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

    VIENNA, Austria, February 23, 2011 /PRNewswire-FirstCall/ --
    - Net Income More Than Doubled to EUR 195 Million
    - Fixed Access lines Return to Growth for the First Time in 13 Years
    - Mobile Communication Customer Base Records 1 Million net Additions

- Merger Between Fixed Line and Mobile Business in Austria Implemented Quickly and Successfully

- Regulation Impacts Results by EUR 47 Million

- Investments, Especially in the Rollout of the Austrian Network Infrastructure, Were Further Intensified

    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.

For the first time in 13 years, the Telekom Austria Group was able to stop fixed access line loss in Austria and bring about a sustainable turnaround. Based on convergent offerings like aonTV, a dramatic surge in data traffic, the accelerated rollout of the Giga-network and the rising demand for higher bandwidths and higher transmission capacities, the fixed line business is currently experiencing a renaissance. In 2010 a total of 1,400 fixed line net additions were recorded, with the total number of fixed access lines rising to 2.315 million by year-end 2010. "We are currently experiencing customer growth in the fixed line business without cannibalizing our mobile customer base," said Hannes Ametsreiter about this extraordinary success at the international level. In 2010, the Telekom Austria Group was one of the only two telecommunications providers in Europe to record fixed line customer growth.

The number of fixed broadband lines rose by 13.5% to 1.16 million in the year under review and voice minutes showed a similar development as in the previous year dropping by approximately 12%.

The Austrian mobile subscriber base saw a growth of 5.6% to 5.1 million customers, which represents an outstanding performance considering the challenging competitive landscape in Austria. Average revenues per user (ARPU) were EUR 22/month at year-end 2010 in line with the European average. However, the decrease in ARPU since 2004 amounts to 46% in Austria, representing a peak level in a European comparison (European average: 20% drop over the same period). This downward trend reflects the challenging competitive landscape in Austria. The domestic mobile broadband subscriber base rose by roughly 30% to 654,000 customers.

The main challenge for the Telekom Austria Group is to safeguard its competitiveness and earnings power against the backdrop of intense competition, rising production costs and declining prices: in Austria the consumer price index (CPI) has registered an increase by +19 percentage points since the year 2000 and the domestic telephone services cost index (TS-CPI) has decreased by -21 percentage points over the same period (EU: CPI +23 pp /TS-CPI -5 pp).

In 2010, a total of EUR 516 million were invested, which is an increase of roughly EUR 90 million or 22% compared to the previous year. "With our investments in the domestic broadband network, we are upgrading Austria's business location infrastructure, safeguarding the competitiveness of the country and the domestic economy for the years to come. A benefit to all Austrians," stressed Hannes Ametsreiter, highlighting the investment program of the Group in Austria.

At year end 2010, 1.7 million Austrian households were within the coverage of the powerful Giga-network. At year end 2011 it will be more than 2.1 million households. The Telekom Austria Group's Giga-network is based on a wide range of fiber-optic technologies and allows transmission speeds of up to 100 Mbit/s. The company's mobile network A1 Net - which ranks first in terms of network quality in the German-speaking area - will have its transmission speeds and network performance upgraded through LTE technology and through the connection of mobile base stations to the fiber-optic network. At year-end 2010, more than 1,100 mobile base stations had been connected to the "hybrid Giganet".

Data traffic in Austria is growing at a dramatic pace, as demonstrated by the following figures: domestic fixed line data volumes have registered a 2.5-fold surge since 2008 from roughly 45 petabytes to over 110 petabytes (1 petabyte = 1 million gigabytes), the surge in mobile data traffic was 3.5-fold (from 2 petabytes to 5 petabytes) over the same period. Further exponential growth rates are anticipated in future: currently the average fixed line data volume per user amounts to 8 gigabytes per month with transmission speeds of up to 8 Mbit/s. Over the mid-term demand is expected to reach 100 gigabytes per month with transmission speeds of up to 20-100 Mbit/s. Mobile communication shows similar trend: mobile data volumes will increase from the current 1.5 gigabytes/month to 10 gigabytes/month and transmission speeds from 2.5 Mbit/s to 5 Mbit/s. The development mainly will be driven by mobile broadband, smartphones, multimedia devices such as HDTV, video streaming and gaming.

