Magyar Telekom results for the fourth quarter of 2015
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.
- Free
cash flow (FCF defined as operating cash flow and investing cash flow
adjusted for proceeds from / payments for other financial assets and repayment
of other financial liabilities) increased from an outflow of HUF 13.8
billion in full year 2014 to an inflow of HUF 26.7 billion in 2015. Operating cash flow improved by HUF 10.8 billion mostly
due to
higher EBITDA and lower tax
payments in 2015 deriving from the tax law amendments in Macedonia in 2014, but
also reflecting a higher severance provision in 2015 versus 2014. Total investing cash flow (excluding Proceeds from other
financial assets
– net) in 2015 amounted to HUF 110.7 billion, down by HUF 30.1billion compared
to 2014, due to the positive effect of the HUF 58.5 billion frequency
acquisition in 2014 that more than compensated for the GTS acquisition (paid for
in cash), and the capital intensive HSI roll-out project.
- Net debt decreased by 7.4% fromHUF
442.2 billion at the end of the fourth quarter of 2014 to HUF
409.4 billion by the end of December 2015, while the net debt ratio (net
debt to total capital) improved from 45.7% to 42.9%
driven by a reduction in both short- and long-term borrowings. Magyar Telekom’s
dividend policy seeks to maintain its net debt within the 30%-40% range and the
net debt ratio is on a downward trajectory. Thus, we expect that the net debt
ratio will approach the targeted range between 30-40% in the upcoming years.
Christopher Mattheisen, CEO commented:
“It fills me with great pride to report the highest Group
revenue since 2008 at 656 billion forint for full year 2015 and a significantly
improved EBITDA at 187 billion forint. Following the turn-around in our
revenue, margins and most latterly EBITDA, we have also managed to return to
positive Free Cash Flow generation in 2015. This will serve as the cornerstone
for the resumption of dividend payments relating to last year’s earnings, with a
dividend payment of 15 forint per share proposed to our Annual General Meeting
in April 2016.
By providing integrated fixed and mobile services, we continued next
generation IP network development across all segments which will strengthen our
technology leadership positions further. We launched our MagentaOne Quad-Play
offer in both Hungary and Macedonia to maximize the telecommunication share of
the household spending wallet, with Montenegro following in January of this
year. Meanwhile, our focus on costs has allowed us to become a leaner and more
efficient company. Following the conclusion of our headcount reduction program
in Hungary, our focus will be on product and process simplification and
digitalization, including moving more of our customer servicing online.
In Hungary, we have reached over 97% 4G population coverage with
almost a million customers on our 4G network. Moreover, we have rolled out High
Speed Internet access to almost half a million households. Consequently, it was
the growth in mobile and fixed line broadband, as well as in TV that drove the
outstanding revenues in Hungary, along with a significant increase in System
integration/IT and energy sales. I am also delighted to announce that after
five years of decline, T-Systems has also managed to turn around its EBITDA and
return to growth.
Looking to 2016, we remain focused on the continued execution of
our turnaround strategy which involves growing our profitability in line with
our targets. The ongoing shift in our revenue mix, achieved by migrating
customers to bundled packages across Magyar Telekom’s operations, is expected
to mitigate the decline in voice revenue. Following our exit from the
residential gas business and a move away from full consolidation of the B2B
energy business, we expect revenues of 580 to 590 billion forint in 2016, and
have upgraded our 2017 revenue guidance to a range of between 585 and 595
billion forint.
Overall, our reported EBITDA is expected to
range between 187 and 191 billion forint in 2016, whilst our updated EBITDA
guidance for 2017 is between 189 and 193 billion forint. The growing
contribution from System integration and IT activities across our geographies
will play a key role in achieving our target of growing Group EBITDA from one
year to the next. In terms of Capex, despite continued network development, we
expect an annual decline of approximately 10% in both 2016 and 2017.”
For detailed information on Magyar Telekom's Q4 and full year of 2014 results please visit our corporate website (
www.telekom.hu/about_us/investor_relations) or the website of the Budapest Stock Exchange (
www.bse.hu).
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