Magyar Telekom results for the fourth quarter of 2015
Budapest, February 24, 2016 18:00
Magyar Telekom today reported its consolidated financial results for the fourth quarter and the full year of 2015, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Revenues in Q4 2015 rose by 10.7% quarter on quarter from HUF 165.3 billion to HUF 182.9 billion, driven by outstanding SI/IT performance, as well as the solid growth in the fixed line business. Mobile revenues decreased by 4.1% compared to the same period of last year, mainly due to the fall in wholesale revenues following the sharp decrease in Mobile Termination Rates (MTRs) in Hungary, as well as a decline in SMS and equipment sales. At the same time, mobile data revenues increased significantly over this period due to growth in the subscriber base. Fixed line revenues improved by 8.1% as a result of higher broadband retail, equipment and wholesale revenues, boosted also by the GTS Hungary acquisition. System Integration (SI) and IT revenues almost doubled compared to the fourth quarter of 2014 mostly driven by major Hungarian IT projects at the end of the year. Despite the exit from the residential gas business as of 31 July, 2015 energy revenues increased by 5.5% quarter on quarter underpinned by strong performance in the business sub-segment both in gas and electricity services. With regards the 2015 full year results, total revenues grew by 4.8% compared to 2014 which is higher than previously guided. The marginal decline in mobile revenues was offset by higher fixed line and energy service revenues, as well as very strong SI/IT sales underpinned by EU funded projects. Revenues increased at both T-Hungary and T-Systems by 3.4% and 13.1% respectively; while in Macedonia and Montenegro, revenues declined by 3.9% and 5.6% respectively year on year due to ongoing competitive and regulatory pressures.
Total direct costs increased by 20.5% to HUF 81.8 billion in Q4 2015, driven by significantly higher SI/IT service related costs in line with the robust increase in revenues. Interconnection costs fell by 27.7% following the cut in MTRs in Hungary, while bad debt expenses also slightly improved. Looking at the direct costs for full year 2015, we experienced a 10.2% increase compared to 2014 due to higher SI/IT and energy related costs associated with extended sales in both business lines, partly offset by a fall in interconnection costs and an improvement in bad debts relating to mobile equipment sales in Hungary. On a quarterly comparative basis, the gross margin increased by 3.8%,and by 1.7% for the full year.
EBITDA in Q4 2015 increased by 4.5% quarter on quarter to HUF 43.7 billion, despite the higher employee-related expenses deriving from the rise in severance costs booked in relation to the two-year headcount reduction program in 2014/2015, as well as effect of the GTS acquisition on the headcount. Year on year EBITDA improved by 3.4%, far exceeding our original guidance of roughly stable EBITDA compared to 2014; this was driven principally by higher gross profit contributions, not only from the energy and SI/IT businesses, but also from core fixed line and mobile.
Hungarian sector specific special taxes decreased by 8.3% from HUF 6.7 billion to HUF 6.1 billion quarter on quarter and went down by 1.8% on annual basis.
Depreciation and amortization (D&A) expenses went up by 18.9% to HUF 31.7 billion in Q4 2015, driven by higher amortization of telecom licenses linked to the new frequency rights acquired in October, 2014. Software activation related to the new billing and new SAP system also caused additional expenses. D&A for the full year increased by 13.0% in 2015 compared to 2014.
Net financial results improved by 29.5% to HUF 5.6 billion in Q4 2015, primarily due to the higher gains generated through foreign exchange translations and hedges caused by a weakening Hungarian forint, as well as lower interest rates quarter on quarter. Year on year, net financial results remained roughly stable.
Income tax expense decreased significantly, by 50.2% to HUF 2.3 billion quarter on quarter. The difference is mainly due to the one-time release of a deferred tax asset of HUF 2.5 billion in Q4 2014 relating to our Macedonian subsidiaries, driven by the impairment in Stonebridge's investment (Stonebridge is our holding company in Macedonia) in Makedonski Telekom, following the poor share price performance of Makedonski Telekom in 2014, and a capital reduction in Stonebridge. Looking at 2015 as a whole, income tax expenses decreased by 31.5%, for much the same factors that caused the decline for the fourth quarter; meanwhile, the underlying effective tax rate for 2015 remained in-line with previous years, at the average rate of ca. 30%.
Profit attributable to the owners of the parent company (net income) more than doubled from HUF 1.5 billion to HUF 3.4 billion in the fourth quarter of 2015, primarily driven by this significant drop in income tax expenses and to a lesser degree, lower profits attributable to non-controlling interests on account of a fall in profits at both Makedonski Telekom and Crnogorski Telekom. However, over the full year, despite lower income taxes, profit attributable to the owners of the parent company decreased by 3.1% reflecting the 8.8% fall in operating profit and a higher share of profits attributable to non-controlling interests.
Investments in tangible and intangible assets (CAPEX) decreased by 40.4% to HUF 109.8 billion for the full year, although it should be recalled that HUF 97.6 billion was spent in Q4 2014 for the Hungarian frequency licenses. Excluding this investment in frequency licenses in 2014 and the additional Capex spent on fixed line network development in Hungary amounting to approx. HUF 20.5 billion in 2015, Capex increase
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Magyar Telekom results for the fourth quarter of 2015 
