Press Releases

Budapest, May 3, 2016 18:00

Magyar Telekom today reported its consolidated financial results for the first quarter of 2016, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

Total revenues amounted to HUF 145.1 billion in Q1 2016 compared to HUF 157.0 billion in Q1 2015, representing a declined of 7.6% year-on-year mostly as a result of the exit from the energy business. Stripping out contributions from energy, core like-for-like revenues grew by 1.8%. Mobile revenues amounted to HUF 75.3 billion in Q1 2016, compared to HUF 76.9 billion in the same period of the previous year representing a 2.1% decline. Higher mobile data and equipment revenues were offset by shrinking voice wholesale revenues resulting from the sharp decrease in Mobile Termination Rates (MTRs) in Hungary as of April 1, 2015. Fixed line revenues grew by 2.3% to HUF 51.8 billion driven by improvement in broadband retail, TV and fixed wholesale revenues, partly offset by the decline in voice retail and equipment revenues. System Integration (SI) and IT revenues improved by HUF 3.0 billion (+24.2%) to HUF 15.6 billion as a result of projects undertaken for financial institutions, utilities and public sector companies in Hungary, as well as higher revenues thanks to tailored solution projects in Macedonia. Energy Services revenues decreased to HUF 2.3 billion compared to HUF 16.8 billion in the same period of 2015, due to the exit from the residential gas business as of August 1, 2015 and the transfer of the B2B energy business into the joint venture (E2) with MET Holding AG as of January 1, 2016.

Direct costs decreased by 21.4% to HUF 45.4 billion, mainly due to a sharp decline in energy service related costs following the exit from the residential gas and B2B energy business. Interconnect costs decreased driven by the MTR cut in Hungary (down by HUF 2.8 billion). SI/IT service related costs increased by HUF 2.5 billion reflecting higher revenues. Other direct costs went up by HUF 0.9 billion to HUF 26.1 billion due to lower mobile device related costs driven by decreasing mobile subsidies counterbalanced by higher cost of mobile accessories, in line with higher other equipment sales. Bad debt expenses increased by 27.6% to HUF 2.4 billion, mainly owing to significantly higher amount of impairment loss charged in Q1 2016 and lower debt collection in Macedonia and Montenegro.

Gross margin remained roughly stable at HUF 99.6 billion as improvement in the MT Hungary segment (TV, fixed and mobile broadband and SI/IT margins) counterbalanced the declines at our foreign subsidiaries and the margin effect of the lower energy revenues.

Indirect costs remained stable and other operating income significantly improved due to one-offs (sale of a real estate and Origo). Employee-related expenses improved by HUF 1.1 billion to HUF 20.8 billion due to savings in the quarter stemming from the headcount reduction program implemented in 2014 and 2015, partly offset by lower capitalization of project related employee related costs. Hungarian sector specific taxes in the first quarter of 2016 the Hungarian telecommunication tax expense of HUF 6.1 billion remained at the same level as in the relevant period of last year (HUF 6.2 billion). In the first quarter of 2016 Magyar Telekom recognized a utility tax expense of HUF 7.3 billion which is HUF 384 million lower than in the first quarter of 2015. The primary reason for this is that as of 25 June, 2015 five years utility tax credit is granted for Magyar Telekom Group relating to those new network investments and upgrades which enable internet access of least 100 Mbps. Secondly, in the first quarter of 2016 there was a utility tax expense decrease due to the refinement of the taxable network records compared to the first quarter of 2015. Other operating expenses (net) improved by HUF 3.9 billion to HUF 17.1 billion, driven by profits realized on the real estate deal and the Origo sale.

EBITDA increased by 13.6% from HUF 42.5 billion in Q1 2015 to HUF 48.2 billion in Q1 2016, as lower direct costs compensated for lower revenues, leading to a stable Gross margin, boosted by one-offs in Other operating income.

Depreciation and amortization expenses decreased by 3.5% to HUF 26.7 billion in Q1 2016, mainly due to the useful life review of certain network assets compared to the same period of last year.

