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Investor Releases

Matáv first nine months 2003 results

Improved mobile churn rates, impressive results at MakTel, reduced fixed line erosion during the first three quarters of 2003

BUDAPEST - November 13, 2003 - 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 2003, according to International Financial Reporting Standards (IFRS).

Summary:

  • Revenues grew by 3.1% to HUF 452.1 bn (EUR 1,797.8 m) in the first nine months of the year over the same period in 2002. Key drivers were higher mobile, leased line and data transmission revenues, partly offset by a decline in revenues from domestic and international traffic, and lower other usage.
  • EBITDA increased by 3.1% to HUF 194.9 bn, resulting in EBITDA margin being maintained at a strong 43.1%.
  • Fixed line segment: revenues reduced by 2.6%; EBITDA margin was 38.0%.
  • Mobile segment: revenues grew by 10.0% mainly driven by higher traffic revenues and enhanced services. EBITDA margin was 38.8% in the first nine months of 2003. Westel customer numbers were up to 3.6 million at the end of September 2003.
  • I nternational segment: revenues rose by 3.2% and EBITDA margin grew to 56.2%. Strict cost-cutting helped to increase EBITDA to HUF 28.9 bn from HUF 26.3 bn in the same period last year.
  • Group operating profit grew slightly to HUF 101.6 bn although net income fell to HUF 51.8 bn (EUR 205.9 m). This was mainly due to the significant increase in net interest charges (due to an increase in net FX losses resulting from the weakening of the Forint).
  • Net cash from operating activities increased to HUF 153.1 bn due to a higher EBITDA and favourable changes in working capital requirements (driven mainly by a change in trade payables), partly offset by slightly higher interest paid. Net cash utilized in investing activities decreased to HUF 61.5 bn. This was due to lower gross additions to tangible and intangible assets (primarily at MakTel) and the change in capex payables. Net cash used in financing activities amounted to HUF 81.5 bn, driven by continuous debt repayments and an increase in dividends paid to shareholders in the first nine months of 2003.
  • Net debt has been reduced by HUF 81.1 bn since the end of September 2002 resulting in a lower net debt ratio (net debt to net debt plus equity plus minority interest) of 32.8% compared to 40.5% at the end of the third quarter in 2002.

Elek Straub, Chairman and CEO commented: "I am pleased to report healthy Group results for the first nine months of 2003, achieved in spite of an environment of strong competition across all segments. In the fixed line segment, our tariff packages visibly helped to slow down line erosion; with our mobile operations, Westel achieved the right balance between market share and profitability in the highly competitive Hungarian wireless market, and I am also pleased to say that at our international company, MakTel, revenues grew whilst costs remained under tight control. At the parent company, during the third quarter we signed an agreement with the Trade Union regarding 2004 wage increases. Accordingly, we can report that impact of the average wage increase for next year will be 5.3% at Matáv Rt. Finally, in terms of the overall outlook for the full year 2003, we believe that our existing public guidance in terms of revenue growth and gross additions to tangible and intangible assets is realistic for the full year. We are, however, adjusting our EBITDA margin forecast for 2003 to above 40%."

Fixed line: Slowdown in line erosion, successful tariff packages and impressive ADSL rollout programs

Fixed line revenues fell to HUF 245.4 bn with EBITDA margin at 38.0%. Domestic and international traffic revenues combined fell by 6.9%. Nevertheless, leased line and data revenues continued to grow, and were up by 14.6%, driven by volume growth in ADSL and increased Internet subscribers. Matáv's fixed line penetration was down slightly at 37.8% (from 38.7% a year ago) with a 2.3% reduction in the total number of lines. At the same time however, line number erosion slowed down with the total number of lines remaining more or less stable, falling by only 0.3% in the third quarter. The number of ISDN channels increased to nearly 528,000, representing 5.1% year-on-year growth. By the end of September 2003, 18.6% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented around 47% of the total number of lines with more than 1.3 million lines for these packages at the end of September 2003. The Company continued to invest in broadband and as a result had 72,351 ADSL lines by the end of the third quarter, representing 113% growth since December 2002. Matáv's Internet subsidiary, Axelero, retained its leading position among ISPs in the dial-up market with a market share of around 44%. The Group had a total of 184,855 Internet subscribers at the end of September 2003 (up by 29.6% year-on-year).

Mobile: continuously declining churn rates in 2003, growing post-paid customer base

Mobile revenues increased by 10.0%. EBITDA increased by 10.7% to HUF 72.9 bn, while the EBITDA margin was 38.8%. Operating profit rose to HUF 43.5 bn from HUF 39.7 bn in the same period last year. Westel maintained its market leading position, growing its customer base to nearly 3.6 million by the end of September 2003 in a market that while slightly enlarged (with 74.8% GSM penetration), remains strongly competitive. Westel's GSM market share was 47.4%. At the end of the third quarter, prepaid customers represented 74.4% of the total customer base. Average acquisition cost per customer fell by 11.7% to HUF 12,727 in the first nine months of the year from HUF 14,406 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) grew in the third quarter compared to the first and second quarters of 2003, resulting in an ARPU of HUF 5,278 and a MOU of 112 in the first nine months of the year. The revenue derived from enhanced services (mainly SMS) grew to HUF 571 (10.8% of total ARPU), showing a steady development compared to HUF 533 (9.2% of total ARPU) in the same period last year. The churn rate in the post-paid segment was successfully kept at the relatively low level of 12.8% in the first nine months of 2003. The churn rates at both pre-paid and post-paid segments showed a continuous decline during the quarters in this year.

International: revenue growth, tight costs controls

International revenues increased by 3.2% to reach HUF 51.4 bn in the first nine months of 2003. As a result of higher subscription fees for analog lines, subscription revenues rose, as did mobile telecommunications service revenues. However, these were partially offset by a fall in international traffic revenues due to both lower prices and usage. At the same time, MakTel continued its strict cost control policy. Volume-related expenses, such as payments to other network operators were also reduced. As a result, EBITDA improved by 10.0% to reach HUF 28.9 bn with an impressive EBITDA margin of 56.2%. Fixed line penetration in Macedonia was around 29%, and mobile penetration grew to 25% at the end of September 2003 compared to 16% a year ago. The number of fixed line customers grew to 615,390, up by 5.7% from the previous year's figure. Within this, analog subscribers grew by 4.2% to 585,312, and more significantly ISDN channels increased by 47.4% to 30,078. The mobile customer base rose by 43.9% to 459,586 and the number of Internet subscribers at the end of the third quarter of 2003 reached 45,324 (up by 53.9% 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 September 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.