O2 Czech Republic : January to June 2014 Financial Results – Press Release (1 August 2014)

Press release

O pera t io na l hig hlig hts o f t he f irst ha lf o f 2 0 14

 We maintain our position on the market with worsening year-on-year dynamics:

o FREE Tariffs now covering the whole consumer contract mobile customer base

o Modest mobile contract base growth of 2.5% year-on-year in the Czech
Republic, solid growth of 15.7% in Slovakia

o Smartphone penetration in the Czech Republic growing above 38%, up by

7.7 percentage points year-on-year, driving growth of mobile data traffic

o VDSL accesses growing by 26.2% year-on-year, helping to manage fixed broad band ARPU dilution and low churn

o Fixed accesses disconnections remain in line with previous periods, having declined by 7.1% year-on year

 Consolidated operating revenues reaching CZK 21,773 million, down by 8.9% year-on-
year (-6.1% year-on-year excluding the impact of MTR cuts)
 OIBDA declined by 12% year-on-year, impacted by top-line pressure in the Czech
Republic, partly offset by OPEX reduction, with OIBDA margin1 reaching 34.8%
 Total cash flow dominated by the strategic acquisition of LTE spectrum in both countries. Consolidated free cash flow excluding the acquisition of LTE spectrum down by 24.8%
 Non-SMS data remain the key driver of growth in mobile business
 O2 Slovakia with sustained commercial momentum further increasing its contribution to the Group financial performance
 4G LTE service roll out is under way using newly acquired spectrum in both Czech and
Slovakia auctions, with network sharing helping acceleration while saving Capex

1 OIBDA/Operating revenues

O2 Czech Republic a.s. Za Brumlovkou 266/2

Praha 4

140 22

T +420 271 462 076 http://www.o2.cz/spolecnost/en/investor-relations/ investor_relations@o2.cz

Co nso lida t ed F ina ncia l Res u lt s

year-on-year in the first half of the 2014, showing a stabilized trend of operating revenues quarter-
on-quarter.

13.2% year-on-year. On the other hand, the Company continues to benefit from its data-centric proposition, with non-messaging data revenues (excluding CDMA) growth of 25.6% year-on- year reaping the benefits of the introduction of data centric tariffs in 2013.

MTR impact, the revenue growth denominated in CZK currency was 7.6% year-on-year.
The Group has intensified its effort to deliver efficiencies in both commercial and non-commercial areas of its operations. Total consolidated operating expenses went down by 7.4% year-on-year to CZK 14,178 million in the first half of 2014. Personnel expenses (excluding restructuring costs) declined by 11.2% year-on-year as the Company continued in its restructuring programme focused on building a lean and flexible organizational structure. The total Group headcount3 has been further optimised to reach 5,055 personnel at the end of June 2014, representing 11% year-on-year reduction. The Company also continues to benefit from further simplification of its business model.

11.6% year-on-year, when the Comparable OIBDA margin reached 36.4% in the first half of
2014, down by 1.1 pp year-on-year. Reported OIBDA in the first half of 2014 reached CZK 7,581 million, with OIBDA margin of 34.8%, down 1.2 pp year-on-year. OIBDA margin in the second quarter of 2014 reached 36.7%, same as in the second quarter of last year, on the back of the focus on efficiency agenda as well as growing profitability in Slovakia

2 Figures are shown net of inter-segment charges between fixed and mobile businesses

3 Excluding the headcount of Bonerix, the Group subsidiary

4 OIBDA excluding restructuring costs

business these included largely extending LTE using the new spectrum, mobile network sharing deployment, further capacity expansion and improvement of the quality of mobile broadband network, in line with the growing demand for mobile data services. Additionally, in fixed business the Company channelled its investments into capacity enhancements of its fixed broadband networks by VDSL expansion.

