Annual Financial Report 2013 According to § 82 Para 4 Stock Exchange Act Telekom Austria Group Annual Financial Report 2013 Table of Contents Telekom Austria Group 3 Group Management Report 31 Consolidated Financial Statements 98 Report on the Consolidated Financial Statements Declaration of the Management Board 100 Declaration of the Management Board Financial Statements of Telekom Austria AG 101 Financial Statements 120 Management Report 129 Report on the Financial Statements 131 Telekom Austria AG Supervisory Board Report Declaration of the Management Board 134 Declaration of the Management Board 2 Group Management Report Group Management Report audited pursuant to §269 of the Austrian Commercial Code The Group Management Report and the Consolidated Financial Statements are a translation from the original German versions, which are solely valid. General economic In addition to the necessary budget consolidation and funda- 1) mental structural reform, which challenged the EU Member environment States in Southern and Southeastern Europe in particular, the economic situation was dominated by the low interest rate After a number of difficult years, the global economic situa- policy reinforced by the European Central Bank. It lowered tion stabilised increasingly in 2013. While economic growth lending rates by 25 basis points in both May and November in the United States declined from 2.7% in the previous 2013 to currently 0.25% and has recently reaffirmed its plans year to 1.8%, according to World Bank estimates, China’s to retain its expansive monetary policy in the long term. performance proved robust with a year-on-year rise in GDP of 7.7%. After a recession in the previous year, the economic Further developments which shaped events on the inter- climate stabilised in the European Union in 2013 amidst national capital markets included the discussion of an some positive signals, which intensified in the second half additional bailout for Greece, government crises in several of the year. European countries, the ongoing civil war in Syria and politi- cal unrest in Turkey. Further unease was triggered by varying According to European Commission estimates, economic comments by the US Federal Reserve concerning a possible growth in Austria amounted to 0.4% in 2013 after 0.9% in the reduction in market support in the form of a tapering of its previous year; a stronger economic recovery is expected only bond-buying programme, which was then announced in in 2014. GDP growth of 0.5% was achieved in Bulgaria and of December. 1.0% in Belarus. By contrast, Croatia and Slovenia suffered a decline in economic performance. The Republic of Serbia and the Republic of Macedonia returned to growth in 2013 with increases of 2.0% and 2.5% respectively. Development of real GDP in the markets of Telekom Austria Group in %1) 20122) 2013 2014e Austria 0.9 0.4 1.6 Bulgaria 0.8 0.5 1.5 Croatia –2.0 –0.7 0.5 Belarus 1.5 1.0 1.5 Slovenia –2.5 –2.7 –1.0 Republic of Serbia –1.7 2.0 1.0 Republic of Macedonia –0.4 2.5 3.0 1) Sources: GDP for USA, China, Belarus, the Republic of Serbia and the Republic of Macedonia: World Bank, www.worldbank.org/content/dam/Worldbank/GEP/ GEP2014a/GEP2014a.pdf, page 16. All other countries European Commission (http://ec.europa.eu/economy_finance/eu/countries) 2) Due to the earlier publication date of this Group management report, other sources were used than in the previous year and the data published for 2012 was adjusted accordingly. 3 Telekom Austria Group Annual Financial Report 2013 ICT spending on Telekom Austria Group markets in % of gross national income per capita5) 2011 2012 Austria 0.7 0.7 Bulgaria 3.7 3.5 Croatia 1.5 1.5 Belarus 1.2 1.5 Slovenia 1.4 1.4 Republic of Serbia 2.9 2.9 Republic of Macedonia 3.9 3.0 Industry trends In the Austrian fixed-line market fixed-to-mobile substitu- tion continued in the reporting year. While 15.4% of all and competition voice minutes were on fixed lines in the second quarter of 2012, this figure was only 14.5% in the same period of 2013. The business performance of Telekom Austria Group is Parallel to this, average telephony revenues per month influenced by a number of external factors. In 2013 the declined by 13% for private customers and 8% for business market environment again proved highly competitive, both customers. The strong demand for broadband solutions con- in the fixed-line and mobile communications markets. Price tinued in 2013 and resulted in an overall rise of 17% to almost pressure remained high. Furthermore, regulatory provisions 7.5 million broadband connections. Fixed-line broadband continue to have a negative effect on revenues and earnings. grew by 5% and mobile broadband (data tariffs and prepaid This applies particularly to termination rates and roaming cards) by 4%. charges in mobile communications. Telekom Austria Group counters these factors through