Disrupting Regulatory Measures and the Overall Tense Economic Situation Impact Results for the First Half Year 2009

August 19, 2009

VIENNA, Austria, August 19 /PRNewswire/ --

    
    - Fixed Net line loss cut by 2/3 in 1H 09 to 20,600 lines
    - Double digit subscriber growth of 10.1% to 18.1 million customers in
      Mobile Communication
    - Revenues decline by 5.8% to EUR 2,388.8 million primarily driven by
      lower Fixed Net revenues
    - EBITDA decreases by 5.2% to EUR 904.8 million while operating costs
      decline by 6.7%
    - Operating free cash flow grows by 5.9% while free cash flow per share
      increases by 2.4% to 0.75 EUR
    - Outlook for 2009 on a constant currency basis fully reiterated, as
      announced on the occasion of the 1Q 09 results
    - Dividend per share floor of 75 cent per share reiterated for 2009-2012
    - Management Board has resolved to cancel 17 million treasury shares or
      3.7% of share capital as of August 24, 2009, thus, the number of shares 
      will be reduced to 443 million
    - Share buyback envisaged for 2010, subject to stable conditions

    
                                                %                        %
    in EUR million           2Q 09    2Q 08  change    1H 09   1H 08  change

    Revenues               1,191.7  1,276.2   -6.6%  2,388.8 2,535.8   -5.8%
    EBITDA                   450.0    468.5   -3.9%    904.8   954.2   -5.2%
    Operating income         170.2    174.1   -2.2%    350.3   376.4   -6.9%
    Net income                82.3     96.3  -14.5%    167.6   226.0  -25.8%
    Earnings per share (in
    EUR)                       0.19     0.22 -14.5%      0.38    0.51 -25.8%
    Free cash flow per share
    (in EUR)                   0.45     0.40  12.1%      0.75    0.73   2.4%
    Capital expenditures     149.3    190.7  -21.7%    265.3   350.3  -24.3%
 
                                                     June 30, Dec.31,    %
    in EUR million                                        09      08  change

    Net debt                                         4,003.9 3,993.3    0.3%
    Net debt/EBITDA (12 months) excluding
    restructuring program                                2.1x    2.1x

All financial figures are based on IFRS; if not stated otherwise, all comparisons are given year-on-year. EBITDA is defined as net income excluding interest, income tax expense, depreciation and amortization, impairment charges, equity in earnings of affiliates, income/loss from investments and foreign exchange differences. This equals operating income before depreciation, amortization and impairment charges.

Group Review

Vienna, August 19, 2009 - Telekom Austria Group (VSE: TKA, OTC US: TKAGY) today announced its results for the first half 2009 and the second quarter ending June 30, 2009.

Hannes Ametsreiter, CEO Telekom Austria Group, said: "The challenging economic situation and a disrupting regulatory framework impacted results for the first half year 2009. The decrease in group revenues is mainly attributable to lower Fixed Net revenues, which in turn resulted from lower traffic volumes and declining wholesale revenues. Our product bundles showed a favourable development, proving successful in reducing Fixed Net access line loss by 2/3 and counteracting the Fixed Net business downward trend. Lower contributions from both segments led to a decline in EBITDA, with a strict cost management curbing the impact of lower revenues on EBITDA. Despite a stable performance on the domestic market, the Mobile Communication segment was affected by the weak economic development in Eastern and South-Eastern Europe, currency translation effects along with the roaming regulation. Mobile Communication customer base showed a further favourable development with a double-digit growth rate and reached the 18 million subscriber mark, with contract customers accounting for 90% of this growth. Last but not least, we reiterate once again our guidance for the full year 2009 based on a constant currency basis and further confirm a dividend floor of EUR 0.75 per share."

Summary

Year-to-date comparison:

In the first half of 2009 revenues decreased by 5.8% to EUR 2,388.8 million primarily due to lower revenues in the Fixed Net segment resulting from lower wholesale revenues and voice volumes as well as the sale of the Fixed Net subsidiaries in the Czech Republic, in Slovakia and in Poland respectively. While total operating expenses were reduced by 6.7%, EBITDA declined by 5.2% to EUR 904.8 million due to lower contributions from both business segments. Operating income fell by 6.9% to EUR 350.3 million, with a higher contribution from the Fixed Net segment partly compensating for a lower operating income in the Mobile Communication segment. Net income was EUR 167.6 million in the first six months of 2009 compared to EUR 226.0 million in the same period of the previous year.

