May 8, 2014
Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the
leading Hungarian telecommunications service provider, today reported its
consolidated financial results for the first quarter of 2014, in accordance with
International Financial Reporting Standards (IFRS).
Revenues decreased by 3.0% in the first
quarter of 2014 compared to the same period of 2013, from HUF 156.6 billion to
HUF 151.9 billion.
The decline is the result of lower fixed and mobile voice revenues coupled with
lower revenues from SI/IT and energy services, latter driven by a combination
of the 11% cut in the regulated retail prices as of November 2013 and the very
mild winter season.
increased by 3.8%, from HUF 39.0 billion to HUF 40.5 billion
, largely attributable to
an expansion in gross margins across
all areas but particularly in relation to energy and SI/IT services. Reductions
in other operating expenses were mostly driven by lower rental fees and fees
and levies, a reflection of the change in the booking treatment of the
set-top-boxes and the price reduction and capitalization of annual frequency
fees, respectively, that were both completed in 2013. These impacts were somewhat
mitigated by higher telecom tax on account of the increase in tax rates for
non-private individual subscribers’ subscription and higher generated traffic.
and amortization expenses declined slightly, from HUF 24.8 billion to HUF 24.4
the higher depreciation and amortization in Hungary relating to the extended
and newly-purchased spectrum licenses as well as the capitalization of the annual
frequency fees were counterbalanced by extending the deemed useful lives of
assets such as radio equipment.
financial expenses decreased from HUF 7.7 billion to HUF 6.0 billion.
The improvement is
primarily due to the substantially lower net FX losses (including fair
valuation of FX derivatives), asduring Q1 2014, HUF weakened by 3.4%
against the EUR while during Q1 2013, by 4.5% while the negative impact of
higher overall debt levels was offset by lower average interest rates.
tax expense increased from HUF 3.6 billion in Q1 2013 to HUF 5.1 billion in Q1
in line with the higher profit before tax. Other
income taxes (including the local business tax and the innovation fee) remained
broadly stable at around HUF 2.0 billion. The higher income tax – apart from the
higher profit before tax – is primarily due to the significant change in
Macedonian income tax law, which introduced a 10% profit tax charged on
dividend declarations in Macedonia regardless of the geographical domicile of
the dividend recipient, effective from January 2014. Up until December 2013, we
had been recognizing deferred tax liabilities accruing on the profits of the
Macedonian entities resulting in expected dividends to be collected by Magyar
Telekom, as the tax charged on dividend distributions had previously only
applied to dividend distributions leaving Macedonia. Consequently, the income
tax charge we had to recognize now in Q1 2014 was higher by HUF 1.1 billion
than the amount of the deferred tax liability we released. This additional net
tax expense is, however, fully offset by the decrease in the
attributable to non controlling interests
, leaving the profit attributable to the
owners of the parent intact.
At the same time, year-on-year
comparison is also distorted by the ca HUF 0.8bn deferred tax liability booked
in Q1 2013 relating to the decrease of the statutory
reserve requirement in Macedonia as it led to increased distributable reserves
which was expected to be subject to withholding tax once distributed to Magyar
attributable to the owners of the parent company (net income) increased from
HUF 1.7 billion in the first quarter of 2013 to HUF 4.8 billion in the first
quarter of 2014
thanks to higher EBITDA coupled with
lower financial expenses.
Net cash generated from operating
activities increased by HUF 12.3 billion, from HUF 13.0 billion in Q1 2013 to
HUF 25.3 billion in Q1 2014.
The increase is mainly
driven by higher EBITDA and improved working capital (also reflecting the
factoring of vendor contracts in 2013) that was partly offset by higher net
financial charges paid due to the difference in the timing of interest payments.
Investment in tangible and intangible
assets (Capex) increased slightly, from HUF 16.7 billion to HUF 17.3
primarily reflecting investments to network modernization both in
the fixed and mobile infrastructure in Hungary. In Q1 2014 Telekom
Hungary accounted for HUF 15.2 billion of total Capex while HUF 0.7 billion is
associated to T-Systems Hungary. In Macedonia and Montenegro, Capex was HUF 0.8
billion and HUF 0.7 billion, respectively.
cash flow and investing cash flow adjusted for proceeds from / payments for
other financial assets and repayment of other financial liabilities)
from a deficit of HUF 7.5 billion in Q1 2013 to a deficit of HUF 11.4 billion
in Q1 2014.
cash flow was offset by higher cash Capex reflecting higher outpayments to
Capex creditors in Q1 2014 compared to a year earlier and the higher amount of
repayment of other financial liabilities due to payments of factored vendor
contracts coupled with the 2014 payment of the periodic frequency fees.
debt rose from HUF 282.9 billion
end of Q1 2013 to HUF 382.3 billion at the end of Q1 2014. The
(net debt to total capital) was
43.6% at the end of Q1
Christopher Mattheisen, CEO commented:
am pleased to report that our Telekom Hungary segment performed well in the
first quarter of 2014, despite the slight contraction of the mobile voice
market which led to a decline in our subscriber base during the period. The
reported increase in both usage and ARPU reflects the success of our continued
efforts to mitigate pressure from rationalization-driven downward migration to
flat rate packages through proactive focus on upward migration and the upsell
of additional data allowance and handset insurance.
the fixed segment, we were delighted to see a continued increase in our share
of the TV market, where almost a third of our residential customer base now
subscribes to a triple play package. Despite a decline in SI/IT revenues during
the quarter, the gross margin increased in line with the higher share of service
driven projects within our project mix.
Looking forward, our efforts will be firmly
focused on maintaining the current positive momentum by continuing to deliver a
unique customer experience. To this end, we are currently testing LTE-Advanced
technology that, provided frequency assets are available, will make download
speeds of 300 Mbps possible within a couple of years. We will also continue to
roll out our 4G network which currently covers around 45% of the Hungarian
our international subsidiaries we continued to face difficult operating
conditions. In Macedonia, both our mobile competitors launched extremely
attractive promotional flat offers. While our EBITDA margin was slightly above
40% during the first quarter, reflecting some cost saving efforts, we expect
this fierce competition to result in further margin pressure going forward. In
Montenegro, we are facing increased regulatory pressures following the
introduction in April 2014 of fixed voice retail price regulation and the 45%
cut in mobile termination rates that was implemented a month earlier in March.”
This investor news contains forward-looking statements. Statements that
are not historical facts, including statements about our beliefs and
expectations, are forward-looking statements. These statements are based on
current plans, estimates and projections, and therefore should not have undue
reliance placed upon them.
Forward-looking statements speak only as of the date
they are made, and we undertake no obligation to update publicly any of them in
light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We
caution you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such
factors are described in, among other things, our annual financial statements
for the year ended December 31, 2013, available on our website at http://www.telekom.huwhich have been prepared in accordance
with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and adopted by the European Union.
In addition to figures prepared in accordance with IFRS, Magyar Telekom
also presents non-GAAP financial performance measures, including, among others,
EBITDA, EBITDA margin, underlying EBITDA, underlying EBITDA margin and net
debt. These non-GAAP measures should be considered in addition to, but not as a
substitute for, the information prepared in accordance with IFRS. Non-GAAP
financial performance measures are not subject to IFRS or any other generally
accepted accounting principles. Other companies may define these terms in
different ways. For further information relevant to the interpretation of these
terms, please refer to the chapter “Reconciliation of pro forma figures”, which
is posted on Magyar Telekom’s Investor Relations webpage at