Net income came in 6.0% above consensus at PLN 374m (-46.4% y/y), and 6% below our estimate of PLN 398m. The steep earnings contraction came on the back of sharply lower revenues and even larger contraction in margins. Revenues declined 7.4% y/y to PLN 4.2bn, broadly in-line with expectations, but EBITDA contracted 20% y/y to PLN 1.6bn, some 5% lower than consensus, and our estimate as margin contracted 588 bps y/y to 37.2%, even wider than the contraction in 1Q09. The rate of decline across fixed and mobile voice continued, while broadband remained the only growth area. Fixed line revenues were down 12.5% y/y, broadly in-line with our estimate, as line churn stayed at 3.0% for the quarter, but the decline in effective yield per fixed access accelerated to -7.6%, from -5.1% in 1Q09, as yield per fixed access declined to PLN 53.6. Mobile delivered another disappointment posting an 8.8% y/y decline to PLN 1.8bn on broadly flat subscriptions, but an acceleration in ARPU decline to -8.0% (PLN 44.9). The ARPU decliine comes on tthe back of continued deterioration in average effective tariff, down another 24% to PLN 0.33 per minute. Although the mobile operators will get some respite from the UKE's decision to freeze MTRs until mid-2010, the depressed tariffs, and the allowed P4 asymmetry is likey to bring market share, and tariffs down for the foresseable future. On a brighter note, broadband grew 11.4% y/y to PLN 401m on modest subscriptions growth and resilient ARPU. Overall, no surprises on the revenues, but acceleration in fixed line deterioration and downward mobile trends. Operating costs showed a slight uptick y/y to PLN 2.6bn, which, given the steep revenue erosion, slashed EBITDA by 21% y/y as margin contracted more steeply to 37.2%, some 130 bps faster than our estimate. We believe that has limited room to maneover on the cost side now following years of cost-cutting, and with faster revenue erosion, margins ar elikely to keep trending down. TPSa beat consensus on much lower tax cost after a one-off recognition of deferred tax assets (PLN 201m).
The 2Q09 results confirmed worrying trends from the previous quarter, with mobile decline set to accelerate. Despite years of underperformance, fixed line erosion continues unabated on sustained line churn and an acceleration in tariff erosion. With limited room to aggressively cut costs, margins are likely to remain on a downtrend, pressuring free cash flows going forward. Earnings risk remain on the downside. Further, dispute with DPTG presents more cashflow risk from potential settlement cost. At 3.7x 2009F EV/EBITDA, trades just below the average of its peers of 3.9x. We believe the risks to earnings warrant the slight discount.