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Budapest, February 14, 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 2007, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Christopher Mattheisen, Chairman and CEO commented:
“Despite the challenging macro and competitive environment, we are
pleased to report strong 2007 results. We have not just met but in some
cases exceeded our public targets set for last year: revenues were
maintained and underlying EBITDA (EBITDA excluding investigation- and
headcount-reduction related expenses) even slightly increased.
Excluding the GSM licence extension fee, the capex to sales ratio also
stayed below 14%, in line with our guidance.
Regarding the
quarterly performance, revenues were down due to the high TETRA
revenues accounted in 2006, and EBITDA margin was 24%. Profitability in
the fourth quarter was heavily impacted by the increased marketing
activity and customer acquisition campaigns launched to strengthen our
leading position in all market segments. Besides increased acquisition
costs, headcount reduction-related expenses further decreased the
reported EBITDA level. As announced in November, we aim to decrease the
Group-level headcount by 15% by the end of this year, and accounted HUF
19 bn in related costs for this in the fourth quarter of 2007.
Excluding investigation- and headcount reduction-related expenses,
EBITDA margin was 36% in the last quarter.
The headcount reduction
is part of our overall aim to simplify the group structure and increase
efficiency. The new organizational structure, focusing on customer
segments, has been in force since 1st of January this year. We have
also made significant improvements in reducing the number of
subsidiaries: we have merged Emitel and the access business of T-Online
into the parent company and have also decreased the number of
subsidiaries at the T-Systems unit from six to two.
Looking
forward to 2008, we are targeting stable revenues and a slight decline
in underlying EBITDA compared to 2007. The main factors that are
expected to impact underlying EBITDA are the increased competition in
the international mobile markets, the difficult Hungarian macroeconomic
environment and regulatory impacts. Regarding gross additions to
tangible and intangible assets, we target a capex to sales ratio of
around 15%, reflecting our commitment towards increasing the fixed and
mobile broadband coverage as well as developing new products and
services.”
Fourth quarter 2007 results: strong focus on customer acquisition
T-Com
Revenues before elimination fell by 2.0% to HUF 77.0 bn in Q4 2007 while EBITDA margin was 23.8%.
T-Mobile
Revenues before elimination declined
by 6.9% compared to the same period in 2006, to HUF 89.1 bn in Q4 2007;
EBITDA margin was 38.8%.
T-Systems
Revenues before elimination increased
by 0.2% to HUF 22.2 bn, while the segment’s EBITDA decreased to HUF 0.3
bn and EBITDA margin was 1.2% in Q4 2007. The segment’s
headcount-reduction related expenses reached HUF 1.5 bn in the fourth
quarter. KFKI Group and T-Systems Hungary contributed HUF 8.9 bn in
revenues and HUF -0.6 bn EBITDA to the segment results in Q4 2007.
Operating costs of T-Systems Hungary in 2007 also include a HUF 1.5 bn
bad debt expense reflecting the likely loss to be incurred as a result
of the early termination of a long term IT outsourcing contract by a
large T-Systems customer.
Headquarters and Shared services
Revenues before
elimination were down by 17.3% to HUF 6.3 bn driven by lower marketing
and real estate service revenues. EBITDA decreased by 89.1% to HUF
-12.3 bn due to higher headcount reduction-related expenses (HUF 5.6 bn
in Q4 2007 against HUF 1.1 bn in Q4 2006) and higher
investigation-related expenses (HUF 2.0 bn in Q4 2007 compared to HUF
0.9 bn in Q4 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 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 subsidiaries 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 have been 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. To date, we have been fined HUF 13 million as a consequence of these delays. The Hungarian Financial Supervisory Authority, the Hungarian National Bureau of Investigation, the U.S. Securities and Exchange Commission and the U.S. Department of Justice have been informed of the investigation. The Company is in regular contact with these authorities regarding the investigation and are also responding to inquiries raised by and the investigations being conducted by these authorities under U.S. and Hungarian law. 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 document requests have been issued. Magyar Telekom incurred HUF 5.7 bn expenses relating to the investigation in 2007, which are included in other operating expenses in the Headquarters (“HQ”) 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
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 December 31, 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.