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Press Releases

Magyar Telekom results for the second quarter and first half of 2022

Budapest, August 9, 2022 17:30

Magyar Telekom today reported its consolidated financial results for the second quarter and first half of 2022, in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU. The quarterly financial report contains unaudited figures for each reporting periods.

Total revenue increased by 10.9% year-on-year to HUF 184.2 billion in Q2 2022 and by 9.6% year-on-year to HUF 360.1 billion in the first six months of 2022. Improvement was primarily driven by the strong growth in mobile data and higher equipment sales whilst weakening of the Hungarian forint against the North Macedonian denar amplified the North Macedonian subsidiary’s contribution.

  • Mobile revenue rose by 12.2% year-on-year to HUF 104.8 billion in Q2 2022, driven by growth in mobile data revenue and higher equipment sales which offset lower voice revenue at both countries of operation.
  • Fixed line revenue increased by 7.7% year-on-year, to HUF 59.3 billion in Q2 2022 thanks primarily to increases in fixed broadband and TV revenues driven by the customer base expansion at the Hungarian operation.
  • System Integration (SI) and IT (‘SI/IT’) revenues increased by 13.8% to HUF 20.1 billion in Q2 2022 primarily thanks to revenue from a major project in North Macedonia related to the Smart City Skopje initiatives. SI/IT revenues in Hungary were moderately up year-on-year as the negative impact of the absence of revenues formerly generated by healthcare business unit including Pan-Inform LLC were offset by favorable in-year project distribution.

Direct costs increased, in line with revenues by 13.0% year-on-year to HUF 78.7 billion in Q2 2022, mainly driven by increase in SI/IT related expenses and higher equipment costs.

  • Interconnect costs decreased by 7.3% year-on-year to HUF 5.8 billion in Q2 2022, reflecting lower payments at the Hungarian operation to domestic mobile operators in relation to lower SMS traffic as well as decline in voice related outpayments.
  • SI/IT service-related costs increased by 17.0% year-on-year to HUF 14.9 billion in Q2 2022, driven by increased project volumes in both countries of operation.
  • Bad debt expenses remained broadly stable year-on-year, amounting to HUF 2.0 billion in Q2 2022, reflecting similar tendencies compared to a year earlier.
  • Telecom tax declined by 3.7% year-on-year to HUF 6.6 billion in Q2 2022, driven by lower fixed and mobile voice traffic at the Hungarian operation.
  • Other direct costs were up 18.0% year-on-year to HUF 49.6 billion in Q2 2022, driven by higher equipment costs parallel to the increase in sales volumes and an increase in roaming outpayments driven by the easing of travel limitations compared to a year earlier.

Gross profit improved by 9.3% year-on-year to HUF 105.5 billion in Q2 2022, thanks to a higher contribution from telecommunication services, particularly data, at both countries of operation.

Indirect costs rose by HUF 10.4 billion year-on-year, to HUF 47.6 billion in Q2 2022, primarily reflecting the booking of the newly introduced supplementary telecommunication tax that offset savings in both employee-related and other operating expenses.

  • Employee-related expenses were down by 8.2% year-on-year, amounting to HUF 18.8 billion in Q2 2022, reflecting lower severance expenses, different timing of bonus provisions, while the impact of the general wage increase was broadly offset by the reduction in headcount.
  • Supplementary telecommunication tax, imposed by the Government of Hungary with its decree issued on June 4, is levied on the actual business year’s annual net sales of electronic telecommunication services as defined by the law on local taxes and is payable for the full years 2022 and 2023. As a consequence, a HUF 12.4 billion expense was booked in Q2 2022, in relation to the first six months 2022 supplementary tax charge.
  • Other operating expenses (excluding the supplementary telecommunication tax) improved moderately year-on-year to HUF 17.0 billion in Q2 2022, as negative impact of cost pressure stemming from high general inflation and weakening of the forint and reflected primarily at subcontractor costs, as well the higher energy costs in North Macedonia were offset by the combined impact of lower marketing expenses in both countries of operation due to different within-year seasonality and a one-off accrual reversal in Hungary.
  • Other operating income was broadly stable year-on-year, amounting to HUF 0.7 billion in Q2 2022.

