Magyar Telekom result for the third quarter of 2019
Budapest, November 6, 2019 17:00
Magyar Telekom today reported its consolidated financial results for the third quarter and first nine month of 2019, in accordance with International Financial Reporting Standards (IFRS).
Total revenues increased moderately by 0.6% year-on-year, to HUF 164.6 billion in Q3 2019, as the continued positive trend in fixed and mobile service revenues in both Hungary and North Macedonia offset a decline in System Integration and IT revenues in Hungary. Total revenue in the first nine months of 2019 amounted to HUF 484.3 billion, up 0.5% year-on-year, as growth in service revenues coupled with increased equipment sales offset a reduction in SI/IT revenues.
Mobile revenues were broadly stable year-on-year at HUF 90.1 billion in Q3 2019, as growth in mobile data revenues in both countries of operation helped to offset lower voice revenues and a decline in equipment sales in Hungary. In the first nine months of 2019, mobile revenues grew by 3.3% year-on-year to HUF 259.8 billion, reflecting higher mobile data and equipment sales revenues.
Fixed line revenues were up 4.1% higher year-on-year at HUF 52.3 billion in Q3 2019 and 3.1% higher at HUF 157.7 billion in the first nine months of 2019. This is attributable to rising TV and broadband retail service revenues as well as higher revenues from equipment sales.
System Integration (SI) and IT revenues declined by 5.4% year-on-year to HUF 22.2 billion in Q3 2019, driven by lower income from Hungarian public sector projects compared to the prior year. In North Macedonia, the revenue decline was driven by a change in the seasonality of project deliveries. In the first nine months of 2019, SI/IT revenues were down 13.7% year-on-year, due to the absence of the benefit from a major PC delivery completed for the education sector in Q2 2018.
Direct costs were down 1.2% year-on-year, at HUF 69.3 billion in Q3 2019, reflecting a one-off decline in bad debt expenses driven by changes in impairment rates. In the first nine months of 2019, direct costs were broadly stable year-on-year as the significantly lower SI/IT related expenses offset an increase in other direct costs.
Interconnect costs were down 1.5% year-on-year at HUF 5.4 billion in Q3 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 remained broadly stable at HUF 16.2 billion in Q3 2019 compared to a year earlier, driven by a change in the project mix.
Bad debt expenses improved by HUF 0.9 billion year-on-year to HUF 1.4 billion in Q3 2019, reflecting a one-off favourable impact driven by the reduction of the impairment rates applied to the Hungarian fixed and mobile operations which was partially offset by deterioration in mobile instalment receivables in Hungary (unfavourable ageing and lower factoring results) and one-off impairments in North Macedonia. In the first nine months of 2019, bad debt expenses were broadly unchanged at Group level at HUF 5.9 billion as the positive impact of the impairment rate change was fully offset by deterioration in mobile instalment receivables, higher expenses related to the higher fixed and mobile revenues in Hungary and the absence of one-off items positively impacting the prior year figures in North Macedonia.
Telecom tax was down 3.7% year-on-year, at HUF 6.2 billion in Q3 2019, as the lower fixed voice usage more than offset the growth in the residential mobile traffic in Hungary.
Other direct costs increased by 1.1% year-on-year, to HUF 40.2 billion in Q3 2019, reflecting an increase in content fees and roaming outpayments partly offset by lower equipment costs in Hungary whereas other direct costs remained stable in North Macedonia. In the first nine months of 2019, other direct costs at Group level increased by 6.4% year-on-year, owing to higher roaming and TV content outpayments and an increase in equipment costs.
Gross profit increased by 1.9% year-on-year to HUF 95.4 billion in Q3 2019 and by 1.0% to HUF 280.2 billion in the first nine months of 2019. This result is broadly attributable to improved performance of telecommunication services, offset by lower SI/IT profit contribution.
Indirect costs year-on-year improved by 11.9% to HUF 35.7 billion in Q3 2019, and by 10.8% to HUF 117.2 billion in the first nine months of 2019. Excluding the impact of IFRS 16 adoption, indirect costs were down 0.3% at HUF 40.4 billion in Q3 2019, and broadly stable at HUF 131.7 billion in the first nine months of 2019.
Employee-related expenses declined by 10.6% year-on-year, to HUF 18.1 billion in Q3 2019, driven by lower headcount in both Hungary and North Macedonia coupled with lower amount of severance expenses compared to a year earlier that more than offset the impact of wage increases at the Hungarian operation. In the first nine months of 2019, employee-related expenses were up 0.8% year-on-year, due to HUF 3.0 billion in severance expenses recorded in Q1 2019 in relation to the Hungarian headcount reduction programme.
Other operating expenses were down HUF 2.2 billion year-on-year at HUF 19.1 billion in Q3 2019, reflecting the impact of IFRS 16 adoption. The underlying increase in other operating expenses reflects higher rental and marketing expenses in Hungary as well as the absence of a one-time correction related to bank charges positively impacting prior year's results. These increases could not be fully offset by the decline in other operating expenses in North Macedonia where lower marketing expenses contributed to this change.
Other operating income increased by HUF 0.5 billion year-on-year to HUF 1.4 billion in Q3 2019, mostly attributable to income from sale of smaller holiday results
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Magyar Telekom result for the third quarter of 2019 
