Budapest, May 10, 2007
Magyar Telekom (Reuters: NYSE: MTA.N, BSE: MTEL.BU and Bloomberg: NYSE: MTA US, BSE: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first three months of 2007, in accordance with International Financial Reporting Standards (IFRS).
Starting from this 1Q07 flash report, Magyar Telekom will change its previously applied segment disclosure as a result of the change in the management structure of Group. Reported segments are consistent with information used by management for internal reporting and monitoring purposes. The segments are based on the business lines (T-Com, T-Mobile, T-Systems and Headquarter and shared services), which include both Hungarian and foreign activities. In addition, the Company’s secondary format for reporting segment information is geographical segments. The T-Com segment includes the fixed line operations in Hungary, Macedonia and Montenegro, as well as the alternative and wholesale operations in Romania, Bulgaria and Ukraine. The T-Mobile segment consists of the mobile operations in Hungary, Macedonia and Montenegro; Pro-M’s TETRA services are also consolidated here. T-Systems segment includes the corporate services in Hungary. The Headquarters and Shared services segment performs strategic and cross-divisional management functions for the Magyar Telekom Group, as well as real estate, marketing, security, procurement, human resources and accounting services, mainly for internal services within the Group. The sum of the financial results of the four segments presented below does not equal to the group financial results because of intersegment eliminations.
Highlights:
Christopher Mattheisen, Chairman and CEO commented: “The key drivers of the solid Group-level top line growth in the first quarter were the consolidation impact of our recently acquired companies in the Hungarian IT & system integration sector and revenues related to the TETRA service. EBITDA slightly decreased due to the increased costs driven by the investigation- and headcount reduction-related expenses. For the first time, our segmental results are presented using our new reporting structure, which offers better visibility of our businesses and is consistent with internal reporting and monitoring. In the T-Com segment, our focus remains on customer retention and broadband expansion. In the Hungarian market, we have doubled the speed of the ADSL packages since the beginning of the year and introduced naked ADSL in March to further boost broadband penetration. As a result, the broadband customer number and internet revenues continued to show strong growth. In the T-Mobile segment, despite the high penetration and intense competition, we were able to maintain our clear market leadership in Hungary. Despite the negative impact of the cut in mobile termination fees on our revenues, mobile revenues increased thanks to the higher traffic and increasing importance of mobile broadband services. The revenue contribution of our international mobile subsidiaries also grew. The strong growth of T-Systems segment revenues reflects the consolidation of the new subsidiaries, KFKI and T-Systems Hungary as well as the impact of new outsourcing agreements.”
T-Com
Revenues before elimination fell by 2.3% to
HUF 75.3 bn in Q1 2007 over the same period in 2006 and EBITDA margin
decreased to 40.6%.
T-Mobile
Revenues before elimination grew by 7.6% to HUF 80.8 bn; EBITDA margin was 42.7%.
T-Systems
Revenues before elimination increased by
36.4% driven by the consolidation effect of the new subsidiaries. KFKI
and T-Systems Hungary contributed HUF 5.3 bn revenues and HUF 0.7 bn
EBITDA in the first quarter of 2007. The positive trend in revenues was
supported by new outsourcing agreements and the governmental electronic
tax filing project. Excluding the new subsidiaries, revenues decreased
by 3.8%, driven by the continuous pressure on voice tariffs and
increasing mobile substitution. The segment’s EBITDA was flat and
EBITDA margin was 23.1% in Q1 2007.
Headquarters and Shared services
Revenues before
eliminations were down by 8.5% driven by lower marketing and real
estate service revenues. EBITDA decreased by 21.3% to HUF -6.2 bn due
to higher employee related expenses driven by severance expenses.
As previously disclosed, in the course of conducting their audit of our 2005 financial statements, PricewaterhouseCoopers Könyvvizsgáló és Gazdasági Tanácsadó Kft. (“PwC”) identified two contracts the nature and business purposes of which were not readily apparent. In February 2006, our Audit Committee initiated an independent investigation into this matter. In the course of the investigation, two further contracts entered into by Magyar Telekom Plc. were potentially raising concerns. To date, the independent investigators have been unable to find sufficient evidence to show that any of the four contracts under investigation resulted in the provision of services to us or to our subsidiaries under those contracts of a value commensurate with the payments we made under those contracts. The independent investigators have been unable to determine definitively the purpose of the contracts, and it is possible that the purpose may have been improper. The independent investigators further identified several contracts at our Macedonian subsidiary that could warrant further review. In February 2007, our Board of Directors determined that those contracts should be reviewed and expanded the scope of the independent investigation to cover these additional contracts and related transactions. We have approved and are currently implementing certain remedial measures designed to enhance our internal controls to ensure compliance with Hungarian and U.S. legal requirements and NYSE listing requirements. As previously reported, the investigation delayed the finalization of our 2005 financial statements, and as a result we and some of our subsidiaries have failed and may fail to meet certain deadlines prescribed by U.S., Hungarian and other applicable laws and regulations for preparing and filing audited annual results and holding annual general meetings. We have to date been fined HUF 13 million as a consequence of these delays. We have notified the Hungarian Financial Supervisory Authority, the U.S. Securities and Exchange Commission and the U.S. Department of Justice of the investigation, are in regular contact with these authorities regarding the investigation and are responding to inquiries raised by these authorities.
About Magyar Telekom
Magyar Telekom is the
principal provider of telecom services in Hungary. Magyar Telekom
provides a broad range of services including traditional fixed line and
mobile telephony, data transmission, value-added, IT and system
integration services. Magyar Telekom owns the majority of the shares of
MakTel, the sole fixed line operator and its subsidiary T-Mobile
Macedonia, the leading mobile operator in Macedonia. Magyar Telekom has
a majority stake in Crnogorski Telekom. This Group provides fixed,
mobile and Internet services in Montenegro. Key shareholders of Magyar
Telekom as of March 31, 2007 include MagyarCom Holding GmbH (59.21%),
owned by Deutsche Telekom AG. 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, 2005 filed with the U.S. Securities and Exchange Commission.