Telekom Austria AG : Telekom Austria Group reports for the first half of 2013 a Net Profit of over EUR 100 Million despite Persistently Challenging Framework Conditions

Vienna, 12 August 2013 - The Telekom Austria Group (VSE: TKA, OTC US: TKAGY) today announces its results for the first half 2013 ending 30 June 2013.

• Group revenues in 1HY 2013 slightly declined by 1.2% to EUR 2.09 billion in the first half 2013
• Group EBITDA dropped by 8.1% to EUR 667.2 million due to regulatory effects and higher handset subsidies
• Declines in revenues and earnings in both Bulgaria and Austria
• Belarus and the segment "Additional Markets" continued to show significant growth
• Regulatory burden on Telekom Austria Group's revenues and EBITDA comparable amounted to EUR 47.1 million and EUR 28.6 million respectively
• Value-oriented customer management showed positive signs
• Operating result (EBIT) and net profit clearly increased
• Updated Outlook for 2013: due to capital expenditures efficiency outlook slightly updated
  
  

*) In Q1 2013 the calculation of mobile broadband customers was changed. In Bulgaria and Belarus, the mobile broadband customer base only includes data tariffs. In Croatia, the M2M business area is not included. Prior quarters were adjusted retroactively.
**) EBITDA excluding effects from restructuring and impairment tests
***) In Q2 2013, the calculation method for mobile subscribers was changed in Austria. Prior quarters in the 2012 and 2013 financial years were adjusted retroactively.

The operating markets of the Telekom Austria Group in Central and Eastern Europe continue to be marked by a highly competitive landscape, a very challenging macroeconomic environment and strong regulatory burdens with regard to roaming tariffs and mobile termination rates. The financial results of the Telekom Austria Group for 1HY 2013 were influenced considerably by these challenging framework conditions. As a result, group revenues declined by 1.2% to EUR 2,092.3 million and EBITDA comparable dropped by 8.1% to EUR 667.2 million in the period under review. Operating result (EBIT) increased by 5.8% to EUR 223.3 million due to lower depreciation and amortization charges, with net profit rising by 33.5% to EUR 108.0 million due to an improved financial result.

"As expected, 2013 is turning out to be a mixed year. The company's results show that the adopted strategic measures are proving effective. Based on our convergent product portfolio and on higher subsidies for top smartphones in the premium customer segment, we are succeeding in securing our business. At the same time, our cost-cutting measures are partly compensating for the declines in revenues", said Hannes Ametsreiter, CEO Telekom Austria Group, commenting upon the results for 1HY 2013.

Business Development in 1HY 2013
In the period under review, both the Austrian and Bulgarian segments were influenced by a highly competitive landscape and drastic reductions due to stringent regulatory measures. In addition, the development of the Bulgarian Mobiltel was further impacted by an unstable economic and political environment. The Croatian mobile market proved extremely competitive however, thanks to the strong demand for fixed net and convergent offerings, Vipnet was able to mitigate the decline in revenues. The Belarusian segment and the "Additional Markets" segment (+8.3%) once again reported a strong growth in the period under review.

In 1HY 2013, EBITDA comparable amounted to EUR 667.2 million at the group level, a decline of 8.1% compared to the same period of the previous year. This decline was mainly attributed to lower revenues as well as to greater expenses for higher end-devices aimed at securing the customer base in Austria. Gross savings totaling EUR 75.5 million could not fully compensate for this decrease. EBITDA comparable dropped by 14.3% in Austria and by 25.1% in Bulgaria, remained unchanged in Croatia and showed a considerable increase in Belarus and in the "Additional Markets" segment.

In the period under review, the Group's operating result (EBIT) could profit from reduced restructuring expenses (EUR 7.6 million) and, above all, from lower amortization and depreciation charges. All these measures have led to an increase in net profit of 33.5% to EUR 108.0 million compared to the same period of the previous year.

Hans Tschuden, CFO and Deputy Chairman of the Telekom Austria Group, said upon the company's business development: "The development of operating results for the first half 2013 was in line with forecasts. Thanks to lower depreciation and amortization charges as well as reduced restructuring expenses, we were able to achieve a solid performance and total cost savings of roughly EUR 76 million. Against the backdrop of a persistently challenging market environment, we will continue to focus on cost optimization going forward".

