Press Releases

Budapest, November 9, 2005 00:00

Balanced segmental performance, consolidation impact of Telekom Montenegro

Highlights:
- Revenues grew by 2.2% to HUF 459.4 bn (EUR 1,861.3 m) in the first nine months of 2005 compared to the same period in 2004. The higher mobile and data transmission revenues were offset by a combined decline in revenues from outgoing domestic and international traffic. However, the consolidation of Telekom Montenegro Group's (TCG) revenues since Q2 2005 had a positive effect of HUF 14.4 bn.
- EBITDA increased by 4.7% to HUF 191.4 bn, with an EBITDA margin of 41.7%.
- Gross additions to tangible and intangible assets were HUF 54.9 bn. The portion relating to the fixed line segment reached HUF 25.3 bn with mobile at HUF 29.6 bn. Within this, HUF 4.6 bn was spent on UMTS-related investments.
- In 2004, depreciation and amortization expenses of Magyar Telekom Group included HUF 13.9 bn of goodwill amortization. In addition, in Q1 2004, the Westel brand name impairment charge relating to the rebranding of Westel to T-Mobile Hungary amounted to HUF 4.4 bn. As a result, in the first nine months of 2005, depreciation and amortization fell to HUF 84.7 bn from HUF 100.7 bn a year earlier.
- Fixed line segment: external revenues (after elimination of inter-segment revenues) fell by 3.1% to HUF 244.7 bn as increased data transmission (mainly ADSL) revenues only partially offset the decline, primarily in traffic revenues. EBITDA amounted to HUF 93.6 bn and the EBITDA margin on external revenues was 38.2%
- Mobile segment: external revenues grew by 8.8% to HUF 214.7 bn driven by voice revenues and enhanced services revenues. EBITDA amounted to HUF 97.9 bn with the EBITDA margin on external revenues reaching a strong 45.6%.
- Group operating profit grew 29.8% to HUF 106.7 bn, mainly driven by a decline in depreciation and amortization as well as a reduction in the cost of equipment sales and employee-related expenses. Net income increased from HUF 41.1 bn (EUR 162.1 m) to HUF 65 bn (EUR 263.3 m).
- Net cash from operating activities was stable at HUF 144.6 bn due to the combined impact of the growth in EBITDA, an increase in working capital requirements (driven mainly by a change in trade receivables) and severance payments made in the first nine months of 2005. Net cash utilized in investing activities increased to HUF 98.6 bn, mainly driven by the acquisition of the majority stake in TCG. Net cash used in financing activities was HUF 44.9 bn, primarily due to increased borrowing as a result of the TCG transaction and the dividend payment, the majority of which was paid in June 2005.
- Net debt grew by HUF 39.1 bn compared to the end of December 2004, driven by the impact of the dividend payment and the TCG transaction. The net debt ratio (net debt to net debt plus equity plus minority interests) increased to 35.8% at the end of September this year (33.1% at the end of September 2004).

Elek Straub, Chairman and CEO commented:
"The improvement in our third quarter results of 2005 was supported by the contribution of Telekom Montenegro, whose impressive EBITDA margin of over 45% clearly demonstrates the success of the acquisition. At the Hungarian fixed line business, a reduction in revenues, mainly attributable to a fall in traffic, did not deter the overall positive margin development due to a proportionately higher reduction in total operating expenses. In addition, the continuous increase in the line per employee ratio demonstrates the positive trend in productivity, in line with our strategic target. At T-Mobile Hungary, we were able to improve the profitability in the third quarter and maintain clear market leadership over the second largest competitor despite a small loss of market share. At our international fixed operations, third quarter results improvement reflect the consolidation impact of TCG this year and the severance provision created at MakTel last year. Overall, we have seen impressive profit contribution from our international mobile operations. Finally, in line with our medium-term strategy, the Board has made a proposal for the merger of Magyar Telekom and T-Mobile Hungary with the aim of capitalising on synergies between the two businesses."

