Telekom Austria : Financial Year 2023 Full year Financial Report of Telekom Austria AG

Financial Report

2023

Telekom Austria AG

MANAGEMENT REPORT

Management report

of Telekom Austria Aktiengesellschaft for

the period of January 1 to December 31, 2023

Business environment

Overall economic development remained under high pressure in 2023. In addition to geopolitical crises, the year under review was characterized by persistently high, albeit somewhat lower inflation rates than last year, which continue to weigh on purchasing power and overall economic demand. In general, economic growth slowed further and the global economic outlook was revised downwards compared to the previous forecast.

Starting from a high level at the end of 2022, inflation rates fell over the course of 2023 in both the U.S. and Europe. In the U.S., inflation fell from a high of 9.1 % in June 2022 to 6.45 % at the beginning of 2023, before reaching its lowest level since March 2021 at 3.2 % in October 2023. In the eurozone, inflation peaked at 10.6 % in October 2022 and fell over the course of 2023, from 8.6 % at the beginning of the year to 2.4 % in November 2023.

In the year under review, the U.S. Federal Reserve raised its key short-term interest rate in four steps from a range of 4.25 % to 4.50 % to between 5.25 % and 5.50 %1. The European Central Bank carried out a total of six interest rate hikes in 2023, increasing the rates on the main refinancing operations, the rates on the marginal lending facility, and the deposit facility from 2.5 %, 2.75 % and 2.0 % to 4.5 %, 4.75 % and 4.0 %, respectively. On June 15, 2023, the ECB also announced that the reinvestment of assets in the Asset Purchase Program (APP) would be discontinued from July 2023. As far as the Pandemic Emergency Purchase Program (PEPP) is concerned, net purchases were discontinued at the end of March 2022, but reinvestments of the repayment amounts due from PEPP holdings are to be made at least until the end of 2024 and can be reinvested flexibly2.

On January 1, 2023, Croatia adopted the euro as its currency, making it the twentieth member of the eurozone. Croatia also joined the passport-free Schengen area, which allows freedom of travel and movement between participating countries. Joining the borderless Schengen area is expected to give a boost to Croatia's important tourism industry, which accounts for 20 percent of its gross domestic prod- uct.

GDP growth and inflation in the markets of A1 Group (in %)3

According to the World Economic Outlook published by the IMF in January 2024, global economic growth was expected to fall from 3.5 % in 2022 to an average of 3.1 % in 2023 as well as in 2024. However, there are significant changes in the underlying growth curves of the major economies, with stronger forecasts for the U.S. and downward revisions for China and the eurozone. Growth in the eurozone is expected to fall from 3.3 % in 2022 to 0.5 % in 2023, before rising to 0.9 % in 2024. The forecast has been revised downwards by 0.2 and 0.3 percentage points compared to previous projections from October 2023 for 2023 and 2024 respectively. Here, too, there is a divergence in growth between the major economies in the eurozone in 2023 4.

• Source: https://www.federalreserve.gov/monetarypolicy/publications/mpr_default.htm

• Source: https://www.ecb.europa.eu/pub/projections/html/ecb.projections202309_ecbstaff~4eb3c5960e.de.html https://www.oenb.at/isawebstat/stabfrage/createReport?lang=DE&report=2.2

• Source: https://www.imf.org/en/Publications/WEO/Issues/2023/10/10/world-economic-outlook-october-2023

• Source: https://www.imf.org/en/Publications/WEO/Issues/2024/01/30/world-economic-outlook-update-january-2024

MANAGEMENT REPORT

Spin-off of the "EuroTeleSites AG" ("EuroTeleSites") tower business

On September 22, 2023, the tower business of Telekom Austria AG (tower business) was listed on the Vienna Stock Exchange under the newly established EuroTeleSites AG. The transferred companies form the EuroTeleSites Group, see notes (34). At the Extraordinary General Meeting on August 1, 2023, the shareholders of Telekom Austria AG approved the spin-off.