According to Hannes Ametsreiter and Hans Tschuden, one important milestone for the company on its path towards the future is represented by the successful merger of the Austrian fixed line and mobile communication operations: "We have almost finalized the largest merger in Austrian economic history without any major losses. We would like to thank all our employees for their willingness to support this massive change, which has affected each one of us with such a great commitment and dedication." Thanks to this restructuring program, the Telekom Austria Group will now be in a better position to manage both operating costs and overall investments in a more efficient manner, considerably enhancing its effectiveness in the market.

In the Austrian segment, revenues decreased slightly by 4% to EUR 3.064 billion in 2010. EBITDA comparable declined by 12% to EUR 1.032 billion mainly due to intensive competition and regulatory measures, as cost savings could only party compensate for lower revenues.

Bulgaria

In Bulgaria, the Telekom Austria Group is represented by its local subsidiary Mobiltel with a customer base of 5.3 million customers. Therefore, in terms of subscriber numbers the Bulgarian market is as important as the Austrian market. However, both revenues and earnings are considerably lower. Bulgaria has the lowest broadband penetration rate in the EU, but, at the same time, the highest data rate per user. As a result, the market offers strong growth potential for convergent products. For this reason, Mobiltel acquired two fiber-optic operators Megalan Network and Spectrum Net in 2010. Under the M-Tel brand, the three operators jointly launched convergent product bundles successfully in the year under review.

Mobiltel was able to increase the number of contract customers by 6.7% in 2010 compared to the previous year. Mobile broadband subscriber base was almost doubled from roughly 60,000 to 126,000 customers. Due to the weak local economy, both revenues and earnings registered a slight decline.

Belarus

The Telekom Austria Group is active in the Belarusian market through its local subsidiary velcom, which accounts for 4.4 million customers and a market share of 42%. In the year under review, velcom was able to increase its subscriber base by 6%. Revenues (in EUR) rose by 14% to EUR 343.6 million and EBITDA comparable by 4%. In 2010, the Group's stake in velcom was expanded to 100%.

Croatia

In Croatia, Vipnet was able to increase customer numbers by 6% in 2010. Against the backdrop of a challenging economic situation, both revenues and earnings showed a slight decrease. The ARPU dropped by 8%. The number of broadband customers grew by more than 30% to 178,958 subscribers.

Additional Markets

In the "Additional Markets segment" (Slovenia, Republic of Serbia, Republic of Macedonia and Liechtenstein) customer numbers increased by 5% to 619,000 subscribers and revenues grew by 8% to EUR 321.1 million in 2010. EBITDA comparable rose by 197% to EUR 41.1 million year-on-year.

The Telekom Austria Group's annual report will be published beginning of April, 2011. The Annual General Meeting will take place on May 19, 2011 in Wr. Stadthalle, Vienna.

Please visit http://www.telekomaustria.com/ir/publications-cc-en.phpto where you find the Financial Report on the fourth quarter of 2010.

About Telekom Austria Group:

The Telekom Austria Group, listed on the Vienna Stock Exchange since November 2000, is the leading telecommunications provider in Central and Eastern Europe with more than 22 million customers across its markets of operations. The Group is currently operating in eight countries: in Austria (with the newly merged A1 Telekom Austria), Slovenia (Si.mobil), Croatia (Vipnet), the Republics of Serbia (Vip mobile) and Macedonia (Vip operator), Bulgaria (Mobiltel), Belarus (Velcom) and Liechtenstein (mobilkom liechtenstein). The total market of the eight countries covers about 41 million inhabitants. The Group has more than 16,500 employees, revenues were EUR 4.7 billion as of year-end 2010. Telekom Austria Group's portfolio encompasses products and services of voice telephony, broadband Internet, multimedia services, data and IT solutions, wholesale as well as m-payment solutions. More detailed information is available at http://www.telekomaustria.com

Contact:

Elisabeth Mattes, Director Corporate Communications and Spokeswoman, Telekom Austria Group mobile: +43-664-6639187 email: [email protected]

SOURCE Telekom Austria Group