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Telefonica 02 Czech Republic, or T-O2, Monday posted a 5.4% rise in its first-quarter net profit, falling short of market expectations largely due to provisioning for uncollected receivables in Slovakia.

T-O2, majority-owned by Spain''s Telefonica, posted net profit of 2.43 billion koruna ($154.1 million) through March compared with CZK2.31 billion last year. The figure was below expectations for profit at CZK2.68 billion, according to a Dow Jones Newswires poll.

T-O2 executives in a conference call said there is a problem collecting payment from retail customers in Slovakia, but the executives didn''t specify the size of provisions they had been forced to make.

"We are working on efforts to improve collections," Chairman Salvador Anglada Gonzalez said.

"The Slovak (unit''s) first quarter results were a little bit worse than (expected) mainly due to provisions and not customers numbers," Anglada Gonzalez said. The company didn''t provide figures for its Slovak unit.

The Slovak operations should start contributing to T-O2''s growth and consolidated operating income "once the customer base is built up," he said, adding that breaking even in Slovakia on the operating level was unlikely this year.

The company was forced to cancel client accounts in Slovakia due to low or no client activity in the period and also due to some customers failing to honor payment terms, the company said, without providing specifics.

At the end of the quarter, T-O2 had 449,000 prepaid customers and 74,000 post-paid customers for a total of 523,000 customers in Slovakia. T-O2 has been active in Slovakia since early 2007.

The company declined to provide targets for customers numbers in Slovakia.

Anglada Gonzalez added that 2008 is a challenging year and global macroeconomic uncertainty could slow the company''s growth.

However, the company maintains its guidance for revenue growth between 2% and 4% annually despite provisioning in Slovakia.

The company''s consolidated sales in the first quarter reached CZK15.41 billion compared with CZK15.18 billion a year ago. First-quarter revenue also undershot expectations of CZK15.58 billion.

T-O2''s operating expenses rose 6.3% on the year to CZK8.8 billion, largely on expansion or human resources and technical rollout in Slovakia, where the company is building up a mobile-phone network.

Shares Monday closed up CZK3.9, or 0.8%, at CZK495.20 in Prague, outperforming the overall market.



Source:Dow Jones Newswires