The shares in EuroTeleSites AG were issued to the shareholders of Telekom Austria AG on September 22, 2023 on a pro rata basis, making América Móvil the ultimate parent company of the EuroTeleSites Group, as in A1 Group. For every four shares in Telekom Austria AG, Tele- kom Austria AG shareholders received one EuroTeleSites share. Telekom Austria AG thus received 103,789 EuroTeleSites shares worth TEUR 514for its own treasury shares. Telekom Austria holds no other stake in EuroTeleSites.

The spun-off passive infrastructure of the towers comprises components that are not directly attributable to the mobile communications network, such as foundations and metal structures, containers, air-conditioning units, power supply and other supporting systems.

Operational impact

The spin-off of passive infrastructure not only enables the budget to be allocated more efficiently, but also permits a stronger focus on A1 Group's core business. A1 Group has contractually secured long-term access to the towers as anchor tenant via local master lease agreements with the local EuroTeleSites operating companies. The contract term is indefinite, but can be terminated by A1 Group at the end of the eighth, 16th and 24th contract year, by the EuroTeleSites Group for the first time at the end of the twenty-24th year and by either party after 24th contract year subject to a 36-month notice period at the end of each calendar year. There is protection against inflation. The rent and other price elements are adjusted annually by 85 % of the annual adjustment of the consumer price index, but by a maximum of 3 % per year. The prices for steel components in case of additional modifications are to be adjusted in line with the steel price index.

For new towers to be erected, A1 Group is free to choose the tower company. However, A1 Group is currently planning to expand around one thousand sites over the next five years in cooperation with the EuroTeleSites Group. In the event of significant financial difficulties or the sale of a significant amount of infrastructure at or by an EuroTeleSites operating company in breach of contract, A1 Group has the right to repurchase the towers at regional level. A1 Group will temporarily provide certain services to EuroTeleSites Group at market prices (e.g. SAP-related services).

As of June 30, 2023, the tower portfolio comprised 13,225 macro sites in Austria, Bulgaria, Croatia, Serbia, Slovenia and North Macedonia.

Financial key performance indicators

Total assets as of December 31, 2023 amounted to EUR 8,247 million (previous year: EUR 8,944 million). Long-term assets decreased to EUR

7,522 million (previous year: EUR 8,071 million) in financial year 2023, primarily due to the divestment of the interests in connection with the spin-off of EuroTeleSites AG.

The decrease in current assets by EUR 148 million to EUR 720 million as of December 31, 2023 is mainly due to lower receivables from affiliated companies from cash pooling.

Revenues increased by 9.0% to EUR 41 million in financial year 2023.

The operating result decreased to EUR -116 million in financial year 2023 (previous year: EUR -44 million).

Income from investments decreased to EUR 420 million (previous year: EUR 470 million). This is mainly due to a lower dividend payment by mobilkom Belarus Beteiligungsverwaltung than in 2022.

Expenses from financial assets of EUR 51 million (previous year: income of EUR 310 million, net) relate to the impairment of mobilkom Bela-

rus Beteiligungsverwaltung. In 2023, interest expenses increased to EUR 47 million (previous year: EUR 40 million).

As a result of the factors described above, the result before income taxes increased to EUR 240 million (previous year: EUR 79 million).

The income tax benefit for 2023 was EUR 22 million (previous year: EUR 35 million), mainly due to the Group tax allocation.

In the 2023 financial year, EUR 1.428 was attributable to additions from reorganization.

Net income amounted to EUR 1.690 million in financial year 2023 (previous year: EUR 114 million).

MANAGEMENT REPORT

The Management Board plans to propose a dividend of EUR 0.36 (previous year: EUR 0.32) per share to the Annual General Meeting, subject to the approval of the Supervisory Board.

