Matáv full year 2000 results

Income Statements

Sales

Revenues from domestic telecommunications services for the year ended 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 year ended December 31, 2000 amounted to HUF 82 918 million, compared to HUF 63 191 million for the same period in 1999 (a 31.2% increase). Growth resulted from an increase in the number of subscribers and tariff increases. The average number of lines increased 5.5% to 2 919 631 in 2000 from 2 767 184 in 1999

Domestic traffic revenue in 2000 totaled HUF 129 517 million, compared to HUF 134 071 million for the same period in 1999 (a 3.4% decrease). The 12.3% growth in domestic usage was offset by the tariff rebalancing.

Revenues from other usage in 2000 amounted to HUF 19 136 million, compared to HUF 18 743 million for the same period in 1999 (a 2.1% 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 41 432 million for the year ended December 31, 2000, compared to HUF 43 807 million for the same period in 1999 (a 5.4% decrease) mainly due to lower international tariffs.

Revenues from mobile telecommunications services totaled HUF 108 885 million in 2000, compared to HUF 82 746 million for the year ended December 31, 1999 (a 31.6% 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 26 819 million in 2000, compared to HUF 20 241 in 1999 (a 32.5% increase). This strong growth was due to the increase in the number of managed leased lines, ISDN, Internet and cable TV subscribers.

Up until the first quarter of 2000, reported revenues from audiotex, telex and telegraph were included in the category called leased lines and data transmission. Reported results starting June 2000 have been included under "other services". The purpose of this change was to present our core data more clearly. Revenue lines for prior periods were reclassified as well for comparison purposes.

Revenues from other services amounted to HUF 37 238 million in 2000, compared to HUF 22 133 in 1999 (a 68.2% increase). Other services include equipment sales, construction, maintenance and miscellaneous revenues.

Expenses

As of this quarterly report, provision expense for severance has been reclassified. In prior reports, we have included both severance provision expense and release of severance provision as part of other expense. In this report, severance provision expense as well as release of severance provision is shown as part of employee related expense. The 1999 expenses shown in this report have also been reclassified.

Employee-related expenses for the year ended December 31, 2000 totaled HUF 66 024 million, compared to HUF 56 630 million for the same period in 1999 (an increase of 16.6%). The growth in employee-related expenses results from higher severance provision as well as wage increases effective April 1, 2000, partially offset by headcount reductions. Efficiency improvements continued with a 6.5% year-on-year headcount reduction to 14 380 and an increase in the number of lines per fixed employee to 264 from 240 at the end of December 1999

Depreciation and amortization for the year ended December 31, 2000 amounted to HUF 77 940 million, compared to HUF 62 145 million for the same period in 1999 (an increase of 25.4%). The growth is a result of increased investment in fixed assets as well as charges taken in the fourth quarter of 2000 on certain fixed assets.

Payments to other network operators for the year ended December 31, 2000 totaled HUF 55 617 million, compared to HUF 44 184 million for the same period in 1999 (an increase of 25.9%). The increase was due to the increased penetration of mobiles and fixed lines.

The cost of telecommunications equipment sales in 2000 was HUF 34 111 million, compared to HUF 22 392 million for the same period in 1999 (an increase of 52.3%). This is mainly due to the increased number of mobile handsets sold.

Other operating expenses in 2000 amounted to HUF 99 382 million, compared to HUF 78 450 million for the same period in 1999 (an increase of 26.7%). Other operating expenses include materials, maintenance, marketing, service fees, energy and consultancy. The main components of the growth in other expenses include agency fees and costs of SIM cards related to acquiring new mobile customers, IT related expenses, maintenance costs of fixed line exchanges and mobile base stations and outsourced services.

Operating Profit

Operating profit totaled HUF 112 871 million for the year ended December 31, 2000, compared to HUF 121 131 million for the same period in 1999 Total revenues increased 15.9% to HUF 445 945 million in 2000, compared to HUF 384 932 million in 1999 Total operating expenses increased 26.3% to HUF 333 074 million in 2000 from HUF 263 801 million in 1999 Operating margin for the year ended December 31, 2000 was 25.3%, while operating margin for the same period in 1999 was 31.5%. Net Interest and Other Charges Net interest and other charges were HUF 20 992 million in 2000, compared to HUF 22 133 million 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 182 519 million on December 31, 1999, to HUF 189 366 million on December 31, 2000 Share of associates' results Share of associates' results amounted to HUF 2 174 million for the year ended December 31, 2000, compared to HUF 1 428 million for the same period in 1999, reflecting improved operating results of investments. Profit before taxation Profit before income tax amounted to HUF 94 053 million for the year ended December 31, 2000 versus HUF 100 426 million for the same period in 1999 Income tax Income tax increased from HUF 6 911 million in the year ended December 31, 1999 to HUF 8 208 million in the same period of 2000 due to the higher taxable income of the group. Minority Interest Minority interest in 2000 was HUF 17 082 million, compared to HUF 14 883 million for the same period in 1999 (an increase of 14.8%). This increase is due to the growth of Westel. Net Income Net income in 2000 was HUF 68 763 million, compared to HUF 78 632 million for the same period in 1999 (a decrease of 12.6%). BALANCE SHEET Total assets and total shareholders' equity and liabilities at December 31, 1999 were HUF 647 870 million. Total assets and total shareholders' equity and liabilities amounted to HUF 745 509 million as of December 31, 2000 The increase is attributable to operating results. Loans and other borrowings Current loans and other borrowings increased 342.2%, while non-current loans and other borrowing decreased 32.8% as of December 31, 2000 compared to December 31, 1999 due to reclassification of certain loans falling due within a one year period. Minority interests Minority interests increased 77.0% from December 31, 1999 to HUF 40 731 million at December 31, 2000 This increase was due to higher profits of Westel. Retained earnings Retained earnings increased 29.6% from December 31, 1999 to HUF 260 420 million at December 31, 2000 This increase was due to net income, partly offset by a dividend payment of HUF 9 335 million.