the successful implementa- According to Statistik Austria, the share of Austrian house- tion of its convergence strategy, a clear focus on high-value holds with internet access of any kind rose from 79% in 2012 customers, innovative products and services as well as the to 81% in 2013.4) While the above indicators suggest increased strict management of costs. use of telecommunications solutions, telecom spending as a percentage of users’ average income is, however, generally In Austria Telekom Austria Group offers a comprehensive declining at the same time. This is confirmed by the infor- and convergent product portfolio comprising both fixed-line mation and communications technology (ICT) price basket, and mobile communications solutions under its A1 brand. published regularly by the International Telecommunication By European standards, Austria is considered a particularly Union (ITU). It calculates spending on the basis of a defined competitive telecommunications market with a low price basket of products comprising fixed-line telephony, mobile level. In the latest market report issued by the regulatory telephony and fixed broadband services as a percentage of authority, which tracked market data up to the second quar- average gross national income per capita. The index value for ter of 2013, average revenues generated per customer fell by Austria declined from 1.1% in 2008 to 0.7% in 2012, the year of almost 7% year-on-year to EUR 13.9.3) While voice minutes the most recent report.5) saw a stable development and the number of text messages declined, data volumes rose by 57% year-on-year in the In the reporting year, the high competitive intensity in second quarter of 2013. The strongest stimulus for this trend Bulgaria continued to have a massive influence both on came from smartphones, which rose by 41% to more than pricing for mobile communications services as well as on 3.1 million. convergent product packages. The internet penetration rate 3) www.rtr.at/de/komp/TKMonitor_4_2013/TM4_2013.pdf 4) www.statistik.at/web_de/statistiken/informationsgesellschaft/index.html 5) www.itu.int/en/ITU-D/Statistics/Documents/publications/mis2013/MIS2013_without_Annex_4.pdf; the index is calculated in the summer of the respective subsequent year, hence the data for 2013 is not yet available. 4 Group Management Report of all households climbed from 50.9% in the previous year to tions. The international subsidiaries of the Telekom Austria 53.7% in 2013.6) Group are also subject to far-reaching regulatory provisions in their respective national markets. The regulation of A1 The Croatian ICT market was also characterised by high Telekom Austria AG in the fixed-line network applies at retail competitive intensity and the strained general economic and wholesale levels, also including access obligations to situation in the reporting year. Dominant factors included allow alternative providers access to infrastructures and the boom in smartphones and a further rise in broadband services. However, decisions on regulation are not just made connections.7) at a national level. They are also increasingly being made at a European level, such as, for example, the roaming regulation, The mobile penetration rate rose further in Belarus in 2013 which applies equally to all EU member states. and 3G network coverage was expanded as well.8) In the Additional Markets segment of Telekom Austria Group, Fixed-line Slovenia has the most developed ICT market. According to telecommunication markets official statistics, there was a significant increase in user behaviour among mobile communications customers in Slovenia in the reporting year; voice minutes climbed by a The Austrian regulatory authority made further rulings in the total of 3.8% against the same period of the previous year in fourth round of the market review process in 2013 as part of the first nine months 2013 and the number of text messages the statutory market analysis. It was guided by the European sent rose by more than 20%.9) Commission’s recommendations pertaining to the regulation of fixed and mobile termination rates of May 2009. Generally, In the Republic of Serbia, the catch-up process in mobile the goal is to harmonise and significantly lower these rates broadband, starting from a far lower level than in the Telekom throughout Europe. The new cost accounting models devel- Austria Group’s other markets, continued in 2013. This oped under these guidelines provide the basis for the glide- development was helped by a general expansion of network paths which apply to fixed-line and mobile termination rates. infrastructures. As part of the most recent market analysis for Austria, the The ICT market in the Republic of Macedonia is only slowly fixed-line termination rates were redefined in compliance approaching the standards of Western Europe in terms of user with this EU recommendation.