The following section provides a brief explanation of the most important financial and operational key figures:

• The equity ratio according to Section 23 of the Austrian Company Reorganization Act (URG) was 89.7% as of December 31, 2023 (December 31, 2022: 75.3%). This ratio is calculated by dividing stockholders' equity by total assets.
• The "notional debt repayment period" according to Section 24 URG was to 0.5 years as of December 31, 2023 (previous year: 7.3 years). The "notional debt repayment period" indicates how many years it would theoretically take to repay the total debt on the basis of the result before income taxes.
• The return on equity (ratio of EBIT to stockholders' equity) was 3.4% (previous year: 1.7%). Return on assets (EBIT divided
  by the sum of total liabilities and stockholders' equity) was 3.1% (previous year: 1.3%).
• Net debt is the balance of interest-bearing liabilities and cash and cash equivalents. On December 31, 2023, net debt amounted to EUR 754 million (previous year: EUR 2,119 million).
• In addition to other operating cash flows, dividends amounting to EUR 425 million (previous year: EUR 689 million) were
  received from subsidiaries, dividends amounting to EUR 213 million (previous year: EUR 186 million) were distributed to
  owners and liabilities to banks amounting to EUR 300 million (previous year: EUR 0 million) were repaid in the reporting year.

MANAGEMENT REPORT

Equity investments

In addition to Austria, A1 Group was successfully positioned in six other European countries as of December 31, 20225)

In mobile communications, A1 Group served around 25.2 million subscribers at the end of 2023 (2022: 23.9 million), of which around 5.1 million were attributable to A1 Digital; in the fixed-line business, the total number of revenue-generating units (RGUs) was around 6.3 million, 1.1% more than in the previous year.

A1 Austria, the largest telecommunications provider in Austria, had 5.1 million customers (-0,6%) at the end of the year. In the fixed net- work, the number of RGUs decreased by 3,4% to around 2.8 million in 2023.

A1 Bulgaria EAD, the largest mobile communication provider in Bulgaria, had around 3.8 million subscribers at the end of 2023 (+0.2%). In the fixed-line business, the number of RGUs increased by 5.2% to around 1.2 million in 2023.

Unitary enterprise A1, the second-largest mobile communication provider in Belarus, served around 4.9 million subscribers (+0.0%) at the end of 2023. In the fixed-line business, the number of RGUs increased by 12.7% to around 0.9 million in 2023.

A1 Hrvatska, d.o.o., the second-largest mobile communication provider in Croatia, had around 2.1 million subscribers at the end of 2023 (+2.8%). In the fixed-line business, the number of RGUs increased by 2.1% to around 0.7 million in 2023.

A1 Srbija d.o.o., the third-largest mobile communication provider in Serbia, had around 2.4 million subscribers (+0.3%) at the end of 2023.

A1 Slovenija d.d., the second-largest mobile communication provider in Slovenia, served around 0.7 million subscribers (-0.6%) at the end of 2023. In the fixed-line business, the number of RGUs decreased by 7.3% to around 0.2 million in 2023.

A1 Makedonija DOOEL had around 1.1 million subscribers at the end of 2023 (+1.6%). In the fixed-line business, the number of RGUs increased by 1.5% to around 0.4 million in 2023.

• Source for inhabitants as well as GDP/capita (PPP, current international USD): https://data.worldbank.org (November 21, 2023), data for most recent year: 2022, figures rounded

MANAGEMENT REPORT

Outlook for financial year 2024

In the financial year 2024, A1 Group expects to achieve revenue growth of 3-4 %, mainly stemming from an increase in service revenues. Both the international markets and Austria are expected to contribute to this growth. As in the financial year 2023, the main growth drivers are value-protecting measures, upselling in the retail business, and a strong development of the solution business. A further decline in voice business and international wholesale business in Austria as well as lower interconnection revenues due to intra-EU interconnection regulation will have a dampening effect on growth.

The Belarusian ruble depreciated by 15 % on average in 2023 putting pressure on revenue and EBITDA growth. The currency is also expected to depreciate against the euro in 2024.

On the cost side, management assumes workforce and electricity costs to be the main drivers for cost increases, while costs related to revenue growth, such as for content or licenses etc., are also expected to rise. To counter cost increases, A1 Group will foster efficiency projects and transformational initiatives.

