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Investor Releases

Matáv full year 2003 results

2003 full year results: financial targets met, leading positions in the key businesses maintained

BUDAPEST - February 11, 2004 - Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the full year of 2003, according to International Financial Reporting Standards (IFRS)

Highlights:

  • Revenues grew by 2.8% to HUF 607.3 bn (EUR 2,396.2 m) in 2003 compared to 2002 mainly driven by higher mobile and data transmission revenues, partly offset by a decline in revenues from domestic and international traffic, and lower other usage.
  • EBITDA increased by 2.2% to HUF 250.4 bn, with EBITDA margin reaching 41.2%.
  • Gross additions to tangible and intangible assets reached HUF 88.3 bn. Of this, the portion due to the fixed segment reached HUF 38.2 bn, with mobile at HUF 35.5 bn and MakTel reporting HUF 14.6 bn.
  • Fixed line segment: revenues declined by 3.5%; EBITDA margin was maintained at 35.7%.
  • Mobile segment: revenues grew by 9.3% mainly driven by higher traffic, enhanced service revenues and equipment sales. EBITDA margin was 37.4% in 2003. Westel reinforced its leading position with its market share reaching 47.4% at the end of December 2003.
  • International segment: revenues grew by 3.6% with EBITDA margin reaching an impressive 56.4%. Continuous cost-cutting helped to increase EBITDA to HUF 39.5 bn from HUF 36.8 bn in the same period last year.
  • Group operating profit was stable and stood at HUF 122.1 bn although net income declined to HUF 57.5 bn (EUR 226.8 m). This was mainly due to the significant increase in net interest and other charges (due to an increase in net FX losses resulting from the weakening of the forint). In line with its financing strategy, Matáv prepaid its FX denominated EIB loan in the fourth quarter. The cost of the prepayment was at market rates. The transaction resulted in an elimination of FX exposure from the debt portfolio, with the additional benefit of ensuring increased flexibility and transparency of the portfolio.
  • Net cash from operating activities remained stable at HUF 198.1 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 fell to HUF 94.7 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 92.0 bn, mainly explained by an increase in dividends paid to shareholders in 2003.
  • Net debt has been reduced by HUF 73.1 bn since the end of December 2002 resulting in a lower net debt ratio (net debt to net debt plus equity plus minority interest) of 31.6% compared to 38.8% at the end of the fourth quarter in 2002.

Elek Straub, Chairman and CEO commented: "Reporting today 2.8% revenue growth, an EBITDA margin of 41.2% and gross additions to tangible and intangible assets at 88.3 billion forints, shows that we have successfully achieved our financial targets for 2003. In the fixed line segment, by the end of the year, we achieved a noticeable reduction in the line erosion. A further significant success was the installation of over 100,000 ADSL lines by the end of December. In the mobile business, Westel maintained its leading position despite facing strong competition. Finally our international subsidiary, thanks to efficiency improvements and rigorous cost control, reported another successful year in 2003. In 2004, we will continue our headcount rationalisation steps. By end of the year, we aim to reduce Group level headcount by almost 400 compared to the closing figure for 2003. In terms of the overall outlook for the full year 2004, under the current regulatory environment, we anticipate that revenues at Matáv Group will be in the region of 600 billion forints. We are targeting an EBITDA margin in the region of 40% for full year 2004. Planned gross additions to tangible and intangible assets for 2004 excluding UMTS related additions and potential acquisitions are around 90 billion forints. Depreciation and amortisation is likely to be in the range of 133-135 billion forints this year. In addition, by end-2004 we aim to stop net fixed line erosion maintaining end-2003 levels of line numbers. Looking further ahead, Matáv is now finalising its mid-term strategic plan and targets and expects to announce further details in due course."

Fixed line: Reduced line erosion, over 100,000 ADSL lines, attractive new packages

Fixed line revenues fell to HUF 324.6 bn with EBITDA margin at 35.7%. Domestic and international traffic revenues combined fell by 7.8%. At the same time, leased line and data revenues continued to grow, and were up by 15.4%, driven by volume growth in ADSL and increased Internet subscribers. Matáv's fixed line penetration was down slightly at 37.7% (from 38.4% a year ago) with a 1.8% reduction in the total number of lines. At the same time, line number erosion slowed. The total number of lines remained more or less stable, falling by only 0.2% in the fourth quarter. By the end of 2003, 18.6% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented almost half of the total number of lines with more than 1.4 million lines for these packages at the end of December 2003. The Company fulfilled its target for the year with 103,564 ADSL lines by the end of 2003, more than three times the respective figure for year-end 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 210,680 Internet subscribers at the end of December 2003 (up by 40.5% year-on-year).

Mobile: improved customer retention and stable market position

Mobile revenues increased by 9.3%. EBITDA increased by 8.1% to HUF 94.9 bn, while the EBITDA margin was 37.4%. Westel preserved its leading position in a strongly competitive market with a 47.4% market share, whilst GSM penetration reached 78.5% at end-2003. Westel's customer base was 3.8 million by the end of the year 2003. At the end of the fourth quarter, the number of post-paid customers increased to 26.1% of the total customer base, compared with 25.0% at end-2002. Average acquisition cost per customer fell by 8.4% to HUF 12,353 in 2003 from HUF 13,490 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. MOU (monthly average minutes of use per subscriber) grew continuously in each quarter of 2003, resulting in a MOU of 114 for the full year. ARPU (monthly average revenue per user) was HUF 5,261 in 2003. The revenue derived from enhanced services (mainly SMS) grew to HUF 585 (11.1% of total ARPU), showing a steady development compared to HUF 549 (9.6% 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 12.0% in 2003. The churn rates at both pre-paid and post-paid segments showed a continuous decline during the quarters in this year.

International: solid financials in 2003

International revenues grew by 3.6% to reach HUF 70.0 bn in 2003. As a result of higher subscription fees for analog lines, subscription revenues rose, as did domestic traffic revenues. However, these were partially offset by a fall in international traffic revenues. At the same time, MakTel achieved effective cost control throughout the year. Volume-related expenses, such as payments to other network operators were also reduced. As a result, EBITDA improved by 7.3% to reach HUF 39.5 bn with a strong EBITDA margin of 56.4%. Fixed line penetration in Macedonia was around 29%, and mobile penetration rose to 29% at the end of the year compared to 18% in 2002. The number of fixed line customers grew to 619,236, up by 4.2% from the previous year's figure. Within this, analog subscribers grew moderately by 2.3% to 584,714. ISDN channels, however, showed a more pronounced, 54.5% growth to 34,522. The mobile customer base rose by 42.9% to 523,664. MakTel's mobile market share stood at 86% at end-2003. The number of Internet subscribers at the end of the fourth quarter of 2003 reached 49,040 (up by 43.3% 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 December 31, 2003 include MagyarCom GmbH, owned by Deutsche Telekom AG (59.21%). The remainder, 40.79% is publicly traded.

This investor news 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.