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Investor Releases

Matáv first quarter 2003 results

Successful start to the year in the fixed line and mobile segments

BUDAPEST –May 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 quarter 2003 according to International Financial Reporting Standards (IFRS).

Highlights:

  • Revenues increased by 2.8% (3.0% in EUR terms) to HUF 144.9 bn (EUR 595.1 m) in Q1 2003 compared to Q1 2002 driven mainly by higher mobile, leased line and data revenues, partly offset by a decline in revenues from international activities (MakTel) and lower subscription and traffic revenues.
  • EBITDA grew by 13.3% to HUF 66.7 bn resulting in a very high EBITDA margin of 46.0%.
  • Fixed line segment: revenues were broadly stable; EBITDA margin more or less unchanged at 40.3%.
  • Mobile segment: Revenues increased by 8.4% mainly due to higher traffic revenues and enhanced services. EBITDA margin increased to 43.0% in the first quarter of 2003 Westel had 3.4 million customers at the end of March this year.
  • International segment: Revenues declined by 3.2% mainly due to the general macroeconomic slowdown in Macedonia, although EBITDA margin reached 55.9%. As a result of our cost cutting efforts, EBITDA increased to HUF 8.7 bn from HUF 6.5 bn in the same period last year.
  • Group operating profit grew by 21.2% to HUF 36.4 bn although net income declined slightly to HUF 19.0 bn (EUR 78.1 m). This was mainly due to the significant increase in net interest charges (due to an increase in FX loss).
  • Net cash from operating activities increased to HUF 44.8 bn as a result of the higher EBITDA and lower working capital requirements (mainly due to the favorable effect of the change in inventories and in payables and the unfavorable impact of the change in trade receivables) although this was partly offset by higher interest paid. Net cash used in investing activities fell to HUF 21.0 bn. This was driven by the change in capex creditors as well as the fact that no acquisitions were executed in 2003 Net cash used in financing activities amounted to HUF 19.4 bn, driven by continuous debt repayments in the first quarter 2003
  • Net debt has been reduced by HUF 80.3 bn since the end of March 2002 resulting in a reduced net debt ratio (net debt to net debt plus equity plus minority interest) of 36.6% compared to 44.8% at end-March 2002

Elek Straub, Chairman and CEO commented: "We started the year with strong financial results across the Group. The fixed line segment reported stable revenues and a broadly unchanged EBITDA in a fully liberalized market. As a response to increasing competitive pressure, we have offered a number of customized tariff packages to all of our customers, resulting in more than 1 million of them choosing one of these packages by the end of the period. In line with our previously announced headcount rationalization program, the employee numbers at the parent company were reduced by 8% in the last three months, resulting in a line per employee ratio of 340 (compared to 315 at year-end 2002). As a result of the expected leveling off of mobile customer growth, we have placed slightly more emphasis on improving profitability in this segment rather than retaining market share. Consequently, the mobile segment reported excellent EBITDA whilst still preserving its leading market position. Unlike 2002, the beginning of 2003 was characterized by a shift in focus from entry barriers towards tariff competition. Driven by the slowdown of the entire mobile market, the importance of customer retention programs is increasing. At our international subsidiary, MakTel, the top line growth was negatively affected by the macroeconomic slowdown of the country. Nevertheless through severe cost cutting initiatives, the profitability of MakTel was successfully retained. Overall, based on our successful start to the year, I am confident that our performance will be in line with the public targets we have set for 2003"

Fixed line: Stable results, new tariff packages and growing momentum in the ADSL market

Fixed line revenues were broadly unchanged at HUF 82.2 bn with an EBITDA margin of 40.3%. Domestic and international traffic revenues combined fell by 4.1%. Leased line and data revenues continued to grow by 14.0%, driven by volume growth in ADSL and Internet subscribers. Fixed line penetration slightly declined to 38.1% (from 39.2% a year ago) with a marginal reduction in the total number of lines. Nevertheless the number of ISDN channels increased to 515,960, showing 7.9% growth since end-March, 2002 The total number of our customized packages represented approximately 37% of the total number of lines at the end of the first quarter 2003 By the end of March 2003, 18.0% of Matáv's total fixed lines were ISDN channels. The Company was successful in broadband applications, with the number of installed ADSL lines growing by over 30% since December 2002 to 44,486 by the end of March 2003 Matáv's Internet subsidiary, Axelero maintained its leading position among ISPs in the dial-up market with a market share of approximately 43%.

Mobile: Strong financial performance despite intense competition

Mobile segment revenues rose by 8.4%. EBITDA increased by 31% to HUF 24.8 bn, while the EBITDA margin reached 43.0%. Operating profit rose strongly to HUF 15.3 bn from HUF 10.5 bn in the same period last year, and operating profit margin grew 6.8 percentage points to 26.6%. Westel preserved its leading position in a stable mobile market characterized by intense competition, maintaining its customer base at 3.4 million at the end of March 2003 Westel's GSM market share was 48.2%, showing a slight decline due to Westel's relatively higher entry barriers and increased tariff competition. At the end of the first quarter, prepaid customers represented nearly 75% of the total customer base. Average acquisition cost per customer fell by 21.6% to HUF 11,854 in Q1 2003 from HUF 15,117 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) show a general declining tendency, compared to the last quarter of 2002 they have decreased mainly due to seasonality, resulting in an ARPU of HUF 5,059 and a MOU of 103 in Q1 2003 Enhanced services (mainly SMS) within ARPU reached HUF 534 (10.6% of total), showing an impressive development compared to HUF 437 (7.2% of total) in Q1 2002 The churn rate in the postpaid segment was successfully limited to 15.7% in Q1 2003

International: Top line hit, but profitability successfully preserved

International revenues declined by 3.2% to HUF 15.6 bn driven by a decrease in mobile equipment sales and a decrease in international traffic revenues due to both lower prices and usage. This was partially offset by higher subscription revenues as a result of higher subscription fees for analog lines. Mobile revenues were stable, driven by an increased customer base, which compensated for the lower MOU. Responding to limitations in revenue growth, the company strongly focused on expenditures. MakTel reduced consultancy, marketing fees and maintenance expenses. In line with lower sales, cost of telecommunications equipment sales declined to HUF 0.5 bn. Employee-related expenses were broadly unchanged at HUF 2.1 bn. Due to lower traffic, payments to other network operators also fell. EBITDA reached HUF 8.7 bn with the EBITDA margin strong at 55.9%. Fixed line penetration in Macedonia was around 29%, and mobile penetration grew to 19% at the end of March 2003 Fixed line customers reached 604,482, up 7.3% from a year earlier. Within this, analog subscribers grew by 6.3% to 579,942 and ISDN channels rose significantly by 37.2% to 24,540. The mobile customer base increased by 46.1% to 386,133. The number of Internet subscribers reached 37,425 at the end of the first quarter of 2003 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 March 31, 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 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, 2002 filed with the U.S. Securities and Exchange Commission.