Telekom Austria Reports H1

VIENNA -- Telekom Austria AG (VSE: TKA - News; NYSE: TKA - News) today announced its results for the first half 2004 ending June 30, 2004.

Year-to-date comparison:

During the first half 2004 total group revenues increased by 2.7% to EUR 1,985.0 million.

After applying the change in the accounting for third party value added services, which was implemented on October 1, 2003 retroactively to 1H 03, the increase in group revenues amounts to 4.4%, driven primarily by the growth in the wireless segment during 1Q 04 and in the wireline segment during 2Q 04.

Group operating income increased by 19.0% to EUR 243.0 million, benefiting from the turnaround in the wireline segment and a small increase in the wireless segment. Group operating income before depreciation, amortisation and impairment charges (adjusted EBITDA) rose by 3.6% to EUR 807.4 million during 1H 04.

Consolidated net income of Telekom Austria rose by 61.7% to EUR 106.4 million, including a non-cash tax expense in the amount EUR 18.8 million as a consequence of the tax reform in Austria which was enacted during 2Q 04.

Quarterly comparison:

Quarterly figures show an increase in group revenues by 3.1% to EUR 995.6 million. Applying the change in the accounting for third party value added service revenues implemented on October 1, 2003 also to 2Q 03, revenues increased by 4.7% during 2Q 04.

On that basis wireline revenues rose by 6.9% to EUR 553.6 million, driven in part by non-recurring revenues recognised for universal services discussed below and high transit interconnection revenues.

According to the Telecommunications Act 2003, Telekom Austria is required to provide universal service at least until Dec. 31, 2004. Universal service is defined as the minimum public service that all users must have access to, at an affordable price and at a specific quality level, independent of their place of residence and business.

An arrangement with the alternative service providers was finalised during 2Q 04. As a result, the wireline segment of Telekom Austria is entitled to charge for universal services rendered between 1999 and 2004. The charge was recognised as revenue as the provision of universal services represents a core business of Telekom Austria.

Based on that agreement the wireline business will receive for the period 1999 to 2004, including the remaining second half of the current business year, a total amount of EUR 14.9 million, of which the wireless segment is committed to pay an amount of EUR 6.4 million, leaving EUR 8.5 million due from third parties.

For the period until June 30, 2004, a charge for the universal service obligation in the amount of EUR 13.0 million has been included in wireline operating revenues during 2Q 04. Out of this amount EUR 5.6 million, which are due from the wireless segment, have been accounted for during prior periods and have therefore been eliminated upon consolidation, leading to a positive net impact on group operating revenues and income in the amount EUR 7.4 million, due from third parties. The difference to the above mentioned total amount until the end of 2004 will be accounted for during the remaining part of the year.

Driven by the foreign operations wireless revenues rose by 2.7%. Domestic business was impacted by a reduction in equipment revenues.

The charge for universal services was also fully reflected in the operating income which rose by 30.0% to EUR 107.0 million. It showed a turnaround in the wireline segment and small decrease in the wireless segment.

Operating income before depreciation, amortisation and impairment charges (adjusted EBITDA) rose by 4.5%, with a 10.1% increase in wireline and 1.7% growth in the wireless segment.

Quarterly net income rose from EUR 28.3 million to EUR 35.7 million. The above mentioned tax reform will become effective as of January 1, 2005 and will among other regulations, reduce the corporate tax rate from 34% to 25%. The resulting revaluation for the estimated deferred tax assets and liabilities as well as loss carry forwards available to the company as of Dec. 31, 2004 led to a non-cash expense in the amount of EUR 18.8 million during 2Q 04.

Lower capital expenditures, which fell by 10.4% to EUR 120.4 million during 2Q 04, contributed to the further decline in net debt to EUR 2,372.4 million at the end of June 2004.

Telekom Austria AG