The Telekom Austria Group is the Only Incumbent Operator in Western Europe to Achieve Growth in Fixed Line Business – Successful Core Operating Business – Currency Translation and Hyperinflation Effects Impact Results for the Full Year 2011
Vienna, February 23, 2012 - Telekom Austria Group (VSE: TKA, OTC US: TKAGY) today announced its results for the full year 2011 and the fourth quarter ending December 31, 2011.
- Sustainable increase in fixed access lines in Austria (+21,300 net additions)
- Further favorable growth of mobile customer base (+5.7%)
- Increase in A1TV subscribers by 31.2% to roughly 200,000 households
- Strong increase in results in the “Additional Markets” segment (Slovenia, Republic of Serbia, Republic of Macedonia) – EBITDA increase by 120% to EUR 90.4 million
- Excluding currency translation and hyperinflation effects, Group revenues showed a slight increase (+0.5%) and EBITDA comparable recorded a small decline (- 1.6%)
- Personnel downsizing measures to improve the future cost structure in Austria led to a restructuring charge of EUR 233.7 million in the year under review
- The application of hyperinflation accounting for the Belarusian segment triggered an impairment charge of EUR 279 million
- External effects show impact on operating business and lead to a negative net income of EUR 252.8 million
- A comprehensive group-wide “New Ambition Program“ aimed at revenue growth and efficiency optimization was initiated – a positive effect on the operating free cash flow of approximately EUR 130 million is expected by 2013.
Financial Overview: Telekom Austria Group Full Year 2011
Key Financial Figures
in EUR million
excluding currency translation and hyperinflation effects
excluding currency translation and hyperinflation effects
|Employees* (Dec. 31, 2011)||17,217||16,501||+4.3%|
* Increase in customer numbers only due to the acquisitions in Bulgaria and Croatia
The Telekom Austria Group’s Results in 2011
The 2011 financial year was marked by an unfavorable macro-economic development in most of the Group’s operating markets, persistently strong competition, as well as the negative effects of further regulatory measures. Despite considerable operational successes achieved during the year, these three factors along with currency devaluations in Belarus led to a small decline in total revenues of 4.2%. Excluding currency translation effects in all segments and the impact from the application of hyperinflation accounting in the Belarusian Segment, Group revenues increased by 0.5% to EUR 4,674.6 million.
“Our operating performance continues to be successful: for instance, the sustainable increase in fixed access lines in Austria, which is unparalleled throughout Western Europe , as well as the considerable improvement of results in Slovenia, the Republic of Serbia and the Republic of Macedonia, are key indicators of this success. Growth in the fixed line business – also in our foreign markets – and ever-rising mobile subscriber numbers demonstrate that we are on the right track with our convergence strategy in our highly competitive operating markets,” said Hannes Ametsreiter, CEO Telekom Austria Group, commenting upon the operating situation of the Group.
“It goes without saying that the challenging macro-economic development in our markets and the unfavorable currency devaluation in Belarus are posing unprecedented challenges, which caused a net loss in 2011. Furthermore, the personnel restructuring measures in the amount of EUR 233.7 million in Austria, which are expected to improve our future cost structure, put a considerable strain on our results in the year under review. Despite these one-off, non-operating effects, we are confident that we will continue to assert our market leadership in our operating markets going forward, and the new revenue and efficiency enhancing program, currently under way throughout the Group, will support our concerted efforts to increase our operating performance,” continued Hannes Ametsreiter showing confidence in the company’s future.
In the year under review, the Telekom Austria Group reported total revenues of EUR 4,454.6 million. Lower revenues in the Austrian, Bulgarian, Belorussian and Croatian segments could not be fully compensated for by the favorably strong growth in the “Additional Markets” segment (Slovenia, Republic of Serbia, Republic of Macedonia, Liechtenstein).
EBITDA comparable (excluding effects from restructuring and impairment tests) dropped by 7.2% to EUR 1,527.3 million. In the Austrian and Croatian segments, declines in earnings were partly offset by strict cost management.
In the Bulgarian segment, Mobiltel was able to only partly compensate for the negative effects of price competition, lower usage and higher operating expenses due to the acquisition of two fixed line operators despite the focus on strict cost management.
In the segment “Additional Markets“, EBITDA comparable increased by 120% thanks to operational successes. In the Belarusian segment, Euro-denominated earnings declined despite local market success due to the devaluation of the local currency.
In Belarus, the local currency was devalued by 63% in the year under review, with inflation rising by 108%. As a consequence, financial reporting in hyperinflationary economies pursuant to IAS 29 was applied to the Belarusian segment in 2011.
The negative effects of the application of accounting principles for hyperinflationary economies and of currency translation in the Belarusian segment on Group revenues and Group EBITDA comparable amounted to EUR 213.6 million and EUR 90.0 million respectively in 2011.
Excluding the impact of currency translation effects in all segments and of hyperinflation accounting, Group EBITDA comparable totaled EUR 1,619.6 million in 2011, a decline of 1.6% year-on-year.
