Matávfirst half 2000 results

August 14, 2000 -- MATÁV (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its first half 2000 financial results.

• Revenues grew by 17.6% (14.7% in EUR terms) to 213.8 billion forints (830.2 million EUR) compared to 181.7 billion forints in the first half of 1999 This growth was achieved as
  • the outstanding performance of our mobile business which delivered traffic revenue growth of 34.7%,
  • the impact of significantly higher monthly fees, as a result of tariff rebalancing ahead of full liberalization,
  • and the above average growth of 31.6% of leased lines and data transmission revenues counterbalanced the flat domestic and declining international traffic revenues.
• EBITDA increased 15.7% (12.8% in EUR terms) to 100.3 billion forints (389.4 million EUR) compared to 86.7 billion forints in the first half of 1999
• Net income increased by 14.6% (11.7% in EUR terms) to 41.6 billion forints (161.4 million EUR) versus 36.3 billion forints in the same period of last year.
• EBITDA and net income margins decreased slightly in the first half of 2000 relative to the same period in 1999, due to the increasing weight of the mobile segment, and pressure on prices due to the growing competitiveness of the Hungarian telecommunications marketplace.

Elek Straub, MATÁV Chairman and CEO, commented: "For the first time since our IPO, Matáv's source of growth lies outside of our traditional core businesses. Matáv's fixed voice services are reaching a more mature and cash generative stage, but we've only just begun to witness the potential of our new growth businesses underpinned by exciting mobile, data and IP trends. Our most powerful driver in the near term remains the mobile segment. Nevertheless, we expect second half 2000 bottom line growth for the group to be slightly below the first half growth rate. We consider the coming period to be important in the transition of our business, to secure our mobile leadership and to lay the foundation for Matáv's success in the new economy."

Mobile revenues increased 34.7% to 49.8 billion forints. Westel continued its strong track record of net additions in the first half of 2000 The number of GSM subscribers increased 69.9% year-on-year to nearly 1.2 million. This corresponds to a 41.4% year-to-date increase, spurred by the growth of prepaid customers.

Despite the entrance of a third mobile operator in December of 1999, Westel retained its leadership of the GSM market with a market share of approximately 56%. GSM mobile penetration in Hungary was 21.2% at the end of June 2000 and we expect it to grow to approximately 27% by the end of the year. The average monthly usage per Westel subscriber remained high at 187 minutes in the first half of 2000, slightly lower than in the same period of 1999 due to the growing proportion of mass market, prepaid customers. The relatively stable level of usage per subscriber combined with lower prices resulted in the average monthly revenue per Westel customer of 9 562 forints, versus 11 265 forints in the same period of 1999

We saw modest growth in the fixed line business during the first half of 2000 Although income from subscription fees produced a significant improvement of 48.8% due to the nearly 50% increase in monthly charges effective February 1, connection revenues were down significantly relative to the same period last year, due to a lower number of new connections as well as price decreases. The total number of analog lines decreased by more than 50 000 in the first half of 2000, but this was offset by a strong increase in the number of ISDN channels, which drove an increase in penetration to 38.8%. Higher monthly fees, as well as the substitution effect of mobile solutions, caused demand for analog lines to decrease, and MATÁV also adopted a stricter policy with regard to bad debt. In the first half of this year MATÁV made great progress in developing ISDN as a mass-market product, connecting around 67 000 new lines, a 58.5% year-to-date increase.

Domestic traffic revenues remained flat year-on-year at 65.2 billion forints. While fixed-to-mobile revenues increased during the first six months of 2000 as a result of rapidly expanding mobile penetration, local and long distance revenues decreased in the same period. Effective from February 1 MATÁV reduced local charges by approximately 11% and domestic long distance fees by nearly 13% in nominal terms. Furthermore, between May 1 and August 31 we are running a marketing campaign: our customers can make off-peak domestic long distance calls within our service area for approximately 60% lower prices on average. The 12.6% year-on-year increase of total domestic minutes could just offset the effect of the lower tariffs.

International traffic revenues decreased by 2.4% to 20.4 billion forints mainly due to the 12% decrease in international tariffs as of February 1, as well as the 4.5% decline in international outgoing minutes.