Profit for the period rose by 245% to HUF 11.5 billion. Operating profit improved from HUF 14.8 billion in Q1 2015 to HUF 21.6 billion in Q1 2016 for the reasons described above. Net financial result improved by 23.9% from HUF 8.6 billion loss in Q1 2015 to HUF 6.6 billion Q1 2016. The result was primarily due to lower average interest rates (down by 0.8% due to the expiry of two major fixed interest loans), as well as positive gains on the fair valuation of derivatives, offsetting the lack of gains realized on exchange and energy swaps in the same period of 2015. The HUF weakened by 0.3% against the EUR in Q1 2016 compared to a 5.0% strengthening in Q1 2015. Income tax expense increased by HUF 0.6 billion quarter over quarter, which is in line with the higher revenues of the first quarter of 2016. The decrease of the local business tax in 2016, however, slightly erased this revenue growth effect. Profit attributable to non-controlling interests decreased by 8.1% to HUF 0.8 billion due to slightly lower Profit for the period generated by international subsidiaries.

Net debt decreased by 2.3% from HUF 409.4 billion at the end of the fourth quarter of 2015 to HUF 400.0 billion by the end of March 2016, while the net debt ratio (net debt to total capital) improved from 42.9% to 41.8% driven by a reduction in both short- and long-term borrowings. Magyar Telekom’s dividend policy seeks to maintain its net debt within the 30%-40% range and the net debt ratio is on a downward trajectory. Thus, we expect that the net debt ratio will approach the targeted range between 30-40% in the coming years.

Free Cash Flow improved by HUF 11.2 billion to HUF 9.7 billion reflecting higher EBITDA, improved working capital and one-off profits despite the incremental severance payout, loan repayment and a higher settlement of capex creditor balances.

Christopher Mattheisen, CEO commented:

“I am pleased to report that the positive trends in our operations achieved during 2015 have continued into the first quarter of this year, boosted further by one-offs gains. Although our headline revenue witnessed a decline compared the first quarter of 2015, this was primarily due to our decision to exit from the residential gas market and the deconsolidation of our B2B energy business. Excluding contributions from energy, on a like-for-like basis, our revenues continued to grow (+1.8%) with the Hungarian segment maintaining its positive momentum, and growth in mobile and SI/IT revenues driving a revenue turnaround in Macedonia following 5 years of decline.

Growth in Group EBITDA for the quarter accelerated to 13.6% year-on-year due a combination of this underlying revenue growth, a sustained strategic focus on cost rationalization (headcount reduction, product and process simplification and digitalization, including more online customer servicing), and one-off gains. We successfully sold one of our main office buildings and our media company, Origo, which resulted in one-off gains of 5.1 billion Hungarian forints for the quarter. Mirroring this growth in Group EBITDA and assisted further by an improvement in working capital levels, Group Free Cash Flow also increased by 11.2 billion forints, despite the incremental severance payout, loan repayment and higher level of CAPEX creditors. The net debt to total capital ratio improved further to 41.8%, approaching our target range of 30-40%.

Thanks to the efforts made last year to invest in 4G networks across our footprints, our Group mobile broadband and equipment revenues increased significantly albeit they were partly offset by reduced voice wholesale revenues resulting from the sharp decrease in mobile termination rates in Hungary. Following the fixed access network upgrades, we were also able to grow further our fixed broadband and TV customer bases at higher ARPUs in Hungary, which contributed to overall growth of 2.3% in fixed line Group revenues. Group-wide rollout of our quad-play Magenta1 proposition based on the integrated Telekom brand has helped too in promoting our brand and services. We were also able to continue to grow our System Integration and IT revenues, an area of the market which we consider to offer significant development potential and intend to target.

Current performance is in-line with expectations and we are happy to maintain our guidance targets; for the avoidance of doubt, the one-off gains in this quarter were as expected and already incorporated into our outlook.”

For detailed information on Magyar Telekom's Q1 2016 results please visit our corporate website ( www.telekom.hu/about_us/investor_relations) or the website of the Budapest Stock Exchange ( www.bse.hu).