One-off effects such as the provision for the restructuring program in Austria amounted to EUR 233.7 million, the impairment charge of EUR 19.3 million for the corporate brand in the Bulgarian segment, the effects of hyperinflation accounting in the Belarusian segment, which led to an impairment charge for the company goodwill of EUR 279 million, as well as a reversal of impairment loss of EUR 49.4 million for the mobile license in the Republic of Serbia, had a significant impact on EBIT, which fell to EUR -7.6 million in the year under review (after EUR 437.9 million in 2010).
After net income of EUR 195.2 million in 2010, a net loss of EUR 252.8 million was recorded in 2011.
The Telekom Austria Group’s net debt increased by 2.3% to EUR 3,380.3 million in 2011. This includes acquisitions costs of EUR 173.9 million in Bulgaria and Croatia. Net debt to EBITDA comparable ratio amounted to 2.2x in 2011 remaining within the targeted leverage corridor of 2.0x to 2.5x.
“Despite a reduction of free cash flow to EUR 479.2 million and of free cash flow per share to EUR 1.08 due to the aforementioned challenging framework conditions, we propose a minimum dividend floor of EUR 0.38 per share, which is more than covered by operating free cash flow. Besides, maintaining a stable investment grade rating of at least BBB (stable outlook) remains central to the Telekom Austria Group’s financial strategy,” said Hans Tschuden, CFO Telekom Austria Group, explaining the effects on the Group’s balance sheet and net debt.
A persistently challenging economic environment in all of the most important CEE markets of the Telekom Austria Group is anticipated for the 2012 business year. Furthermore, regulatory measures such as cuts on roaming tariffs and national and international mobile termination rates will continue to have a negative impact on the Telekom Austria Group’s business performance in 2012.
To meet these challenges, the Telekom Austria Group’s Management Board started the “New Ambition Program” in autumn 2011 aimed at counteracting the negative effects mentioned above and stabilizing the operating free cash flow over the long term. Based on a clear customer focus and on innovative and convergent products, the “New Ambition Program” is oriented towards additional revenue generation, effective cost control and capital expenditure efficiency. The program is expected to result in a positive effect on operating free cash flow of roughly EUR 130 million for the years 2012-2013.
For the full year 2012, the Management Board of the Telekom Austria Group expects total revenues to amount to approximately EUR 4.4 billion and EBITDA comparable to roughly EUR 1.5 billion. Capital expenditures are anticipated to total EUR 0.75 billion. Operating free cash flow will remain the Group’s key priority and is expected to amount to approximately EUR 0.75 billion in 2012.
Operational Highlights in the Single Operating Markets
The relaunch of the A1 brand following the merger of Telekom Austria’s fixed line business with mobilkom austria marked an important step in 2011. “We offer our Austrian customers everything from a single source and provide them with all they need to participate in the information society: Internet, fixed line and mobile communication, IT services and TV as well as future-proof solutions and developments. The A1 brand stands for convergence and demonstrates the competitive strength of our company with a mobile market share of 40%, roughly 200,000 A1TV subscribers and 21,300 fixed line net additions,” said Hannes Ametsreiter, CEO A1 and Telekom Austria Group, looking back over the past six months after the brand relaunch.
In the fourth quarter of 2011, the growth trend showed by fixed net access lines was further continued. Thanks to convergent product offerings such as A1 TV, rapidly rising data volumes, the extensive rollout of the fiber-optic network and the persistently strong demand for higher bandwidths und transmission speeds, the fixed line business is currently experiencing a renaissance. However, this favorable trend is not reflected in voice minutes but only in data transmission volumes. More than 21,300 fixed line net additions were recorded in the Austrian segment in the year under review and the number of mobile subscribers was increased by 3.3%, resulting in a mobile customer base of 5.3 million, with fixed access lines totaling 2.3 million.
Within the framework of a comprehensive broadband rollout plan, A1 is gradually expanding its Giga-Net capacities Austria-wide. Based on a fiber-optic rollout and the upgrade of the existing infrastructure with the new breed of innovative technologies, the company is building up a future-proof communication network to fulfill the ever-increasing demand for higher data volumes also in the years to come. As of year-end 2011, roughly 2.17 million Austrian households and commercial businesses, 24% more than in the previous year, were covered by the A1 Giga-Net, reaching a total coverage of 52% of the population. Therefore, A1 is the leading provider of digital infrastructure in Austria both in quantitative and qualitative terms.
Revenues in the Austrian segment declined by 4% and amounted to EUR 2,942.1 million in 2011 compared to EUR 3,064.2 million in the previous year. Price competition and regulatory cuts of roaming and interconnection tariffs were the main drivers of this decline.
EBITDA comparable fell by 5.8% to EUR 972.6 million in 2011 after EUR 1,032.4 million in the previous year. Strict cost control contributed to slowing down the decline in earnings in 2011. Personnel restructuring measures proved effective and led to a reduction of employee costs. Operating expenses, for instance for maintenance and repair, were also reduced. Total headcount (full-time equivalents) in Austria declined by 425 to 9,292 employees in the year under review.
