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Investor Releases

Matáv first half 2003 results

Strong cash generation and stabilized position in the mobile market

BUDAPEST –August 14, 2003 - Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first half of 2003, according to International Financial Reporting Standards (IFRS).

Summary:

  • Revenues increased by 3.3% (1.7% in EUR terms) to HUF 296.9 bn (EUR 1,201.3 m) in 1H 2003 compared to 1H 2002 as a result of higher mobile, leased line and data transmission revenues. This was partly offset by a decline in revenues from domestic and international traffic and lower other usage.
  • EBITDA increased by 6.1% to HUF 129.1 bn, resulting in an impressive EBITDA margin of 43.5%.
  • Fixed line segment: revenues were slightly lower; EBITDA margin stood at 38.5%.
  • Mobile segment: revenues increased by 10.5% mainly driven by higher traffic revenues and enhanced services. EBITDA margin was 39.3% in the first half of 2003 Westel had 3.5 million customers at the end of June 2003
  • International segment: revenues were broadly stable with EBITDA margin reaching 55.5%. Successful cost-cutting helped to push EBITDA up to HUF 18.0 bn from HUF 16.0 bn in the same period last year.
  • Group operating profit grew to HUF 67.3 bn (up by 5.6%) although net income declined to HUF 33.3 bn (EUR 134.6 m). This was mainly due to the significant increase in net interest charges (due to an increase in FX losses resulting from the weakening of the Forint).
  • Net cash from operating activities grew to HUF 98.0 bn as a result of the higher EBITDA and lower working capital requirements, partly offset by higher interest paid. Net cash used in investing activities declined to HUF 41.3 bn. This was driven by the change in capex payables and lower additions to tangible and intangible assets. Net cash used in financing activities amounted to HUF 48.4 bn, driven by continuous debt repayments and increase in dividends paid to shareholders in the first half of 2003
  • Net debt declined by HUF 66.4 bn since the end of June 2002 resulting in a reduced net debt ratio (net debt to net debt plus equity plus minority interest) of 36.6% compared to 43.4% at the end of June 2002

Elek Straub, Chairman and CEO commented: "In the first half of the year, we have seen a balanced performance from all segments, leading to sound results for the group as a whole. I am pleased to say that the success of tariff packages in the fixed line segment has led to a slowdown in the ongoing decrease of the number of lines. The Regulator approved our long run incremental cost based reference unbundling and interconnection offers in the fixed line business, further approaching EU benchmarks. We believe that Matáv will be able to demonstrate its ability to preserve its profitability and create value within the West-European regulatory framework. In the mobile segment, after a temporary drop in market share in Q1 2003, Westel successfully protected its position in the second quarter through the new initiatives in both prepaid and postpaid segments. As a result, in both segments the churn rate was reduced on a quarterly basis. Overall, the results reflect the progress we have made in the first half of 2003 and underline our success in implementing our strategy for growth by focusing resources on mobile, data and Internet."

Fixed line: Steady growth in role of customized tariff packages; impressive results of the ADSL rollout program

Fixed line revenues decreased slightly to HUF 164.5 bn. The EBITDA margin was 38.5%. Domestic and international traffic revenues combined fell by 4.8%. However, leased line and data revenues continued to grow, and were up by 14.1%, driven by volume growth in ADSL and Internet subscribers. Matáv's fixed line penetration was down slightly to 37.9% (from 39.0% a year ago) with a 2.7% reduction in the total number of lines. Nevertheless, the number of ISDN channels increased to nearly 521,000, representing 5.7% year-on-year growth. By the end of June 2003, 18.3% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented around 40% of the total number of lines with more than 1.1 million subscribers for these packages at the end of the first half 2003 The Company continued to invest in broadband and as a result it had 57,399 ADSL lines by the end of June, showing 69% growth since December 2002 Matáv's Internet subsidiary, Axelero increased further its leading position among ISPs in the dial-up market with a market share of approximately 45%. The Group had a total of 173,083 Internet subscribers at the end of June 2003

Mobile: Successful steps helped to preserve market position under fierce competition

Mobile segment revenues increased by 10.5%. EBITDA increased by 19.2% to HUF 47.7 bn, while the EBITDA margin was 39.3%. Operating profit rose to HUF 28.4 bn from HUF 23.0 bn in the same period last year. Westel preserved its leading position, increasing its customer base by the end of June 2003 to above 3.5 million in a market that while slightly enlarged (with 72.1% GSM penetration), remains intensely competitive. Westel's GSM market share remained stable at 48.1% due to successful actions including the new postpaid offer and price reduction in the prepaid segment following competitors'campaigns. At the end of the second quarter, prepaid customers represented nearly 75% of the total customer base. Average acquisition cost per customer fell by 14.3% to HUF 12,974 in 1H 2003 from HUF 15,139 a year earlier. When calculating subscriber acquisition cost, we include the connection margin (connection fee less 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) showed growth compared to the first quarter of 2003 (ARPU of HUF 5,059 and MOU of 103), resulting in an ARPU of HUF 5,203 and a MOU of 110 in 1H 2003 Enhanced services (mainly SMS) within ARPU reached HUF 550 (10.6% of total), showing a steady development compared to HUF 488 (8.4% of total) in 1H 2002 The churn rate in the postpaid segment was successfully reduced to 11.9% in Q2 2003

International: Profitability improved; revenues remained stable

International revenues remained stable and reached HUF 32.4 bn in 1H 2003 As a result of higher subscription fees for analog lines, subscription charges rose, as did leased line and data transmission revenues. However, these were offset by the decline in international traffic revenues due to both lower prices and usage. MakTel is focusing on cost control, the first results of which have been shown by the cuts made to consultancy and maintenance fees. In addition, volume-related expenses, such as cost of equipment sales and payments to other network operators were also reduced. As a result, EBITDA improved by 12.6% to reach HUF 18.0 bn with an EBITDA margin of 55.5%. Fixed line penetration in Macedonia was around 29%, and mobile penetration grew to 21% at the end of June 2003 compared to 14% penetration a year ago. Fixed line customers grew to 611,816, up by 6.6% from a year earlier. Within this, analog subscribers grew by 5.5% to 584,906 and ISDN channels increased noticeably by 39.1% to 26,910. The mobile customer base rose by 41.6% to 412,373. The number of Internet subscribers at the end of the second quarter of 2003 reached 41,970 (up by 55.8% year-on-year).

About Matáv

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, which controls MakTel, the sole fixed line and the leading mobile operator in Macedonia. Key shareholders of Matáv as of June 30, 2003 include MagyarCom GmbH, owned by Deutsche Telekom AG (59.21%). The remainder, 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 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 Report on Form 20-F for the year ended December 31, 2002 filed with the U.S. Securities and Exchange Commission.