3,492 million, representing 24.8% year-on-year decline in the first half of 2014. Total free cash flow in the period was dominated by the payment for the strategic acquisition of LTE spectrum in the Czech Republic and Slovakia for the amount of CZK 3,908 million. The consolidated long- term financial debt amounted to CZK 3,000 million at the end of June 2014, with no change compared to the end of 2013. At the same time, cash and cash equivalents reached CZK 3,478 million at the end of the period, following the payment for the LTE spectrum.

C Z M o bile B usiness O v er v iew

The Company continues to build on the data centric platform brought about by the FREE Tariffs. The fact that the whole consumer contract base is migrated to the new platform represents a foundation for future propositions to these customers. In business contract base, the Company continues in defending its leading position by addressing the needs of its business customers with the commitment to be the innovation leader in the Czech mobile market.
The demand for mobile internet continued to grow largely thanks to improved proposition in the Company's tariffs with extended data package, and the Company's ongoing support of smartphone sales via introduction of instalment model, and keeping the best price guarantee proposition for the bestselling smartphones. This newly comprises also the iPhone, which the Company is now offering to its customers in a balanced partnership with Apple. As a result, non-messaging data revenues (excluding CDMA) went up year-on-year by 25.6% in the first half of 2014. Small screen base5 at the end of June 2014 grew by 37.4% year-on-year. Smartphone penetration6 grew further, reaching 38.1% at the end of June 2014, up by 7.7 percentage point year-on-year.
The total mobile customer base reached 5,060 thousand at the end of June 2014. Total net additions amounted to negative 42 thousand, driven by the movements in the prepaid base. The number of contract customers grew by 2.5% year-on-year, reaching 3,253 thousand. The number of prepaid customers reached 1,807 thousand at the end of June 2014, down by 5.3% year-on- year as a result of the ongoing migration to contract segment and the transition to MVNO's.
The blended monthly average churn rate reached 2.2% in the first half of 2014. Contract churn was at 1.3%. Monthly average churn rate in prepaid was 3.9% in the first half of 2014.
In terms of usage, total mobile traffic7 carried by our customers in the Czech Republic reached
5,744 million minutes in the first half of 2014, up by 11.9% year-on-year, supported by the adoption of unlimited on net voice calling in the Czech Republic in all FREE tariffs and in the FREE CZ Tariff also unlimited all net voice calling.

Total mobile operating revenues were CZK 9,447 million in the Czech Republic, representing year-on-year decline of 15.9% in the first half of 2014. At the same time, mobile gross service revenues went down by 15.5% year-on-year to reach CZK 8,724 million. Continuous competitive pressures mainly in business segment leading to lower spend together with MTR cuts were the key drivers for the decline. Excluding the impact of mobile termination rate cuts, mobile gross service revenues would decline by 12.6% year-on-year. Mobile originated voice revenues declined by
22.2% year-on-year to CZK 4,999 million, while messaging (SMS & MMS) revenues were
35.6% lower due to lower effective per unit price. Terminated revenues went down by 13% year-

on-year to CZK 1,001 million, largely impacted by MTR cuts not fully compensated by higher incoming traffic.

