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Investor News

2012 fourth quarter results

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

Budapest, February 28, 2013 00:00

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 quarter compared 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 the HUF 22.1 billion settlement charge in 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 2012 compared 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 2012 year-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 billion at the end of 2011 to HUF 273.1 billion at the end of 2012. The net debt ratio (net debt to total capital) was 34.3% at the end of 2012.

Christopher Mattheisen, Chairman and CEO commented:
“As a result of strong growth in our retail gas and electricity revenues and significant expansion of other products including TV, mobile internet and SI/IT services, we recorded positive revenue growth in 2012, ahead of our expectations. The Christmas period, in particular, was characterized not only by strong sales of TV subscriptions, but also television sets. These fit well into our non-core strategy and help to support subscription growth. In the mobile segment, we continued to see great focus on smartphones during 2012, resulting in significant sales and penetration growth among our customer base. Almost 90% of the handsets sold to post-paid customers in the fourth quarter were smartphones, and approximately 80% smartphone buyers also subscribed to a mobile internet package.
Our continued focus on cost-cutting, in particular during the second half of the year, and the efficiency review of our real estate assets in Macedonia helped to control our underlying EBITDA decline which at -4.4% remained within the more optimistic part of the targeted range. This performance was further supported by the gain realized on the sale of our Pro-M subsidiary.
We have continued our internal efficiency programmes, made great progress in the mobile base station modernisation project whilst also broadened our 4G coverage to 99% of Budapest and 27% of Hungary by year-end. As a result of these initiatives, our capex – excluding spectrum acquisitions – of HUF 92.4 billion was slightly ahead of our HUF 90 billion target for the year.  

In the short-term, we expect market conditions to remain challenging due to sustained pressures on disposable income levels and continued intense competition, along with persistent negative impacts from recently introduced fiscal measures. Whilst watchful cost management and identifying new revenue sources will, in this context, remain among our key priorities, we expect our overall profit margin to decline further in 2013. We estimate that our revenues will decline by up to 3%, our reported EBITDA by 4-7% and our capex (excluding any spectrum acquisitions) by approximately 5%.”

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