Capital expenditures dropped by 1.7% to EUR 325.4 million in the first half 2013. Total headcount across the Group's eight operating countries declined by 2.6% to 16,352 employees (full-time equivalents) as of June 30, 2013.

Updated Outlook for the Full-Year 2013
The results for 1HY 2013 confirmed Telekom Austria Group's expectations for the full-year 2013. Going forward, the company expects results to continue to be negatively impacted by a number of external factors such as highly competitive markets, stringent regulatory measures and macroeconomic headwinds. On the Group's major operating markets such as Austria, Bulgaria and Croatia, price pressure in the mobile business will be further exacerbated by intensive competition. In the domestic market, this will further drive fixed-to-mobile substitution, posing considerable obstacles to initiatives such as new data tariffs for the fixed net business. Besides, stringent regulatory measures such as lower roaming tariffs and interconnection rates will continue to impact the operating business on the Group's main markets.

In the CEE area, customer demand and pricing levels will be further impacted by negative macroeconomic developments. Going forward markets such as Belarus or the Republic of Serbia will continue to be exposed to foreign exchange volatility.

In 2013, Telekom Austria Group's management intends to meet these challenges through its successful convergence strategy and a clear focus on the high-value customer segment in its mature mobile markets. In its mobile-only markets, the Telekom Austria Group will concentrate on achieving its growth targets. Moreover, the further improvement of its operating excellence aimed at counteracting revenue pressure on margins will continue to be a key focus going forward. This is reflected, for instance, in the planned reduction of costs of at least EUR 100 million gross for the full year 2013.

The Telekom Austria Group updated its outlook for the full year 2013. Expected group revenues of approximately EUR 4.1 billion were confirmed. Due to the successful focus of the Group on the optimization of investment efficiency, expectations with regard to capital expenditures were revised from a former amount of approximately EUR 700 million to EUR 650-700 million.

Pursuing a conservative financial policy based on a solid investment-grade rating BBB (stable) will continue to be a top strategic priority for the Telekom Austria Group. Furthermore, the achievement of a net debt to EBITDA comparable ratio of roughly 2.0 x over the midterm is also integral part of this strategy. For the business year 2013, the management of the Telekom Austria Group plans to distribute a dividend of 5 Eurocents per share.

This outlook is based on constant currency exchange rates for all operating markets of the Group and does not include any effects of hyperinflation accounting for the Belarusian segment.

Operating Developments in the Single Segments

A1, Austria
The Austrian market is generally characterized by intensive competition and a clear trend towards 'all-in' tariffs, which result into fixed-to-mobile substitution. In the period under review, A1 adopted a comprehensive set of remedial measures comprising convergence, cost control and value-oriented customer management to face this challenging market environment.

In 1HY 2013, revenues in the Austrian segment declined by 2.5% to EUR 1,345.5 million. This decline was mainly attributed to stronger usage of 'all-in' tariffs (and the related revenue shortfall) as well as by considerably lower interconnection revenues. In April 2013, A1 introduced the new GO! tariff schemes. The new packages comprising voice telephony, SMS and data volumes also include roaming minutes depending on the type of tariff. These new tariff schemes support A1 positioning as quality leader and target customers, who wants to use high-value end-devices within the framework of their contract. Based on this value-oriented customer management handset revenues increased by almost 75%.

In the Austrian segment, EBITDA comparable declined by 14.3% to EUR 396.0 million due to an increase in costs by 3.1% and lower revenues. This increase in costs is mainly attributable to stronger marketing activities and the related growth of material expenses by 36.8% in the period under review. Personnel expenses increased slightly due to the collective bargaining agreement despite a lower average number of employees.

In the period under review, mobile subscribers increased by 13.1% to 5.79 million, with mobile broadband lines growing by 14.4% to 850,300 lines. Average revenues per user (ARPU) dropped by 14.7% to EUR 16.2 following the integration of YESSS!

In 1HY 2013, the fixed net business showed an almost stable development: as of June 30, 2013 total fixed access lines amounted to 2.27 million, a slight decline of 0.6% or roughly 13,400 lines compared to the same period of the previous year. Average revenues per line (ARPL) dropped by 0.5% also due to lower voice minutes. The increased number of Internet and A1 TV subscribers could not compensate for this decline although the amount of broadband lines rose by 5.1% to
1.35 million in the period under review.

