Magyar Telekom_s financial results for the second quarter of 2013
Bundling strategy and retention efforts bearing fruit Budapest, August 8, 2013 00:00
Magyar Telekom today reported its consolidated financial results for the second quarter and first half of 2013, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Revenues increased by 7.9% in the second quarter of 2013 compared to the same period of 2012, from HUF 145.5 billion to HUF 156.9 billion. Revenue development reflects the significant increase in revenues both from energy services and mobile equipment sales, the growing revenues from SI/IT services and the improving underlying performance of Telekom Hungary.
EBITDA increased slightly by 0.3%, from HUF 49.6 billion to HUF 49.8 billion, while EBITDA margin was 31.7% compared to 34.1% in the same period last year. The margin decline reflects the increasing contribution of the lower margin retail energy, equipment sale and SI/IT revenues, partially offset by lower operating costs and operating taxes.
Employee-related expenses increased by HUF 0.5 billion in the second quarter compared to the same period last year primarily driven by the more intense workload with less holidays taken. At the same time, the impact of the average 4% wage increase at Telekom Hungary effective from April this year was offset by the lower headcount.
Income tax expense increased from HUF 3.1 billion in Q2 2012 to HUF 3.9 billion in Q2 2013. Higher income taxes were the result of higher operating profit and also the recognition of additional deferred tax liabilities related to our Macedonian holding subsidiary, Stonebridge, as its liquidation procedure is expected to be ceased, due to the currently existing unfavourable tax impacts of liquidations in Macedonia.
Profit attributable to the owners of the parent company (net income) increased from HUF 10.7 billion to HUF 12.2 billion primarily due to lower financial expenses and lower depreciation and amortization expenses driven by the lower fixed asset base. Financial expenses declined from HUF 7.3 billion in Q2 2012 to HUF 6.5 billion in Q2 2013 primarily driven by lower FX losses and lower interest rates that offset the increase in our net debt level.
Net cash generated from operating activities decreased by HUF 22.1 billion year-on-year, from HUF 63.6 billion in H1 2012 to HUF 41.5 billion in H1 2013. The deterioration is driven by the HUF 12.4 billion lower EBITDA year-on-year mainly reflecting the HUF 7.3 billion utility tax expense booked in Q1 2013 coupled with unfavourable movements in working capital. Although working capital was hit by the HUF 20.7 billion settlement charge in connection with the SEC and DOJ investigations in H1 2012, this impact was counterbalanced by a number of items adversely impacting working capital in H1 2013. These are the deferred payment options offered for equipment contracts, lower amount of unpaid special, telecom and utility tax as well as higher outpayments to suppliers. The decline was partially mitigated by the decline in interest payments that was due to the HUF 1.4 billion one-off payment in Q1 2012 in relation to the SEC and DOJ fine and lower interest payments on our loans.
Excluding the 900 MHz spectrum license fee (paid in Q1 2012 amounting to HUF 10.9 billion), investment in tangible and intangible assets (CAPEX) increased by HUF 11.3 billion in the first half, from HUF 29.3 billion to HUF 40.6 billion. The increase is due principally to the higher investments in relation to the integrated CRM and billing system development as well as the change in the rented IPTV set-top box contracts from operating to financial lease resulting in HUF 7.2 billion increase in CAPEX. The latter, however, was coupled with the same amount of improvement in adjustments to cash purchases thus overall neutral on the cash flow. In H1 2013, Telekom Hungary accounted for HUF 33.9 billion of total CAPEX and T-Systems Hungary HUF 1.0 billion. In Macedonia and Montenegro, CAPEX was HUF 4.4 billion and HUF 1.3 billion, respectively.
Free cash flow (operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets) deteriorated by HUF 4.1 billion in H1 2013 from HUF 8.0 billion to HUF 3.8 billion as the lower operating cash flow was partly mitigated by the lower cash CAPEX. The latter is the combined impact of slightly higher book capex offset by the significant improvement in adjustments to cash purchases.
Net debt rosefrom HUF 324.2 billion at the end of H1 2012 to HUF 342.6 billion at the end of H1 2013. The net debt ratio (net debt to total capital) rose to 41.8% during the quarter, reflecting the dividend payment in May.
Christopher Mattheisen,Chief Executive Officer commented :
I am very proud of our performance in the second quarter of 2013, as we continue to benefit from sustained growth. In Hungary, besides further strengthening our market position across all key segments, thanks to our retention efforts, we have managed to minimize churn in the high margin fixed voice segment and limit ARPU erosion in the mobile business. We strongly believe that these developments in some of our most important KPIs validate our strategy of bundling various services and equipment with core telecommunication services. These operational improvements are reflected in our financial results: we saw an 8 per cent increase in Group revenues year-on-year thanks to continued strong results in equipment sales, energy services and SI/IT revenues.
Our profitability also reflects improving results for the Hungarian residential business, where both direct margin and EBITDA have increased in the second quarter. This promising trend, coupled with our continued cost discipline, has led to a stable Group EBITDA performance in the second quarter of 2013 compared to a
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Magyar Telekom_s financial results for the second quarter of 2013 
