Telekom Austria Group Generated Net Profit of Almost EUR 160 Million

Vienna, November 14, 2013 - Telekom Austria Group (VSE: TKA, OTC US: TKAGY) today announced its results for the third quarter ending September 30, 2013.

• In the first nine months of 2013, the company showed a solid performance
• Group revenues declined slightly by 2.6% to EUR 3.13 billion
• Group EBITDA dropped by 9.8% to approximately EUR 1.03 billion due to declining revenues and higher handset subsidies
• Net profit totaled almost EUR 160 million
• Austria and Bulgaria reported declines in both revenues and earnings, with Croatia also showing a downward trend mainly due to roaming effects
• Belarus and the “Additional Markets” segment continued to experience marked growth
• Group-wide customer growth, especially in terms of broadband
• Gross savings of over EUR 110 million were achieved via a group-wide efficiency optimisation program
• Full-year outlook remains unchanged

Telekom Austria Group’s Key Data
*) In Q2 2013 the calculation of mobile broadband customers was changed in Austria. Prior quarters in both the 2012 and 2013 financial years were adjusted retroactively.
**) EBITDA excluding effects from restructuring and impairment tests


The operating markets of the Telekom Austria Group in Central and Eastern Europe continued to be marked by a highly competitive landscape, a very challenging macroeconomic environment and strong regulatory burdens with regard to roaming tariffs and mobile termination rates. As a result, group revenues declined by 2.6% to EUR 3.13 billion in first three quarters 2013 compared with the same period of the previous year. While Austria, Croatia and Bulgaria reported declines in revenues, Belarus and the “Additional Markets” segment (Slovenia, Republic of Serbia, Republic of Macedonia and Liechtenstein) showed considerable revenue growth. EBITDA comparable, excluding effects from restructuring and impairment tests, fell by 9.8% to approximately EUR 1.03 billion in the period under review. Net profit totaled EUR 159.2 million (-11.6%).

“In the first nine months of 2013, we were able to achieve a solid operating performance, defying the persistently difficult framework conditions. With a focus on the premium customer segment combined with higher time-limited subsidies for smartphones, we are on the right track to safeguard our core mobile business across the Group. The almost stable development of our fixed line business in Austria also demonstrates that we are on the right strategic path,” Hannes Ametsreiter, CEO A1 and Telekom Austria Group commented on the results of the first nine months in 2013.

Business Development in the First Nine Months of 2013
The operating markets of the Telekom Austria Group are currently characterised by strong competition and significant regulatory obstacles. In addition, some countries face challenging economic conditions.

Hans Tschuden, CFO and Deputy Chairman of the Telekom Austria Group, commented on the company’s business development: “We are committed to counteracting both regulatory obstacles and the stiff competition we are facing in our markets with a strict cost efficiency program throughout the Group. In the period under review, we were able to achieve gross savings of over EUR 110 million, generating a solid set of results. Thus, we reiterate our full-year outlook.“

In Austria, business development continued to show a negative trend mainly due to intense mobile competition and the further reduction of roaming tariffs. In Bulgaria, results were once again impacted by a drastic reduction of mobile termination rates and a weak economic environment. In Croatia, EU membership led to a decline in revenues in the period under review, which is mainly attributable to the related reduction of roaming tariffs. In contrast, the Belarusian segment showed very positive development despite the fact that the country experienced further currency depreciation. The “Additional Markets” segment, which encompasses Slovenia, the Republic of Serbia and the Republic of Macedonia as well as Liechtenstein, also showed very favourable development in the first nine months of the year.

Belarus and the “Additional Markets” segment could not fully compensate for the negative development in Austria, Bulgaria and Croatia. As a result, group revenues dropped to EUR 3.13 billion, a decrease of 2.6% compared to the same period of the previous year and EBITDA comparable declined to approximately EUR 1.03 billion (-9.8%).

The operating result (EBIT) decreased by 11.2% to EUR 344.7 million compared to the same period of the previous year. At the same time, total gross savings of over EUR 110 million had a positive effect on the Group’s earnings performance. In the first nine months of 2013, the Telekom Austria Group generated a net profit of EUR 159.2 million (-11.6%).

In the period under review, group capital expenditures rose slightly by 0.7% to EUR 493.0 million; higher capital expenditures were reported in Austria and the Republic of Macedonia (due to the costs incurred by Vip operator to acquire new frequency bands), whereas investments in Bulgaria were well below the previous year’s level. Total headcount across the Group’s eight operating companies dropped by 2.5% to 16,243 employees (full-time equivalents) as of 30 September, 2013.