Hungarian fixed line operations: ADSL program and headcount efficiency in line with targets

Revenues before elimination of turnover from other operations declined by 6.5% to HUF 213.4 bn with an EBITDA margin of 36.6% in the first nine months of 2005. Domestic and international traffic revenues combined declined by 24.9%, mainly due to traffic loss to fixed line competitors and mobile substitution, which resulted in lower volumes. The lower mobile termination rates and discounts provided in our packages contributed to the revenue decline. However, leased line and data revenues continued to grow, recording a 21% rise as the number of installed ADSL lines increased. The increased mobile substitution and number portability, both in the business and residential segments accelerated the decline in the total number of fixed lines (down 3.8% at end-September compared to the same period in 2004). The strong focus on improving efficiency is reflected in the lines per employee ratio, which reached 461 at parent company level. Customised tariff packages at the parent company represented 64% of the total number of lines, with over 1.7 million lines at the end of the third quarter of 2005. Magyar Telekom's Internet subsidiary, T-Online Hungary, reported HUF 19.6 bn in revenues in the first nine months of 2005 against HUF 14.1 bn in the same period of 2004.

International fixed line operations: despite a decline in revenue at MakTel, profitability was maintained; consolidation impact of Telekom Montenegro

Revenues before elimination of turnover from other operations grew by 19.2% to HUF 40.8 bn in the first nine months of 2005. EBITDA increased to HUF 15.5 bn with an EBITDA margin of 37.9%. MakTel's fixed line business revenues fell as mobile substitution caused a reduction in the revenue-generating customer base. The results were also affected by lower usage and an unfavourable foreign exchange movement. However, due to strict cost controls across the whole company, all expense lines improved, resulting in a strong EBITDA margin of 46.1%. Telekom Montenegro's fixed line operations brought HUF 9.4 bn in revenues since consolidation, whilst EBITDA was HUF 1.5 bn, including a severance expense of HUF 1.2 bn.

Hungarian mobile operations: clear market leadership maintained, strong financials

Revenues before elimination of turnover from other operations grew by 3.2% in the first nine months of 2005 as a result of higher enhanced service revenues and slightly higher traffic revenues. EBITDA was HUF 81.5 bn with an EBITDA margin of 40.4%. In the third quarter, T-Mobile Hungary's impressive profitability was driven by the focus on value-added services, usage growth and cost cutting initiatives as well as the HUF 1.1 bn reversal of the accrual created for payments into the Universal Telecommunication Support Fund following a favourable Court decision in September 2005. (At the same time, receivables from the Fund shown in the Hungarian fixed line operations were written off in an amount of HUF 0.8 bn, which had an adverse impact on the Hungarian fixed line operations in the third quarter.) Operating profit increased strongly, by 39.3% to HUF 56.1 bn, as the vast majority of the write-off relating to the Westel brand name was accounted for in the first quarter of 2004. Average acquisition cost per customer fell sharply, by 34.5%, reflecting lower subsidies in both prepaid and postpaid segments. When calculating subscriber acquisition cost, we include the connection margin (SIM card cost less the connection fee) and the sales-related equipment subsidy and agent fee. Though the introduction of new packages encouraged an increase in usage as well as growth in value added services, the discounts offered, combined with the impact of regulatory changes and the extensive use of the closed user group offers, resulted in a broadly stable ARPU (monthly average revenue per user). MOU (monthly average minutes of use per subscriber) grew to 124 in the first nine months of 2005 reflecting the improved price elasticity.

International mobile operations: impressive profit contributions from both Mobimak (MakTel) and Monet (TCG)

Revenues before elimination of turnover from other operations grew strongly by 25% to HUF 31.3 bn in the first nine months of 2005. EBITDA was HUF 16.4 bn with an EBITDA margin of 52.4%. MakTel's mobile business reported slight revenue growth in a growing market characterised by strong tariff competition. In addition, the currency movements had a negative impact (-2.2%) on the results. EBITDA grew to HUF 13.5 bn and Mobimak produced an impressive EBITDA margin of 53.6%. The results of the international mobile operations also contained those of Monet, the mobile subsidiary of Telekom Montenegro, which posted revenues of HUF 6.2 bn and EBITDA of HUF 2.9 bn during the Q2-Q3 period (EBITDA margin: 47.4%). The mobile penetration stood at 99% at the end-Q3 2005 in Montenegro.