Management expects CAPEX before investments in spectrum to be around EUR 800 mn in the financial year 2024. A1 Group will continue its commitment to fiber roll-out as well as to further expansion of its 5G networks both in Austria and internationally. In 2024, the temporary decrease in CAPEX before spectrum versus the financial year 2023 is due to reductions both in Austria and internationally. The main drivers are a reassessment of non-critical projects, lower CAPEX compared to 2023 because of the tower spin-off, as well as less CAPEX for fiber roll-out in CEE after higher investments in the 2023. The investments into fiber in Austria will remain roughly on prior year's level.

In terms of spectrum, tenders are expected in Austria (3.5 GHz, 26 GHz), Bulgaria (renewal of spectrum: 900 MHz, 1800 MHz), Serbia (700 MHz, 2.6 GHz, 3.5 GHz) and Slovenia (local licenses in 2.3 GHz, 3.5 GHz). This list of tenders neither claims to be exhaustive nor does it allow any conclusions to be drawn regarding the actual implementation of these auctions or A1's intention to participate in the tenders listed. A1 Group does not comment on this matter.

The Management Board plans to propose a dividend of EUR 0. 36 (2022: EUR 0.32) per share to the Annual General Meeting, subject to the approval of the Supervisory Board.

MANAGEMENT REPORT

Risk and opportunity management

Principles and organization

A1 Group pursues a systematic risk management system in which opportunities and risks are analyzed and evaluated, and measures to avoid and eliminate risks are implemented and improved on an ongoing basis.

A1 Group operates as a telecommunications company in Austria and six other countries is also active in Germany and Switzerland via its A1 Digital entity. Thus, A1 Group benefits from geographical diversification. To address the respective market-specific risks directly, local risk management falls under the responsibility of the operating units, while the holding company is responsible for central management. Company-wide risk management is carried out by Enterprise Risk Management (ERM), which is structurally independent of the business areas and is the responsibility of the Group CFO. Enterprise Risk Management reports at at least annually and on an ad-hoc basis to the Management Board, which in turn reports relevant developments to the Audit Committee of the Supervisory Board or directly to the Supervisory Board. The effectiveness of the risk management system is reviewed internally by Internal Audit and annually by A1 Group's auditor and reported to the Management Board and the Supervisory Board.

Methods

Strategic discussions with the Supervisory Board form the starting point for A1 Group's Enterprise Risk Management (ERM). The Management Board presents strategic risks, their relevance to A1 Group and corresponding countermeasures. At the same time, planning assumptions are presented, including the strategic orientation for the coming business plan period and planned measures for realizing opportunities. In the business plan, expectations of business success, necessary costs and investments are mapped and the risks assumed are evaluated in relation to overarching objectives are evaluated in terms of both growth and expenditure.

The risk management system is divided into the following four risk categories:

1. Strategic risks
2. ESG risks
3. Financial risks, and
4. Operational risks

Based on the budget or forecast, Enterprise Risk Management identifies and analyzes risks and opportunities together with the respective specialist departments. Risk assessment is carried out systematically, iteratively and collaboratively using the knowledge, experience and views of the parties involved. Emerging risks are also considered. These are new, long-term risks whose potential threat is difficult to assess due to the high level of uncertainty.

Once the risks and opportunities have been identified and assessed, the risks are aggregated and simulated in order to present the company's overall risk position in relation to the planned budget. Risks and opportunities are updated and reassessed at least once a year in Group Enterprise Risk Management.

Effective risk management also requires the development and implementation of effective measures to identify opportunities and reduce risks. These measures include risk assessments with the specialist departments and monthly performance calls between the Group and the local company, based on leadership meetings of the extended Management Board of the companies. Critical deviations from the targets set are analyzed, as is the effectiveness of the countermeasures taken. Once the risks have been prioritized, the greatest risks are examined in order to plan further targeted measures. In addition to regular management meetings and strategic discussions, A1 Group has a multi-year plan. The close integration of the multi-year plan with risk management ensures adequate longer-term risk management.

Risks and opportunities

From the totality of risks identified for A1 Group, the most important single risks that could have a significant impact on the net assets, financial position, and results of operations are discussed below:

(1) Strategic risks and opportunities

Macroeconomics, geopolitics and regulation

MANAGEMENT REPORT

On the one hand, macroeconomic risks and opportunities arise from economic developments in the markets in which A1 Group operates and their knock-on effects (for example, a sharp rise in inflation affects interest rate levels, exchange rates and, ultimately, demand). On the other hand, economic policy conflicts can have a direct or indirect impact (such as punitive tariffs, delivery stops, production bottlenecks). While macroeconomic developments are easier to forecast and assess, trade policy decisions are more difficult to predict.

