Magyar Telekom results for the second quarter of 2017

Magyar Telekom results for the second quarter of 2017

Budapest, August 2, 2017 18:00

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

Highlights:

Total revenues increased by 8.9% year-on-year to HUF 153.5 billion in Q2 2017 (Q2 2016: HUF 141.0 billion). This is largely due to strong growth in SI/IT revenues coupled with higher equipment sales. These factors are also behind the 5.3% revenue rise to HUF 294.0 billion in H1 2017 vs. H1 2016. Mobile revenues grew by 4.1% year-on-year to HUF 79.6 billion in Q2 2017, as increased mobile data and equipment revenues in both Hungary and Macedonia offset the decline in voice revenues. These trends resulted in a 3.4% increase in mobile revenues in the first half of 2017 compared to H1 2016. Fixed line revenues declined by 2.1% year-on-year to HUF 48.2 billion in Q2 2017 and by 1.9% to HUF 95.7 billion in H1 2017 compared to the first half of 2016, as higher TV and equipment revenues were offset by the decline in voice retail and broadband retail revenues. System Integration and IT (SI/IT) revenues rose sharply to HUF 24.4 billion in Q2 2017 (up by HUF 10.5 billion year-on-year) due to the acceleration of EU fund inflows to Hungary boosting typically high volume software and hardware delivery projects. This also resulted in SI/IT revenues of HUF 41.5 billion in the first half of 2017 (increase of HUF 12.3 billion vs. H1 2016). Energy service revenues decreased by 9.6% year-on-year to HUF 1.3 billion in Q2 2017 due to the lower electricity customer base and expiry of remaining gas universal contracts. Driven by the same factors, H1 2017 energy service revenues declined to HUF 2.9 billion (down 23.0% compared to H1 2016). As announced on July 31, 2017, the Company has decided to exit from the residential segment of the electricity market with effect from November 1, 2017.

Direct costs increased by 28.4% year-on-year to HUF 62.7 billion, mostly owing to the significant increase in SI/IT and equipment sales costs, in parallel to the related revenue rises. This also resulted in a 17.4% increase in direct costs in the first half of 2017 (to HUF 115.6 billion) vs. H1 2016. Interconnect costs decreased by 3.8% year-on-year to HUF 4.7 billion in Q2 2017 due to lower fixed traffic in both Hungary and Macedonia as well as the cut in Macedonian mobile termination rates. SI/IT service related costs rose to HUF 18.0 billion in Q2 2017, from 7.4 billion in Q2 2016, in line with the related revenue increases. Bad debt expenses improved by 29.7% year-on-year to HUF 1.5 billion in Q2 2017, thanks to enhanced Hungarian collection and credit check processes. Telecom tax increased by 3.9% year-on-year to HUF 6.4 billion in Q2 2017, driven by higher fixed and mobile voice traffic, encouraged by the growing popularity of flat packages in both segments. Other direct costs went up by HUF 4.1 billion year-on-year to HUF 30.9 billion in Q2 2017, due to an increase in the cost of equipment sales in Hungary (in line with a higher volume of smartphone and TV set sales) and higher Hungarian TV content related costs, mainly attributable to the new content fee introduced in July 2016.

Gross profit declined by 1.5% year-on-year in Q2 2017 to HUF 90.8 billion and by 1.3% in H1 2017 compared to H1 2016 to HUF 178.4 billion, due to a shift in revenue mix towards lower gross margin services.

Indirect costs improved by 1.1% year-on-year to HUF 43.0 billion in the second quarter of 2017, thanks to savings in other operating expenses. In H1 2017, indirect costs increased by 7.0% to HUF 92.2 billion compared to H1 2016 figures, due to the absence of positive one-off items (the sale of Origo and Infopark Building G). Employee related expenses remained stable year-on-year at HUF 20.1 billion in Q2 2017. Higher employee numbers resulted in increased employee related expenses at the Hungarian operations. However, in Macedonia there was a decline with similar volume due to the absence of one-off severance costs compared to Q2 2016, in relation to outsourcing of the network operation to Ericsson. H1 2017 employee related expenses decreased by 1.0% vs. H1 2016 to HUF 39.5 billion as the higher expenses in Hungary were offset by the lower severance expenses and savings related to the Macedonian network operation outsourcing. Other operating expenses were 1.5% lower year-on-year, amounting to HUF 24.2 billion in Q2 2017, thanks to cost saving measures resulting in lower advisory, HR-related and material costs. However, comparing H1 2017 to H1 2016, other operating expenses increased by 1.4% to HUF 47.3 billion, as in the first quarter, cost saving initiatives did not fully offset increased rental fees related to the sale and subsequent leaseback of Infopark (Building G) and rental of local state-of-the-art cable networks which did not impact the comparison from the second quarter onwards.Other operating income increased by 8.0% to HUF 1.3 billion in Q2 2017 thanks to higher income from brand fee received from the E2 energy joint venture. H1 2017 other operating income declined by HUF 5.7 billion compared to H1 2016, owing to the HUF 5.1 billion one-off profits realized on the Infopark and the Origo sale in Q1 2016.

EBITDA decreased by 1.8% to HUF 47.9 billion in Q2 2017, driven by the decline in gross profit that was partly mitigated by an improvement in indirect costs. For H1 2017, the decline was 8.9%, as the gross profit decline was coupled with the absence of one-off gains related to sale of Origo and Infopark (Building G) realized in Q1 2016.

Depreciation and amortization expenses increased by 2.6% year-on-year in Q2 2017 and by 2.1% in H1 2017 vs. H1 2016 to HUF 27.6 billion and HUF 53.3 billion, respectively. The increase is related to software

LINK:	http://www.telekom.hu/about_us/press_room/press_releases/2017/august_2...
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