The Telekom Austria Group Confirms Full-Year Outlook
The results for the first nine months of the year have largely confirmed Telekom Austria Group expectations for the full year 2013.

A number of external factors including competitive markets, regulatory burdens and macroeconomic headwinds will likely continue to impact results. In the major Group markets Austria, Bulgaria and Croatia fierce competition exacerbates mobile pricing pressure. In the Group’s home market Austria the latter encourages the ongoing fixed-to-mobile voice substitution and hampers fixed-line data tariff initiatives. Moreover, regulatory provisions such as lower roaming and interconnection rates will continue to burden operations in all major markets.

In the CEE region adverse macroeconomic trends are expected to further impact customer demand and pricing levels. In markets such as Belarus foreign exchange volatility will continue to present a risk factor.

Throughout 2013 the management of Telekom Austria Group has continued and will continue to address these challenges by means of its successful convergence strategy and a clear focus on the high-value customer segment in its mature mobile markets. In its mobile only markets Telekom Austria Group concentrates on achieving its growth targets. Moreover, fostering operational excellence remains a core focus to counteract the effects of pressure on margins, which is reflected in a gross cost savings target of at least EUR 100 million for the year 2013.

For the financial year 2013 Telekom Austria Group reiterates its existing outlook of approximately EUR 4.1 billion in Group revenues. As a result of the successful Group focus on optimising investment efficiency, Group capital expenditure is expected to range between EUR 650 million and EUR 700 million (Not including investments for spectrum nor acquisitions).

Following the EUR 1.0 billion acquisition of spectrum in Austria on 21 October 2013, Telekom Austria Group’s leverage is expected to reach approximately 3.0x net debt/EBITDA comparable by the end of 2013. In light of the resulting impact on its balance sheet, Telekom Austria Group’s credit rating has been downgraded to Baa2 (stable) from Baa1 (negative) by Moody’s and to BBB- (stable) from BBB (stable) by Standard & Poor’s. Telekom Austria Group intends to achieve deleveraging via operational cash flow generation to return to its target credit rating of BBB (stable) by Standard & Poor’s over the medium term.

For the year 2013 the management of Telekom Austria Group intends to distribute a dividend of 5 Eurocents per share.

This outlook is given on a constant currency basis for all markets of Telekom Austria Group and excludes any effects of hyperinflation accounting in the Belarusian segment.

Operating Developments in the Single Segments

A1, Austria
The Austrian mobile market is one of the most competitive and challenging markets within the EU. A1 has adopted a comprehensive set of remedial measures comprising convergence, cost control and value-oriented customer management to minimise the effects of this challenging market environment.

In the first nine months of 2013, revenues in the Austrian segment declined by 3.6% to EUR 1,992.3 million and include a positive contribution from the mobile operator YESSS!, which was integrated into the company in January 2013. This decline is mainly attributable to stronger usage of ‘all-in’ tariffs as well as to lower roaming revenues. The new GO! tariff schemes, which were introduced in April 2013, comprising voice telephony, SMS, data volumes and roaming minutes, increased demand for smartphones. These new tariff schemes both support A1’s positioning as quality leader and target customers who want to use high-value end-devices within the framework of their contract.

In the Austrian segment, EBITDA comparable declined by 14.5% to EUR 601.4 million due to lower revenues and an increase in costs by 1.7%. This increase is mainly due to stronger marketing activities in the premium customer segment and the related growth of material expenses for smartphones. Personnel expenses increased by 1.3% in the first nine months of the year despite a lower average number of employees.

In the period under review, total mobile subscribers (including YESSS! subscribers starting from January 2013) increased by 12.1% to 5.74 million, with mobile broadband lines growing by 12.3% to 831,300. Average revenues per user (ARPU) dropped by 14.4% to EUR 16.2 following the integration of YESSS!

In the first nine months of 2013, the fixed net business showed a fairly stable development: as of 30 September, 2013 total fixed access lines amounted to 2.27 million - a slight decline of 0.5% (or roughly 11,500 lines) compared to the same period of the previous year. Average revenues per line (ARPL) dropped by 1.6% to EUR 31.3 due to a lower number of fixed access lines and a lower volume of voice minutes. The increased number of Internet and A1 TV subscribers could not compensate for this decline. Broadband lines rose by 5.0% to 1.36 million in the period under review. A1 TV also showed very positive development, registering subscriber growth of 7.8% to 229,800 customers.

In the first nine months of the year, A1 invested a total of EUR 331.9 million in the Austrian infrastructure, an increase of 3.2% compared to the same period of the previous year.

