Revenue target exceeded, EBITDA towards the better end of the targeted range

Magyar Telekom (Reuters: MTEL.BU and Bloomberg: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the fourth quarter of 2012, in accordance with International Financial Reporting Standards (IFRS).

• Revenues increased by 3.4% in the fourth quarter of 2012 compared to the same period of 2011, from HUF 159.4 billion to HUF 164.9 billion.The decline in fixed and mobile voice revenues were more than offset by the significant increase in revenues from energy services and SI/IT, while growing TV and mobile equipment sales revenues generated by higher smartphone sales also contributed to the performance.
• EBITDA declined by 20.7%, from HUF 46.7 billion to HUF 37.0 billion, with an EBITDA margin of 22.5%. Underlying fourth quarter EBITDA, excluding investigation-related costs and provisions, severance expenses and the special and new telecom taxes,decreased by 9.1%, from HUF 57.7 billion to HUF 52.5 billion, compared to the fourth quarter of 2011.Underlying EBITDA margin was 31.8%in Q4 2012 compared to 36.2% in the same period last year. This decrease reflects the increasing contribution of the lower margin retail energy and SI/IT revenues, coupled with the continued decline of high-margin voice revenues.
• Employee-related expenses increased by HUF 0.6 billion in the fourth quartercompared to the same period last year despite lower salaries, as the previously outsourced labour force related to call center customer care, sales and customer experience services became permanent employees of Magyar Telekom as of April 2012. In addition, higher amount of severance expenses were accounted in the fourth quarter of 2012.
• Depreciation and amortization decreased by 52.4%in the fourth quarter of 2012 compared to the same period last year. The main reason for the decline is the impairment loss of HUF 31.4 billion on the goodwill of the Macedonia segment based on the fair value less cost calculations recognized in Q4 2011.
• Net financial expenses declined from HUF 11.8 billion in Q4 2011 to HUF 8.4 billion in Q4 2012.The improved result was primarily due to the lower combined net loss on foreign exchange translation and fair valuation of derivatives in Q4 2012, as the HUF weakened by 2.7% against the EUR in Q4 2012 compared to the 6.5% weakening in Q4 2011. In addition, higher interest expense was owing to the higher average debt levels, and, to a smaller extent, due to higher average interest rates quarter over quarter.
• Income tax expense declined from HUF 12.7 billion in Q4 2011 to HUF 0.8 billion in Q4 2012.The main reason behind the decline is the HUF 15.0 billion one-off deferred tax expense booked in Q4 2011 related to the elimination of the enacted reduction of the Hungarian corporate tax rate from 19% to 10% effective from 2013.
• Profit attributable to owners of the parent company (net income)increased from HUF -40.3 billion to HUF -1.6 billion. Despite the decline in underlying EBITDA, net income increased mainly due to the two one-off items which negatively affected Q4 2011 results: the impairment loss related to the Macedonia segment and the one-off deferred tax expense.
• Net cash generated from operating activities decreased by HUF 23.6 billion year-on-year, from HUF 168.8 billion to HUF 145.2 billion.The decline is mainly driven by changes in working capital caused by theHUF 22.1 billion settlement chargein connection with the SEC and DOJ investigations. This was partly offset by working capital improvement relating to the Pro-M transaction and longer payment periods to some of our suppliers. Higher interest payments (due to the higher debt level and somewhat higher interest rate) and income tax paid also contributed to the lower net cash generated from operating activities.
• Excluding the 900 MHz spectrum license fee (amounting to HUF 10.9 billion) investment in tangible and intangible assets (CAPEX) increased by HUF 8.6 billion, from HUF 83.8 billion to HUF 92.4 billion in 2012compared to 2011, due principally to the higher investments in Macedonia related to the real estate exchange transaction. The book CAPEX accounted for the new Macedonian building is HUF 10.7 billion; however, the trade-in value of the old buildings is HUF 6.9 billion and the difference is to be paid in six annual instalments. In 2012, Telekom Hungary accounted for HUF 57.8 billion of total CAPEX and T-Systems Hungary HUF 5.2 billion. In Macedonia and Montenegro, CAPEX was HUF 24.6 billion and HUF 4.2 billion, respectively. Certain CAPEX items are not part of the segments’ CAPEX.
• Free cash flow(operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets)declined by HUF 30.3 billion in 2012year-on-year,from HUF 92.0 billion to HUF 61.7 billion. In addition to lower operating cash flow and higher CAPEX, the real estate sales in Q1 2011 also contributed to the decline. This was partly offset by the proceeds from the sale of Pro-M in 2012.
• Net debt decreased from HUF 288.4 billionat the end of 2011to HUF 273.1 billionat the end of 2012. Thenet debt ratio(net debt to total capital) was34.3%at the end of 2012.

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 financial statements for the year ended December 31, 2011, available on our website at https://www.telekom.huwhich have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union. 

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.