The Telekom Austria Group Doubles Net Income and Continues Success Despite Intense Competition (1)

VIENNA, Austria, February 23, 2011 /PRNewswire/ -- Key Financial Figures*

    
    Telekom Austria Group                    2010      2009 Change +/-
    Fixed Access Lines                    2,315.0   2,313.5      +0.1%
    Mobile Subscribers                       19.9      18.9      +5.0%
    Group Revenues                        4,650.8   4,802.0      -3.1%
    EBIT                                    437.9     343.9     +27.3%
    Net Income                              195.2      94.9    +106.0%
    Capital Expenditures                    763.6     711.4      +7.0%
    Cash Flow from Operating Activities   1,397.5   1,385.4      +0.9%
    Net Debt                                3,305     3,615      -9.0%
    Employees                              16,501    16,573      -0.4%

*Key financials in EUR million

The Telekom Austria Group reported a slight decrease in revenues in the year under review, however, has succeeded in doubling the Net Income. "For the first time in 13 years we were able to return to fixed line customer growth. This demonstrates the effectiveness of our convergence strategy, which we are currently dedicated to implementing in our two largest markets Austria and Bulgaria," pointed out Hannes Ametsreiter, CEO Telekom Austria Group, commenting on this significant turnaround. "Against the backdrop of a challenging market environment we have adopted the necessary measures - such as the merger of our fixed line and mobile communication operations in Austria - to realize selective growth opportunities going forward. In the years to come, we will have to tackle a number of issues with regard to regulation and competition. However, we are confident to achieve our targets over the mid-term." The main goal is to secure the Group's market leadership in Central and Southeastern Europe and to become the most efficient and innovative telecom operator in this region. At year-end 2010, the Telekom Austria Group had 22 million customers across its operations in 8 countries of Central and Southeastern Europe, a market with 41 million inhabitants.

The Telekom Austria Group's Development in Figures

The Telekom Austria Group's total revenues dropped by 3.1% from EUR 4.802 billion in 2009 to EUR 4.651 billion in 2010 due to competition-driven price reductions and the effects of regulation. Austria (-4%), Bulgaria (-8%) and Croatia (-5%) showed a slight decline in revenues, whereas Belarus and the Additional Markets segments (Slovenia, Republic of Serbia, Republic of Macedonia and Liechtenstein) recorded a growth of 14% and 8% respectively. "Revenues will continue to be impacted by pressure from competition in future," said Hannes Ametsreiter. "Our strategy is to counteract this trend with high-value services. Our main target is to stabilize revenues at EUR 4.7 billion over the mid-term."

The Group's EBITDA comparable, which does not include restructuring and impairment charges, declined by 9% (= 165.7 million EUR) from EUR 1.811,6 billion in 2009 to EUR 1.645,9 billion in 2010. The impact from regulatory measures alone (including the reduction of roaming tariffs and interconnection fees, which are charges for both voice telephony and data services among the different operators) led to a decrease in EBITDA comparable of EUR 47 million. Excluding these exogenous effects, the drop in earnings amounted to 6.6%, with operating expenses remaining stable at EUR 3.094 billion.

Regulatory measures also are expected to impact the Group's earnings development in the years to come. For the period from 2011 to 2013 a negative effect on EBITDA comparable of EUR 175 million is anticipated. "The management intends to compensate for this regulation-induced drop in earnings through strict cost management and high-value product offerings. Our target is to keep EBITDA comparable margin stable at approximately 34% for the period between 2011 and 2013," said Hans Tschuden, CFO and Deputy Chairman of the Telekom Austria Group, stressing his confidence in the company's future performance.

In the year under review, EBITDA - including restructuring and impairment charges - increased by 4% to EUR 1.504 billion (as compared to EUR 1.442 billion in 2009). EBIT, which reflects the operating performance, rose by 27.3% from EUR 343.9 million in the previous year to EUR 437.9 million in the reporting year, mainly due to impairment charges in Belarus and the Republic of Serbia in 2009.

Net income was almost doubled year-on-year. In 2009, net income amounted to EUR 94.9 million and in 2010 it increased by 106% to EUR 195.2 million.

In the year under review, Group's cash flow development showed a similar trend as the earnings development. Cash flow from operating activities recorded an increase of EUR 12.1 million to EUR 1.398 billion. Free Cash Flow, a key figure for the equity financing of the Group, declined by 7% to EUR 652 million due to higher investments particularly in the rollout of the Giga-network in Austria.

The free cash flow per share amounts to EUR 1.47, of which EUR 0.75 will be distributed as dividends as in the previous year. This corresponds to a dividend yield of more than 7% based on the current share price.

Total capital expenditures tangible increased by 7% to EUR 763.6 million in 2010. Thus, the degree of investment in 2010 amounted to 16.4% of revenues, a peak level compared to the rest of Europe. The largest volume totaling EUR 516 million was invested in the rollout of network infrastructure in Austria. Domestic investments rose by 22% respectively EUR 91 million in the year under review, accounting for 67% of total Group investments.

Despite an increase in capital expenditures, the Group's net debt was reduced by EUR 310 million to EUR 3.3 billion. "With a leverage corridor of 2.0x net debt/EBITDA comparable, we are within the planned bandwidth. With this reduction, we were able to strengthen our competitiveness, while improving our financial flexibility," explained Hans Tschuden, stressing the financial stability of the Group.

Outlook

For the 2011 financial year, the Telekom Austria Group's management board expects revenues to amount to up to EUR 4.6 billion. Against the backdrop of a persistently intense competitive landscape and of additional regulatory-induced reductions of both roaming tariffs and interconnection fees, strict cost control will contribute to mitigating the impact from lower revenues. The management board intends to reach an EBITDA comparable of up to EUR 1.6 billion. "We are confident we are well-equipped to face the challenges ahead and to keep both revenues and earnings at a high level despite adverse market conditions. Following our restructuring efforts in 2010, we will focus on the operating performance going forward, addressing issues such as convergence, rollout of our Giga-network and smartphones. Our confidence is demonstrated by our intention to increase our dividend floor for the years 2011 and 2012 to EUR 0.76 per share respectively to distribute 55% of our free cash flow as dividends," added Hannes Ametsreiter and Hans Tschuden.

Operational Highlights by Markets of Operation

Austria

The positive turnaround in the development of fixed access lines in Austria, the further growth of the mobile subscriber base, the increase in investing activities and the successful merger of Telekom Austria and mobilkom austria shaped the 2010 business year in Austria.

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