Matávfirst quarter 2000 results

May 12, 2000 -- MATÁV (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported continued progress in its first quarter 2000 financial results.

• Revenues grew by 19.2% (17.1% in EUR terms) to 105.1 billion forints compared to 88.2 billion forints in the first quarter of 1999 Top-line growth was driven primarily by a 42.6% increase in revenues from subscriptions, reflecting a major rebalancing of Matáv's tariffs, and a 32.1% rise in mobile telecommunications revenues powered by a strong increase in the number of mobile subscribers.
• Net income increased by 17.8% (15.8% in EUR terms) to 20.1 billion forints, versus 17.1 billion forints in the same period of last year.
• Basic earnings per share also grew by 17.8% to 19.4 forints per share.
• Margins decreased slightly during first quarter 2000, as MATÁV continued aggressive sales and marketing efforts to build usage and broaden the subscriber base in the mobile segment, and to drive sales of ISDN lines, particularly in the expanding residential ISDN segment. The decrease is also partly attributable to the new interconnection fees that took effect from February 1.

Elek Straub, MATÁV Chairman and CEO, commented: "MATÁV has delivered another sound quarter of growth. We continue to see a steady progress in our growth businesses, mobile penetration increases unabated and our ISDN promotion was also well received by the general public. Our bottom-line growth rate for the quarter has slowed from last year's tremendous performance. This reflects in part the impact of our new interconnect regime. We entered a transition period when we should establish stable grounds for our operations in the liberalized telecom market and -at the same time- set the basis for transforming MATÁV into an IP-focused communications company ready to meet the challenges of the future."

• Mobile revenues increased 32.1 % to 23.0 billion forints compared to the first quarter of 1999 This increase was mainly driven by the accelerated growth in the number of GSM subscribers to over 1 million at the end of the quarter. Westel maintained its number one position in the Hungarian mobile segment, with a 56% share of the GSM market. As the market's quality leader, Westel introduced a number of services such as WAP and online customer care, many of them firsts for Hungary. Aside from pursuing technological leadership, Westel continues to broaden its customer footprint with call packages tailored to various market segments, including a 10% reduction in average monthly fees.
• In our fixed-line business, MATÁV made significant progress in rebalancing. Our new tariffs, effective February 1, 2000 reflect a 50% increase in monthly subscription fees and a reduction in per-second usage charges. The positive effects of the reduction in usage fees on volumes are however delayed by the fact that the new tariffs were introduced only in the second month of the quarter. This shift towards cost-based pricing will put us in a prepared position when the market is fully liberalized.
• Fixed-line penetration in our service areas was 38.7% at the end of first quarter 2000 The number of ISDN lines jumped to nearly 143 700, nearly a 90% increase over first quarter 1999, and a 26% increase over the 1999 year-end total. We are on track to achieve our major goal for 2000 of making ISDN a mass market product that will also serve as a platform for the introduction of ADSL in the second half of 2000 The strong growth in the number of ISDN channels during the quarter was partially offset by a slight decrease in business and residential analogue lines, reflecting the shift towards digital lines, the substantial increase in monthly fees at a time of falling mobile prices, as well as a curtailing of promotions on the installation of analogue lines.
• MATÁVNet, Matáv's internet service provider which holds a 46% share of the Hungarian dial-up market, once again experienced a very successful quarter. The number of dial-up subscribers rose to 61 293, a 76.8% increase over the first three months of 1999 This performance was backed by aggressive marketing efforts and the popularity of our flexible internet offering.
• Employee-related expenses increased by 5.4% year-on-year to 13.9 billion forints. The moderate growth results from wage increases effective April 1, 1999 and from increases in the proportion of more highly qualified employees partially offset by headcount reductions and decreases in welfare costs. Efficiency improvements continued with an 8.6% year-on-year headcount reduction to 15 100 and an increase in the number of lines per fixed employee to 246 from 204 at the end of March, 1999

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 March 31, 2000 include the Ministry for Transport, Communications and Water Management (holder of the Golden Share), MagyarCom, a consortium of SBC/Ameritech International, Inc. and Deutsche Telekom AG (59.53%), while 40.47% is publicly traded.

Analysis of the Financial Statements for the 3 months ended March 31, 2000

INCOME STATEMENT

Sales

Revenues from domestic telecommunications services for the first quarter 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 3 months ended March 31, 2000 amounted to HUF 18 983 million, compared to HUF 15 268 million for the same period in 1999 (a 24.3% increase). Growth resulted from an increase in the number of subscribers and tariff increases. The average number of lines increased 8.5% to 2 896 527 in the first quarter of 2000 from 2 670 118 in the first quarter of 1999

Domestic traffic revenue for the first 3 months of 2000 totalled HUF 33 206 million, compared to HUF 31 929 million for the same period in 1999 (a 4.0% increase). Revenue growth was driven by increase in the number of subscribers, partly offset by the tariff rebalancing.

