Press Releases

Budapest, August 5, 2020 17:30

Magyar Telekom today reported its consolidated financial results for the second quarter and first half of 2020, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

Total revenues declined by 2.2% year-on-year to HUF 157.2 billion in Q2 2020 and by 1.0% year-on-year to HUF 316.5 billion in the first six months of 2020. Further increases in telecommunication service revenues in both countries of operation, along with positive foreign exchange impact stemming from the strengthening of the denar compared to the forint, were offset by the decline in System Integration and IT (‘SI/IT’) revenues in Hungary.

• Mobile revenues were up 1.3% year-on-year to HUF 86.0 billion in Q2 2020, and 2.6% higher at HUF 174.1 billion in the first half of 2020, thanks to higher mobile data revenues in both countries of operation which were partially offset by lower retail voice revenues. In H1 2020, mobile revenues grew by 2.6% year-on-year to HUF 174.1 billion.
• Fixed line revenues increased moderately, by 0.8% year-on-year, to HUF 53.1 billion in Q2 2020 and by 0.6% to HUF 105.9 billion in the first half of 2020. Higher broadband and TV retail service revenues were able to offset the decline in equipment sales, higher volumes of discounts and lower network-related revenues.
• System Integration (SI) and IT (‘SI/IT’) revenues declined by 22.0% year-on-year to HUF 18.1 billion in Q2 2020, with revenues down by 18.2% year-on-year in H1 2020. Revenues in Hungary contracted due to lower demand in the Hungarian public and corporate sector driven by changing customer needs as a result of the COVID-19 pandemic.

Direct costs were down 1.6% year-on-year, at HUF 67.1 billion in Q2 2020, and by 0.6% year-on-year in H1 2020. While other direct costs and the telecom tax continued to rise in Q2 2020, SI/IT related expenses were significantly lower resulting in the year-on-year cost decline.

• Interconnect costs increased by 2.5% year-on-year to HUF 5.4 billion in Q2 2020, reflecting increased off-network mobile voice traffic in both countries, which led to higher payments to domestic mobile operators.
• SI/IT service-related costs declined by 26.1% year-on-year, to HUF 12.8 billion in Q2 2020, driven by a significant reduction in the volume of related projects in Hungary.
• Bad debt expenses improved by 13.0% year-on-year to HUF 2.1 billion in Q2 2020, as the favorable aging of mobile receivables at the Hungarian operation and the absence of negative one-off items impacting Q2 2019 results in North Macedonia offset the negative impact of COVID-19 on bad debt expenses and the lower results from factoring activities. However, in H1 2020, bad debt expenses deteriorated by 5.8% year-on-year to HUF 4.8 billion, as the impact of the COVID-19 pandemic, lower results from factoring and the release of certain customers from a loyalty period could only be partly mitigated by the favorable aging of mobile receivables at the Hungarian operation.
• Telecom tax was up 6.8% year-on-year at HUF 6.8 billion in Q2 2020, reflecting an increase in mobile voice traffic in the business and residential segments coupled with higher residential landline usage during the months of lockdown in Hungary.
• Other direct costs increased by 8.7% year-on-year to HUF 39.9 billion in Q2 2020, primarily due to an increase recorded at the Hungarian operation. This was attributable to higher TV content outpayments and equipment costs (both further amplified by the weakening of the forint against the euro), which could only be partially offset by the lower roaming outpayments.

Gross profit declined by 2.7% and 1.3% year-on-year to HUF 90.1 billion in Q2 2020 and to HUF 182.4 billion in H1 2020, respectively. This result is broadly attributable to the lower SI/IT and roaming result coupled with increases in telecom tax expenses.

Indirect costs improved by 4.7% year-on-year, to HUF 34.0 billion in Q2 2020, and by 2.0% year-on-year to HUF 79.8 billion in H1 2020, thanks to broad-based cost saving measures in both countries.

• Employee-related expenses declined by 9.4% year-on-year to HUF 17.9 billion in Q2 2020, driven primarily by lower headcount in both Hungary and North Macedonia, supported by a reduction in Hungarian social contribution charges and the revised trainee employment terms.
• Other operating expenses improved by 4.5% year-on-year to HUF 16.8 billion in Q2 2020, primarily due to savings in marketing and advisory expenses which more than offset higher spending in relation to COVID-19 protective measures.
• Other operating income declined by HUF 1.0 billion year-on-year in Q2 2020, reflecting the absence of income related to real estate sales and a legal case closed in the second quarter of 2019.

EBITDA was down by 1.4% year-on-year to HUF 56.1 billion in Q2 2020, and by 0.8% to HUF 102.5 billion in H1 2020, as savings in indirect costs could not fully compensate for the lower gross profit. EBITDA AL declined by 2.5% year-on-year in Q2 2020, reflecting year-on-year increases in IFRS 16 depreciation and amortization expenses.

Depreciation and amortization (‘D&A’) expenses grew by HUF 3.2 billion year-on-year, to HUF 35.3 billion in Q2 2020, reflecting higher expenses in both countries of operation. In Hungary, the increase was attributable to the newly acquired frequency licenses as well as the shortened useful life of copper network elements driven by preparations to the copper retirement program. In North Macedonia, the D&A expense increase was driven by higher amortization expenses in relation to content rights, software and licenses.

Profit for the period declined by 20.8% year-on-year to HUF 11.5 billion in Q2 2020, as lower EBITDA and an increase in D&A expenses could only be partially mitigated by better net financial results. In the first half of 2020, net profit declined by 42.3% year-on-year to HUF 10.7 billion, owing to lower EBITDA, higher D&A expenses and a weakening of the forint in Q1 2020.

• Net financial expenses improved by 16.6% year-on-year to HUF 5.4 billion in Q2 2020, as the positive impacts of lower average interest rates and more favorable FX rate movements during the second quarter of 2020 (moderate strengthening of the forint against the euro between end-March and end-June 2020 as opposed to weakening during Q2 2019) outweighed the increases in interest costs stemming from higher overall debt levels due to the frequency license purchases.
• Income tax expenses remained stable at HUF 3.9 billion in Q2 2020, despite a year-on-year decline in profit before tax. That was primarily driven by higher withholding tax in relation to the dividend payment of the North Macedonian holding company, Stonebridge, combined with higher corporate tax expenses reflecting the run-out of earlier investment tax credits.

Profit attributable to non-controlling interests decreased by 15.6% year-on-year to HUF 0.9 billion in Q2 2020, as the improvement in EBITDA was offset by higher D&A expenses, resulting in reduced profit at the North Macedonian operation.

Free cash flow (FCF) deteriorated to HUF 50.8 billion cash outflow in H1 2020 (H1 2019: HUF 7.1 billion cash outflow) and was largely driven by the HUF 54.2bn 5G frequency fee payout.

Tibor Rékasi, Magyar Telekom CEO commented:

“Just like every other company, Magyar Telekom faced many challenges in the second quarter, as the pandemic affected our operations in many ways. I am very proud that in these extraordinary times, we lived up to the values we represent. We helped our customers to keep in touch and cooperate digitally by means of our stabile services, redesigned transactions and unique propositions. I consider it an outstanding achievement that despite the circumstances, we delivered stabile financial results in the second quarter. In order to improve our broadband coverage, we decided to accelerate our fiber network development program, and thus rolled out 135.000 new end points in the first half, started the modernization of our network, and continue to gradually increase our 5G coverage. We trust that as a result of our development efforts, our customers will continue to use our services to their satisfaction.”