Total capital expenditures decreased from EUR 350.3 million to EUR 265.3 million driven by a reduction of capital expenditures in both segments due to postponements and restrictive investment policy. Operating free cash flow grew by 5.9%, while free cash flow per share increased by 2.4% to EUR 0.75. Net debt remained almost stable at EUR 4,003.9 million at the end of June 2009 compared to year-end 2008. Net debt to EBITDA (last 12 months) excluding the impact of the provision in 4Q 2008 for the restructuring program was 2.1x.

Quarterly comparison:

In 2Q 09 revenues declined by 6.6% to EUR 1,191.7 million and EBITDA decreased by 3.9% to EUR 450.0 million. These declines were driven primarily by the Fixed Net segment with almost stable contributions from the Mobile Communication segment. Reductions in operating expenses resulted in a higher profitability of the Fixed Net segment despite lower revenues. Both the domestic mobile business and the operation in Belarus reported EBITDA growth rates, while start-up operations in the Republic of Serbia and the Republic of Macedonia further reduced their EBITDA losses. EBITDA trends for the operations in Bulgaria, Croatia and Slovenia improved as rates of decline slowed down compared to 1Q 09. Operating income decreased by 2.2% to EUR 170.2 million as a higher contribution from the Fixed Net segment partly offset a lower operating income in the Mobile Communication segment. Net income decreased by 14.5% to EUR 82.3 million in 2Q 09 compared to EUR 96.3 million in 2Q 08.

A restrictive investment policy and postponements of investments supported a reduction of capital expenditures from EUR 190.7 million to EUR 149.3 million which allowed an increase of free cash flow per share by 12.1% to EUR 0.45 in 2Q 09. Operating free cash flow increased by 8.2%.

Market Environment

While the sustained migration of Fixed Net voice customers to the Mobile Communication segment has been the main challenge for several years, mobile broadband continues to make steady inroads into the market for internet access. However, following the introduction of attractive product bundles, line loss decelerated significantly during recent quarters. Against this background the Fixed Net segment continues to focus on the stabilization of cash flows by means of a market-oriented product portfolio and attractive pricing schemes as well as a comprehensive cost-cutting program.

The Mobile Communication segment continued to show subscriber growth both in Austria and in its international markets. Austria is regarded as a highly developed mobile communications market characterized by fierce competition. Bulgaria, Croatia and Slovenia still offer untapped potential in terms of contract customers and innovative data products, however, fierce competition and the economic slowdown in these markets led to price cuts and declining ARPUs. The impact of the economic crisis in the consumer segment of our Eastern and South-Eastern operations in Bulgaria, Croatia, Slovenia and Belarus is limited. The impact is predominantly apparent in the business segment.

Velcom in Belarus was impacted by continuing devaluation of the Belarusian Ruble. Since the beginning of the year the Belarusian Ruble has devaluated by 29.3% against the Euro. The counter-measures adopted to mitigate the negative impact include a tariff increase effective as of mid-February 2009 as well as a rebalancing of costs based on the local currency. A segment-wide risk monitoring system has been put in place to identify risk factors such as currency fluctuations or long-term macro-economic trends in order to react in due time. Regulation remains an important external disrupting factor in all markets primarily impacting roaming tariffs and termination charges.

Update on Share Buyback Program

As announced at the Capital Market Day in January 2009, Telekom Austria Group evaluated the potential for a share buyback. Although financial markets make financing available, the operating performance in South- and Eastern Europe is subject to uncertainties and the risk of currency devaluations still remains. Nevertheless, the Telekom Austria Group envisages in accordance with the capital allocation policy to start share buybacks in 2010 depending on the normalization of business, stable currencies and provided no investment with a higher return is available. About 1/3 of free cash flow after dividends is available for a potential share buyback. The rest remains as a reserve.