In the context of the conflict in Ukraine, the situation in Belarus continues to be monitored in order to mitigate risks in the best possible way. The A1 Group's sanctions management ensures the supply of goods and services exempt from sanctions. Risk management also places a special focus on the impact of sanctions on A1 Belarus' cash flow and ability to pay dividends. The established procedures are applied for the duration of the conflict.

Due to the conflict in the Middle East that flared up in October 2023, an ad hoc risk analysis was carried out in the year under review. Assumptions about macroeconomic developments in connection with the Middle East conflict are still vague, as it is not possible to predict how long the conflict will last, how intense it could become and whether it will spread to other countries.

Inflation (particularly in Austria) remained at a high level in the year under review, which entails a number of risks. Price increases due to inflation-related indexation of tariffs on the one hand and lower real income and wealth on the other may lead to a decline in demand. Cost items such as energy are still affected in the current planning horizon. The shortage of energy supply combined with the way prices are set has led to excessive price increases here, which even telecommunications companies cannot compensate for without stepping up counter- measures.

In the current reporting period, regulatory risks (focused on telecommunications) are only region-specific. Since May 15, 2019, retail charges charged to consumers for regulated intra-EU communications may not exceed EUR 0.19 per minute for calls and EUR 0.06 per text message (fees excluding VAT in each case). Regardless of this obligation, it is possible to offer consumers an explicit choice of alternative tariffs. Although the period of validity of this regulatory EU pricing requirement (Article 5a of the EU Regulation) ends on May 14, 2024, it is currently not expected that this requirement will disappear without replacement. Based on current developments, the existing price regime is likely to be extended for the time being.

Market and competition

Due to the frequency and aggressiveness of offers, volume growth in data services does not necessarily lead to rising revenue, particularly in the case of mobile communications. While these data volumes can be handled more efficiently with new technologies, there is a risk for A1 Group that new technologies will be marketed without a premium and that higher transmission rates, quality and lower latency will also not lead to an adequate increase in revenue.

Supply chain and suppliers

As a company with numerous suppliers, A1 Group is potentially exposed to supply bottlenecks. As far as possible, these are mitigated with the help of a multi-vendor strategy and geo-redundant sourcing. Where goods are scarse, A1 Group improves its attractiveness with suppliers through long-term purchase guarantees or increases inventories to bridge delivery shortfalls. As a result of the spin-off of the mobile tower business, EuroTeleSites AG has become a central supplier for A1 Group. Due to the indefinite contracts, coupled with long- term non-termination clauses on the part of EuroTeleSites, the utilization of the mobile towers for the A1 Group is secured for the long term. Therefore, the associated risk is limited. (Details can be found in "Spin-off of the "EuroTeleSites AG" ("EuroTeleSites") tower business").

New growth areas

One challenge in the telecommunications industry is the ever-shorter intervals at which companies have to adapt their offerings to include new services and products. Cloud services, over-the-top services and machine-to-machine communications are just a few examples of new business areas in which A1 Group is tapping growth potential. However, shorter innovation cycles also involve innovation risks, such as in connection with investments. The biggest challenges are the scaling of services, different levels of maturity, and demand in A1 Group's markets. As part of the América Móvil Group, A1 Group is involved in the exchange and discourse on innovation.

Budget and business plan risks

The business plan reflects the assessment of the planning assumptions and incorporates external effects as much as possible. High inflation and its economic impact on companies and households represent a risk for 2024 and subsequent years. This was discussed with the country organizations in the planning process and mapped in risk management in the macroeconomic risks category. Budgetary risks primarily relate to targets for further increasing cost, investment and human resource efficiency that have not yet been consistently backed up with measures. Opportunities in 2024 include the mitigation of energy costs. This is mainly achievable by lowering energy consumption, such as