Press Releases

Budapest, May 13, 2004 00:00

2004 first quarter results: solid financial performance; market leading positions maintained in spite of intense competition.

Highlights:

• Revenues grew by 0.8% to HUF 146.1 bn (EUR 561.9 m) in Q1 2004 over the same period of 2003 mainly driven by higher mobile and data transmission revenues, partly offset by a decline in revenues from domestic and international traffic, and lower other usage.
  
• EBITDA fell by 5.2% to HUF 63.2 bn, with EBITDA margin reaching 43.2.
  
• Gross additions to tangible and intangible assets reached HUF 15.8 bn. Of this, the portion relating to fixed segment reached HUF 6.0 bn, with mobile at HUF 9.0 bn and MakTel reporting HUF 0.8 bn.
  
• Fixed line segment: revenues declined by 7.1%; EBITDA margin was 37.7%.
  
• Mobile segment: revenues grew by 5.8% mainly driven by higher traffic, enhanced service revenues and equipment sales. EBITDA margin was 41.8% in Q1 2004. Westel preserved its leading position with a market share of 47.7% at the end of March 2004.
  
• International segment: revenues grew by 8.4% with EBITDA margin reaching an impressive 52.5%. EBITDA grew to HUF 8.9 bn from HUF 8.7 bn in the same period last year.
  
• Group operating profit reduced to HUF 26.6 bn mainly driven by a 20.9% growth in depreciation and amortization. Net income declined to HUF 14.1 bn (EUR 54.1m).
  
• Net cash from operating activities reached HUF 40.9 bn due to a decline in EBITDA and a growth in working capital requirements (driven mainly by a change in trade payables). Net cash utilized in investing activities grew to HUF 22.3 bn. This was due to slightly higher gross additions to tangible and intangible assets (primarily at the fixed segment). Net cash used in financing activities fell to HUF 13.5 bn, mainly explained by a lower debt repayment than in Q1 2003.
  
• Net debt has been reduced by HUF 14.2 bn since the end of December 2003 resulting in a net debt ratio (net debt to net debt plus equity plus minority interest) of 30.4% compared to 36.6% at the end of March 2003.

Elek Straub, Chairman and CEO commented: "We reported today solid financial results across the Group for the beginning of this year. However, each of the three business segments shows a different picture. The fixed line segment reported revenue and EBITDA decline due to unfavorable changes in the regulatory and market environment. However, we successfully maintained our leading position in the key businesses, and saw a growth in productivity with a line per employee ratio at the parent company exceeding 352 (compared to 340 at end-March last year). On another positive note, I am pleased to report on the effectiveness of the steps we have taken to stop line erosion. In a change to the trend of continuous quarterly reduction, fixed line numbers in this first quarter were successfully maintained at the level of the fourth quarter 2003. In the mobile segment, in line with our expectations, there was a significant slowdown in the growth of mobile penetration with competition among the three players remaining intense. Despite the difficult market conditions, Westel was able to preserve its leading position. Moreover, during the last six months, the company has even increased its market share, whilst maintaining solid financial results. I am convinced that the rebranding of Westel will put the company in an even better position to capitalise on opportunities in the market, ultimately having a positive impact on the financials. At our international subsidiary, MakTel, the profitability was preserved with an EBITDA margin approaching 53% despite the still unfavorable macroeconomic conditions. Finally, let me mention that following the Board proposal made this March, the recent AGM approved a HUF 70 per share dividend payment for 2003 earnings emphasizing Matáv's full commitment to its dividend policy announced last March."

Fixed line: Line erosion halted; customised packages in majority, increasing competitive pressure
Fixed line revenues fell by 7.1% to HUF 76.4 bn with EBITDA margin at 37.7%. Domestic and international traffic revenues combined fell by 13.1% mainly due to lower volumes and price discounts. At the same time, leased line and data revenues continued to grow, rising by 21.6%, driven by volume growth in ADSL and increased Internet subscribers. Matáv's fixed line penetration stabilised at 37.8% (after 37.7% in the fourth quarter of 2003 and 38.1% a year ago). The total number of lines was down by only 0.9% compared to Q1 2003 and flat compared to Q4 2003; evidence of Matáv's success in halting line number erosion. By the end of March 2004, 18.6% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented more than half of the total number of lines with 1.5 million lines at the end of the first quarter 2004. The Company continued its successful ADSL program with 125,000 ADSL lines by the end of Q1 2004. Matáv's Internet subsidiary, Axelero, maintained its leading position among ISPs in the dial-up market with a market share of around 44% and had a total of 228,526 Internet subscribers at the end of March 2004 (up by 42.6% year-on-year).

Mobile: strong position in a market close to saturation and characterised by intense competition
Mobile revenues increased by 5.8%. EBITDA increased to HUF 25.5 bn, while the EBITDA margin reached 41.8%. However, operating profit fell by 32.8% as the vast majority of the write-off relating to the Westel rebranding was accounted for in the first quarter. Westel maintained its leading position in a highly competitive market with 47.7% market share, while GSM penetration reached 79.6% at end-March. Westel's customer base was 3.8 million at the end of Q1 2004. In the same period, the number of post-paid customers increased to 26.4% of the total customer base, compared with 25.1% at end of Q1 2003. Average acquisition cost per customer fell by 9.2% to HUF 10,763 in Q1 2004 from HUF 11,854 a year earlier. When calculating subscriber acquisition cost, we include the connection margin (connection fee less the SIM card cost) and the sales related equipment subsidy and agent fee. MOU (monthly average minutes of use per subscriber) grew to 107 in Q1 2004 from 103 a year earlier. Blended ARPU (monthly average revenue per user) declined to HUF 4,800, within this postpaid ARPU reached HUF 11,871 and prepaid ARPU was HUF 2,292. Although the usage grew thanks to new packages, the discounts that some of these provide to customers result in downward pressure on ARPU. The revenue derived from enhanced services (mainly SMS) grew to HUF 601 (12.5% of total ARPU), showing a steady development compared to HUF 534 (10.6% of total ARPU) in the same period last year. The churn rate of contracted customers was successfully kept at low level of 11.2% in Q1 2004. The churn rates at both pre-paid and post-paid segments showed a decline compared to Q1 2003.

International: impressive profitability preserved despite macroeconomic slowdown
International revenues grew by 8.4% to HUF 16.9 bn in Q1 2004 driven mainly by foreign exchange rate movement. Mobile telecommunications services revenues grew, as did domestic traffic revenues. However, these were partially offset by a fall in international traffic revenues. EBITDA improved by 1.8% to reach HUF 8.9 bn with a strong EBITDA margin of 52.5%. The closing number of employees fell by 2.7% to 3,552 at the end of the first quarter this year over the same period last year. Fixed line penetration in Macedonia was around 29%, and mobile penetration rose to 33% compared to 19% in Q1 2003. The number of fixed line customers grew to 621,509, up by 2.8% from the previous year's figure. Within this, analog subscribers remained broadly unchanged at 583,651. ISDN channels, at the same time, showed an impressive growth of 54.3% to 37,858. The mobile customer base rose by 46.4% to 565,170. MakTel's mobile market share stood at 83% at end-March 2004. The number of Internet subscribers at the end of the first quarter of 2004 reached 52,888 (up by 41.3% year-on-year).