Investor News

Budapest, February 25, 2015 18:02

 

Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the fourth quarter and full year of 2014, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

• Revenues declined slightly in the fourth quarter of 2014 compared to the same period of 2013, from HUF 165.7 billion to HUF 165.3 billion with a reduction in voice, energy and SI/IT revenues mitigated by an increase in mobile internet revenues and higher mobile equipment sales.
• Employee-related expenses declined by HUF 4.2 billionin the fourth quarter of 2014 compared to the same period last year primarily driven by the different timing of recognition of the Parent Company’s headcount reduction expenses resulting in a HUF 3.8 billion severance expense in the fourth quarter of 2013 as opposed to only HUF 0.9 billion in the fourth quarter of 2014.
• Consequently, fourth quarter EBITDA increased by 8.0%, from HUF 38.8 billion to HUF 41.9 billion.
• Depreciation and amortization expenses declined from HUF 27.0 billion to HUF 26.7 billion. The increased depreciation and amortization costs related to the Hungarian spectrum licenses acquired in 2014 were counterbalanced by the extension of the useful lives of assets such as radio equipment in Hungary. Additionally, the shortened useful life of PSTN migration affected assets caused higher depreciation in Q4 2013 in Macedonia.
• Net financial expenses declined moderately from HUF 8.0 billion to HUF 7.9 billion. Higher interest expenses due to the capitalization of annual frequency fees were offset by lower losses generated on foreign exchange translation and fair valuation of derivatives due to the fact that during Q4 2013, HUF strengthened by 0.5% against the EUR, while during Q4 2014, HUF weakened against the EUR by 1.5%.
• Income tax expense increased from HUF 2.5 billion to HUF 4.6 billion. The primary cause of the increase is the one-time release of a deferred tax asset of HUF 2.5 billion in relation to our consolidated subsidiaries in Macedonia. The reason for this is twofold; the poor Makedonski Telekom share price performance in 2014 triggered a HUF 31 billion impairment in Stonebridge’s statutory accounts on its investment in Makedonski Telekom, and in parallel, we also executed a capital reduction in Stonebridge. As a combined result, retained earnings of Stonebridge became deeply negative, leading to the release of a deferred tax asset recognized in prior years in relation to the investment in Stonebridge/ Makedonski Telekom.
• Profit attributable to the owners of the parent company (net income) increased from HUF 0.3 billion to HUF 1.5 billion primarily due to the increase in EBITDA, which was partly offset by the higher income tax expense.
• Investments in tangible and intangible assets (CAPEX) increased by HUF 38.3 billion, from HUF 146.1 billion in 2013 to HUF 184.4 billion in 2014. The significant increase is primarily attributable to the difference in the initial cost of the frequency licenses and also the additional amount related to the capitalization of the present value of the related future annual frequency fees. In 2013, CAPEX included the initial license fees paid for the extension of the frequency licenses in Hungary amounting to HUF 38 billion as well as both the capitalization of the present value of the related future annual frequency fees of HUF 17.3 billion and the Macedonian spectrum license fee of HUF 3.1 billion. In comparison, in 2014, CAPEX included the initial license fees paid for the newly purchased frequency licenses in Hungary of HUF 58.7 billion and the capitalization of the present value of the related future annual frequency fees amounting to HUF 39.0 billion.
  Excluding these, CAPEX decreased by HUF 0.8 billion, from HUF 87.5 billion in 2013 to HUF 86.8 billion in 2014 as the reduction due to the change in the IPTV set-top box rental contracts resulting in financial lease CAPEX in 2013 was largely offset by the higher investments related to the 4G network in Hungary.
  In 2014, Telekom Hungary accounted for HUF 68.5 billion of total CAPEX while T-Systems Hungary accounted for HUF 4.7 billion. In Macedonia and Montenegro, CAPEX was HUF 9.0 billion and HUF 5.0 billion, respectively.
• Free cash flow (operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets and repayment of other financial liabilities) declined from HUF 0.6 billion in 2013 to a deficit of HUF 13.8 billion in 2014 as the HUF 1.8 billion higher EBITDA and better working capital performance was counterbalanced by a HUF 22.0 billion higher cash capex reflecting the higher initial frequency license fee payments. Working capital improvements are mainly due to lower payments for severance from year end provisions as well as timing differences in vendor payments. At the same time, while in 2013 the cash flow lines were impacted by the reverse factoring of vendor invoices, in 2014 the agreements with some of our equipment vendors on temporarily extended payment terms resulted in similar impacts. The related invoices were recognized as financial liabilities resulting in lower additions to trade creditors, but increase in other cash flow from operation in the amount of HUF 11 billion in 2014. The payments of these vendor invoices will result in financial cash outflows in 2015 negatively impacting our free cash flow.
• Net debt rose from HUF 381.2 billion at the end of 2013 to HUF 442.2 billion at the end of 2014, reflecting primarily the HUF 58.7 billion frequency license payment and the capitalization of the present value of the future annual frequency fees in an amount of HUF 39 billion. The net debt ratio (net debt to total capital) rose to 45.7% by the end of 2014.

Christopher Mattheisen, CEO commented:
“I am pleased to announce that the favorable trends we witnessed earlier in the year continued into the fourth quarter. As a result, we were able to further expand both our mobile and fixed line internet and TV subscriber base in Hungary, while ARPUs also continued to increase thanks to our successful bundling and rebalancing strategy. At the same time, in Macedonia, we started to see some signs of stabilization leading to a more moderate revenue and EBITDA decline. However, in Montenegro, the new regulatory measures increased pressure on fixed line voice revenues which could only be partly mitigated by improved operational efficiency.

On a full year basis, we were able to meet both our revenue and capex guidance and even slightly exceed our EBITDA target with a ca. 1% increase predominantly due to improved mobile and energy service margins in Hungary. We also reached some very important milestones during 2014, including becoming the number one provider on the pay TV market as well as strengthening our mobile technology competitiveness via 4G by securing crucial frequencies in the mobile spectrum tender.    

Looking ahead to 2015, we aim to further strengthen our positions across all markets. These efforts will be supported by our agreement with Telenor Hungary on the sharing of mobile frequencies and developing and maintaining a shared 4G network in the 800 megahertz spectrum band in Hungary , as well as by the acquisition of GTS Hungary which we anticipate will improve our positions in the Hungarian fixed line business segment.

In terms of revenues, we intend to continue to mitigate pressure stemming from the voice revenue decline by migrating customers to bundled packages while revenues will also be supported by the consolidation impact of GTS. Consequently, we see a revenue increase of up to 3% in 2015 compared to 2014. Although we do expect improved efficiency performance at our Hungarian operation and a positive impact from the GTS acquisition, the pressure at our international operations and the ca. HUF 8 billion severance expense in relation to the headcount reduction program at the Parent Company are anticipated to lead to an overall decline of up to 3% in our reported EBITDA for the year. In terms of investments, after strengthening our technological leadership in the Hungarian mobile market during 2014, we now plan to execute a similar task in the fixed line segment to increase our competitiveness. Therefore, we expect capex of around HUF 105 billion for 2015 that will allow us to expand our high speed internet coverage from the current ca. 1.8 million households to over 2.2 million households. I am also pleased to share that, based on the current operating, regulatory and taxation environment and outlook coupled with the anticipated significant improvement in our free cash flow generation, we expect the Company to be able to pay at least HUF 15 dividend per share on 2015 earnings.”

This investor news may contain forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore should not have undue reliance placed upon them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors are described in, among other things, our Annual Reports for the year ended December 31, 2013 available on our website at https://www.telekom.hu.