Telekom Austria cuts 2014 outlook, posts H1 loss on Bulgaria writedown

Telekom Austria predicted a higher drop in 2014 sales than it previously forecast after reporting bigger-than-expected declines in second-quarter earnings and revenue, and a net loss of over €300 million ($400 million) for the first half of the year.

The América Móvil-owned Austrian operator predicted full-year revenues will fall 3.5 per cent compared to its previous forecast of a 3 per cent decline, and also reduced expected capex to a range of €650 million-€700 million from €700 million previously. However, the group's management said it remains confident that its ambitious targets will be achieved as the operator continues to implement its turnaround strategy.

Analysts from Jefferies noted that the 2014 guidance was lowered due to weaker operational performance and a weaker outlook for the Bulgarian and Croatian units. Nevertheless, the analysts said the impact of the lower guidance was mitigated by the fact that "consensus has widely anticipated this (already at -3.3 per cent decline for year)."

In the first half of the year, Telekom Austria reported a 7.3 per cent decline in group revenue to €1.94 billion due to weak sales in Austria, Bulgaria and Croatia, which offset positive developments in Belarus and the "additional markets" segment, including the Republic of Serbia, and Slovenia. Comparable group EBITDA decreased by 7.2 per cent to €619.4 million.

Hannes Ametsreiter, Telekom Austria's CEO, said: "The persisting negative effects of the global economic and financial crisis hit the real economy in the CEE markets particularly hard during the first half 2014. The Bulgarian market especially has been heavily overshadowed by poor economic prospects and the consequences of the conflict in Ukraine."

The group posted a net loss of €317.8 million for the first six months, largely due to a €400 million impairment charge it made recently on its Bulgarian unit.

"This set of results should not come as a surprise, as the general public was informed about the impairment charge in Bulgaria several weeks ago," Ametsreiter added.

The group attributed the revenue decline in the first six months to regulatory effects totalling €43.7 million at group level as well as to "an adjustment of the estimation method for unrecognised revenues in the Austrian market", which had a negative net impact on revenue of €28.2 million. This second point relates to the introduction of a new billing system in the second quarter that revealed the group had overestimated unbilled revenues in its Austrian fixed-line business.

Jefferies noted that without this "unexpected accounting adjustment…the [second-quarter] results are solid with revenue in-line (welcome progress in Austria) and EBITDA 2 per cent ahead (with all segments out-performing except Croatia)."

In the second quarter, comparable EBITDA fell 9.3 per cent to €299 million, while revenue fell 7.7 per cent to €963 million, missing the average estimates in a Reuters poll.

Ametsreiter said that despite the ongoing negative effects at global and national level, the group remains confident about its future development.

"Thanks to the strong partnership with América Móvil, we will be able to take important steps in the months to come to further develop Telekom Austria Group," the CEO said.

For more:
- see Telekom Austria's results
- see this Reuters article

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