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Everything Everywhere, the UK joint venture of France Telecom and Deutsche Telekom, will return to the bond market this year to raise funds for the auction of the so-called 4G bandwidth needed for next-generation mobile services.
The group, which operates the Orange and T-Mobile brands in the UK, raised its first independent finance last year with bank debt bolstered by a €500m bond issue. It repaid £876m of the £1.25bn provided by its parents and now plans to raise further finance when market conditions are appropriate.
Everything Everywhere has prioritised the provision of a network capable of carrying data-heavy applications such as video and gaming. On Tuesday it pointed to rapid growth in data demand as having underpinned a better-than-expected increase in adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of 2.4 per cent to £1.4bn for the year ended December.
It could even roll out 4G mobile broadband services this year ahead of the auction given the expectation that Ofcom, the UK telecoms regulator, will allow it to use certain existing spectrum. Some of this will be sold, however, under the stipulations of competition authorities following the 2010 merger, and the company is expected to appoint Morgan Stanley to oversee a process that could raise as much as £400m.
Everything Everywhere said that full-year earnings were boosted from cost cutting in the ongoing integration. Revenues also increased thanks to strong growth in premium-paying smartphone users, which underpinned the jump in data usage.
Olaf Swantee, chief executive, said: “We have made good progress in the strategic plan. The focus [now] is on network integration. We can build a very strong digital infrastructure for the UK.”
Everything Everywhere said that it was on track also to achieve a target to increase data revenue to more than half of its overall turnover, with the ratio of non-voice revenues rising from 36 per cent to 43 per cent.
Mr Swantee pointed to a recovery in the T-Mobile business, in particular, which he said had not been trading very well before the merger. He reiterated the commitment to supporting both Orange and T-Mobile in the UK in spite of speculation that the group could cull one of its brands at some point this year.
Ebitda margins widened to 20.9 per cent from 19.6 per cent, closing in its target of 25 per cent by 2015. The integration programme is also expected to yield about £3.5bn in cost savings, of which about 60 per cent has been achieved on an annual basis on the back of 560 job cuts, or about 4.5 per cent of the workforce.
The company has been at the centre of speculation over the past few months about a potential exit of Deutsche Telekom through a sale or flotation. People with knowledge of the company have played down any imminent move in spite of market expectations that the group could use additional cash after attempts to sell its US business for £39bn collapsed before Christmas.
Almost half of customers are now on “postpaid” monthly contracts, a 7.5 per cent year-on-year increase following a record level of additions in the fourth quarter around strong Christmas sales. It had 313,000 new contract customers in the fourth quarter, which more than overcame a 241,000 drop in prepaid customers. Smartphones are being used by two-thirds of these customers, compared with 51 per cent a year ago.