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Budapest, February 23, 2012 00:00
Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the full year of 2011, in accordance with International Financial Reporting Standards (IFRS).
Details of special influences and EBITDA performance (HUF bn)* |
Q4 2010 | FY 2010 | Q4 2011 | FY 2011 |
Investigation-related costs | 0.3 | 2.3 | 0.7 | 17.5 |
Severance expenses | 4.0 | 6.1 | 4.0 | 6.1 |
Telecom tax | 27.0 | 27.0 | 6.3 | 25.4 |
Total Special Influence | 31.2 | 35.3 | 11.0 | 48.9 |
Reported EBITDA | 26.0 | 213.0 | 46.7 | 196.1 |
Underlying EBITDA | 57.3 | 248.3 | 57.7 | 245.0 |
*Numbers may not add up due to rounding.
Details of investigation expenses (HUF bn)* | Q4 2010 | FY 2010 | Q4 2011 | FY 2011 |
Legal Costs | 0.3 | 2.3 | 0.4 | 1.3 |
Provisions within Other operating expenses | 0.4 | 16.2 | ||
Provisions within Net financial results | 1.8 | 5.7 | ||
Total provision | 2.2 | 21.9 |
*Numbers may not add up due to rounding.
Christopher Mattheisen, Chairman and CEO commented:
“In 2011, revenues and underlying EBITDA declines were
more moderate than expected and we have outperformed on our previously
announced guidance of declines of 3-5% and 4-6%, respectively. The 2% revenue
decline for 2011 was driven by a more favorable than anticipated market
environment both in the traditional telco and SI/IT services, while the 1.3%
decline in underlying EBITDA was primarily due to our strong focus on cost
efficiency, coupled with higher margins in the SI/IT business compared to the
previous year. Capex for 2011, which was down by 8.7% versus 2010, was also
ahead of our anticipated saving of 5%.
In fixed line revenues, we had strong support from the energy resale
business, which together with the Hoppá flat rate package and the bundling
offers, resulted in a significant improvement in the fixed line churn level from
last year. The Christmas period was strong in terms of handset sales and
upgrades, as customers’ interest in smartphones with data packages attached remains
undiminished. IPTV was also an important revenue driver as the growth in the
number of our customers was coupled with stronger usage of our value added
services. The strong performance of the SI/IT business in the last two quarters
of 2011 also surpassed our previous expectations, where we had higher revenues
after several quarters when businesses were reluctant to spend on IT projects.
For 2012, however, expectations for a deteriorating economic environment
potentially leading to a recession, together with fears over the level of
declines in disposable income are strengthening and we do not expect our
results to remain immune to these headwinds. In addition, while our initiatives
for finding new revenue sources are now showing results and we expect a degree
of Group-level revenue stabilisation for the full year, the new ancillary
revenue streams have lower profitability and are expected to dilute our profit
margins. Therefore, although we foresee revenues to be in the range of flat to
a maximum decline of 2% year-on-year, underlying EBITDA is expected to
deteriorate by 4-6% in 2012. CAPEX, excluding spectrum acquisitions, is
expected to remain in line with 2011 to support our ongoing network
modernisation and internal projects to improve efficiency.”
Revenues before inter-segment elimination were up by 0.5% to HUF 111.4 bn and EBITDA was down by 6.1% to HUF 28.8 bn in the fourth quarter of 2011 compared to the same quarter of 2010. The EBITDA margin was down from 27.7% to 25.9% driven by the dilution impact of energy resales. Underlying EBITDA declined by 2.9% and the underlying EBITDA margin was 34.6%.
Revenues before inter-segment elimination were up by 12.9% to HUF 37.2 bn. EBITDA was up by 48.7% to HUF 5.9 bn in the fourth quarter of 2011 and the EBITDA margin was 15.9%. Underlying EBITDA increased by 18.8% to HUF 6.9 bn. The underlying EBITDA margin of 18.6%, up from 17.7% in the fourth quarter of 2010, reflected our efforts to improve efficiency in light of the drop in high-margin voice revenues.
In Macedonia, revenues increased by a modest 0.9% to HUF 19.0 bn in the fourth quarter of 2011 compared to the same period in 2010, with EBITDA up by 4.4%. The depreciation of the Hungarian forint had a positive effect on the segment’s contribution to Group results (on average, the Hungarian forint weakened by 9.3% against the Macedonian denar in the fourth quarter of 2011compared to 2010). The decline in revenue and EBITDA in local currency terms was due to the intense competition within the mobile market, resulting in significant pricing pressure which could not be offset by savings in employee related expenses.
Revenues of the Montenegrin subsidiary were up by 4.2% to HUF 8.4 bn in the fourth quarter of 2011, driven by favorable FX movements (on average, the Hungarian forint weakened by 9.3% against the euro in the fourth quarter of 2011 compared to the same quarter in 2010). Underlying EBITDA was up by 11.9% to HUF 2.9 bn and the underlying EBITDA margin increased from 32.1% to 34.5% due to significant cost cuts within other operating expenses and lower receivables provisions thanks to better 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 Company’s Audit Committee informed the U.S. Department
of Justice (the “DOJ”) and the U.S.
Securities and Exchange Commission (the “SEC”) of the internal investigation.
The DOJ and the SEC commenced investigations into the activities that were the
subject of the internal investigation.
On December 29, 2011, the Company announced that it had
entered into final settlements with the DOJ and the SEC to resolve the DOJ’s
and the SEC’s investigations relating to the Company. The settlements concluded
the DOJ’s and the SEC’s investigations. The Company disclosed the key terms of
the settlements with the DOJ and the SEC on December 29, 2011. On January 6,
2012 the Company paid a criminal penalty of USD 59.6 million (HUF 14,712 million) pursuant to the settlement with the DOJ
and on
January 23, 2012 the Company paid USD 25.2 million for disgorgement of profits and
USD 6.0 million of prejudgment interest (HUF 7,366 million in total) pursuant
to the settlement with the SEC, totaling USD 90.8 million (HUF 22,078 million) paid with respect to
the settlements with the DOJ and the SEC.
The aggregate amount of USD 90.8 million payable by the
Company in settlement of the DOJ’s and SEC’s investigations was fully provided
for before the end of 2011.
In addition to the DOJ’s and the SEC’s investigations, the
Ministry of Interior of the Republic of Macedonia, the Montenegrin Supreme
State Prosecutor and the Hungarian Central Investigating Chief Prosecutor’s
Office commenced investigations into certain of the activities that were the
subject of the internal investigation. These governmental investigations are
continuing, and the Company and/or its relevant subsidiaries continue to
cooperate with these investigations.
Magyar
Telekom incurred HUF 17,485 million operating expenses relating to the
investigations in 2011 (HUF 1,294 million legal costs and HUF 16,191 million
provision for the settlements) included in the Hungary segment, and additional
losses and expenses of HUF 5,666 million included in the net financial results
(HUF 1,119 million interest expense and HUF 4,547 million foreign exchange
loss).
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.