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Budapest, August 4, 2011 00:00
Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the leading Hungarian telecommunications service provider, has today reported its consolidated financial results for the first half of 2011, in accordance with International Financial Reporting Standards (IFRS).
Details of special influences, telecom tax and EBITDA performance (HUF bn) |
Q2 2010 | H1 2010 | Q2 2011 | H1 2011 |
Investigation-related costs and provisions | 0.8 | 1.3 | 10.6 | 11.0 |
Severance expenses | 0.4 | 1.5 | 0.3 | 1.8 |
Telecom tax | 0 | 0 | 6.3 | 12.7 |
Total Special Influence | 1.3 | 2.8 | 17.2 | 25.5 |
Reported EBITDA | 61.8 | 119.5 | 44.6 | 97.8 |
Underlying EBITDA | 63.1 | 122.3 | 61.8 | 123.3 |
Christopher Mattheisen, Chairman and CEO commented:
“Although
we have been successful in our efforts to maintain or in some cases to even
grow our market shares, the weakened Hungarian telecoms market and anemic recovery
in the general economy caused the declining revenue trends to continue into the
second quarter. While we will maintain our efforts to increase revenue
contribution from our growth services, this has not yet been able to offset
declining fixed line and mobile voice revenues. Our focus on cost discipline
continues to bear fruit and we were able to repeat our outstanding performance
in the first quarter by delivering a 43% underlying EBITDA margin again in the
second quarter.
We
are, however, cautious on the second half of the year and expect the
unfavorable economic environment to limit further household disposable income,
while the competitive environment is also expected to strengthen as we approach
the year end. Migration of subscribers to the Hoppá package continues to be
strong; however, as indicated previously, the positive retention effect will be
coupled with ARPA dilution for this year. Also, some of our expense lines are
expected to show an increase in the second half, including employee-related
expenses that will reflect wage increases implemented from July. Despite the
slight growth in underlying EBITDA for the first half of this year, we maintain
our guidance for an underlying EBITDA decline of 4-6% for 2011, although we now
expect this decline to be towards the more optimistic end of this range. Our
revenue target of a 3-5% decline and CAPEX reduction target of approximately 5%
remain unchanged.”
Revenues before inter-segment elimination fell by 3.2% to HUF 104.0 bn, EBITDA was down 26.1% to HUF 27.7 bn and EBITDA margin was 26.7% in the second quarter of 2011. Excluding special influences, which mainly includes the special telecom tax and the investigation-related costs and provisions, underlying EBITDA was down by 1.0% to HUF 44.0 bn in the second quarter of 2011 compared to the second quarter of 2010. The underlying EBITDA margin grew from 41.4% to 42.3% driven by a reduction in employee-related expenses and other operating expenses largely as a result of efficiency improvements. These reductions, coupled with lower levels of voice related payments, mainly reflecting a cut in Hungarian mobile termination rates in December 2010, almost fully offset the decline in high margin voice revenues.
Revenues before inter-segment elimination were down 9.8% to HUF 26.2 bn. EBITDA was up 6.5% to HUF 4.4 bn in the second quarter of 2011 and the EBITDA margin was 16.9%. Excluding special influences, which mainly includes the special telecom tax, underlying EBITDA declined by 5.5% to HUF 5.4 bn. The underlying EBITDA margin of 20.6%, up from 17.6% in the second quarter of 2010, reflected efforts to improve efficiency in light of the drop in high-margin voice revenues; the level of bad debts also significantly improved after the settlement of some outstanding bills in the public sector.
In Macedonia, revenues decreased by 13.1% to HUF 17.0 bn in the second quarter of 2011 compared to the same period in 2010, with EBITDA down 17.3%. The appreciation of the Hungarian forint had a slight negative effect on revenue contribution (on average, the Hungarian forint strengthened by 2.7% against the Macedonian Denar in the second quarter of 2011 compared with 2010). The EBITDA decline is due to the intense competition within mobile, resulting in significant pricing pressure and increasing level of handset subsidies: both these factors could not be offset by decreasing other operating expenses.
Revenues of the Montenegrin subsidiary stayed flat at HUF 7.8 bn in the second quarter of 2011. FX changes (on average, the Hungarian forint strengthened by 2.6% against the Euro in the second quarter of 2011 compared to the same quarter in 2010) had a slight negative impact on revenue contribution from the Montenegrin subsidiary. EBITDA increased by 14.5% to HUF 3.3 bn and the EBITDA margin improved from 36.6% to 41.8%. The increase in EBITDA was driven by lower employee related expenses after the headcount reduction in Q1 2011, further cost cutting achievements and improved debt collection.
