Magyar Telekom results for the fourth quarter of 2016 Budapest, February 22, 2017 18:00
Magyar Telekom today reported its consolidated financial results for the fourth quarter and the full year of 2016, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Total revenue for Q4 2016 declined by 13.2% year-on-year to HUF 158.8 billion , mostly as a result of the partial exit from the energy business along with lower SI/IT and fixed line revenues. Similar factors were behind the 8.2% fall in total revenue to HUF 602.7 billion for the full year 2016, alongside the sharp cut in the Mobile Termination Rate (MTR) that came into effect in Hungary on April 1, 2015 and negatively impacted like-for-like Q1 2016 results. In terms of breakdown by geography for the full year, revenues remained roughly stable in Macedonia whilst both the Hungarian and Montenegrin operations witnessed declines. Mobile revenues in Q4 2016 increased by 1.4% year-on-year to HUF 82.2 billion as higher mobile data and equipment revenues offset shrinking voice, SMS and other revenues. With regards to the full year 2016 results, mobile revenues increased by 1.9% to HUF 319.9 billion for similar reasons except that other mobile revenues were largely stable over the 12 month period. Fixed line revenues decreased by 7.2% year-on-year to HUF 52.0 billion in Q4 2016 as the sustained positive momentum in TV was offset by declines elsewhere (voice, broadband, equipment, wholesale and other revenues). The fall in fixed line revenues was most pronounced in Montenegro, with declines less marked in Hungary and Macedonia. With regards to the full year 2016, fixed line revenues were lower by 2.3% at HUF 207.2 billion (FY 2015: HUF 212.0 billion), with higher broadband and TV revenues unable to match the declines in revenues from voice retail, equipment (lower TV and laptop sales), data and wholesale along with the effects from the deconsolidation of Origo . SI/IT revenues declined by 30.2% and 15.1% to HUF 23.1 and HUF 68.7 billion for Q4 2016 and full year 2016, respectively. The principal factor behind the decline was a significant decrease in the number and size of public contracts awarded to Magyar Telekom, following the conclusion of a seven-year EU funding cycle in 2015 and the consequent temporary stemming of EU fund inflows into Hungary, which was only in part compensated for by new contracts (mainly related to the public sector). Furthermore, 2015 SI/IT revenues were also boosted by large one-off projects in both Macedonia and Montenegro that were not repeated in 2016. Energy Service revenues decreased by 88.0% year-on-year to HUF 1.5 billion in Q4 2016, due to transfer of the B2B energy business into the joint venture (E2) with MET Holding AG with effect from January 1, 2016. Full year 2016 energy service declined by 86.2% to HUF 6.8 billion (FY 2015: 49.3 billion) because of the same reason and also affected by the planned exit from the residential gas market as of August 1, 2015. It is still our intention to exit the residential electricity business, and we expect this will happen sometime in Q3 2017.
Direct costs decreased by 27.5% year-on-year to HUF 59.2 billion in Q4 2016, mainly due to a sharp decline in energy service related costs and lower SI/IT related costs, which compensated for the increase in other direct costs. The same drivers led to the 21.1% decline to HUF 196.9 billion for full year 2016 (FY 2015: HUF 249.4 billion). Gross profit decreased slightly versus Q4 2015 to HUF 99.6 billion in Q4 2016. Within Hungary, the improvement in SI/IT margins and bad debt expenses was more than matched by the decline in voice and fixed wholesale revenues, as well as higher other direct costs. In Macedonia, gross profit improved by 1.7% year-on-year to HUF 9.4 billion in Q4 2016 due mainly to significant direct cost savings; whilst in Montenegro, we witnessed a 10.5% decline, driven by the decreases in both voice and fixed broadband revenues coupled with higher cost of mobile equipment sale in line with increased equipment revenues, as well as higher commission costs. In terms of full year 2016, gross profit remained largely flat at HUF 405.8 billion (FY 2015: HUF 407.0 billion) as a result of the lower direct costs offsetting the 8.2% fall in overall revenues. Indirect costs improved by 2.9% year-on-year to HUF 55.8 billion in Q4 2016, mainly due to a decline in employee-related expenses partly offset by higher other operating expenses at our Hungarian operations. At the same time, indirect costs for full year 2016 declined by 5.0% to HUF 208.7 billion (FY 2015: HUF 219.7 billion) thanks to the same reasons, also supported by the one-off gains related to the Origo sale and the real estate transaction (Infopark Building G).
EBITDA remained unchanged year-on-year at HUF 43.8 billion in Q4 2016, as lower direct costs compensated for lower revenues, leading to broadly stable gross profit; whilst savings in employee-related expenses and lower severance payment more than offset the increase in other operating expenses. The improved level of EBITDA in Hungary was largely matched by declines in both Macedonia and Montenegro. On a full year 2016 basis, Group EBITDA improved significantly by 5.2% to HUF 197.0 billion (FY 2015: 187.3 billion) boosted by the one-off profits in other operating income.
Depreciation and amortization expenses increased by 2.7% year-on-year in Q4 2016 to HUF 32.6 billion,and by 3.2% for the full year 2016 to HUF 117.5 billion (FY 2015: HUF 113.8 billion). Software activation related to the new billing and CRM (customer relationship management) systems contributed to this rise in depreciation costs in both Hungary and Montenegro on both a quarterly and a full year basis. Furthermore, capitalization of the recently acquired mobile frequencies and content right
