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Investor Releases

Matáv thirds quarter 2002 results

Third quarter results show revenue and EBITDA growth while net debt to total capital falls

BUDAPEST –November 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 nine months of 2002 (Q1-Q3 2002) according to International Accounting Standards (IAS).

Highlights:

  • Total revenues increased by 8.6% (14.9% in EUR terms) to HUF 438.3 bn (EUR 1,796 m) in Q1-Q3 2002 compared to Q1-Q3 2001 mainly due to higher mobile and international (MakTel) revenues, partly offset by a decline in both domestic and international traffic revenues.
  • EBITDA grew to HUF 189.0 bn (8.4% growth) and EBITDA margin reached 43.1%.
  • Fixed line segment: EBITDA margin grew to 38.5%.
  • Mobile segment: Revenue rose by 19.0% mainly driven by strong growth in the customer base. The EBITDA margin stood at 38.6% in the first three quarters of 2002 Westel had above 3.1 million customers at the end of September, 2002
  • I nternational segment: Revenue increased by 11.3% and the EBITDA margin reached 52.7% due to solid growth in the subscriber base in all business segments. Higher subscription fees and domestic traffic prices also contributed to the growth partly offset by lower international traffic revenue.
  • Net income for the Group fell by 2.6% to HUF 58.2 bn (EUR 238.3 m) over the reported period as net interest charges grew (due to higher loan balance) and the income tax expense (Westel) rose significantly.
  • Net cash from operating activities rose moderately to HUF 146.2 bn as a result of higher EBITDA, partly offset by the change in working capital requirements (chiefly due to a fall in trade payables) and higher interest paid. Net cash used in investing activities fell significantly as capital expenditure was lower and the major acquisitions were executed during the first nine months of last year (MakTel, Emitel). Net cash outflows amounted to HUF 60.3 bn, driven by debt repayments in the first nine months of 2002 against net cash inflows of HUF 30.1 bn a year ago as Matáv took loans to finance acquisitions.
  • Net debt has been reduced by a total HUF 58.6 bn since the end of 2001 resulting in a reduced net debt to total capital (net debt plus equity plus minority interest) ratio of 40.5% compared to 46.6% at year-end 2001 Net debt at end-September 2002 rose to HUF 384.3 bn against HUF 244.5 bn at end-September 2001 due to the Westel acquisition.

Elek Straub, Chairman and CEO commented: "We are pleased to see revenue and EBITDA growth across all the segments of our business. The fixed line segment remains a strong cash generator but we nevertheless will continue to focus on cost-cutting opportunities as part of our commitment to fixed line productivity growth. As a result, we have decided to further reduce headcount at the parent company in the coming two years. In the mobile business, after a strong focus on market positions in the first half of this year, we put emphasis on profitability in the third quarter, which resulted in a slight decline in market share while EBITDA grew by 22.2% over Q2 2002 Our international subsidiary is making a strong financial contribution. I would like to reiterate our Group's public target for the full year 2002 in terms of high single digit revenue growth and an EBITDA margin above 40%, whilst based on our current estimate, CAPEX is expected to be below 100 billion forints reflecting our commitment to further improving efficiency as we continue our focus on capex control."

Fixed line: Strong profit contribution, focus on productivity, growth in data communications

The segment revenues grew by 1.6% to HUF 252.1 bn and the EBITDA margin also improved to reach 38.5%. Domestic and international traffic revenues combined, decreased by 5.7%, reflecting lower volumes compared with the first three quarters of 2001 Leased line and data revenues grew by 15.0%, driven by 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 half a million, representing a 23.5% growth against end-September 2001 By end-September 2002, 17.3% of Matáv's total fixed lines were ISDN. We further increased the number of ADSL lines resulting in a total 26,351 installed lines by the end of September 2002 Matáv's Internet subsidiary, Axelero maintained its leading position among ISPs in the dial-up market with approximately 43% market share. The Company had 142,606 Internet subscribers (up by 20.2% year-on-year). Internet usage had a proportionally greater stake in the total call volume.

Mobile: Focus on profitability in the third quarter

Mobile segment revenues rose by 19.0% and EBITDA increased by 15.7% to HUF 65.8 bn. Depreciation and amortization fell by 10.9% to HUF 26.1 bn reflecting lower intangible asset amortization in Q1-Q3 2002 Operating profit rose to HUF 39.7 bn from HUF 27.6 bn and operating profit margin grew 4.1 percentage points to 23.3% in Q1-Q3 2002 Under intense competition, in a still expanding mobile market, Westel maintained its leading position. Westel's customer base exceeded 3.1 million at the end of September 2002 The Company had a GSM market share of 49.7% showing a slight decline as Westel increased the prepaid entry barrier in the third quarter of 2002 At the end of the period, prepaid customers represented 73.5% of the total customer base. Average acquisition cost per customer fell to HUF 14,406 in the first nine months of 2002 from HUF 21,243 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 5,814 and a MOU of 120 in Q1-Q3 2002 However, ARPU stabilized within the three quarters of 2002 Enhanced services (mainly SMS) within ARPU reached HUF 533 (9.2% share), showing an impressive development compared with HUF 388 (5.5% share) in the first nine months of 2001 Year-to-date churn rate was relatively low at 14.5% in Q1-Q3 2002 The churn rate in the postpaid segment showed a continuous decline this year and fell to 13.2% in the third quarter of 2002 as a result of a successful customer retention program.

International: Volume growth and solid financial performance

The segment's revenues grew by 11.3% to HUF 49.8 bn in the first nine months of the year. The EBITDA margin remained stable over the period at 52.7%. Revenues from subscriptions and domestic traffic revenues increased due to both volume growth and price increases but international traffic revenues fell. Mobile revenues increased, driven by a larger customer base and higher prices. Depreciation and amortization rose to HUF 9.4 bn (by 28.8%) based on a higher asset base. By the end of the third quarter, fixed line penetration in Macedonia had reached 28%, and mobile penetration 16%. The subscriber base has continued to grow in each business area. Fixed line customers reached 582,139, up 7.5% from a year earlier. Within this, analog subscribers rose by 6.4% to 561,739 but ISDN channels grew considerably to 20,400 or 47.9%. The mobile customer base grew by 82.9% to 319,337. The number of Internet subscribers was 29,455 at the end of September 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 September 30, 2002 include MagyarCom, owned by Deutsche Telekom AG (59.21%), while 40.79% 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 .