Investigations into
certain consultancy contracts
As previously disclosed, the Company’s
Audit Committee conducted an internal investigation regarding certain contracts
relating to the activities of the Company and/or its affiliates in Montenegro
and Macedonia that totaled more than EUR 31 million. In particular, the
internal investigation examined whether the Company and/or its Montenegrin and
Macedonian affiliates had made payments prohibited by U.S. laws or
regulations, including the U.S. Foreign Corrupt Practices Act (the “FCPA”). The
Company has previously disclosed the results of the internal investigation. For
further information regarding the internal investigation, see the Company’s
annual report for the year ended December 31, 2010.
The United States Department of Justice
(the “DOJ”), the United States Securities and Exchange Commission (the “SEC”)
and the Ministry of Interior of the Republic of Macedonia commenced
investigations into certain of the activities that were the subject of the
internal investigation. Further, in relation to certain activities that were
the subject of the internal investigation, the Hungarian Central Investigating
Chief Prosecutor’s Office has commenced a criminal investigation into alleged
corruption with the intention of violating obligations in international
relations and other alleged criminal offenses. In addition, the Montenegrin
Supreme State Prosecutor is also investigating the activities of the Company
that were the subject of the internal investigation and has requested
information from the Company in relation to the relevant contracts. These
governmental investigations are continuing, and the Company continues to
cooperate with these investigations.
On June 24, 2011, Magyar Telekom
announced that its Board of Directors had approved an agreement in principle
with the staff of the SEC to resolve the SEC’s investigation of the Company’s
possible violations of the FCPA through a settlement. Pursuant to the agreement
in principle, the Company, without admitting or denying the allegations against
it, would consent to a U.S.
court order permanently enjoining it from any future FCPA violations and pay
disgorgement and a conditional civil penalty. The agreement in principle
reflects the SEC staff’s consideration of the Company’s self-reporting,
remediation and cooperation with the SEC’s investigation. The agreement in
principle is not a final settlement of the SEC’s investigation and the terms of
any final settlement would be subject to final approval by the Company’s Board
of Directors, the SEC and a U.S. District Court.
The Company continues to engage in
discussions with the DOJ regarding the possibility of resolving the DOJ’s
investigation of the Company through a negotiated settlement. The Company may
be unable to reach a negotiated settlement with the DOJ. Any resolution of the
DOJ investigation could result in criminal sanctions, including monetary
penalties, which could have a material effect on the Company’s financial
position, results of operations or cash flows, as well as require additional
changes to its business practices and compliance program. The Company cannot
predict whether or when a resolution of the DOJ investigation will occur, or
the terms, conditions, or other parameters of any such resolution.
In light of the agreement in principle
with the SEC staff, and the ongoing negotiations with the DOJ, the Company has
recognized a provision of HUF 11.5 bn (USD 62.4 million) in connection with these
governmental investigations in the second quarter of 2011. However, the amount
of any payment obligation upon final settlement or other resolution of these
investigations may differ from the amount of the provision.
In addition to the
provision, Magyar Telekom incurred HUF 0.6 bn expenses relating to the
investigations in the first half of 2011, which are included in other operating
expenses of the Telekom Hungary segment.
Magyar Telekom is Hungary's principal provider of telecom services. It provides a full range of telecommunications and infocommunications (ICT) services including fixed line and mobile telephony, data transmission and non-voice as well as IT and systems integration services. The Hungarian business activities of Magyar Telekom are managed by two segments: Telekom Hungary (the home-related services brand T-Home and the mobile communications brand T-Mobile) and T-Systems Hungary (T-Systems brand). Magyar Telekom is the majority owner of Makedonski Telekom, the leading fixed line and mobile operator in Macedonia and it holds a majority stake in Crnogorski Telekom, the leading telecommunications operator in Montenegro. Magyar Telekom's majority shareholder (59.21%) is MagyarCom Holding GmbH, fully owned by Deutsche Telekom AG.
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, 2010 filed with the U.S. Securities and Exchange Commission.
In addition to figures prepared in accordance with IFRS, Magyar Telekom also presents non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, underlying EBITDA, underlying EBITDA margin and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For further information relevant to the interpretation of these terms, please refer to the chapter “Reconciliation of pro forma figures”, which is posted on Magyar Telekom’s Investor Relations webpage at www.telekom.hu/investor_relations.