Outlook 2009 Reiterated

As announced in May 2009 and based on a constant currency assumption, the Telekom Austria Group anticipates slightly weaker revenues than originally expected for the year 2009 due to lower Fixed Net wholesale revenues as well as lower Mobile Communication interconnection and equipment revenues, which will be accompanied by a proportionate reduction in costs. Therefore, on a constant currency basis EBITDA guidance remains unchanged at about EUR 1.9 billion in 2009. Capital expenditures for the year 2009 are expected to amount to approximately EUR 800 million, which will result into an operating free cash flow (EBITDA less capital expenditures) of around EUR 1.1 billion. The Telekom Austria Group expects to distribute 65% of net income in form of dividends at a minimum floor of 75 cent per share.

    
                    Outlook 09   Outlook 09    Outlook 09
                    as of        as of May     as of Feb.    Outlook 09
                    August 19    13            25            as of Jan. 29
    Telekom
    Austria Group

    Revenues       Slightly      Slightly      ~ EUR 5.1bn   ~ EUR 5.1bn
                   weaker than   weaker than
                   originally    originally  
                   expected      expected              
                  
    EBITDA         ~ EUR 1.9bn   ~ EUR 1.9bn   ~ EUR 1.9bn   ~ EUR 1.9bn                    
    Capital     
     expenditures  ~ EUR 0.8bn   ~ EUR 0.8bn   ~ EUR 0.8bn   ~ EUR 0.8bn                      
    Operating
     Free Cash                         
     Flow          ~ EUR 1.1bn   ~ EUR 1.1bn   ~ EUR 1.1bn   ~ EUR 1.1bn
    Dividend       65% of net    65% of net    65% of net    65% of net
                   income, DPS   income, DPS   income, DPS   income, DPS
                   of 75 cent    of 75 cent    of 75 cent    of 75 cent
                   minimum       minimum       minimum       minimum


    Outlook based on constant currency basis as announced on the 
     Capital Market Day in January 2009

Further Information

For more detailed information about the half year results 2009 please refer to the corresponding report on Telekom Austria Group's website at http://www.telekomaustria.com/interim_reports

Disclaimer: This news release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are usually accompanied by words such as "believe," "intend," "anticipate," "plan," "expect" and similar expressions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. These factors include, but are not limited to, the following:

    
    - the level of demand for telecommunications services or equipment,
    particularly with regard to access lines, traffic, bandwidth and new
    products;

    - competitive forces in liberalized markets, including pricing pressures,
    technological developments, alternative routing developments and new 
    access technologies, and our ability to retain market share in the face 
    of competition from existing and new market entrants;

    - the effects of our tariff reduction or other marketing initiatives;

    - the regulatory developments and changes, including the levels of
    tariffs, the terms of interconnection, unbundling of access lines and
    international settlement arrangements;

    - our ability to achieve cost savings and realize productivity
    improvements;

    - the success of new business, operating and financial initiatives, many
    of which involve start-up costs, and new systems and applications,
    particularly with regard to the integration of service offerings;

    - our ability to secure the licenses we need to offer new services and
    the cost of these licenses and related network infrastructure build-outs;

    - the progress of our domestic and international investments, joint
    ventures and alliances

    - the impact of our new business strategies and transformation program;

    - the availability, terms and deployment of capital and the impact of
    regulatory and competitive developments on capital expenditure;

    - the outcome of litigation in which we are involved;

    - the level of demand in the market for our shares which can affect our
    business strategies;

    - changes in the law including regulatory, civil servants and social
    security law, including pensions and tax law; and general economic
    conditions, government and regulatory policies, and business conditions 
    in the markets we serve.

    - Through its expansion into the Eastern and South-eastern European
    region, the company operates in markets that have been experiencing 
    political and economic change. This circumstance has affected, and may 
    continue to affect, the activities of enterprises operating in this 
    environment. Consequently, operations in the Eastern and South-eastern 
    European region involve uncertainties, including tax uncertainties that 
    typically do not exist in other markets.

    
    Contacts:
    
    Elisabeth Mattes
    Group Spokeswoman
    Tel.: +43-664-331-2730 
    E-Mail: elisabeth.mattes@telekom.at
 
    Peter Zydek
    Head of Investor Relations
    Tel.: +43(0)59059-1-19000
    E-Mail: peter.zydek@telekom.at