Revenues from other usage for the first 3 months of 2000 amounted to HUF 4 423 million, compared to HUF 4 231 million for the same period in 1999 (a 4.5% 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 10 477 million for the 3 months ended March 31, 2000, compared to HUF 10 423 million for the same period in 1999

Revenues from mobile telecommunications services totalled HUF 22 975 million for the first quarter of 2000, compared to HUF 17 389 million for the 3 months ended March 31, 1999 (a 32.1% increase). The growth resulted from the increased number of subscribers.

Revenue from leased lines and data transmission amounted to HUF 6 865 million for the first quarter of 2000, compared to HUF 5 652 million for the same period in 1999 (a 21.5% increase). This strong growth was due to the increase in the number of managed leased lines, ISDN, internet and cable TV subscribers.

Revenues from other services amounted to HUF 8 214 million for the first 3 months of 2000, compared to HUF 3 338 million for the same period in 1999 (a 146.1% increase). This increase relates to the marketing efforts of first quarter 2000 Other services include equipment sales, construction, maintenance and miscellaneous revenues.

Expenses

Employee-related expenses for the 3 months ended March 31, 2000 totalled HUF 13 851 million compared to HUF 13 138 million for the same period in 1999 (an increase of 5.4%). The moderate growth results from wage increases effective April 1, 1999 and from increases in the proportion of more highly qualified employees partially offset by headcount reductions and decreases in welfare costs. Efficiency improvements continued with an 8.6% year-on-year headcount reduction to 15 100 and an increase in the number of lines per fixed employee to 246 from 204 at the end of March, 1999

Depreciation and amortization for the 3 months ended March 31, 2000 amounted to HUF 17 850 million compared to HUF 14 956 million for the same period in 1999 (an increase of 19.4%). The growth is a result of increased investment in fixed assets.

Payments to other network operators for the 3 months ended March 31, 2000 totalled HUF 12 594 million compared to HUF 9 799 million for the same period in 1999 (an increase of 28.5%). The increase was due to the increased penetration of mobiles and fixed lines.

The cost of telecommunications equipment sales for the first quarter in 2000 was HUF 8 450 million compared to HUF 5 851 million for the same period in 1999 (an increase of 44.4%). This is mainly due to the increased number of mobile handsets sold.

Other operating expenses for the first 3 months of 2000 amounted to HUF 20 913 million compared to HUF 16 807 million for the same period in 1999 (an increase of 24.4%). Other operating expenses include materials, maintenance, marketing, service fees, energy, and consultancy.

Operating Profit

Operating profit totalled HUF 31 485 million for the 3 months ended March 31, 2000, compared to HUF 27 679 million for the same period in 1999 Total revenues increased 19.2% to HUF 105 143 million for the first quarter in 2000 compared to HUF 88 230 million for the first quarter in 1999 Total operating expense increased 21.6% to HUF 73 658 million for the first 3 months in 2000 from HUF 60 551 million for the same period in 1999 Operating margin for the 3 months ended March 31, 2000 was 29.9%, while operating margin for the same period in 1999 was 31.4%.

Net Interest and Other Charges

Net interest and other charges were HUF 6 505 million for the first quarter in 2000 compared to HUF 7 286 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 180 670 million on March 31, 1999, to HUF 191 397 million on March 31, 2000

Share of associates' results

Share of associates' results amounted to HUF 312 million for the 3 months ended March 31, 2000 compared to HUF 73 million for the same period in 1999, reflecting improved operating results of investments.

Profit before taxation

Profit before tax amounted to HUF 25 292 million for the 3 months ended March 31, 2000 versus HUF 20 466 million for the same period in 1999

Income tax

Income tax increased from HUF 1 571 million in the first 3 months of 1999 to HUF 2 241 million in the same period of 2000 due to the higher profits of the group.

Minority Interest

Minority interest for the first 3 months in 2000 was HUF 2 955 million compared to HUF 1 838 million for the same period in 1999 (an increase of 60.8%). This increase is due to the growth of Westel 900.

Net Income

Net income for the first quarter in 2000 was HUF 20 096 million compared to HUF 17 057 million for the same period in 1999 (an increase of 17.8%).

BALANCE SHEET

Total assets and total shareholders' equity and liabilities at March 31, 1999 were HUF 560 885 million. Total assets and total shareholders' equity and liabilities amounted to HUF 668 407 million as of March 31, 2000 The increase is attributable to operating results.

Receivables

Receivables for March 31, 2000 of HUF 73 186 million increased 28.9% over March 31, 1999 This increase was due to the increase in the subscriber base and tariffs.

Trade and other payables

Trade and other payables increased from HUF 61 104 million on March 31, 1999 to HUF 79 680 million on March 31, 2000 The increase in domestic and foreign creditors resulted from the growth of the companies' operation.

Retained earnings

Retained earnings increased 49.7% from March 31, 1999 to HUF 221 095 million at March 31, 2000 MATÁV paid a dividend of HUF 8 298 million.