Telekom Austria Group Achieves Growth of Net Profit by 5.2% Despite Roaming Abolition and Currency Effects

30.01.2017

Telekom Austria Group Achieves Growth of Net Profit by 5.2% Despite Roaming Abolition and Currency Effects

• Reported net result increased by 5.2% to EUR 413.2 mn
• Group total revenues declined by 0.5% (proforma*) and rose by 2.1% (reported) to EUR 4,211.5 mn, which is above market expectations
• Group EBITDA declined by 2.6% on a proforma and 1.1% on a reported basis
• Adjusted for one-off and FX effects, proforma total revenues and EBITDA rose by 2.4% and 3.1% year-on-year respectively
• On an operating level better service revenue trends and ongoing strong cost efficiencies managed to offset effects from stepwise retail roaming abolition and higher equipment costs
• Stable proforma mobile customer base and value-increasing trend from multi-prepaid towards single-postpaid offers; 1.3% proforma fixed-line RGU growth driven by CEE countries
• Austria: 1.8% year-on-year reported EBITDA growth and higher margins despite roaming drag with support from stabilisation in revenues and cost savings
• CEE: Continuing strong operational trends in Croatia and Belarus, first improvements in Bulgaria; strong competition affects Republic of Serbia and Slovenia; positive impacts from cluster cost savings

* Proforma figures include effects of M&A transactions executed between the start of the comparison period and the end of the reporting period
** Revenue Generating Units (Fixed Voice, Fixed Broadband, Fixed TV)

“We are satisfied with the performance of our markets even though it has been a challenging year of roaming abolition as well as currency effects in Belarus. The upwards trend continues with a group wide revenue growth of 2.4 percent to 4,290.3 EUR mn and EBITDA increase of 3.1 percent to 1,369.8 EUR mn on operational basis. Furthermore, we achieved plus 5.2 percent in our net profit, amounting to 413.2 EUR mn. The previous year has not only been successful on the financial side. We also implemented a new way of leadership, set-up our new and already successful Business Unit Digital and established a culture of learning and development. Our strategy pays off”, says Alejandro Plater, CEO & COO Telekom Austria Group.

In the 2016 financial year, the Telekom Austria Group focused once again on counteracting competitive price pressure and regulatory intervention through a clear value focus and strict cost management. In addition to the operational development the Telekom Austria Group strengthened its position with M&A activities. The following transactions between the start of the comparison period and the end of the reporting period are highlighted:

• The acquisition of the fixed-line reseller Amis in Slovenia and in Croatia, consolidated as of 1 September 2015.
• The acquisition of the fixed-line operator Blizoo in Bulgaria, consolidated as of 1 October 2015.
• The merger of Vip operator in the Republic of Macedonia with the third-largest operator in the country, ONE, consolidated as of 1 October 2015.
• The acquisition of the fixed-line operator Atlant Telecom and its subsidiary TeleSet in Belarus, consolidated as of 1 December 2016.

In December 2016, an agreement for the acquisition of the fixed-line operator Metronet in Croatia was signed; the company is expected to be consolidated following the closing from the first quarter of 2017.

The performance in 2016 compared with the previous year was also impacted by the following material one-off and FX effects:

• EUR 10.5 mn positive one-off effects in total revenues in Austria in Q4 2015: Reversal of accruals in fixed-line and other revenues
• EUR 30.0 mn positive one-off effect in total revenues in Slovenia in other operating income in 2015, with payments in Q1 2015 (EUR 20.0 mn) and in Q4 2015 (EUR 10.0 mn): Agreement on settling mutual relations and business collaboration with Telekom Slovenije
• EUR 21.6 mn positive one-off effect in EBITDA in Austria in Q4 2015 in restructuring charge resulting from a settlement
• EUR 7.0 mn positive one-off effect in EBITDA in Austria in Q1 2016 resulting from the change of value adjustments for handsets in cost of equipment
• EUR 14.4 mn positive one-off effect in EBITDA in Austria in Q3 2016 resulting from the reversal of an accrual for copyrights in cost of service
• Negative FX effects of EUR 78.8 mn in revenues and EUR 37.0 mn in EBITDA in 2016, of which EUR 78.7 mn and EUR 37.2 mn respectively attributable to BelarusIn 2016, there were no one-off effects in total revenues (2015: EUR +40.5 mn). One-off effects (without FX effects) for EBITDA amounted to EUR +21.4 mn in 2016 (2015: EUR +62.1 mn).

