Revenue growth driven by energy resale in Hungary; EBITDA margin under pressure

Budapest, May 10, 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 first quarter of 2012, in accordance with International Financial Reporting Standards (IFRS).

• Revenues increased by 2.9% in the first quarter of 2012, from HUF 142.5 bn to HUF 146.6 bn. The significant contribution of energy resale revenues could more than offset the decline in fixed and mobile voice revenues. Growing TV, mobile Internet, and System integration/IT revenues also contributed to higher revenues, as well as the higher mobile equipment sales revenues generated by increasing smartphone sales. The depreciation in the Hungarian forint also had a positive effect on revenue contribution from international subsidiaries (the forint weakened on average by 8.6% relative to the Macedonian Denar and by 8.4% relative to the Euro in the first quarter of 2012 compared to the same period in 2011).
• EBITDA declined by 3.1%, from HUF 53.2 bn to HUF 51.6 bn , with an EBITDA margin of 35.2%. Underlying EBITDA, excluding investigation-related costs and provisions, severance expenses and the telecom tax, decreased by 5.5%, from HUF 61.5bn to HUF 58.1 bn. Underlying EBITDA margin was 39.6% in Q1 2012 compared to 43.1% in the same period last year. The decline reflects the increasing contribution of the low margin energy resale activity and a HUF 1.4 bn gain on real estate sales in Hungary accounted for in Q1 2011.
• Income tax expense increased by 26.5% from Q1 2011 to Q1 2012 despite lower profit before tax. This is a result of tax law changes in Hungary, which reversed the previous reduction in the corporate tax rate from 19% to 10%, effective from 2013, on annual tax balances exceeding HUF 500 million.  In line with this, a number of deferred tax balances were calculated based on a 19% rate in Q1 2012 as opposed to 10% in Q1 2011.
• Profit attributable to owners of the parent company ( net income) declined from HUF 15.2 bn to HUF 13.0 bn. The decline was driven by the lower EBITDA and higher income tax, partly offset by lower net financial expense.
• Net cash generated from operating activities decreased by HUF 22.3 bn, from HUF 44.6 bn to HUF 22.3 bn. The decline is mainly driven by the decrease in liabilities carried as working capital due to the payment of the HUF 20.7 bn settlement charge to the U.S. Securities and Exchange Commission (the “SEC”) and Department of Justice (“DOJ”), and the VAT payment related to the acquisition of the 900MHz spectrum license in Q1 2012. Higher interest expenses due to the higher interest rate and debt levels also contributed to the decline.
• Investment in tangible and intangible assets (CAPEX) increased by HUF 11.5 bn, from HUF 12.3 bn to HUF 23.8 bn , reflecting the payment of the 900MHz spectrum license fee in the amount of HUF 10.9 bn in Q1 2012. Telekom Hungary accounted for HUF 20.8 bn of total CAPEX (including the above mentioned license fee), while HUF 0.7 bn is related to T-Systems Hungary. In Macedonia and Montenegro, CAPEX was HUF 1.4 bn and HUF 0.9 bn, respectively.
• Free cash flow (operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets) declined by HUF 42.2 bn, from HUF 27.0 bn to HUF -15.2 bn in Q1 2012. In addition to the settlement charge and the spectrum license fee, Q1 2012 cash flow was negatively affected by higher payments to capex creditors relative to Q1 last year. However, higher proceeds from real estate sales in Q1 2011 helped mitigate these trends.
• Net debt increased from HUF 270.5 bn at the end of Q1 2011 to HUF 283.6 bn by the end of Q1 2012. The net debt ratio (net debt to total capital) was 33.6% at the end of March 2012.

Christopher Mattheisen, Chairman and CEO commented: “The first quarter results show promising trends in the retail market in terms of our customer numbers and market share data. Our fixed line churn rate has halved over the past year, thanks to our very popular Hoppá package, bundled offers and energy resale services. The number of energy resale delivery points is growing rapidly as more customers benefit from the discounts we offer on energy bills. There has been a steady growth in both fixed broadband and TV customer numbers as well, mainly as a result of bundled offers. By now more than half of our fixed customers are subscribing to a double or triple-play package. There have also been positive trends in the mobile market, as both our customer numbers and market share have increased year-on-year. Thanks to the positive trends in customer numbers, the price increase at the start of the year, and the energy resale service, T-Hungary revenues increased by 3% in the first quarter. The T-Systems segment was helped once again by increasing SI/IT revenues, and international operations benefitted from a weaker forint. Our changing revenue mix has, however, put pressure on margins which can only be partially offset by continuous cost management. As a result of this, and real estate gains accounted for last year, underlying EBITDA was down by almost 6% despite growth in Group revenues of 3%.”

This investor news may contain 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 Reports for the year ended December 31, 2011 available on our website at https://www.telekom.hu.

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.