speed increase through installation of remote DSLAMs, the share of customers enjoying VDSL technology on total xDSL base reached already 65%, up by 10 percentage points year on year. During October O2 increased for free speed from 40 to 50

Mbps for roughly one tenth of all customers with Active fixed internet tariff where technical parameters of the line allowed for the increase. For the approximately 250 thousand Czech households, new tariff Premium is available from November, which offers download speeds up to 80 Mbit/s and upload speed 8 Mbit/s.

In January, the company introduced two plans for unlimited calls from fixed lines also to mobiles networks or abroad for a fixed price. At the end 2016 all households and entrepreneurs and most of corporate customers already passed to them. This helped the average revenue per line in the resident segment to increase by almost 30% in 2016 and slow down voice revenue decline considerably. Total number of fixed voice lines reached 699 thousand at the end of 2016.

Number of mobile customers in Slovakia increased by 4.6% year-on-year to 1,892 thousand. In 2016, O2 Slovakia thus improve its customer base by as much as 85 thousand. Through O2 Business Services O2 in Slovakia has been offering also fixed services for corporate customers from the beginning of the year. At 2016 year-end, about 200 customers subscribed for them.

Total consolidated operating revenue reached CZK 37.522 billion in 2016, up 0.4% year-on- year. Operating revenue in the Czech Republic totalled CZK 30.902 billion, representing a 0.1% growth. Fixed business operating revenue declined less compared to the past, by 0.9% year-on-year to CZK 11.563 billion, largely driven by continuous O2 TV revenue growth and higher ICT revenue. Mobile operating revenue reported slight 0.6% growth to CZK 19.339 billion. Voice and SMS revenue declines driven by roaming regulation and lower prices in corporate and public sector segments due to contracts renegotiation and retendering were more than compensated by mobile data and hardware revenue growths. In Slovakia, revenue reached CZK 6.787 billion, a 1.6% year-on-year growth. Revenue denominated in euros improved by 2.5% to EUR 251 million.

The Board of Directors intends to submit to the shareholders at the general meeting a proposal for 2016 dividend of CZK 17 per share. This represents 98% of net unconsolidated profit, fully in line with dividend policy to pay out 90% to 110% of the profit. On top of dividend and in line with its earlier communicated intension it considers to propose distribution of part of share premium in the amount of CZK 4 per share. Overall, it intends to pay to the shareholders CZK 21 per share before tax, CZK 6.5 billion in total. At the current share price it represents close to 8% yield for the shareholders.