Press Releases

Budapest, November 4, 2020 17:30

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

Highlights:

Total revenues increased by 1.8% year-on-year to HUF 167.7 billion in Q3 2020 as increases in telecommunication service revenues coupled with higher equipment sales in Hungary, along with positive foreign exchange impact stemming from the strengthening of the denar compared to the forint offset the decline in the Hungarian System Integration and IT revenues in Hungary. In the first nine months of 2020, revenues remained broadly stable year-on-year at HUF 484.2 billion.

• Mobile revenues were up 2.7% year-on-year to HUF 92.6 billion in Q3 2020, and 2.6% higher at HUF 266.7 billion in the first nine months of 2020, thanks to higher mobile data and equipment sales revenues which could fully offset lower retail voice revenues.
• Fixed line revenues increased by5.3% year-on-year, to HUF 55.1 billion in Q3 2020 and by 2.1% to HUF 161.0 billion in the first nine months of 2020. Higher broadband and TV retail service revenues compensated for the decline in voice revenues and the higher volumes of provided discounts.
• System Integration (SI) and IT (‘SI/IT’) revenues declined by 10.1% year-on-year to HUF 20.0 billionin Q3 2020, with revenues down by 15.5% year-on-year in the first nine months of 2020.Revenues in Hungary contracted due to lower volumes of implementation projects delivered to the Hungarian public sector.

Direct costs increased by 4.6% year-on-year to HUF 72.4 billion in Q3 2020and were up by 1.2% year-on-year in the first nine months of 2020 at HUF 206.6 billion. Although SI/IT related expenses were lower year-on-year, increases in other direct costs, bad debt expenses and telecom tax resulted in higher overall direct costs.

• Interconnect costsincreased by 2.5% year-on-year to HUF 5.5 billion in Q3 2020, as increased off-network mobile voice traffic primarily visible at the North Macedonian operation, led to higher payments to domestic mobile operators.
• SI/IT service-related costsdeclined by 13.7% year-on-year, to HUF 14.0 billion in Q3 2020, reflecting lower volume of related projects in Hungary.
• Bad debt expenses were up by HUF 1.0 billion year-on-year at HUF 2.4 billion in Q3 2020, reflecting the absence of a one-off favorable impact driven by the reduction of the impairment rates applied to the Hungarian fixed and mobile operations during Q3 2019. That was partially mitigated by the favorable aging of mobile receivables at the Hungarian operation during Q3 2020 coupled with collection of impaired receivables and the absence of negative one-off items impacting Q3 2019 results in North Macedonia.
• Telecom taxrose by HUF 1.5 billion year-on-year to HUF 7.6 billion in Q3 2020, as increases in mobile voice traffic in the business and residential segments and higher residential landline usage in Hungary was coupled with a one-off non-recurring adjustment booked in Q3 2020.
• Other direct costswere up 6.8% year-on-year at HUF 42.9 billion in Q3 2020, driven primarily by higher equipment costs in both countries coupled with an increase in the Hungarian TV content outpayments (further amplified by the weakening of the forint against the euro). These could only be partially offset by lower roaming outpayments.

Gross profit was broadly stable year-on-year at HUF 95.2 billion in Q3 2020 as higher contribution from the Hungarian telecommunication services was counterbalanced by lower roaming results coupled with one-off items negatively impacting year-on-year comparison. Gross profit declined moderately to HUF 277.6 billion in the first nine months of 2020, as the above factors were coupled with lower SI/IT contribution.

Indirect costs improved by 3.5% year-on-year, to HUF 34.5 billion in Q3 2020, and by 2.5% year-on-year to HUF 114.4 billion in the first nine months of 2020, thanks to broad-based cost saving measures implemented at the Hungarian operation..

• Employee-related expenseswere up by a moderate 1.5% year-on-year at HUF 18.3 billion in Q3 2020, as the impact of general wage increase at the Hungarian operation coupled with the different distribution pattern within the year generating higher bonus accruals offset the favorable impacts of lower Group-wide headcount, reduction in Hungarian social contribution charges and the revised trainee employment terms. In the first nine months of 2020, employee related expenses improved by 3.3% year-on-year, reflecting an overall decline in all wage elements.
• Other operating expenses improved by 9.8% year-on-year to HUF 17.3 billion in Q3 2020, primarily due to savings in marketing, advisory and maintenance expenses at the Hungarian operation which more than offset temporarily higher expenses in North Macedonia.
• Other operating income were lower at HUF 1.1 billion in Q3 2020, reflecting lower level of income related to real estate sales in Hungary.

EBITDA rose by 1.9% year-on-year to HUF 60.7 billion in Q3 2020, and by 0.2% to HUF 163.3 billion in the first nine months of 2020, as stable gross profit was coupled with lower indirect costs . EBITDA AL improved by 1.5% year-on-year in Q3 2020 , driven by the above drivers coupled with some year-on-year increases in IFRS 16 depreciation and amortization expenses.

Depreciation and amortization (‘D&A’) expenses grew by HUF 1.6 billion year-on-year , to HUF 35.4 billionin Q3 2020, reflecting higher expenses in both countries of operation. In Hungary, the increase was attributable to the frequency licenses acquired earlier this year 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 rose by 50.9% year-on-year to HUF 19.7 billion in Q3 2020 , reflecting significantly better net financial results year-on-year. In the first nine months of 2020, net profit declined by 3.7% year-on-year to HUF 30.4 billion , as the improvement in net financial results could not fully counterbalance higher D&A expenses while EBITDA remained stable.

• Net financial resultsimproved by HUF 7.7 billion year-on-year to HUF 1.2 billion in Q3 2020. The significant year-on-year improvement was primarily attributable to the different yield-curve movements that led to unrealized gains on the recognition of derivatives at fair value.  That was coupled with lower translation losses in relation to FX based lease liabilities and other items reflecting a more favorable FX rate movement year-on-year (weakening of the forint against the euro between end-June and end-September 2020 was at a lower scale compared to the same period in 2019).
• Income tax expenses were up year-on-year at HUF 4.5 billion in Q3 2020, driven by higher profit before tax leading to a rise in corporate tax expense coupled with a moderate increase in local business tax.

Profit attributable to non-controlling interests decreased by 11.0% year-on-year to HUF 1.1 billion in Q3 2020,as lower EBITDA was coupled with higher D&A expenses, resulting in reduced profit at the North Macedonian operation.

Free cash flow (excluding spectrum license fees) reached HUF 32.9 billion year-to-date, representing a HUF 29.5 billion uplift versus the previous quarter. The growth was mainly supported by strong EBITDA generation and favorable working capital developments. Following the payment of 5G spectrum license fees in Q2 2020, total free cash outflow (after spectrum license fees) amounted to HUF 21.4 billion year-to-date.

Tibor Rékasi, Magyar Telekom CEO commented:

“Magyar Telekom continued to deliver a robust performance in the third quarter of 2020, remaining on track to meet the Group’s annual public targets for 2020. As EBITDA generation improved, accelerated investment into the fixed network allowed Magyar Telekom to provide a further 100 thousand households with fiber access. As a first mover in the domestic market Magyar Telekom has been offering gigabit speed on the 5G mobile network.

Looking ahead, I believe Magyar Telekom is well placed to provide a broader range of content, enhanced connectivity and greater flexibility to our customers as these services become even more important in an uncertain environment affected by COVID-19. ”