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Budapest, August 7, 2008
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 six months of 2008, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Christopher Mattheisen, Chairman and CEO commented:
“Our solid
performance in the first half of 2008 shows the results of our strong
commitment to increasing efficiency across the Group through a new management
structure and reduced headcount. Following a 13.9% reduction in overall
headcount against our 15% target for 2008, the headcount reduction program is
already over 90% completed.
While in Macedonia
and Montenegro it is the
voice market, which remains the main source of competition, in Hungary
our competitors’ emphasis is more on TV and broadband service offerings. While
at T-Mobile Hungary
mobile broadband has become the key growth driver fuelling value added service
revenue growth, in the fixed line segment growth in internet revenues slowed
down significantly and fixed line churn increased further. In response to this
industry dynamic, the T-Home rebranding starting this autumn will align our
product portfolio with the integrated corporate structure, allowing us to
leverage our full range of services. Our ultimate aim, through an increased
focus on double and triple play services, is to reposition Magyar Telekom as a
fully integrated service provider with improved service quality.”
Group:
T-Com
Revenues before elimination fell by 2.7% to HUF 75.0
bn in Q2 2008 compared to the same period last year,
while EBITDA margin was 41.6%.
T-Mobile
Revenues before elimination increased by 2.1% to
HUF 86.7 bn in the second quarter this year compared to the same period in
2007; EBITDA margin was 46.5%.
T-Systems
Revenues before elimination increased by 24.8% to HUF 23.6 bn driven by the reversal of provisions
related to fixed to mobile traffic revenues in the amount of HUF 5.3 bn. Revenues excluding this one-off item
were down by 3.5% due to strong mobile substitution driven by competitive
mobile offers. SI/IT revenues were slightly up thanks to the higher number of
projects realized in the second quarter. EBITDA more than doubled to HUF 9.5 bn thanks to the reversal of provisions and
EBITDA margin was 40.3% in Q2 2008. EBITDA also included HUF 0.3 bn of severance expenses.
Group Headquarters and
Shared services
Revenues
before
elimination were down by 7.1% to HUF
5.6 bn. EBITDA decreased by 11.1% to HUF
-5.6 bn due to the higher investigation-related expenses this year (HUF
1.0 bn in Q2 2007 compared to HUF 1.9 bn in Q2 2008), partly offset by
lower
employee-related expenses thanks to the reduced headcount number.
As previously
disclosed, in the course of conducting their audit of Magyar Telekom’s 2005
financial statements, PricewaterhouseCoopers Könyvvizsgáló és Gazdasági
Tanácsadó Kft. (“PwC”) identified two contracts the nature and business purposes
of which were not readily apparent to them. In February 2006, the Company’s
Audit Committee retained White & Case, as its independent legal counsel, to
conduct an internal investigation into whether the Company had made payments
under those, or other contracts, potentially prohibited by U.S. laws or regulations, including
the Foreign Corrupt Practices Act (“FCPA”), or internal Company policy. The
Company’s Audit Committee also informed the U.S. Department of Justice (“DOJ”)
and the U.S. Securities and Exchange Commission (“SEC”), and the Hungarian
Supervisory Financial Authority of the internal investigation.
PwC initially raised
concerns regarding two consultancy contracts entered into in 2005 by our
Montenegrin subsidiaries, Crnogorski Telekom and T-Mobile Crna Gora. The
initial scope of the internal investigation involved review of these two
contracts.
Early in the investigation, two additional consultancy
contracts entered into by Magyar Telekom in 2005, were also called into
question by the investigating law firm. As a result, our Audit Committee
expanded the scope of the internal investigation to cover these contracts and
related activities.
In December 2006,
the investigating law firm delivered an Initial Report of Investigation to the
Audit Committee and the Board of Directors. As of the date of the Initial
Report, the independent investigators were unable to find sufficient evidence
to show that any of the four contracts subject of the internal investigation of
the Company’s Montenegrin operations resulted in the provision of services to
the Company or to our subsidiaries under those contracts of a value
commensurate with the payments the Company made under those contracts. As of
the date of the Initial Report, the independent investigators were unable to
determine definitively the purpose of those contracts, and it is possible that
the contracts may have been entered into for an improper purpose, and in
particular may have been in violation of the FCPA, other U.S. laws or regulations, and/or
internal Company policy. The Audit Committee, through its counsel, has informed
the DOJ and the SEC of these initial findings.
The independent
investigators also identified several additional contracts entered into by our
Macedonian subsidiary that warranted further review. In February 2007, the
Company’s Board of Directors and Audit Committee determined that those
contracts and any related or similarly questionable contracts or payments,
should be reviewed, and the Board and Audit Committee expanded the scope of the
internal investigation to cover those matters. The internal investigation is
continuing. In May 2008, the independent investigators provided us with a
“Status Report on the Macedonian Phase of the Independent Investigation.” In
the Status Report, White & Case stated, among other things, that “there is
affirmative evidence of illegitimacy in the formation and/or performance” of
six contracts for advisory, marketing, acquisition due-diligence and/or
lobbying services in Macedonia, entered into between 2004 and 2006 between us
and/or various of our affiliates on the one hand, and a Cyprus-based consulting
company and/or its affiliates on the other hand, under which we and/or our
affiliates paid a total of over EUR 6.7 million.
The Company and the
internal investigating law firm are in regular contact with the Hungarian
Financial Supervisory Authority, the Hungarian National Bureau of
Investigation, the DOJ and the SEC, regarding the internal investigation. These
U.S. and Hungarian
authorities have opened their own investigations concerning at least the
transactions which are the subject of the Company’s internal investigation, to
determine whether there have been violations of U.S. and Hungarian law (the
“Government investigations”). During 2007, the DOJ and the SEC expanded the
scope of their investigations to include inquiry into the actions taken by the
Company in connection with the internal investigation and the Company’s public
disclosures regarding the internal investigation. The Company is committed to
cooperating with these investigations by responding to requests for documents
and information from these authorities to the fullest extent allowed under
applicable law.
The Company cannot
predict when the internal investigation or the Government investigations will
be concluded, what the final outcome of those investigations may be, or the
impact, if any, they may have on the Company’s financial statements or results
of operations. The Hungarian authorities, the DOJ or the SEC could seek
criminal or civil sanctions, including monetary penalties, against Magyar
Telekom, as well as additional changes to its business practices and compliance
programs.
As a consequence of
the internal investigation, the Company has suspended a number of employees,
including senior officers of the Company and of certain subsidiaries,
respectively, whose employment have since been terminated. The Crnogorski
Telekom Board of Directors has also been replaced as a result of the internal
investigation.
As a result of the
investigations the Company and some of our subsidiaries 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. To date, the Company
has been fined HUF 13 million as a consequence of previous delays related to
the investigations. The Company is unable to estimate either the amount of any
additional fines or the costs, in general, it could incur in relation to the
investigation.
Magyar Telekom
incurred HUF 3.4 bn expenses relating to the investigation in the first half of
2008, which are included in other operating expenses in the Group Headquarters
and Shared services segment.
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 Makedonski Telekom, 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 June
30, 2008 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, 2007 filed with the U.S. Securities and Exchange Commission.