Data revenues showed above average growth of 31.6%, data transmission is a key driver of our success, powered by our continuously upgraded IP capacity. MATÁVNet, our market-leading internet subsidiary, achieved a 97.7% year-over-year increase in dial-up internet subscribers to over 70 904, representing a market share of 47%.

MATÁV continued to broaden its product portfolio in the first half of 2000, while promoting usage on existing lines through various marketing campaigns. We introduced several new tariff packages and special prices (Favorite Countries, an off-peak flat rate package, special domestic long-distance fees, ISDN-Net, Office-Net) and also new data products (MATÁVmultiLAN, IP VPN). In addition we enabled customers to use Caller ID nationwide, and we launched a prepaid international calling card.

Employee-related expenses increased by only 1.9% year-on-year to 28.6 billion forints. The moderate growth results from wage increases effective April 1, 2000 partially offset by an 8.8% reduction in the average headcount and decreases in welfare costs mainly due to the partial reversal of provision for postretirement benefits. In negotiation with the trade unions we came to more favorable terms which allowed the recalculation of our liabilities for postretirement benefits. At the end of June, 2000 the number of lines per fixed employee was 257 outperforming our public target of 250 for the end of 2000

This year brought very important changes in Matáv's ownership structure. Deutsche Telekom purchased full control of MagyarCom, the joint venture holding company with SBC which now owns 59.49% of Matáv's share capital. With the Hungarian telecommunications market expected to be fully liberalized in about one-and-a-half years, MATÁV will rely more heavily upon Deutsche Telekom's know-how, scale and resources.

MATÁV is the principal provider of telecom services in Hungary and holds the national concession for national and international long distance telephony. MATÁV provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiaries is Hungary's largest mobile telecom provider. Key shareholders as of June 30, 2000 include the Ministry for Transport, Communications and Water Management (holder of the Golden Share), MagyarCom, owned by Deutsche Telekom AG and SBC (59.49%), while 40.51% is publicly traded.

Analysis of the Financial Statements for the 6 months ended June 30, 2000

INCOME STATEMENTS

Sales

Revenues from domestic telecommunications services for the first half of 2000 reflect significant rebalancing of tariffs that took place effective February 1, 2000 The new tariffs indicate significant progress to set prices to the underlying costs. Rebalancing remains a key element advancing the full liberalization of the Hungarian telecommunications market. Subscription tariffs increased nearly 50%, while domestic and international usage tariffs decreased, reflecting the mixed growth figures below.

Revenues from subscriptions, connections and other charges for the 6 months ended June 30, 2000 amounted to HUF 39 962 million, compared to HUF 31 666 million for the same period in 1999 (a 26.2% increase). Growth resulted from an increase in the number of subscribers and tariff increases. The average number of lines increased 7.3% to 2 903 543 in the first half of 2000 from 2 706 038 in the first half of 1999

Domestic traffic revenue for the first 6 months of 2000 totalled HUF 65 238 million, compared to HUF 65 208 million for the same period in 1999 The 12.6% growth in domestic usage was offset by the tariff rebalancing.

Revenues from other usage for the first 6 months of 2000 amounted to HUF 9 153 million, compared to HUF 8 844 million for the same period in 1999 (a 3.5% increase). This increase is attributable to the increased number of minutes partially offset by lower fees paid to MATÁV by other domestic operators.

International traffic revenues amounted to HUF 20 449 million for the 6 months ended June 30, 2000, compared to HUF 20 958 million for the same period in 1999 (a 2.4% decrease) mainly due to lower international tariffs.

Revenues from mobile telecommunications services totalled HUF 49 759 million for the first half of 2000, compared to HUF 36 928 million for the 6 months ended June 30, 1999 (a 34.7% increase). The growth resulted from the increased number of subscribers, partly offset by lower tariffs.

Revenues from leased lines and data transmission amounted to HUF 12 329 million for the first half of 2000, compared to HUF 9 370 million for the same period in 1999 (a 31.6% increase). This strong growth was due to the increase in the number of managed leased lines, ISDN, internet and cable TV subscribers.

