Magyar Telekom results for the second quarter of 2016 Budapest, August 4, 2016 18:00
Magyar Telekom today reported its consolidated financial results for the second quarter of 2016, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Total revenues amounted to HUF 148.2 billion in Q2 2016 compared to HUF 158.5 billion in Q2 2015, representing a decline of 6.5% year-on-year , mostly as a result of lower SI/IT revenues, as well as a partial exit from the energy business. Stripping out contributions from SI/IT and energy, core like-for-like revenues increased by 2.2% in Q2 2016 due to improvement in mobile revenues. Total revenues decreased by 7.0% to HUF 293.2 billion in the first half of 2016 compared to H1 2015 driven by the same influencing factors as the ones affecting the quarterly results. However, year-to-date fixed line revenues slightly improved, where revenue surplus from GTS acquisition compensated for the Origo deconsolidation. Mobile revenues amounted to HUF 79.8 billion in Q2 2016 , compared to HUF 76.9 billion in the same period of the previous year representing a 3.8% improvement. Higher mobile data, equipment and other revenues offset the shrinking voice retail and SMS revenues. On a year-to-date basis, mobile revenues remained roughly stable in H1 2106 as a result of the similar trends witnessed in the second quarter, as well as the Mobile Termination Rate (MTR) cut in Hungary negatively effecting Q1 2016. Fixed line revenues remained stable at HUF 52.7 billion in Q2 2016 as improvement in broadband retail, TV and other revenues were offset by the decline in voice retail and equipment revenues. We witnessed a positive performance in Hungary but a decline at both foreign subsidiaries. Year-to-date fixed line revenues increased by 1.1% in the first half of this year partly thanks to the GTS acquisition effect in the first quarter. System Integration and IT (SI/IT) revenues dropped by 23.1% (down by HUF 4.3 billion) to HUF 14.3 billion due to the slowdown of EU fund inflows to Hungary partly mitigated by revenue growth in Macedonia. On the other hand, SI/IT gross profit increased by 2.1% resulting in a 46.4% margin in Q2 2016 (up from 35.0% in Q2 2015). Year-to-date SI/IT revenues declined only by 4.0% thanks to the strong first quarter results principally reflecting the carry forward of projects started in 2015. Energy Service revenues decreased to HUF 1.5 billion compared to HUF 10.4 billion in the same period of 2015, due to the exit from the residential gas business as of August 1, 2015 and the transfer of the B2B energy business into the joint venture (E2) with MET Holding AG as of January 1, 2016. Our energy revenues were down by HUF 23.4 billion in the first half of 2016 due to the same reasons.
Direct costs decreased by 19.9% to HUF 44.9 billion, mainly due to a sharp decline in energy service related costs following the exit from the residential gas and B2B energy business, as well as lower SI/IT related costs, compensating the increasing in other direct costs. On a year-to-date basis, direct costs declined by 20.6% to HUF 90.4 billion as a result of the same drivers. Interconnect costs increased by 9.9% to HUF 5.4 billion in Q2 2016 due to increased GTS fix voice and wholesale outpayments compared to Q2 2015. On the other hand, interconnect costs in H1 2016 decreased by 17.4% year-on-year to HUF 10.8 billion because of the MTR cut effecting the first quarter. SI/IT service related costs dropped by 36.6% on quarterly and 10.3% on year-to-date basis, mainly in line with dwindling revenues of the business line. Other direct costs went up by HUF 1.4 billion to HUF 28.1 billion due to higher cost of mobile accessories and other equipment sales, partly offset by savings on device related costs due to lower high-end handset, TV, tablet and notebook sales. In the first half of 2016, other direct costs increased by 4.5% compared to the first half of 2015 as a result of the above factors, partly mitigated by savings on TV and other content related costs. Bad debt expenses remained roughly stable at HUF 2.3 billion in the second quarter of 2016 compared to the same period last year. On year-to-date basis bad debt expenses deteriorated by 13.0% to HUF 4.7 billion, mainly owing to significantly higher amount of impairment loss charged in Q1 2016 and lower debt collection in Macedonia and Montenegro.
Gross margin slightly improved both on quarterly and year-to-date basis and amounted to HUF 103.2 billion and HUF 202.8 billion, respectively. Improvement in the MT Hungary segment (TV, fixed and mobile broadband, as well as SI/IT margins) counterbalanced the declines at our foreign subsidiaries and the margin effect of the lower energy revenues.
Indirect costs deteriorated by 3.7% in the second quarter of 2016 compared to the same period last year due to higher other operating expenses offsetting the savings in employee related costs. At the same time, indirect costs improved by 3.3% on year-to-date basis, mainly driven by one-offs related to the Origo sale and the real estate transaction (Infopark). Furthermore, employee related expenses improved, while other operating expenses deteriorated resulting in the above mentioned improvement coupled with the one-offs. Employee-related expenses improved by HUF 1.1 billion to HUF 21.2 billion due to savings in the quarter stemming from the headcount reduction program implemented in 2014 and 2015, partly offset by lower capitalization of project related employee related costs, wage and cafeteria increase, as well as severance costs in Macedonia in relation to the outsourcing of the network operation to Ericsson. In the first half of 2016 employee related expenses improved by 4.9% and amounted to HUF 42.1 billion driven by the lay-off program in Hungary mentioned previously. Hungarian se
