Budapest, November 8, 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 nine months of 2007, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Third quarter 2007 results: strong cost control leads to improved profitability
Christopher Mattheisen, Chairman and CEO commented:
“The third quarter financials reflect our efforts to improve cost
efficiency within the Group with the EBITDA margin – excluding
investigation- and headcount reduction-related expenses – reaching
44.0%. EBITDA was further supported by the acquisitions in the SI/IT
segment and the TETRA services, showing 6% growth over the third
quarter of last year. Looking at the segment results, the T-Com segment
in Hungary shows a slowdown in revenue losses thanks to the broadband
revenue growth, while cost reductions resulted in slight EBITDA
increase. The T-Mobile segment was heavily supported by the good
performance of the international subsidiaries, while cost cutting
efforts were also visible at the Hungarian operations. At T-Systems,
the new acquisitions ensured EBITDA growth despite continuous decline
in voice revenues.
In addition to achieving strong financial
results, during the third quarter we were able to reach important
decisions regarding our new management structure and headcount
efficiency improvements, ensuring our competitiveness in the longer
term. The details of the new operational structure, which will focus on
customer segments, are being finalised, and will be introduced from the
beginning of 2008. The structure of our financial disclosure, however,
will remain the same for the next year. Finally, in line with our
strategy to create value through acquisition, we have decided to
participate in the privatization process of Telekom Slovenije. We filed
an indicative offer on 15th of October and I am pleased that we have
been shortlisted for the due diligence process.”
T-Com
Revenues before elimination fell by 3.6% to
HUF 78.3 bn in Q3 2007 over the same period in 2006 while EBITDA margin
increased to 42.5%.
T-Mobile
Revenues before elimination declined by 5.5% to HUF 92.1 bn; EBITDA margin was 46.4%.
T-Systems
Revenues before elimination increased by
46.9% to HUF 19.9 bn as the consolidation effect of the new
subsidiaries offset the declining traditional voice revenues. KFKI
Group and T-Systems Hungary contributed HUF 7.6 bn revenues and HUF 0.6
bn EBITDA to the segment results in Q3 2007. Excluding the new
subsidiaries, revenues decreased by 4.6%, driven by the continuous
pressure on voice tariffs and increasing mobile substitution. The
segment’s EBITDA increased by 9.0% to HUF 3.5 bn and EBITDA margin was
17.6% in Q3 2007.
Headquarters and Shared services
Revenues before
elimination were down by 3.8% to HUF 5.7 bn driven by lower marketing
service revenues. EBITDA decreased by 22% to HUF -5.3 bn due to
headcount reduction-related expenses of HUF 0.7 bn and higher
investigation-related expenses (HUF 1.8 bn in Q3 2007 compared to HUF
1.3 bn in Q3 2006).
As previously disclosed, in the course of conducting their audit of our 2005 financial statements, PricewaterhouseCoopers Könyvvizsgáló és Gazdasági Tanácsadó Kft. 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 and the investigations being conducted by these authorities. The U.S. Department of Justice has recently expanded the scope of its investigation to include the actions taken by the Company in response to the findings of and issues raised by the Company’s internal investigation and a related subpoena and further informal document requests have been issued.
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 leading 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 September 30, 2007 include MagyarCom Holding GmbH
(59.21%), owned by Deutsche Telekom AG. The remaining 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, 2006 filed with the U.S. Securities and Exchange Commission.