In 2016, competition in Austria continued to be driven by mobile no-frills offers. In addition, mobile WiFi routers with unlimited data offers are becoming an increasingly relevant element of the Austrian broadband market. Developments on the Austrian market were also impacted by the stepwise abolition of retail roaming in the EU as of 30 April 2016. In Bulgaria, performance in 2016 was again characterised by a difficult competitive environment which particularly affected the business segment. However, some market segments showed first signs of a stabilisation. In Croatia, the beginning easing of the market environment continued, whereas regulatory pressure remained in the form of high frequency usage fees.

The macroeconomic and regulatory headwinds in Belarus remained in place in the year under review. In this environment, the government sought to stabilise inflation, but also increased the value added tax on mobile services from 20% to 25% in April 2016. In 2016, the Slovenian telecommunications market was again characterised by fierce competition in the mobile business. In the Republic of Serbia, the highly competitive market environment saw the launch of new convergent offers in the first half of 2016. Following the merger of Vip operator with ONE in October 2015 in the Republic of Macedonia one.Vip, the combined entity, is now the leading operator in the mobile segment of the telecommunications market. In spite of this consolidation, competition in the mobile market accelerated with the entry of a mobile virtual network operator (MVNO) as of July 2016.

In mobile communication, the Telekom Austria Group subscriber number remained stable (0.0%) at 20.71 million subscriber in the year under review. The strongest growth was recorded in Austria, with 167,800 additional customers. This development was driven by Machine-to-Machine (M2M) SIM cards. The number of customers in the Republic of Serbia (36,000) and Slovenia (5,800) also increased, whereas customer numbers declined in Bulgaria (-127,500), the Republic of Macedonia (-59,800), Croatia (-13,600) and Belarus (-11,900).

In the fixed-line business, the company gained around 76,500 revenue generating units (RGUs) at Group level, corresponding to growth of 1.3% to around 5.90 million RGUs. This growth was attributable primarily to Croatia and Slovenia, which contributed 67,100 and 24,400 additional RGUs respectively, while the number of RGUs in Austria fell by 38,900.

As a result of the developments described above, the Telekom Austria Group experienced a downturn in revenues of 0.5% in the 2016 financial year (reported: +2.1%). Higher total revenues in Croatia and the Republic of Serbia as well as stable total revenues in Bulgaria were offset by declines in the other segments. Adjusted for the one-off and FX effects described above, total revenues rose by 2.4% compared with the previous year.

On the cost side, Telekom Austria Group increasingly invested in handset subsidies in almost all markets in 2016, resulting in a larger number of handsets sold and hence higher costs of equipment. The ongoing optimisation of operating efficiency was a focal point of management activities once again. Among other things, this included the implementation of management clusters in the previous year, resulting in lower operating expenses for administration and maintenance in 2016. Restructuring expenses originating entirely from the Austrian segment and amounted to EUR 7.2 mn in the year under review after EUR 0.4 mn in the previous year. These include social plans for employees exempt from work (‘freigestellte Mitarbeiter’) whose employment is being terminated in a socially responsible way, and expenses for the transfer of civil servants to the government. Costs and expenses were also influenced by the one-off effects in 2015 and 2016 mentioned above. All in all, the developments described led to a slight increase in costs and expenses of 0.6% year-on-year (reported: increase of 3.7%).

In the 2016 financial year, EBITDA fell by 2.6% (reported: -1.1%) as a result of the lower level of total revenues amongst others driven by roaming, as well as higher costs and expenses. EBITDA growth in Austria, Croatia and the Republic of Macedonia could not offset the decline in the other segments. All in all, the EBITDA margin declined from 32.9% in the previous year to 32.2% in the year under review. Adjusted for the one-off and FX effects described above, EBITDA rose by 3.1% year-on-year.

Depreciation and amortisation increased by 5.2% year-on-year (reported: +8.6%) mostly due to the higher level of depreciation and amortisation in Austria and the Republic of Macedonia. As a result, operating income declined by 14.4% compared with the previous year (reported: -14.9%).

For detailed information and individual country figures please visit our website: http://www.telekomaustria.com/en/ir/interim-results