In previous reports, revenues from audiotex, telex and telegraph were included in leased lines and data transmission. Starting with this quarter's report, these revenues are included in other services. This change is made to better present our core data products. Revenue lines for prior periods were restated as well for comparison purposes.

Revenues from other services amounted to HUF 16 928 million for the first 6 months of 2000, compared to HUF 8 771 million for the same period in 1999 (a 93.0% increase). Other services include equipment sales, construction, maintenance and miscellaneous revenues.

Expenses

Employee-related expenses for the 6 months ended June 30, 2000 totalled HUF 28 558 million, compared to HUF 28 012 million for the same period in 1999 (an increase of 1.9%). The moderate growth results from wage increases effective April 1, 2000, partially offset by headcount reductions. Efficiency improvements continued with a 9.7% year-on-year headcount reduction to 14 500 and an increase in the number of lines per fixed employee to 257 from 219 at the end of June 1999

Depreciation and amortization for the 6 months ended June 30, 2000 amounted to HUF 36 483 million, compared to HUF 30 638 million for the same period in 1999 (an increase of 19.1%). The growth is a result of increased investment in fixed assets.

Payments to other network operators for the 6 months ended June 30, 2000 totalled HUF 26 018 million, compared to HUF 19 853 million for the same period in 1999 (an increase of 31.1%). The increase was due to the increased penetration of mobiles and fixed lines.

The cost of telecommunications equipment sales for the first half in 2000 was HUF 15 922 million, compared to HUF 11 509 million for the same period in 1999 (an increase of 38.3%). This is mainly due to the increased number of mobile handsets sold.

Other operating expenses for the first 6 months of 2000 amounted to HUF 43 001 million, compared to HUF 35 640 million for the same period in 1999 (an increase of 20.7%). Other operating expenses include materials, maintenance, marketing, service fees, energy and consultancy.

Operating Profit

Operating profit totalled HUF 63 836 million for the 6 months ended June 30, 2000, compared to HUF 56 093 million for the same period in 1999 Total revenues increased 17.6% to HUF 213 818 million for the first half in 2000, compared to HUF 181 745 million for the first half in 1999 Total operating expenses increased 19.4% to HUF 149 982 million for the first 6 months in 2000 from HUF 125 652 million for the same period in 1999 Operating margin for the 6 months ended June 30, 2000 was 29.9%, while operating margin for the same period in 1999 was 30.9%.

Net Interest and Other Charges

Net interest and other charges were HUF 11 306 million for the first half in 2000, compared to HUF 12 067 million for the same period in 1999 Net interest and other charges show a decrease due to the reduced rate of monthly devaluation and better performance of the HUF within the intervention band. As a result of shifting the loan portfolio to HUF denominated loans MATÁV also benefits from decreasing HUF interest rates. Total loans and other borrowings increased from HUF 185 440 million on June 30, 1999, to HUF 190 140 million on June 30, 2000

Share of associates' results

Share of associates' results amounted to HUF 1 000 million for the 6 months ended June 30, 2000, compared to HUF 557 million for the same period in 1999, reflecting improved operating results of investments.

Profit before taxation

Profit before income tax amounted to HUF 53 530 million for the 6 months ended June 30, 2000 versus HUF 44 583 million for the same period in 1999

Income tax

Income tax increased from HUF 3 135 million in the first 6 months of 1999 to HUF 4 651 million in the same period of 2000 due to the higher profits of the group.

Minority Interest

Minority interest for the first 6 months in 2000 was HUF 7 296 million, compared to HUF 5 159 million for the same period in 1999 (an increase of 41.4%). This increase is due to the growth of Westel 900.

Net Income

Net income for the first half in 2000 was HUF 41 583 million, compared to HUF 36 289 million for the same period in 1999 (an increase of 14.6%).

BALANCE SHEET

Total assets and total shareholders' equity and liabilities at June 30, 1999 were HUF 589 402 million. Total assets and total shareholders' equity and liabilities amounted to HUF 685 595 million as of June 30, 2000 The increase is attributable to operating results.

Retained earnings

Retained earnings increased 47.0% from June 30, 1999 to HUF 233 247 million at June 30, 2000 This increase was due to net income, partly offset by a dividend payment of HUF 9 335 million.