Budapest, May 8, 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 three months of 2008, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Christopher Mattheisen, Chairman and CEO commented: “I am happy to announce strong first quarter results for 2008, with an underlying EBITDA growth (EBITDA excluding investigation- and headcount-reduction related expenses) of 3.9% and an underlying EBITDA margin of 43.4%. Although the results were helped by real estate sales in Hungary and Macedonia, the benefits of the restructuring and the savings from the headcount reduction have clearly had a positive influence on our profitability. We are proceeding with the headcount reduction program according to plan: between 1 st of July 2007 and the end of March 2008, the Group level headcount decreased by 11%, which is over 70% of the headcount reduction targeted for the end of this year. Regarding segment performance, the T-Com segment in Hungary is faced with a continuous decline in voice traffic and a slowdown in broadband growth, although in Macedonia and Montenegro, strong growth in internet revenues was able to offset the declining traffic revenues. Within the T-Mobile segment, growth is driven mainly from the international operations, although the entrance of a third operator put significant pressure on the Montenegrin margins. The T-Systems segment showed strong growth through the realization of several SI/IT contracts, with segment margins also improving.”
T-Com
Revenues before elimination fell by 3.4% to HUF 72.7
bn in Q1 2008 compared to the same period last year, while
EBITDA margin was 45.6%.
T-Mobile
Revenues before elimination increased by 1.9% in the
first quarter this year compared to the same period in 2007 to HUF 82.3 bn; EBITDA
margin was 43.0%.
T-Systems
Revenues before elimination increased by 5.3% to HUF 18.9 bn thanks to strong growth in SI/IT
revenues which compensated for the declining fixed line revenues. SI/IT
revenues were driven by several major projects realized in the first quarter,
mainly data network upgrades and data warehouse developments at leading
Hungarian banks. EBITDA was up by 24.7% to HUF
5.2 bn and EBITDA margin was 27.4% in Q1 2008.
Group Headquarters and
Shared services
Revenues
before
elimination were down by 7.8% to HUF
5.3 bn. EBITDA improved by 22.1% to HUF
-4.8 bn due to the headcount reduction-related expenses accounted in Q1
2007 (HUF 1.1 bn) and the related cost savings in Q1
2008, partly offset by higher investigation-related expenses this year
(HUF 0.9 bn in Q1 2007 compared to HUF 1.5 bn in Q1 2008). Gains on
real estate sales
led to a further, HUF 0.7 bn increase in EBITDA in the first quarter
compared
to the same period last year.
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.
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 1.5 bn
expenses relating to the investigation in the first quarter 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 March 31, 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, 2006 filed with the U.S. Securities and Exchange Commission.