Press Releases

Budapest, February 13, 2006 00:00

Solid Group performance, continued focus on growth through value creative acquisitions.

Highlights:

- Reported revenues grew by 3.2% to HUF 620.7 bn (EUR 2,502.4 m) in 2005 compared to 2004. The higher mobile and data transmission revenues compensated for the decline in revenues from outgoing domestic and international traffic. The consolidation of TCG's revenues from Q2 2005 had a positive effect of HUF 19.9 bn. Without the consolidation effect of TCG, Group revenues were broadly flat at HUF 600.8 bn.
- Reported EBITDA increased by 12.1% to HUF 249.9 bn, with an EBITDA margin of 40.3%. Without the impact of TCG, EBITDA was HUF 244.3 bn with an EBITDA margin of 40.7%.
- Employee related expenses fell by 15.3% compared to 2004, when this figure included a HUF 20.2 bn headcount rationalisation related severance provision and expenses (HUF 16.8 bn in Q4). At the same time, employee related expenses in 2005 included a HUF 5.1 bn provision and severance related expenses, of which HUF 1.3 bn were accounted for at Telekom Montenegro in the second quarter of 2005.
- Gross additions to tangible and intangible assets were HUF 99.4 bn. The portion relating to the fixed line segment reached HUF 53.1 bn with mobile at HUF 46.3 bn. Within this, HUF 6.6 bn was spent on UMTS-related investments.
- Following the change to IFRS rules, amortization of goodwill has been discontinued from January 1, 2005, and impairment testing is now carried out on an annual basis. In 2004, depreciation and amortization expenses of the Magyar Telekom Group included HUF 13.9 bn of goodwill amortization. In addition, in Q1 2004, the impairment charge relating to the rebranding of Westel to T-Mobile Hungary amounted to HUF 4.4 bn. As a result, in 2005, depreciation and amortization fell to HUF 114.7 bn from HUF 137.7 bn a year earlier.
- Fixed line segment: external revenues (after elimination of inter-segment revenues) fell by 0.9% to HUF 331.1 bn as increased data transmission (mainly ADSL) revenues only partially offset the decline, primarily in outgoing traffic revenues. EBITDA amounted to HUF 121.9 bn and the EBITDA margin on external revenues was 36.8%.
- Mobile segment: external revenues grew by 8.4% to HUF 289.6 bn driven by voice revenues and enhanced services revenues. EBITDA amounted to HUF 127.9 bn with the EBITDA margin on external revenues reaching a strong 44.2%.
- Group operating profit grew 58.5% to HUF 135.2 bn, driven mainly by a decline in depreciation and amortization as well as a reduction in the employee-related expenses and cost of equipment sales. Net income increased significantly from HUF 34.6 bn (EUR 137.6 m) to HUF 80.1 bn (EUR 323 m).
- Net cash from operating activities grew to HUF 202.5 bn due to the combined impact of the growth in EBITDA, the lower income tax paid and the reversal of severance provisions booked in 2004. Net cash utilized in investing activities increased to HUF 132.7 bn, mainly driven by the acquisition of the majority stake in TCG. Net cash used in financing activities decrased to HUF 61.8 bn, primarily due to increased borrowing as a result of the TCG transaction, partly offset by the increased dividend payment at MakTel.
- Net debt grew slightly by HUF 13.4 bn compared to the end of December 2004, driven by the dividend payment and the TCG transaction. The net debt ratio (net debt to net debt plus equity plus minority interests) reached 33.1% at end-2005 (32.9% at the end-2004).

Elek Straub, Chairman and CEO commented:

