Budapest, May 12, 2015 18:00

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 2015, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

• Revenues in the first quarter of 2015 up by 3.3% year-on-year from HUF 151.9 billion to HUF 157.0 billion , primarily driven by higher mobile and energy revenues. Higher mobile equipment and data revenues were only partly offset by the lower mobile voice and SMS revenues. Energy revenue growth was due to the increased gas and electricity revenues in the business segment. Fixed broadband and TV revenue increases were driven by successful customer acquisition and upgrade campaigns as well.
• Total direct costs increased in the first quarter of 2015 by 7.2% to HUF 57.8 billion year-on-year, largely driven by higher energy service related costs and the higher cost of equipment sales, as well as increased TV related costs. Gross margin increased slightly, from HUF 98.0 billion in the first quarter of 2014 to HUF 99.2 billion in the first quarter of 2015, reflecting the improvement in the energy service margin and the lower bad debt expense.
• First quarter EBITDA improved by 4.8% to HUF 42.5 billion , owing to a higher overall gross margin driven by increased postpaid customer base and ARPU, lower energy discounts, as well as savings in employee related expenses.
• Depreciation and amortization expenses for the quarter increased to HUF 27.7 billion, from HUF 24.4 billion during the same period last year. The change was driven by the amortization of telecom licenses related to the new frequency usage rights acquired in October 2014 and the higher depreciation stemming from the write off of certain network assets.
• Net financial expenses increased significantly, from HUF 6.0 billion to HUF 8.6 billion , mainly as a result of losses on foreign exchange translation and the fair valuation of derivatives, driven by a 5.3% strengthening of the HUF against the EUR in the reporting period compared to a 3.4% weakening in the same quarter of 2014. Furthermore, interest expenses increased due to the higher average balance of interest bearing liabilities, primarily affected by the liabilities incurred in relation to the frequency acquisition in October 2014.
• Income tax expense decreased from HUF 5.1 billion to HUF 2.9 billion. The primary reason for the decrease was the absence of the HUF 1.1 billion tax expense recognized at Makedonski Telekom in Q1 2014 due to the change in income tax law affecting dividend declarations as well as a lower profit before tax of the Group.
• Profit attributable to owners of the parent company (net income) decreased from HUF 4.8 billion to HUF 2.5 billion , largely due to higher depreciation and amortization and net financial expenses offsetting the improvement in EBITDA.
• Investments in tangible and intangible assets (CAPEX) decreased by HUF 5.2 billion to HUF 12.2 billion in the first quarter of 2015 , driven by lower spending on 3G/LTE investments, while the Hungarian fixed High Speed Internet roll-out program is due to be launched in the next quarter. In Q1 2015, Telekom Hungary accounted for HUF 10.7 billion of total Capex while HUF 0.7 billion was associated with T-Systems Hungary. In Macedonia and Montenegro, Capex was HUF 0.6 billion and HUF 0.2 billion, respectively.
• Free cash flow (FCF, operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets and repayment of other financial liabilities) improved from HUF -11.4 billion in the first quarter of 2014 to HUF -1.4 billion in the same period of 2015. The main driver of this improvement was the significant decrease in repayment of other financial liabilities reflecting the payments on factored vendor contracts in the first quarter of 2014. At the same time, lower cash Capex spending due to the slower pick-up in investments also supported free cash flow performance.§ 
• Net debt rose from HUF 382.3 billion at the end of the first quarter of 2014 to HUF 446.2 billion at the end of the same period of 2015, but remained broadly stable compared to year-end 2014. The year-on-year increase primarily reflects the frequency license payments and the capitalization of the present value of the future annual frequency in Q4 2014. The net debt ratio (net debt to total capital) slightly increased to 46.2%.

Christopher Mattheisen, CEO commented:
“I am pleased to report that we have closed a very successful quarter in terms of operating performance. Our group revenues increased by 3.3% compared to the first quarter of last year driven by strong results from our mobile and energy operations. Thanks to the efforts made last year to invest in 4G networks across our Hungarian and international footprints, our mobile broadband and equipment revenues significantly increased. Revising our discount scheme in the energy business also helped to grow our overall margin, while savings in employee related expenses led to a 4.8% uplift in our group EBITDA.

Looking at our segments, Telekom Hungary was the primary growth driver for the revenue, recording a 6.9% increase year-on-year. We were able to increase further our mobile customer base by 2% and ARPU by 4% among the Hungarian residential and small-medium business subscribers. Our mobile data revenues grew by almost 16% which was driven by a very attractive device portfolio, which includes the iPhone6, and a strong 4G push that was supported by the network sharing agreement with Telenor in the countryside of Hungary. We maintained our leadership positions in the Hungarian fixed line markets and, driven by the successful upgrade campaigns, we were able to achieve higher broadband and TV ARPUs compared to the first quarter of last year.

These very good results in the residential segment were somewhat offset, however, by the continuous pressure on our large enterprise customer base owing to the intense mobile competition leading to a lower mobile ARPU. The state-owned operator caused a further increase in fixed churn at T-Systems but we were able to slightly increase our SI/IT margin coupled with lower employee related expenses. At the same time, in Macedonia, we witnessed a very moderate revenue decrease compared to previous quarters as the mobile market continues to show signs of stabilization. The previously witnessed double digit declines in mobile revenue and EBITDA have slowed down, with the 25% increase in mobile data revenue – in part reflecting the success of prolonging our Christmas campaign into January – is also promising. However, in Montenegro, besides the decline in messaging and prepaid mobile revenues, the regulatory pressures on fixed voice and broadband continued to weigh, leading to an 8% overall decline.

Looking forward, we aim to continue promoting superior 4G experience to take greater advantage of the mobile rebalancing opportunities. We have commenced an intensive fixed network development program, whereby we will enlarge our High Speed Internet coverage by 440,000 households in Hungary over the next three quarters. Next generation network development will also be implemented at our foreign subsidiaries. A greater focus of our marketing activities across our whole footprint over the upcoming quarters will be geared on fixed-mobile convergence products.

In terms of our financial targets, we maintain our EBITDA and Capex guidance. However, due to the planned exit from the residential gas market in August this year and the previously announced decision to set-up a JV in respect of energy services to our business customers in the second half of 2015 – implying that its results will no longer be consolidated –, we are now expecting roughly stable revenues in 2015 compared to a year earlier.”

2015 public guidance

*modified from 0-3% increase
** excluding spectrum acquistions and annual frequency fee capitalization

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, 2014, 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 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.