Magyar Telekom_s financial results for the first quarter of 2013
Revenue target raised; utility tax and higher proportion of lower margin revenues compressing EBITDA margins Budapest, May 8, 2013 00:00
Magyar Telekom today reported its consolidated financial results for the first quarter of 2013, in accordance with International Financial Reporting Standards (IFRS).
Highlights:
Revenues increased by 6.8% in the first quarter of 2013 compared to the same period of 2012, from HUF 146.6 billion to HUF 156.6 billion. The significant increase in revenues from energy services and the growing revenues from SI/IT, mobile non-voice services and fixed and mobile equipment sales more than offset the voice revenue declines suffered in Hungary and Macedonia.
EBITDA declined by 24.3%, from HUF 51.6 billion to HUF 39.0 billion, with an EBITDA margin of 24.9%, compared to 35.2% in the same period last year. This decrease reflects the HUF 7.3 billion accounted in relation to the utility tax as well as the increasing contribution of the lower margin retail energy, equipment sale and SI/IT revenues, coupled with the continued decline of high-margin voice revenues.
Employee-related expenses increased by HUF 1.4 billion in the first quarter compared to the same period last year driven by the higher headcount, as the previously outsourced labour force related to call center customer care, sales and customer experience services became permanent employees of Magyar Telekom as of April 2012. Excluding this impact, employee related expenses declined reflecting the effect of headcount reduction program.
Income tax expense decreased from HUF 3.7 billion in Q1 2012 to HUF 3.6 billion in Q1 2013.The sharp rise in the effective tax rate is mostly due to the booking in Q1 2013 of the utility tax as the local business tax and the innovation fee paid by the Group are calculated based on statutory gross margin and not on the profit before tax. Further reasons of the higher effective tax are two items that increased the deferred taxes by a total of HUF 1.3 billion. Firstly, the weakening of the forint against the denar during the first quarter of 2013 led to the appreciation of Stonebridge's book value, secondly, the decrease of the statutory reserve in Macedonia from 20% to 10% resulted in increased distributable reserves, which will be subject to withholding tax once distributed.
Profit attributable to owners of the parent company (net income) decreasedfrom HUF 13.0 billion to HUF 1.7 billion. The decline is the combined result of the lower direct margin, and the HUF 7.3 billion utility tax.
Net cash generated from operating activities decreased by HUF 9.3 billion year-on-year, from HUF 22.3 billion to HUF 13.0 billion. The deterioration is driven by the HUF 12.5 billion lower EBITDA which was partly mitigated by improvement in working capital and lower interest payments. The negative impact on the working capital of the HUF 20.7 billion settlement charge paid in Q1 2012 in connection with the SEC and DOJ investigations was partly counterbalanced by the adverse impacts of the deferred payment options offered for equipment contracts, the strongly seasonal nature of the gas service increasing receivables as well as higher outpayments to suppliers. The decline in interest payments was due to the HUF 1.4bn paid in Q1 2012 in relation to the SEC and DOJ fine and timing difference in interest payments on our loans.
Excluding the 900 MHz spectrum license fee (amounting to HUF 10.9 billion in Q1 2012), investment in tangible and intangible assets (CAPEX) increased by HUF 3.8 billion in the first quarter, from HUF 12.9 billion to HUF 16.7 billion, due principally to the higher investments in relation to the integrated CRM and billing system development. In Q1 2013, Telekom Hungary accounted for HUF 13.5 billion of total CAPEX and T-Systems Hungary HUF 0.3 billion. In Macedonia and Montenegro, CAPEX was HUF 2.3 billion and HUF 0.6 billion, respectively.
Free cash flow (operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets) improved by HUF 7.8 billion in Q1 2013 from HUF - 15.2 billion to HUF - 7.4 billion. The lower operating cash flow and higher CAPEX was counterbalanced by the HUF 10.9 billion paid for the 900 MHz spectrum license fee in Q1 2012 and the lower payments to capex creditors (adjustments to cash purchases) in 2013.
Net debt decreased slightly from HUF 283.6 billion at the end of Q1 2012 to HUF 282.9 billion at the end of Q1 2013. The net debt ratio (net debt to total capital) was 35.2% at the end of Q1 2013.
Christopher Mattheisen, Chairman and CEO commented:
Our performance in the first quarter of 2013 bears testimony that our strategy, which is based on retention and cross-selling, is appropriate for the challenging environment that we currently operate in. The majority of the 6.8% growth in group revenues was derived from the rapidly expanding non-core telecom businesses such as retail energy, SI/IT and equipment resale. These businesses, by their very nature, attract lower margins than traditional telecommunication services, but demonstrably augment our customer retention rates: fixed voice churn has now decreased to around 3% per annum while our market share continues to expand in the fixed internet and TV markets. I am also particularly proud that as the largest player, we have increased our mobile voice market share to a level not seen since 2004, and that we have maintained the strong growth momentum of the last two years in mobile broadband revenues and smartphone penetration. Thanks to the outstanding revenue generation in the first quarter and based on my current expectations regarding the environment, I now expect the full year revenues to be approximately flat compared to our previous guidance of flat to -3%.
Our EBITDA de
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Magyar Telekom_s financial results for the first quarter of 2013 
