Magyar Telekom results for the third quarter of 2016
Budapest, November 9, 2016 18:00
Magyar Telekom today reported its consolidated financial results for the third quarter of 2016, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Total revenues revenues declined by 4.7% year-on-year to HUF 150.6 billion in Q3 2016 , mostly as a result of partial exit from the energy business, lower SI/IT revenues and a decline in fixed line revenues. Excluding the contribution of SI/IT and energy businesses, core like-for-like telco revenues increased by 1.2% in Q3 2016, due to higher mobile revenues. Total revenues decreased by 6.3% to HUF 443.8 billion in the first nine months of 2016 compared to the same period of 2015, driven by the above-mentioned factors. Mobile revenues in Q3 2016 increased by 4.5% year-on-year to HUF 82.7 billion as higher mobile data and equipment revenues offset shrinking voice retail and SMS revenues. Mobile revenues in 9M 2016 increased by 2.1% year-on-year as a result of above-mentioned trends and the Mobile Termination Rate (MTR) cut in Hungary which negatively affected Q1 2016 revenues. Fixed line revenues decreased by 3.7% to HUF 50.8 billion in Q3 2016 as improvement in TV and other revenues was offset by the decline in voice retail, equipment, data and wholesale revenues. We witnessed a moderate decline in Hungary and a more substantial drop at both foreign subsidiaries. 9M 2016 fixed line revenues remained roughly stable year-on-year at HUF 155.2 billion, against the decline in Q3 2016, driven by a revenue surplus from the GTS acquisition, which offset the effects of the Origo deconsolidation. SI/IT revenues declined by 6.2% to HUF 15.7 billion due to lower revenues compared to Q3 2015 in all segments. In Hungary, the impact of fewer public projects due to lower EU fund inflows was partly mitigated by revenues generated from the financial sector, while in Macedonia and Montenegro two large projects boosted last year's revenues. 9M 2016 SI/IT revenues declined by 4.8% year-on-year to HUF 45.6 billion, primarily due to lower incoming EU funds. Energy revenues decreased to HUF 1.5 billion from HUF 9.4 billion in the same period of 2015, due to exit from the residential gas business as of August 1, 2015 and transfer of the B2B energy business into the joint venture (E2) with MET Holding AG as of January 1, 2016. 9M 2016 energy service revenues declined to HUF 5.3 billion from HUF 36.7 billion in the same period of 2015, driven by the above-mentioned factors. We do not expect to exit the residential electricity business before March 2017.
Direct costs decreased by 12.1% to HUF 47.3 billion, 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. Direct costs for 9M 2016 declined by 17.9% year-on-year to HUF 137.6 billion, as a result of the same drivers. Interconnect costs improved by 2.5% to HUF 5.8 billion in the third quarter driven by lower volume of traffic in both Macedonia and Montenegro, resulting in lower payments to domestic and international operators. Interconnect costs in the first nine months of 2016 decreased by 12.7% year-on-year to HUF 16.5 billion due to the MTR cut which affected the first quarter. SI/IT service related costs declined by 13.6% in Q3 2016, in line with lower SI/IT revenues across the Magyar Telekom Group footprint. The SI/IT gross margin registered an improvement compared to both Q3 2015 and the first nine months of last year. Energy service related costs declined by 85.5% against both Q3 2015 and the first nine months of 2016 (in line with exit from the residential gas business and transfer of the B2B energy business into the joint venture (E2) with MET Holding AG). Bad debt expenses improved by 4.1% year-on-year to HUF 1.9 billion in Q3 2016, as a result of favorable aging of bills in the enterprise segment, as well as the positive effect of liquidity checks and factoring in the residential mobile business in Hungary. At the same time, bad debt expenses improved in Macedonia as a result of a recently launched collection campaign, while in Montenegro, bad debt expenses increased due to lower collection efficiency. 9M 2016 bad debt expenses deteriorated by 7.5% year-on-year, owing to a significantly higher amount of impairment losses charged in all segments compared to the first nine months of 2015. Other direct costs went up by HUF 3.3 billion to HUF 29.2 billion due to a higher cost of mobile equipment and accessories sales, driven by third party export transactions and launch of the new iPhone7, partly offset by savings on fixed device related costs due to lower TV, tablet and notebook sales.
Gross margin slightly decreased versus Q3 2015, but remained stable versus 9M 2015 at HUF 103.4 billion and HUF 306.2 billion, respectively. Improving SI/IT margins and bad debt expenses were counterbalanced by higher other direct costs, due to increased mobile equipment sales in Hungary compared to Q3 2015. In Macedonia, gross margin slightly improved in Q3 2016 thanks to significant direct cost savings, while in Montenegro, we witnessed a 3.5% decline, mainly driven by a decline in revenues.
Indirect costs improved by 10.4% year-on-year in Q3 2016 , mainly due to a decline in employee-related expenses at the MT-Hungary segment. At the same time, indirect costs for 9M 2016 declined by 5.7% year-on-year, where one-offs related to the Origo sale and the real estate transaction (Infopark) offset the increase in other operating expenses. Employee-related expenses improved by HUF 5.6 billion to HUF 19.7 billion, driven by the much lower severance expenses of HUF 0.1 billion booked in Q3 2016 (Q3 2015: HUF 4.6 billion), as well as savings resulting from the 2014/2015 headcount reduction program in
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Magyar Telekom results for the third quarter of 2016 
