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Magyar Telekom results for the third quarter of 2018


Magyar Telekom results for the third quarter of 2018

Budapest, November 7, 2018 18:00

Magyar Telekom today reported its consolidated financial results for the third quarter and first nine months of 2018, in accordance with International Financial Reporting Standards (IFRS).


Total revenues (excluding the impact of IFRS 15 adoption) increased by 5.4% year-on-year to HUF 163.8 billion in Q3 2018 and by 7.1% to HUF 481.1 billion in the first nine months of 2018, compared to the corresponding periods in 2017.Revenue growth continued to be primarily driven by a strong increase in SI/IT revenues, along with higher equipment sales and mobile data usage.

Mobile revenues (excluding IFRS 15 impacts) increased by 5.5% year-on-year to HUF 90.2 billion in Q3 2018 and by 5.1% year-on-year to HUF 251.6 billion in the first nine months of 2018. This was driven by the continued strong growth of both mobile data and equipment sales revenues.

Fixed line revenues (excluding IFRS 15 impacts) rose by 2.5% year-on-year to HUF 50.1 billion in Q3 2018 and by 5.1% to HUF 152.1 billion in the first nine months of 2018. This growth was attributable to rising equipment sales as well as higher TV and broadband retail service revenues.

System Integration (SI) and IT revenues grew by 19.8% year-on-year to HUF 23.5 billionin Q3 2018 , resulting in year-on-year revenue growth of 26.7% for the first nine months of 2018. Growth continued to be driven by public sector projects in Hungary, whereas in Macedonia, the increase in SI/IT revenues was driven by the higher volume of customized solutions projects.

Energy Services were discontinued following the exit from the residential segment of the electricity market, as of November 1, 2017.

Direct costs (excluding IFRS 9 and 15 impacts) increased by 19.9% year-on-year, to HUF 69.6 billion in Q3 2018 (by 17.1% year-on-year to HUF 203.3 billion in the first nine months of 2018), driven by higher SI/IT and equipment costs, in line with the growth delivered in related revenue lines.

Interconnect costs increased by 12.2% year-on-year to HUF 5.4 billion in Q3 2018, reflecting increased mobile traffic in Hungary which led to higher payments to domestic mobile operators.

SI/IT service related costs increased by 24.4% year-on-year to HUF 16.3 billion in Q3 2018, driven by a higher volume of related projects.

Bad debt expenses deteriorated by HUF 0.5 billion year-on-year to HUF 2.0 billion in Q3 2018. This was driven primarily by individual impairments in Hungary which could not be offset by some improvement recorded in Macedonia which was driven by lower impairment costs related to mobile services.

Telecom tax grew slightly by 0.7% year-on-year to HUF 6.4 billion in Q3 2018, reflecting higher mobile traffic in Hungary, both in the retail and business segments.

Other direct costs increased by 27.4% year-on-year, to HUF 39.6 billion in Q3 2018, primarily due to an increase in the cost of equipment sales in line with higher sales, and an increase in TV outpayments.

Gross profit (excluding IFRS 9 and 15 impacts) decreased by 3.3% year-on-year to HUF 94.2 billion in Q3 2018. This was driven by the increasing weight of lower margin services in the sales mix, as well as the absence of the one-off effect of a provision reversal related to the ceased loyalty program in Hungary that impacted Q3 2017. In the first nine months of 2018, gross profit moderately increased to HUF 277.8 billion, as the strong increase in revenues outweighed the above effects.

Indirect costs (excluding IFRS 9 and 15 impacts) increased by 1.1% year-on-yearto HUF 40.6 billionin Q3 2018 as savings in other operating expenses failed to fully offset higher employee related expenses and the decline in other operating income. In the first nine months of 2018, indirect costs improved to HUF 131.3 billion, thanks to savings in other operating expenses.

Employee-related expenses rose by 8.1% year-on-year at HUF 20.1 billion in Q3 2018. The growing impact of changes to the trainee employment-form at the Hungarian operation and a 5% average wage increase at the Company was coupled with higher severance expense related to changes in the organization structure.

Other operating expenses improved by 9.7% year-on-year to HUF 21.3 billion in Q3 2018 as savings in maintenance and energy expenses coupled with a one-time correction related to bank charges fully offset higher rental fees in relation to the new headquarters.

Other operating income decreased by HUF 1.3 billion year-on-year to HUF 0.9 billion in Q3 2018, reflecting lower income received from the brand fee for the E2 energy joint venture, as well as the absence of the one-off gain related to a real estate sale which positively impacted the Q3 2017 results.

EBITDA (excluding IFRS 9 and 15 impacts) declined by 6.3% year-on-year to HUF 53.6 billion in Q3 2018 reflecting the combined impact of lower gross profit and some increases in indirect costs. In the first nine months of 2018, EBITDA improved by 2.2% year-on-year to HUF 146.5 billion as both gross profit and indirect costs improved compared to the corresponding period in 2017.

Depreciation and amortization expenses increased by 10.7% year-on-year to HUF 29.9 billion in Q3 2018 and by 6.8% to HUF 85.8 billion in the first nine months of 2018, driven by shortened useful lives of customer connections related network elements.

Profit for the period from continuing operations (excluding IFRS 9 and 15 impacts) decreased by 22.1% year-on-year to HUF 15.1 billion in Q3 2018 , as lower EBITDA coupled with an increase in D&A expenses more than offset the positive impact of lower income tax expense. In the first nine months of 2018, profit for the period from continuing operationsincreased by 12.5% to HUF 39.5 billion thanks to higher EBITDA, coupled with savings in financial an
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