Telekom Austria Group Reports Group-Wide EBITDA Growth in Q3 2014 – Plus 14.2% in Austria

• Group-wide growth in EBITDA comparable of almost 1% and in Austria, increase by 14.2% due to massive cost savings
• Group EBITDA margin comparable improves to 34.6%; in the Austrian market, EBITDA margin increases to 33.0%
• Regulatory effects totaling EUR 110.6 million account for 80% of the decline in revenues
• Growth in data business drives strong performance in Belarus; Slovenia and the Republic of Serbia remain on growth path
• Difficult developments in Bulgaria, Croatia and the Republic of Macedonia affected by macroeconomic effects, fierce competition and regulation
• Outlook for the full-year 2014 remains unchanged
• Capital increase expected by year-end depending on market conditions

"After a turbulent first half-year, our strategy and the tireless dedication of our employees are finally paying off. The third quarter ushered in an upward trend, with the partially strong performance of our subsidiaries in the CEE area and massive cost savings in Austria also showing positive effects. At the same time, however, we are still facing considerable difficulties on certain markets and the general economic trend is not growth-supportive either," stressed Hannes Ametsreiter, CEO Telekom Austria Group and A1.

After a turbulent first half-year, our strategy and the tireless dedication of our employees are finally paying off.

Hannes Ametsreiter

CEO Telekom Austria Group

 

At the Extraordinary General Meeting of the Telekom Austria Group held on August 14, 2014, a capital increase of up to EUR 1 billion was approved by the shareholders. This capital increase is expected to take place by year-end 2014, if there is no significant further deterioration in market conditions. The Telekom Austria Group will provide more detailed information in this regard as soon as the exact date for the capital increase has been set.

The Development of the Telekom Austria Group at a Glance

Telecom operators are currently facing declining revenues across Europe. Competition-induced lower prices, which are additionally affected by substantial regulatory effects and new communications technologies, are bound to hinder potential profit opportunities moving forward. While, in the first half of 2014, the Telekom Austria Group still reported a decline in revenues of 7.3%, this downward trend was reduced to 4.5% in the first nine months of the year, with total revenues amounting to EUR 2.98 billion in the period under review. In a quarterly comparison, the Group succeeded in achieving a total increase in revenues of 1.2% in Q3 2014 versus Q3 2013, thanks to the favorable development in Belarus and in Austria.

In the first nine months of the year, total fixed access lines rose by 0.6% to roughly EUR 2.64 million group-wide, of which 1.7 million were broadband lines, which showed a significant growth of 5.7%. Strong demand for fast Internet connections reflects the need for a rapid rollout of network infrastructure, which is not only perceived on the Austrian market. Due to technological developments such as video streaming or the simultaneous usage of multiple devices, this trend will continue to gather momentum moving forward.

The growth in EBITDA comparable of 0.9% to approximately EUR 1 billion and the increase in EBITDA margin to 34.6% demonstrate the Group's successful efforts to improve spending efficiency despite further declining revenues. The reduction of marketing expenses, and more specifically of device subsidies, made a significant contribution to the overall improvement of results. This led to a net profit for the period of EUR 127.8 million in Q3 2014. In contrast, the net result for the first nine months 2014 was negatively impacted by the impairment charge of EUR 400 million for Bulgaria as of the first half of 2014 as well as by a negative economic environment, with net loss amounting to EUR 190 million.

"Thanks to our cost-saving programs, we were able to achieve considerable success in the period under review and report EBITDA growth. Against a backdrop of declining revenues, this is indeed a considerable achievement", said Siegried Mayrhofer, CFO Telekom Austria Group.

Mounting pressure caused by regulation costs has not yet abated. In the first nine months of the year, regulation-induced revenue losses amounted to EUR 110.6 million, thus accounting for 80% of the total decline in revenues of EUR 140.6 million.

The outlook for the full year 2014 remains unchanged at around 3.5 per cent decline in revenues, capital expenditures from 650 to 700 million euros and a proposed dividend of EUR 0.05 per share.

The Most Significant Developments in the Single Operating Markets at a Glance

In Austria the mobile communication segment continued to be affected by strong competition, both broadband lines and A1 TV recorded considerable increases, which highlights the future need for rapid deployment of broadband networks. Thus revenues on the Austrian market went down in the third quarter compared to the previous year by 3.5% to EUR 624.2 million. A1 recorded an increase in EBITDA comparable by 14.2% in Q3 2014 compared to the same period in the previous year. This is mainly attributable to cost-optimizing measures.

In the period under review, the Bulgarian market continued to be faced by a very challenging macroeconomic environment. The downgrade of the country by the rating agencies was followed by a banking crisis and new elections. Gloomy economic prospects and a persisting decrease in population continued to negatively impact Mobiltel's local business. As a result, revenues dropped by 7.9% to EUR 276.4 million and EBITDA comparable fell by 10.5% to EUR 113.4 million despite the fact that mobile customer numbers, especially in the pre-paid business, only declined by 2% in Q3 2014 versus Q3 2013. The positive development of the mobile broadband segment, which recorded a plus of 30.8%, as well as increases in the TV business did not, however, compensate for the harsh market conditions.

Croatia shows a drop in revenues of 3.9% in the first nine months of 2014 compared to the same period in the previous year. The raised spectrum usage fees in June additionally impacted Vipnet's margins. EBITDA comparable fell by 22.9% to EUR 74 million. While mobile subscriber numbers declined by 6.5% in Q3 2014 compared to Q3 in the previous year, fixed access and broadband lines grew by 12.5% and by 22.9% respectively. Due to fierce competition, average revenue per line (ARPL) decreased significantly by 6.5%.

In the period under review, the Telekom Austria Group's Belarusian subsidiary showed a favorable development. In the mobile-only market, velcom reported an increase in both revenues and EBITDA comparable for the first nine months by 12.8% to EUR 275.3 million and by 15.1% to EUR 136.3 million respectively, compared to the first nine months of the previous year. This growth was driven, among others, by the demand for smartphones, which led to an increase in operating result by 20.7% to EUR 65.7 million. The company's subscriber base rose by 1% to roughly 4.95 million customers.

In the first nine months 2014, the "Additional Markets" segment also recorded revenue growth of 7.7% to EUR 363.2 million. EBITDA comparable rose by 1.9% to EUR 105.2 million, resulting in an increase in operating result by 13.5% to EUR 28.7 million. A considerable contribution to this favorable development was made by the increase in both revenues and EBITDA comparable in Slovenia, with revenues growing by 4.3% to EUR 152.8 million and EBITDA comparable rising by 4.6% to EUR 48.5 million. Also the Republic of Serbia reported a plus in revenues of 18.5% to EUR 160.3 million and EBITDA comparable growth of 1.5% to EUR 50.0 million in the period under review. In contrast, in the Republic of Macedonia, revenues fell by 9.3% to EUR 44.8 million and EBITDA comparable dropped by 9.5% to EUR 9.3 million in the first nine months of 2014 compared to the same period in the previous year. The merger of mobilkom liechtenstein with Telecom Liechtenstein was finalized as of end of August, resulting in a positive contribution of EUR 26.8 million to total operating income in Q3 2014.