Investor News

Budapest, May 8, 2019 18:00

Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first quarter of 2019, in accordance with International Financial Reporting Standards (IFRS).

Financial highlights:

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Strategic highlights:

• evenue growth was maintained in both countries of operation as demand for data and smart equipment remained strong.
  
  • Integrated fixed-mobile offers attached to an attractive device portfolio, formed the flagship offering in both Hungary and North Macedonia, and continued to positively impact customer base developments
  • The structural decline of voice revenue was compensated for by strong growth in data across both the fixed and mobile segments
  • The growth in SI/IT revenues slowed, driven by seasonality as well as a high base effect§  The moderate increase in gross profit reflects a higher weighting of lower margin revenue sources
• Severance expenses of HUF 3.0 billion in Hungary led to a sharp rise in employee related expenses
• EBITDA, excluding the impacts of IFRS 16 adoption, declined due to increased severance expenses, but this was partly offset by higher gross profit and general cost saving measures
• Free cash flow decline reflects payment of the 2100 MHz frequency license extension fee along with some deterioration of working capital developments
• Net debt increased from HUF 272.8 billion at the end of 2018 to HUF 404.7 billion at the end of Q1 2019, reflecting the recognition of lease liabilities in line with IFRS 16 adoption.

Tibor Rékasi, CEO commented:

“I am pleased to confirm that Magyar Telekom has maintained its momentum from 2018 to deliver both revenue and EBITDA growth in Q1 2019. We increased revenue by 5.5% to HUF 158.9 billion through strong performance of data driven services in both the fixed and the mobile segments and by continuing to grow equipment sales. While we recorded 9% growth in EBITDA, this was attributable to IFRS16 implementation, without which a slight decline was registered on the account of severance expenses incurred in Hungary. On Free Cash Flow we experienced a stronger than usual Q1 decline in our figures, but with the planned sale of real-estate in 2019, we remain confident that we will meet our guidance for 2019.

In Hungary, positive business trends continued in the first quarter, with revenue growth across all three major business lines.

In the mobile segment, demand for mobile data continued to grow alongside equipment sales revenues, offsetting a slight decline in voice revenues. This was reinforced by our ongoing strategy for equipment sales. Thanks to our efforts, Magyar Telekom became the largest online seller of mobile phones and tablets, taking a third of the Hungarian market in 2018, according to GKI Digital’s market analysis.

In the fixed market, we continue to focus on the rollout of our fiber network, providing an increasing number of households with 100+ MB connections. We continued to see the positive results of this strategy in the growth of fixed line revenue, where – despite the industry-wide trend of declining voice revenues – we grew revenues by 2.1% year-on-year to HUF 52.7 billion in Q1 2019. While TV revenues remained broadly stable across the Group, we again succeeded in growing both equipment sales and broadband retail revenues.

With the strong performance of both our fixed and mobile business lines, we were able to focus on the third pillar of our core business strategy, our FMC customer base. In Q1 2019 we are still the only truly integrated player in the Hungarian market and are taking full advantage of this position to enforce our market presence and prepare for future developments in the market. The Magenta1 offering introduced in 2018, delivering discounted prices for services and related equipment, remains popular with our customers and supports the sustained growth in our Magenta1 customer base.

In line with our strategy, in Q1 2019 we continued to strengthen our online presence focusing on sales and customer service, providing simpler and more attractive solutions to our customers.

In the System Integration and IT segment we maintained our growth, with revenues increasing 3.1% year-on-year to reach HUF 21.4 billion in Q1 2019, primarily driven by public sector hardware and software delivery projects. We continue to pursue our strategy focused on building long-term relationships in the market and converting these deals into higher margin service contracts.

Group performance during the year was further supported by the continued turnaround in North Macedonia. Both revenues and EBITDA improved, thanks to a solid performance in both the fixed and mobile segments.”

This investor news contains 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 financial statements for the year ended December 31, 2018, available on our website at https://www.telekom.hu which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union.

In addition to figures prepared in accordance with IFRS, Magyar Telekom also presents non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For further information relevant to the interpretation of these terms, please refer to the chapter “Reconciliation of pro forma figures”, which is posted on Magyar Telekom’s Investor Relations webpage at www.telekom.hu/investor_relations.

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