Mobiltel, Bulgaria
In Bulgaria, unstable political and economic framework conditions did not improve after the spring elections. In 1HY 2013, revenues declined by 18.2% to EUR 198.8 million. In addition to the challenging macroeconomic situation, Mobiltel mainly suffered under regulation-induced reductions of termination rates, with regulatory effects accounting for more than two thirds of the decline in revenues in the period under review. The company's consistently implemented cost cutting program could only partly compensate for this decline. As a result, EBITDA comparable dropped by 25.1% to EUR 82.4 million in 1HY 2013.

In 1HY 2013, Mobiltel strengthened its focus on value-oriented customer management by launching new tariff schemes based on a new customer segmentation. Still in the period under review, total customer numbers declined by 4.1% to 5.3 million and the market share dropped to 45.3%. Nevertheless the share of contract customers grew by almost 3 percentage points to 71.8%. Fixed access lines showed a positive development in the first half 2013, rising by 17.4% to 162,000 lines compared to the first half 2012. Broadband lines increased by 19.0%.

Vipnet, Croatia
Even after Croatia's entry into the EU, the country's economic situation remained tense and consumer demand subdued. In addition, intensive competition impacted Vipnet results for the first half 2013, with the company reporting a decline in revenues of 2.1% to EUR 190.2 million. This decline was relative low thanks to the strong demand for fixed net products and convergent services. EBITDA comparable remained unchanged at EUR 60.8 million compared to the first half 2012.

In the mobile communication business, Vipnet focused its activities on value-oriented customer management. This led to a significant increase in the share of contract customers by 33,800 to 43.3%, while the share of prepaid customers dropped, with the market share decreasing to 37.7%. ARPU declined by 3.4% to EUR 11.7 in the period under review. However the fixed net business showed a very positive development: fixed access lines increased by 15.9% to 179,300 lines, 99,000 of which were broadband lines (+25.6%).

velcom, Belarus
Since Q4 2011, Belarus has been classified as a hyperinflationary economy according to the International Accounting Standard. In the first half 2013, however, the inflation rate was not particularly high and exchanges rates did not show any remarkable developments. Including a negative foreign exchange effect of EUR 17.0 million, velcom reported an increase in revenues by 18.9% to EUR 162.8 million in the period under review. Excluding this foreign exchange effect, revenue growth even amounted to 31.3%. EBITDA comparable increased by 45.1% to
EUR 80.3 million despite slightly increased operating costs.

Thanks to higher usage, velcom was able to increase its ARPU. Residential customers mainly contributed to driving demand for smartphones, with the share of contract customers rising to 80.7%. The number of broadband customers increased by 2.
227,000.

Si.mobil, Slovenia
In 1HY half 2013, Si.mobil was able to achieve a solid performance despite a very weak economic environment and a very competitive landscape. Revenues increased by 1.2% to EUR 97.6 million and EBITDA comparable by 5.7% to EUR 27.9 million. The company's customer base rose by 4.1% to 672,500 customers, with the share of contract customers growing by 77.5%.

Vip mobile, Republic of Serbia
The macroeconomic situation in the Republic of Serbia improved significantly in the first half 2013. As a result, Vip mobile reported an increase in revenues by 15.7% to EUR 87.4 million. The share of contract customers improved considerably thanks to the company's value-oriented customer management. EBITDA comparable grew by 42.1% to EUR 30.8 million thanks to the favorable business development. Customer numbers increased by 13.1% to 1.9 million, thus market share has risen to 20.6%.

Vip operator, Republic of Macedonia
Vip operator showed mixed results, reporting an increase in revenues of 12.7% to EUR 31.7 million and a reduction in EBITDA comparable by 6.4% to EUR 5.2 million. The decline in EBITDA comparable was mainly attributed to interconnection fees and personnel expenses. ARPU rose by 6.7% to EUR 7.9 driven by to higher usage, customer numbers grew by 3.3% and the market share by 28.0%. The share of contract customers also showed a favorable development increasing by 5.6 percentage points to 45.1%