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Investor Releases

Matáv first half 2002 results

Balanced segment performances lead healthy 2002 first half results

BUDAPEST –August 14, 2002 - Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first half 2002 according to International Accounting Standards (IAS).

Highlights:

  • T otal revenues grew by 9.2% (17.3% in EUR terms) to HUF 287.5 bn (EUR 1,181 mn) in 1H 2002 compared to 1H 2001 primarily due to the revenue growth of mobile and international segments but partially offset by lower fixed line traffic revenues.
  • EBITDA grew to HUF 121.7 bn (9.1% growth) and EBITDA margin reached an impressive 42.3%.
  • Fixed line segment EBITDA margin grew slightly to 39.1% mainly due to leased line and data transmission revenue growth and lower payments to other network operators, offset by a decline in domestic and international traffic revenues.
  • Mobile segment revenue went up by 19.0% mainly driven by a strong increase in the customer base. EBITDA margin slightly reduced to 36.4% in 1H 2002 from 37.0% a year ago. Westel had nearly 3 million customers at the end of June, 2002. Westel successfully kept its leading position with a 50.7% market share.
  • International segment (mainly MakTel) revenue grew by 18.9% and EBITDA margin was 49.5% due to strong growth in fixed line and mobile subscriber base as well as higher domestic prices partly offset by lower mobile MOU and lower international traffic revenue.
  • Net income reached HUF 37.7 bn (EUR 155 mn), a decline of 14.5% as net interest charges (due to higher loan balance, sharp decline in net FX gain and increase in swap related expenses), as well as minority interest (MakTel) and income tax expense (Westel) grew significantly over 1H 2001
  • Net debt at period-end sharply rose to HUF 415.1 bn against HUF 254.5 bn in 1H 2001 due to the Westel acquisition. However net debt showed a decrease of HUF 27.8 bn compared to the end of 2001, resulting in a reduced net debt to total capital (net debt plus equity plus minority interest) ratio of 43.4% compared to 46.6% at year-end 2001

Elek Straub, Chairman and CEO commented: "Strong cash generation characterized the fixed line segment, as a combined result of strict capital expenditure and cost control. In a still expanding mobile market, Westel managed to keep both net additions and market share above 50% in the first half of the year. This achievement was coupled with continued delivery of mobile segment profit growth. The churn rate in the prepaid and contract segments reduced quarter on quarter in 2002 Overall, I am pleased to see a balanced performance from the fixed, mobile and international segments. The Group's first half results reflect that we are on the right track not only delivering healthy financial results, but executing our strategy. I would also like to re-confirm our public guidance set for the full year 2002"

Fixed line: Impressive cash generator, focus on innovative solutions, growth in data transmission

The segment revenues grew by 1.9% to HUF 168.0 bn and EBITDA margin also improved to reach 39.1%. Domestic and international traffic revenues combined, decreased by 5.8%, chiefly reflecting lower volumes compared with the first half of 2001 Leased line and data revenues grew by 15.0% driven by the volume growth in managed leased lines, ADSL and Internet subscribers. Fixed line penetration and the total number of lines remained stable. However, the number of ISDN channels increased to above 492,000, representing a 27.8% growth against 1H 2001 By end-June 2002, 16.8% of Matáv's total fixed lines were ISDN. We successfully managed to increase the number of ADSL lines resulting in 18,781 lines installed by end of June 2002 Matáv's Internet subsidiary, Axelero maintained its leading position among ISPs in the dial-up market. The Company had 141,630 Internet subscribers (up by 28.3%). The leading Hungarian portal [origo] had over 600,000 visitors per day in the first half of 2002, an increase from around 270,000 in 1H 2001 Internet usage had a proportionally greater stake in the total call volume.

Mobile: Strong results and actively maintained leading position

Mobile segment revenues increased by 19.0% to reach HUF 110.0 bn in 1H 2002 and EBITDA grew by 17.1% to HUF 40.0 bn. Depreciation and amortization reduced by 13.9% to HUF 17.1 bn as a result of lower intangible asset amortization in 1H 2002 Operating profit grew strongly to HUF 23.0 bn from HUF 14.4 bn and operating margin grew from 15.5% to reach 20.9% in 1H 2002 Net income went up by 26.6% to HUF 17.3 bn. Under intense competition, Westel preserved its leading position in the GSM market. Westel outperformed its competitors in terms of net customer additions. Westel's subscriber base reached nearly 3 million at the end of June 2002 The Company had a GSM market share of 50.7% also due to the efficient customer retention program. Westel captured 52% of the total market net additions in the second quarter of 2002 Prepaid customers at the end of the period, represented 72.5% of the total customer base. Average acquisition cost per customer fell to HUF 15,139 in the first half of 2002 from HUF 21,777 a year ago. When calculating subscriber acquisition cost, we include connection margin, which is the connection fee minus the SIM card cost, and the sales related equipment subsidy and agent fee. Both ARPU (monthly average revenue per user) and MOU (monthly average minutes of use per subscriber) declined due to the continuous dilution in the customer base, providing an ARPU of HUF 5,820 and a MOU of 121 in 1H 2002 However, MOU stabilized within the two quarters of 2002 Enhanced services (mainly SMS) within ARPU reached HUF 488 (8.4% share) showing an impressive development compared with HUF 394 (5.6% share) in the first half of 2001 Annualized churn rate was relatively low at 15.1% in 1H 2002 The churn rate in the postpaid segment reduced to 15.9% in 1H 2002 from 18.1% in the same period last year.

International: Back on track

International segment revenues increased to HUF 32.3 bn (up by 18.9%) in 1H 2002 EBITDA margin reached 49.5% in the first half of 2002 representing lower margin compared with 50.9% in 1H 2001 but also showing a recovery on the weaker 2002 first quarter performance. Domestic traffic revenues (mainly driven by price increases) grew. International traffic revenues declined due to a reduction in outgoing and incoming prices and, to a lesser extent, lower usage. Employee related expenses rose to HUF 3.7 bn due to wage increases. Depreciation and amortization increased by 25.2% (to HUF 5.8 bn) due to higher asset base. By end of June, fixed line penetration in Macedonia was 27%, and mobile penetration rose to 14%. The subscriber base has continued to grow in each business areas. Fixed line customers reached 573,926 up 7.7% from a year earlier. Within this, analog subscribers grew moderately, by 6.7% to 554,582 but ISDN channels impressively increased by 50.2% to 19,344. The mobile customer base more than doubled to 291,213. The number of Internet subscribers reached 26,944 at the end of June 2002

Matáv is the principal provider of telecom services in Hungary. Matáv provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiaries is Hungary's largest mobile telecom provider. Matáv also holds a majority stake in Stonebridge Communications AD controlling MakTel, the sole fixed line and the leading mobile operator in Macedonia. Key shareholders of Matáv as of June 30, 2002 include MagyarCom, owned by Deutsche Telekom AG (59.49%), while 40.51% is publicly traded.

This press-release 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 you should not place undue reliance on 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 Report on Form 20-F for the year ended December 31, 2001 filed with the U.S. Securities and Exchange Commission.