In October, the frequency auction that had started in Q3 came to an end. A total of 28 frequency blocks in the 800, 900 and 1800 MHz frequency bands were auctioned. The Telekom Austria Group, and more precisely A1, was able to acquire half of all available frequency blocks for a total of EUR 1.03 billion. The breakdown of these expenditures by the number of Austrian inhabitants results in the highest per capita value Europe-wide. Based on these newly acquired frequency blocks, A1 further expands its network infrastructure with a focus on the 4G/LTE technology with a view to safeguarding the positioning towards its customers as a premium provider of mobile broadband over the long term. Customer demand for higher bandwidths, which has been driven partly by multimedia applications, can only be met with a well-developed infrastructure going forward.

Mobiltel, Bulgaria
The Bulgarian market is currently characterised by a difficult economic situation, very strong competition and drastic regulatory measures. Revenues in the Bulgarian segment amounted to EUR 300.0 million (-16.3%) in the period under review, with the regulation-induced reduction of interconnection charges accounting for EUR 36.9 million of this decline in revenues. EBITDA comparable dropped by 23.0% to EUR 126.7 million, although total operating costs were reduced by EUR 21.3 million or 10.7%.

Following the new calculation of active prepaid customers in Q2 2012, the company’s mobile subscriber base declined by 4.9% to 5.3 million customers year-on-year, with the market share dropping to 44.8%. In the period under review, Mobiltel continued to strengthen its focus on the high-value customer segment, based on smartphones and convergent product bundles and was able to increase the share of contract customers to 72.5%. Fixed access lines rose by 11.1% to 158,600 in the first nine months of 2013 compared to the same period of the previous year, with broadband lines increasing by 12.2%.

Vipnet, Croatia
Croatia is still facing a difficult economic situation. In the period under review, Vipnet’s business development was impacted by strong competition in the Croatian market as well as by regulatory adjustments following the country’s entry into the EU. In the first nine months of 2013, Vipnet’s revenues declined by 6.4% to EUR 293.7 million and EBITDA comparable decreased by 15.9% to EUR 96.0 million.

In the mobile communications business, Vipnet reported a decline in customer numbers of 5.1% to 1.95 million. In the period under review, the Croatian company focused its activities on the premium customer segment, with the share of contract customers growing by 4.1 percentage points, whereas the prepaid business showed an overall declining trend. In the first nine months of the year, the fixed net business continued to show a positive performance: fixed access lines increased to a total of 188,800 by 19.1%, 103,800 of which were broadband lines. These registered a growth rate of 27.7%.

velcom, Belarus
Belarus has been classified as a hyperinflationary economy according to the International Accounting Standards (IAS). The first nine months of the year were characterised by a worsening of the Belarusian ruble exchange rate against the euro; this negative exchange rate effect referring to the revenues amounted to EUR 31.0 million in the period under review.

Nevertheless, velcom was able to achieve revenue growth of 12.0% to EUR 244.0 million thanks to its very strong operating performance. EBITDA comparable also increased by 32.2% to EUR 118.4 million in the period under review, despite the negative exchange rate effect mentioned above and due to a decrease in costs.

In the first nine months of 2013, velcom profited from a higher share of contract customers, higher usage and a stronger demand for smartphones. The company’s customer base grew by 3.1%, with mobile broadband subscribers rising by 3.9%.

Si.mobil, Slovenia
In the period under review, Si.mobil reported a slight decline in revenues of 0.9% to EUR 147.6 million. EBITDA comparable rose by 4.7% to EUR 46.3 million thanks to targeted cost-saving measures. The company’s customer base increased by 2.9% to 672,700 and the share of contract customers reached 77.4%.

Vip mobile, Republic of Serbia
Over the past months, the macroeconomic situation in the Republic of Serbia has been quite tense. Nevertheless, Vip mobile was able to report an increase in revenues of 15.5% to EUR 135.3 million. The share of contract customers improved considerably within the framework of the company’s value-oriented customer management. EBITDA comparable increased by 40.3% to EUR 49.2 million thanks to favourable business development. Subscriber numbers rose by 8.6% to almost 2.0 million, with the market share growing to 20.9% - an increase of 3.5 percentage points compared to the same period of the previous year.

Vip operator, Republic of Macedonia
Vip operator reported revenue growth of 10.5% to EUR 49.4 million and an increase in EBITDA comparable of 10.0% to EUR 10.3 million. The company was able to increase the customer base by 3.1%, with the market share rising to 28.2% in the period under review.