Capital expenditures increased by 6.7% to EUR 291.6 million in 4Q 09 compared to EUR 273.3 million in 4Q 08 as a result of an increase in capital expenditures for tangible assets in the Fixed Net segment, which was partly offset by a decline in capital expenditures in the Mobile Communication segment.
The increase in capital expenditures resulted in a free cash flow of EUR 130.9 million in 4Q 09 compared to a free cash flow of EUR 184.8 million in 4Q 08. Free cash flow per share was EUR 0.30 in 4Q 09 compared to EUR 0.42 in 4Q 08.
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. Moreover, it resulted in positive quarterly net additions for the first time in more than a decade in 4Q 09. Against this background the Fixed Net segment continues to focus on the protection of cash flows by offering a market-oriented product portfolio and attractive pricing schemes as well as a comprehensive cost-cutting program.
The Mobile Communication segment continued to show growing numbers of subscribers both in Austria and in its international markets. Austria is regarded as a highly developed mobile communications market characterized by fierce competition and persistent price pressure. The international operations of the Telekom Austria Group still offer untapped potential in terms of contract customers and innovative data products. However, due to the economic downturn the growth previously expected has not yet fully materialized. Furthermore, strong competition and the continued difficult economic situation in these markets have led to price cuts and declining average revenues per user (ARPU).
Regulation remains an important external factor impacting the conditions in nearly all markets primarily affecting roaming tariffs and termination charges. On July 1, 2009, the second round of roaming regulation took effect causing a significant reduction of roaming prices. Furthermore, lower usage due to the current economic environment also impacts roaming revenues. In addition, the introduction of taxes levied on selected mobile communication services in Croatia and the Republic of Serbia affected the results.
Velcom based in Belarus was impacted by a devaluation of the Belarus Ruble. During 2009 the Belarus Ruble has devalued by 33% against the Euro. The counter-measures adopted to mitigate the negative effect include a tariff increase, effective as of mid-February 2009, as well as rebalancing of costs based in the local currency.
The Management does not expect recovery of the economic environment in Eastern and South-Eastern Europe in the near term and consequently anticipates the difficult market environment to prevail in 2010.
Outlook 2010: 75 Cents DPS Floor Reiterated until 2012
Telekom Austria Group expects the challenging environment to persist in 2010. This environment is characterized by the concurrence of several negative external effects with the impact of weak economies. The negative external effects mainly encompass ongoing fixed-to-mobile substitution in Austria, continued price pressure in Telekom Austria Group's major markets and the effect from regulatory-induced lower roaming prices as well as reduced mobile termination rates in Austria, Bulgaria, Croatia and Slovenia. Furthermore, the introduction of taxes levied on selected mobile communication services in Croatia and the Republic of Serbia poses an additional burden.
For the financial year 2010, revenues are expected to amount to roughly EUR 4.7 billion. The company has already initiated significant cost reduction programs in both segments addressing both staff and non-staff related expenses to mitigate the impact from lower revenues. Including the expected cost savings, EBITDA should reach about EUR 1.6 billion. Depending on investments for the migration to an All-IP based voice network in the Fixed Net segment, capital expenditures of the Telekom Austria Group are forecasted to reach approximately EUR 800 million. This amount does not reflect a material roll-out of glass fiber which is not expected to start in 2010.
Operating Free Cash Flow remains the primary focus of the management and is expected to come out at about EUR 800 million. The Telekom Austria Group reiterates its intention to distribute the higher of 65% of the annual net income or at least 75 cents per share as dividend until 2012. The management board remains committed to its capital allocation policy including returning excess cash to shareholders via share buy-backs within the 1.8x-2.0x net debt/EBITDA target balance sheet structure and provided stability in its main foreign currencies and operations. Hence, in light of the ongoing challenging operating environment share buyback is not expected to start in 2010.
This outlook is based on constant currencies and does not yet include the impact of the announced integration of Fixed Net and Mobile Communication activities in Austria.
Outlook 2010
as of Feb 24, 2010*
Telekom Austria Group on constant currency basis
Revenues EUR 4.7 bn
EBITDA EUR 1.6 bn
Capital expenditures up to EUR 800 mn
Operating Free Cash Flow EUR 800 mn
Dividend 65% of net income,
DPS of 75 cents minimum
* excluding the impact of the merger of domestic operations
Telekom Austria Group Creates New Structure for its Austrian Operations
On February 23, 2010, the Supervisory Board of Telekom Austria AG approved the Management Board's proposals to merge the two domestic subsidiaries. This merger of the Fixed Net and Mobile Communication business activities within one single operating company should first and foremost provide the basis to meet increasing customer demand for integrated telecommunications solutions and convergent products in Austria. Moreover, the joint steering of sales activities will generate additional revenue potential through cross-selling opportunities. This merger will also enhance the Group's innovative strength, enabling the effective rollout of joint future-proof network infrastructure and the full leverage of synergies across all internal processes. The organizational merger will take place in 2010. However, optimization of processes and the convergence of technological systems will require more time.
Based on preliminary forecasts, the Telekom Austria Group expects this merger to generate a positive contribution to earnings by 2012 and subsequently an annual increase in cash flow of approximately EUR 100 million after further 2-3 years. This growth will result from additional revenues and lower expenses. In addition, cash flow will also benefit from lower capital expenditures. Initial costs will impact results over the next few years and a negative cash flow effect of approximately EUR 80 million is expected for the 2010 financial year.
Further Information
For more detailed information about the full-year 2009 please refer to the corresponding report on Telekom Austria Group's website at http://www.telekomaustria.com/interim_re...
Contacts:
Elisabeth Mattes
Group Spokeswoman
Telekom Austria Group
Tel.: +43-664-331-2730
E-Mail: elisabeth.mattes@telekom.at
Barbara Plossnig
Investor Relations
Telekom Austria Group
Tel.: +43-(0)590591-19003
E-Mail: barbara.ploessnig@telekom.at
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