Budapest, November 6, 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 nine months of 2008, in accordance with International
Financial Reporting Standards (IFRS).
Highlights:
Christopher Mattheisen, Chairman and CEO commented:
“While the first half of 2008 was dedicated to exploiting
the potential from efficiency improvements, the third quarter was marked by a
very focused marketing presence in line with our rebranding campaign launched
in Hungary in
September. The T-Home rebranding was coupled with an intensive advertising
campaign and the introduction of several new offers in the Hungarian market.
The increased promotional efforts are necessary to retain our customers in the
fixed line segment and further increase the number of broadband customers, both
in the fixed line and mobile markets. The integration of our operations,
effective since the beginning of this year, has enabled us to exploit our
unique position in the Hungarian market and launch bundled packages including
triple play and fixed-mobile offers. We also launched the 3G-enabled iPhone with
great success in August. Additionally, the recently announced fibre rollout
program financed as part of our normal capex plans will help us to further
improve the quality of our product offering in the future.
Although the third
quarter results already reflect the difficulties we face in all our markets, we
maintain our flat revenue target announced for this year and are revising our
underlying EBITDA target (EBITDA excluding investigation- and
headcount-reduction related expenses) upwards from a slight decline to flat
compared to 2007. Both revenues and underlying EBITDA include the reversal of
provisions related to fixed to mobile traffic revenues accounted in the second
quarter this year.”
Group:
T-Com
Revenues before elimination fell by 9.4% to HUF 71.0 bn in Q3 2008 compared to the same period last year, while EBITDA margin was 40.9%.
T-Mobile
Revenues before elimination decreased by 2.5% to HUF 89.7 bn in the third quarter this year compared to the same period in 2007; EBITDA margin was 44.9%.
T-Systems
Revenues before elimination declined by 4.8% to HUF 18.9 bn. Due to the postponement of some major projects, SI/IT revenues were down by 2.5% in the third quarter of 2008, while voice revenues further declined mainly due to mobile substitution. Thanks to the integration efforts and improved operational efficiency, EBITDA was up by 32.2% to HUF 4.6 bn and EBITDA margin was 24.5% in Q3 2008. EBITDA was also helped by a one-time correction of earlier classification of costs by transferring voice-related payments from T-Systems to T-Com in the amount of HUF 0.5 bn in the third quarter.
Group Headquarters and Shared services
Revenues before elimination were down by 4.4% to HUF 5.5 bn. EBITDA increased by 16.7% to HUF -4.4 bn due to lower investigation-related expenses this year (HUF 0.5 bn in Q3 2008 compared to HUF 1.8 bn in Q3 2007) and the headcount reduction related severance expenses of HUF 0.7 bn accounted in Q3 2007.
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 relating to the operation of
Magyar Telekom Group (“the Company”) in Montenegro, 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 or any of its
subsidiaries 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”), 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 law enforcement authority of the Republic of Macedonia, the
DOJ and the SEC, regarding the internal investigation. These U.S., Macedonian 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.,
Macedonian and/or 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. From May 2008 to
date, the Ministry of Interior of the Republic of Macedonia has requested
information and documents concerning procurement and dividend payment activities
in Macedonia of Magyar Telekom’s Macedonian subsidiaries.
The Hungarian
National Bureau of Investigation has informed us that it has closed its
investigation as of May 20, 2008 without identifying any criminal activity.
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. Government authorities 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.
Magyar Telekom
incurred HUF 3.9 bn expenses relating to the investigation in the first three
quarters of 2008, which are included in other operating expenses in the Group
Headquarters and Shared services (“GHS”) 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 September 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.