"2005 was a very dynamic year for Magyar Telekom. Despite intense competition in both fixed line and mobile segments, we preserved our leading position in our key businesses. In the domestic fixed line business, we entered other LTO areas with the aim of acquiring new customers by offering combined new services. Despite continued fixed line erosion, the productivity in this segment grew, which is reflected in the improved lines per employee ratio of 484 at end-2005. Following a positive response to the rebranding of the mobile business, we decided to introduce the "T" brand portfolio across all business areas. Another important milestone in 2005 was the decision to merge Magyar Telekom Ltd. and T-Mobile Hungary Ltd. in the second half of last year, which will enable us to achieve improvements in efficiency, profitability and cash-flow in the coming years. In line with our strategy, we capitalised on acquisition-driven growth opportunities in the region through the purchase of Telekom Montenegro and Orbitel in Bulgaria. In addition, we are currently finalising the acquisition of Dataplex, a Hungarian IT outsourcing company. Thanks to the above mentioned investments, we target a single digit revenue growth of above 3% in 2006 and 2007. In terms of EBITDA, please note that our recent initiatives (IT investments, EDR project, entry to the Romanian retail market etc.) are expected to bring tangible results only from next year. We also expect the positive impact of the fixed-mobile merger on Group profitability to be visible from 2007. As a result, our aim for this year is to maintain the 2005 EBITDA levels, and to continue to grow our EBITDA in forint terms in 2007. We target a gross additions to tangible and intangible assets to revenues (capex to sales) ratio of below 15% in 2006, excluding EDR-related investments (around HUF 20-22bn). This ratio is expected to fall below 14% in 2007. Our goal remains to seek growth opportunities in the form of suitable acquisitions in the future."

Hungarian fixed line operations: strong growth in broadband connections, improving headcount efficiency

Revenues before elimination grew by 1.7% to HUF 74.7 bn in Q4 2005 over the same period in 2004 with an EBITDA margin at 32.5% for the quarter. The quarterly revenue increase is due to a HUF 3 bn reversal of revenue reduction booked in the last quarters related to the change in mobile termination fees. Domestic and international traffic revenues combined declined by 10.3%, mainly due to traffic loss to fixed line competitors and mobile substitution. In addition, 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 19.1% rise as the number of installed ADSL lines increased. The total number of broadband connections (mainly ADSL and cable) were close to 358 thousands at end-2005. 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 5.1% at end-2005 compared to end-2004). The strong focus on improving efficiency is reflected in the lines per employee ratio, which reached 489 at parent company level. Customised tariff packages at the parent company represented 66% of the total number of lines, with nearly 1.8 million lines at the end of the fourth quarter of 2005. Magyar Telekom's Internet subsidiary, T-Online Hungary, reported HUF 7.7 bn in revenues in the last three months of 2005, against HUF 5.8 bn in the same period of 2004.

International fixed line operations: further headcount reduction at both MakTel and Telekom Montenegro aimed at improving efficiency

Revenues before elimination grew by 37.3% to HUF 15.1 bn in Q4 2005 driven by the consolidation impact of Telekom Montenegro. EBITDA fell to HUF 4.1 bn with an EBITDA margin of 27.3% due to a HUF 1.5 bn headcount rationalisation provision and expenses at MakTel. MakTel's fixed line business revenues were broadly stable as a combined result of lower traffic revenue and increasing data revenues. The results were also affected by lower usage and a favourable foreign exchange movement (2.5%). Increased employee related expenses, including the headcount reduction related provision and expenses, resulted in a lower EBITDA margin of 31.3%. Telekom Montenegro's fixed line operations contributed HUF 4 bn to Group revenues in the fourth quarter, whilst the EBITDA was HUF 0.8 bn in Q4 2005.

Hungarian mobile operations: continued balanced focus on market share and profitability

Revenues before elimination grew by 1.5% to HUF 68.9 bn in Q4 2005 as a result of higher enhanced service and access revenues. EBITDA was HUF 25.3 bn with an EBITDA margin of 36.7% driven by higher employee related expenses and agency fees. Average acquisition cost per customer fell by 21% in the last quarter, 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. Although the introduction of new packages generated higher usage and 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 134 in the last quarter of 2005, reflecting improved price elasticity.

International mobile operations: impressive profitability at Mobimak, consolidation impact of Monet

Revenues before elimination grew strongly by 31.2% to HUF 11.4 bn in Q4 2005, driven by the consolidation impact of Monet. EBITDA was HUF 4.8 bn with an EBITDA margin of 42%. MakTel's mobile business reported slight revenue growth in a growing market characterised by strong tariff competition. EBITDA at Mobimak was HUF 4.4 bn with an impressive EBITDA margin of 50.5%. The results of the international mobile operations also included those of Monet, the mobile subsidiary of Telekom Montenegro, which posted revenues of HUF 2.6 bn and an EBITDA of HUF 0.3 bn in Q4 2005.