5 Customer base using mobile internet in handsets

6 Smartphones as % of total handsets base

7 Inbound and outbound, including roaming abroad, excluding inbound roaming

C Z F ixe d B usine ss O v er v iew

In the highly competitive and declining market in the first half of 2014 the Company reported continued downturn of the customer base as well as the revenues. The declining trend is stabilised via the proposition of its VDSL service and O2 TV to the broadband retail customer base, as well
as via growth of voice wholesale revenues. Continuous migration of the existing ADSL customers
to the VDSL service and O2 TV with added features such as multiscreen access (O2 TV Go Multiscreen) including replay of up to 30 hours of any channel are helping the Company to manage fixed broadband ARPU dilution and sustain low churn.
The total number of fixed accesses declined by 7.1% year-on-year reaching 1,337 thousand at the end of June 2014, with 52 thousand net losses during the period.
The number of xDSL accesses reached 914 thousand at the end of June 2014, the share of the high speed VDSL accesses has increased. In respect of VDSL, 391 thousand customers (+26.2% year-
on-year) have already subscribed for the upgraded service. The total number of O2 TV customers exceeded 171 thousand at the end of the period, up 20% year-on-year thanks to maintained popularity of the O2 TV launched in 2013.
Total fixed operating revenues reached CZK 9,667 million in the first half of 2014, down by
5.1% year-on-year. Revenues from voice retail services continued in trend and fell by 21.2% year-on-year, in line with the performance of previous periods, reaching CZK 1,858 million, due to continuing fixed telephony line losses. Voice wholesale revenues improved by 18.7% year-on- year to CZK 2,646 million. Internet & broadband revenues (incl. O2 TV) declined by 8.3% year-on-year to CZK 2,838 million, resulting from competitive ARPU pressures and slight decline in xDSL customer base, compensated by the combination of migration of customers to VDSL, as well as growing O2 TV customer base. Total ICT revenues went down by 14.4% year-on-year in the first half of 2014 to CZK 880 million.

Slo v a kia

O2 Slovakia continues to be one of Group's key growth drivers and managed to achieve solid commercial and financial performance in the first half of 2014 despite the strong competition. Total number of customers reached 1,608 thousand at the end of June 2014, posting a 12.6% year-on-year growth. The customer base increased by nearly 69 thousand in the first half of 2014, with majority of net adds in contract customer base. The number of contract customers grew by
15.7% year-on-year reaching 821 thousand at the end of June 2014 (47 thousand net adds in the first half of 2014), while the number of prepaid customers increased by 9.5% year-on-year ending up at 787 thousand. Share of contract customers in Slovakia was 51% of the total customer base at the end of June 2014, up by 1.4 percentage point year-on-year.
In terms of financial performance, the total operating revenues of O2 Slovakia in local currency grew 0.8% year-on-year reaching EUR 103 million in the first half of 2014. Excluding the impact of MTR cuts, the growth rate would be 14.0%, fuelled by customer growth, refreshed proposition, improving customer mix and the focus on acquiring higher value customers both in residential and small and medium enterprises. At the same time, OIBDA of O2 Slovakia went up by 8.3% year-
on-year to EUR 34 million, resulting in a healthy 33% OIBDA margin. Year-on-year growth of total operating revenues and OIBDA were 7.6% (15.9% when denominated in CZK). Total ARPU in Slovakia reached EUR 9.8 in the first half of 2014 (EUR 11.2 when excluding the impact of MTR cuts). Contract ARPU reached EUR 13.3, while prepaid ARPU was at EUR 6.0.

At t a ch ment :

The consolidated balance sheet and income statement of O2 Czech Republic prepared in accordance with International Financial Reporting Standards.

Investor Relations
O2 Czech Republic a.s. investor_relations@o2.cz t +420 271 462 076

About O2 Czech Republic

O2 Czech Republic is the largest integrated telecommunications provider in the Czech market, trading under the O2 brand. At present the Company operates close to eight million mobile and fixed accesses, which places it among the market leaders in fully converged services in Europe. To the users of mobile services in the Czech Republic O2 offers state-of-the- art HSPA+ and LTE technology. O2 has the most comprehensive proposition of voice and data services in the Czech Republic and actively exploits the growth potential of its various business lines, especially ICT. O2 data centres, with total floor area of 7,300 square metres, rank O2 among the leaders in hosting, cloud and managed services. O2 data centres are the only centres in the Czech Republic and in the Central Europe with TIER III certification. With the O2 TV the Company is also the largest IPTV service provider in the Czech Republic. The Company is present on the mobile market in Slovakia since 2007, through its 100% subsidiary O2 Slovakia. In January 2014, O2 Czech Republic became a member of the Czech investment group PPF.

About PPF Group

PPF Group invests into multiple market segments such as banking and financial services, telecommunications, real estate, retail, insurance, metal mining, agriculture and biotechnology. PPF's reach spans from Europe to Russia, the USA and across Asia. PPF Group owns assets of EUR 20.9 billion (as at 31 December 2013).

All amounts in CZK million

All amounts in CZK million

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