2Q06 net profit grew 25.5% y/y to PLN 571, some 1.5% above consensus, and a shade below our PLN 586m estimate, driven by stable revenues and costs and lower financial charges. Group revenues were up 0.9% y/y to PLN 4.6bn, in line with our forecast, driven by ongoing fixed line pressure, and continued growth in mobile and data services. Fixed line revenues fell 11.3% y/y to PLN 2.2bn, whilst mobile and data revenues grew 17.7% and 5.3% to PLN 1.7bn and PLN 557m respectively.
As expected, management reiterated that they will contest the UKE’s decisions vigorously, and will accelerate cost-cutting measures to offset the rate cuts. Although we believe TPSA has grounds for challenging the UKE’s decisions, note that TPSA will have to implement some of the rate cuts by 4Q06, and any revisions in the UKE’s decisions will just have to be applied retroactively.
Management also upheld their original guidance for a 1%-1.5% y/y revenue decline and a 42%-44% EBITDA margin for the full year 2006. Most importantly, they also announced that they will be proposing a minimum 20% increase in dividend payments in 2007, in addition to an extraordinary dividend payment and/or a share buyback.