Magyar Telekom results for the first quarter of 2017

Magyar Telekom results for the first quarter of 2017

Budapest, May 10, 2017 18:00

Magyar Telekom today reported its consolidated financial results for the first quarter of 2017, in accordance with International Financial Reporting Standards (IFRS).

Highlights:

Total revenues, without the contribution of Crnogorski Telekom, increased 1.6% year-on-year to HUF 140.5 billion in Q1 2017 (Q1 2016: HUF 138.3 billion) . This increase was largely driven by mobile data, equipment sales and SI/IT revenue growth. Mobile revenues increased by 2.7% to HUF 74.3 billion in Q1 2017, as the continued growth in mobile data and equipment sales offset the decline in voice revenues. Fixed line revenues declined by 1.7% to HUF 47.5 billion in Q1 2017 , due to lower voice, broadband, wholesale and other revenues. At the same time, the first quarter saw increased TV revenues and equipment sales. System Integration (SI) and IT revenues improved by 11.4% year-on-year to HUF 17.1 billion in Q1 2017 , thanks to two major public procurement projects won: an infrastructure implementation project for the FINA World Championships, and an equipment delivery and system implementation project for the National University of Public Services. Furthermore, IT service sales in the Hungarian SMB segment also increased. Energy Services revenues decreased to HUF 1.6 billion in Q1 2017 , due to a contracting electricity customer base and expiry of the last remaining gas universal contracts.

Direct costs increased by 6.5% to HUF 52.9 billion in Q1 2017 compared to Q1 2016. Telecom tax was reclassified from Other operating expenses to Direct costs since Management believes that presenting the new direct cost breakdown the financial data of the Group become more transparent. The increase in direct costs is a result of higher SI/IT and other costs, partly offset by lower energy service related costs and bad debt expense. Interconnect costs decreased to HUF 4.4 billion, driven by lower fixed traffic in both Hungary and Macedonia. SI/IT service related costs increased by HUF 1.4 billion to HUF 10.7 billion, reflecting higher revenues. Bad debt expenses improved by 25.6% to HUF 1.7 billion, thanks to an enhanced collection and credit check process. Telecom tax decreased by 5.4% to HUF 5.9 billion, reflecting the changing customer behavior. Other direct costs increased by 15.5% to HUF 28.8 billion, due to an increase in the cost of equipment sales in line with a higher volume of Hungarian smartphone sales, as well as to higher TV content related costs, mainly attributable to the new content fee introduced in July 2016 in Hungary.

Gross profit decreased by 1.2% year-on-year to HUF 87.6 billion in Q1 2017 as improved SI/IT margin and lower bad debt expense were more than offset by the increase in mobile equipment subsidies and TV service margin deterioration due to the new content fee.

Indirect costs increased by 1.5% to HUF 50.0 billion in Q1 2017 and other operating income significantly declined due to one-offs (sale of a real estate and Origo) positively impacting Q1 2016 results. Employee-related expenses improved by 2.1% to HUF 19.4 billion as a proportionately higher level of employee costs were related to projects capitalized in Q1 2017 than in the Q1 2016, whilst outsourcing to Ericsson resulted in savings in Macedonia. Hungarian utility tax in Q1 2017 was HUF 7.4 billion, HUF 0.2 billion higher than in Q1 2016, reflecting network acquisitions, as well as an increased length of taxable network due to refinement of the cable network records . These offset the positive effects of Magyar Telekom's tax credit relating to those new network investments and upgrades which enable internet access of least 100 Mbps. Other operating expenses increased by 4.5% to HUF 23.2 billion, driven by higher rental fees related to the sale and subsequent leaseback of Infopark (Building G) and the rental of local state-of-the-art cable networks, while maintenance, repairs, and remedial work expenses also increased in Hungary. In addition, maintenance costs increased in Macedonia due to the outsourcing to Ericsson. Other operating income declined sharply year-on-year to HUF 0.8 billion, reflecting the absence of above-mentioned one-off items, as well as provision reversals relating to the amendment of the collection flat rate in Q1 2016.

EBITDA declined by 16.5% year-on-year to HUF 38.3 billion in Q1 2017, due to lower gross margin and higher indirect costs, as well as an unusually high Q1 2016 comparison figure, supported by one-off items.

Depreciation and amortization expenses increased by 1.6% to HUF 25.7 billion, reflecting the software activation related to new billing and CRM systems in Hungary.

Profit for the period from continuing operations fell by 54.6% to HUF 4.8 billion in Q1 2017. Operating profit declined by 38.8% to HUF 12.6 billion, impacted by both lower EBITDA and higher D&A compared to Q1 2016. Net financial loss narrowed to HUF 6.1 billion in Q1 2017, driven by the decline in interest expense thanks to lower average interest rates and lower total amount of loans outstanding. The lower interest expense was partly offset by higher losses on the fair valuation of derivatives, as in Q1 2017 the HUF strengthened by 0.75% against the EUR compared to a 0.33% weakening in Q1 2016. Income tax expense declined by 39.0% to HUF 2.1 billion in Q1 2017. The lower income tax expense reflects the significant decline in profit before income tax; although offset to a degree by the local tax.

Profit attributable to non-controlling interests increased to HUF 0.7 billion in Q1 2017, due to higher profit in Macedonia, where lower depreciation and amortization expenses more than offset the EBITDA decline.

Profit from discontinued operation : In January 2017, the Company signed a share purchase agreement with Hrvatski Telekom d

LINK:	http://www.telekom.hu/about_us/press_room/press_releases/2017/may_10...
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