EBITDA declined by 2.3% year-on-year to HUF 57.9 billion in Q2 2022 as the improvement in gross profit was offset by the booking of the supplementary telecommunication tax. EBITDA AL was down by 3.5% year-on-year to HUF 51.4 billion in Q2 2022, with the above drivers coupled with higher IFRS 16 lease liability related depreciation and interest expenses in line with the increasing volume of the related lease liabilities.

Depreciation and amortization (‘D&A’) expenses declined by 4.0% year-on-year to HUF 35.2 billion in Q2 2022, driven by lower depreciation expenses at the Hungarian operation attributable to full copper network retirement in some areas of Hungary and the proportionally lower amortization of the spectrum licenses that expired in April 2022 and were reacquired earlier. These declines were partly offset by some increase in North Macedonia due to shortened useful life and accelerated depreciation in relation to RAN modernization.

Profit for the period decreased from HUF 14.5 billion in Q2 2021 to HUF 11.7 billion in Q2 2022, as increasing financial expenses were weighing on the broadly stable operating profit.

  • Net financial result deteriorated from a loss of HUF 4.0 billion in Q2 2021 to a loss of HUF 6.5 billion in Q2 2022. Interest expense increased primarily driven by the higher interest related to lease liabilities whilst the unfavorable change in other finance expense reflects higher losses related to the significant weakening of the forint during the period that offset the gains on the recognition of derivatives at fair value caused also by the upward shift of the relevant yield curves.
  • Income tax expenses increased by HUF 0.4 billion to HUF 4.4 billion in Q2 2022, as the increase in local business tax parallel to higher related tax base and different within-year tax expense distribution offset the saving related to the year-on-year lower level of the profit before tax.

Profit attributable to non-controlling interests increased by 14.5% year-on-year to HUF 1.2 billion in Q2 2022, reflecting the improvement in business performance at the North Macedonian subsidiary, amplified by the strengthening of the North Macedonian denar against the forint year-on-year.

Free cash flow, excluding spectrum license fees, amounted to HUF 32.4 billion in the first six months of 2022, improving by HUF 21.1 billion year-on-year; the positive underlying results coupled with one-off cash inflow from the sale of Pan-Inform LLC offset higher income tax payment settlements and losses incurred due to the weakening of the forint, whilst payment of the new supplementary telecommunication tax will be due only in Q4 2022.

Operational highlights

  • Strong focus on investment in fixed and mobile networks, vital to maintaining superior customer experience, continued in both countries of operation with accelerated fiber roll-out and RAN modernization and the switch-off of Hungarian 3G service allowing for more efficient frequency and energy utilization
  • Customer base expansion in Hungary continued into Q2 2022: fixed broadband subscriptions rose by 7.3%, TV customers increased by 6.1% while the mobile postpaid SIM base rose by 5.1% year-on-year
  • Hungarian fiber network penetration continued to rise in parallel with the expansion of the coverage; the number of fiber customers rose by 27% year-on-year by the end of June 2022
  • Growth in mobile data usage was sustained with average monthly usage reaching 9.1 GB in Q2 2022

 

Tibor Rékasi, Magyar Telekom CEO commented:

 

“Magyar Telekom maintained positive momentum into the second quarter despite strongly increasing macroeconomic pressure. We leveraged our superior customer experience and focus on investment into our fixed and mobile networks to meet continued strong demand for mobile data, broadband and TV services. The retirement of our 3G network was an important event in our transition from legacy technology towards more energy efficient infrastructure, and allowing the Group to increase throughput capacities by redeploying relevant frequency bands to deliver 4G and 5G services. Our operational achievements are reflected in year-on-year revenue growth of 10.9% and gross profit growth of 9.3% in Q2 2022.

The supplementary telecommunication tax levied by the Hungarian Government affected our profitability, reducing H1 2022 EBITDA AL by around 10%. For the second quarter the impact on EBITDA AL was even stronger, supplementary telecommunication tax reduced EBITDA AL by 19% resulting in 3.5% year-on-year decrease of our profitability.

Looking ahead, we expect the inflationary environment and the weakening of the forint to put increasing pressure on our costs, while a potential economic downturn could negatively impact our top line performance. Yet we remain committed to focusing on the delivery of our strategic objectives in line with the guidance modified following announcement on supplementary telecommunication tax.”

Public targets

Public guidance