In Bulgaria, the Telekom Austria Group is represented by Mobiltel and two fiber-optic operators and has a total mobile customer base of more than 5.5 million subscribers, with fixed access lines totaling 128,800 in 2011. In the year under review, increasing competition put pressure on pricing levels and a laggard economy impacted customer usage patterns, with users making less telephone calls at lower prices. This led to a decline in revenues of 6.5% to EUR 527.7 million compared to EUR 564.5 million in 2010. This decline was mainly attributable to negative macro-economic conditions, intensive competition, which led to a strong price pressure, as well as to regulatory measures. EBITDA comparable dropped by 12.3% to EUR 261.9 million in 2011 (after EUR 298.6 million in 2010).
A weak economy, regulatory measures and intensive competition were the main drivers for the decline in revenues in the Croatian segment. Especially lower prices led to a drop in revenues of 6.9% to EUR 420.7 million in 2011 after EUR 451.9 million in the previous year. In the third quarter of 2011, the acquisition of the largest Croatian cable operator B.net was finalized, enabling the Telekom Austria Group to also offer convergent services in Croatia. Mobile subscriber numbers totaled more than 2 million in the Croatian segment in the year under review, with fixed access lines amounting to 143,700. EBITDA comparable fell by 10.6% to EUR 134.5 million in 2011. The decline in revenues was partly offset by cost savings. Operating expenses in the Croatian segment in 2011 were mainly attributable to severance payments granted to over 100 staff members within the framework of a personnel downsizing program as well as to costs incurred for the integration of B.net.
The main highlight in the Belarusian segment in the year under review was the strong operating growth of velcom, whose results, however, were considerably impacted by hyperinflation and the massive devaluation of the Belarusian ruble. Measured in local currency, revenues increased by 38.1% driven by customer growth and rising demand for mobile broadband. Euro-denominated revenues declined by 24.1% to EUR 260.9 million in 2011 after EUR 343.6 million in the previous year. Due to this hyperinflationary trend, velcome raised its pricing levels three times by a total of 35% to counteract the negative effects of this adverse macro-economic environment.
Measured in local currency, EBITDA comparable increased by 26.4% in 2011. Denominated in Euros, it fell by 31.5% to EUR 106.6 million compared to EUR 155.6 million in 2010. The increase in earnings was mainly attributable to the ongoing efforts of the management team to keep costs under control and reduce operating expenses in foreign currencies. The increase in costs denominated in local currency in the Belarusian segment was mainly due to revenues-related expenses such as material expenses as well as interconnection and roaming costs.
In the “Additional Markets” segment (Slovenia, the Republic of Serbia, the Republic of Macedonia and Liechtenstein), revenues increased by 23.5% to EUR 396.4 million in the year under review. Despite a weaker economic development, both subscriber numbers and customer usage of telecommunications services recorded rapid growth. As a result, the company’s earnings performance showed a favorable development, with EBITDA comparable increasing by 120% to EUR 90.4 million in the segment “Additional Markets”.
In Slovenia, Si.mobil was able to successfully implement its corporate strategy, eluding the price war in the lower market segment based on its no-frills product portfolio. This led to an increase in ARPU (average revenue per user) by 2%. Customer numbers showed significant growth, with mobile subscribers amounting to roughly 640,000 at year-end 2011, 74.5% of which were contract customers. Revenues increased by 10.7% to EUR 192.7 million and EBITDA comparable by 14.6% to EUR 51.7 million.
Republic of Serbia
In the Republic of Serbia, Vip mobile continued along its growth path, increasing customer numbers by 20.8% to over 1.6 million customers. Revenues grew by 36.7% to EUR 143.1 million in 2011 compared to EUR 104.7 million in 2010. Earnings also showed a strong performance and, in 2011, Vip mobile was able to make a positive contribution to full-year results for the first time, with EBITDA comparable amounting to EUR 31.5 million. In February 2011, Vip mobile launched the 3G network and received an award for the best network of the country.
Republic of Macedonia
Vip operator, the Telekom Austria Group’s subsidiary in the Republic of Macedonia, was able to increase its market share from 19.9% in 2010 to 24.9% in 2011 and currently ranks second on the Macedonian market only four years after the launch of its greenfield operations. Revenues increased by 49.3% to EUR 53.4 million, reaching the break-even point for the full-year 2011. EBITDA comparable turned positive for the first time in 2011 totaling EUR 6.3 million after EUR -5.2 million in 2010.
The Telekom Austria Group’s annual report will be published at the beginning of April 2012. The Annual General Meeting will take place on May 23, 2012 at the Stadthalle in Vienna.
 Source: “Line Loss Monitoring Western Europe Q1-3“by Infocom, Germany, December 2011
Please visit http://www.telekomaustria.com/ir/current-results.php where you find the Financial Report on the fourth quarter of 2010.
Telekom Austria Group
Tel.: +43 50 664 39080