Magyar Telekom results for the fourth quarter of 2019

Magyar Telekom results for the fourth quarter of 2019

Budapest, February 18, 2020 16:00

Magyar Telekom today reported its consolidated financial results for the fourth quarter and full year of 2019, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

Total revenues increased by 4.1% year-on-year to HUF 182.3 billion in Q4 2019, attributable to the recovery in the Hungarian System Integration and IT revenues coupled with continued growth in mobile data revenues in both countries of operation. Total revenue for the year amounted to HUF 666.7 billion, up 1.5% versus 2018, as growth in service revenues and increased equipment sales offset a reduction in SI/IT revenues.

Mobile revenues grew by 3.3% year-on-year to HUF 94.5 billion in Q4 2019 and HUF 354.4 billion in 2019, as growth in mobile data revenues helped to offset lower voice revenues in both countries of operation.

Fixed line revenues were 1.8% higher year-on-year at HUF 55.0 billion in Q4 2019 and 2.8% higher at HUF 212.7 billion for the full year, attributable to rising TV and broadband retail service revenues.

System Integration (SI) and IT revenues increased by 10.9% year-on-year to HUF 32.8 billion in Q4 2019, driven by strong growth in both Hungary and North Macedonia, reflecting the seasonality of public sector tender volumes which were lower in previous quarters. SI/IT revenues recorded a decline of 6.9% to HUF 99.6 billion in 2019 driven by lower project volumes in Hungary. The decline was attributable to a lower volume of hardware and software sales primarily within the public segment coupled with the absence of a major PC delivery project. This could not be fully offset by the strong growth recorded in North Macedonia where the recovery in demand for public sector projects, especially in the field of customized solution projects, was the major driver of SI/IT revenue improvement.

Direct costs increased by 7.3% year-on-year to HUF 88.3 billion in Q4 2019, reflecting higher equipment and SI/IT related costs in both countries of operation, coupled with increased TV content fees in Hungary. For the full year 2019, direct costs increased by 1.9%, mainly attributable to higher equipment costs and TV content fees which offset the decline in SI/IT expenses in Hungary and an increase in SI/IT related expenses in North Macedonia.

Interconnect costs were up 1.2% year-on-year to HUF 5.3 billion in Q4 2019, as increased payments to mobile operators (reflecting higher off-network mobile traffic) were counterbalanced by lower outpayments to fixed operators in both countries.

SI/IT service related costs increased by 16.6% year-on-year to HUF 23.6 billion in Q4 2019, driven by higher project volumes in both Hungary and North Macedonia. For the full year 2019, SI/IT costs declined by 5.0% year-on-year, reflecting a revenue decline in Hungary.

Bad debt expenses improved by 11.8% year-on-year to HUF 3.1 billion in Q4 2019. This improvement is the combined result of higher factoring results and favourable ageing of receivables in Hungary, partly offset by the absence of one-off items which positively impacted the bad debt expense in Q4 2018 in Hungary and higher one-off expenses in North Macedonia.

Telecom tax was down 4.6% year-on-year at HUF 6.0 billion in Q4 2019, as lower residential fixed voice usage and an overall voice usage decline among business customers more than offset the growth in the residential mobile traffic in Hungary.

Other direct costs increased by 7.1% year-on-year to HUF 50.2 billion in Q4 2019, reflecting an increase in equipment costs, TV content fees and roaming outpayments in Hungary, coupled with higher equipment costs in North Macedonia.

Gross profit increased by 1.3% year-on-year to HUF 94.1 billion in Q4 2019 and by 1.1% to HUF 374.2 billion for the full year 2019. This result is broadly attributable to the improved performance of telecommunication services, partly offset by lower SI/IT profit contribution.

Indirect costs improved by 21.1% year-on-year to HUF 36.4 billion in Q4 2019, and by 13.5% to HUF 153.7 billion in the full year. Excluding the impact of IFRS 16 adoption, indirect costs were down 10.0% at HUF 41.6 billion in Q4 2019 and improved by 2.5% to HUF 173.2 billion in the full year 2019.

Employee-related expenses declined by 14.2% year-on-year to HUF 19.8 billion in Q4 2019, driven by lower headcount in both Hungary and North Macedonia coupled with lower bonus expenses compared to a year earlier which more than offset the impact of wage increases in Hungary.

Other operating expenses were down HUF 9.2 billion year-on-year at HUF 20.2 billion in Q4 2019, reflecting the impact of IFRS 16 adoption as well as savings in marketing, HR-related, materials and maintenance costs at the Hungarian operation.

Other operating income declined by HUF 2.7 billion year-on-year to HUF 3.5 billion in Q4 2019, mostly attributable to lower income from of real estate sales in Hungary.

EBITDA increased by 23.4% year-on-year to HUF 57.6 billion in Q4 2019, and by 14.6% year-on-year to HUF 220.6 billion in 2019. Excluding the impact of IFRS 16 adoption, EBITDA was up 12.4% year-on-year in Q4 2019 and up 4.4% year-on-year in the full year.

Depreciation and amortization (D&A) expenses rose by HUF 7.9 billion year-on-year to HUF 37.7 billion in Q4 2019, with IFRS 16 adoption accounting for a HUF 4.8 billion increase. The remaining increase reflects the shortened useful life of certain copper network related elements in relation to the copper retirement program in Hungary, while in North Macedonia the increase reflected changes in the useful life of several assets.

Profit for the period increased from HUF 7.7 billion in Q4 2018 to HUF 13.0 billion in Q4 2019, attributable to improvements in both operating and financial results. For the full year 2019, net pro

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