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Magyar Telekom Plc. 6-K 2006

Documents found in this filing:

  1. 6-K
  2. 6-K

 

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

 

Report on Form 6-K dated May 11, 2006

 

Magyar Telekom Plc.

(Translation of registrant’s name into English)

 

Budapest, 1013, Krisztina krt. 55, Hungary

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F  ý    Form 40-F  o

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  o    No  ý

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 

 



 

 

 

Contacts:

Szabolcs Czenthe, Magyar Telekom IR

 

 

 

+36-1-458-0437

 

 

 

Gyula Fazekas, Magyar Telekom IR

 

 

 

+36-1-457-6186

 

 

 

Rita Walfisch, Magyar Telekom IR

 

 

 

+36-1-457-6036

 

 

 

investor.relations@telekom.hu

 

 

 

 

 

First quarter 2006 results: impressive top line growth, solid cash-flow generation

 

Budapest – May 11, 2006 – Magyar Telekom (Reuters: NYSE: MTA.N, BSE: MTEL.BU and Bloomberg: NYSE: MTA US, BSE: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first three months of 2006, in accordance with International Financial Reporting Standards (IFRS). From the second quarter of 2005, the consolidated income statement includes the results of Telekom Montenegro Group (“TCG”), while the company’s balance sheet has been consolidated in Magyar Telekom’s accounts as of March 31, 2005.

 

Highlights:

 

                  Reported revenues grew by 6.7% to HUF 153.3 bn (EUR 602.3 m) in Q1 2006 over the same period last year. The higher mobile, internet and interconnection-related revenues compensated for the lower outgoing traffic revenues. The consolidation of TCG’s revenues in Q1 2006 contributed HUF 6.4 bn to Group revenues. Without the consolidation effect of TCG, Group revenues grew 2.3%.

 

                  Reported EBITDA increased by 4.9% to HUF 62.0 bn, with an EBITDA margin of 40.5%. Without the impact of TCG, EBITDA was HUF 59.4 bn with an EBITDA margin of 40.4%.

 

                  Gross additions to tangible and intangible assets were HUF 19.0 bn. The portion relating to the fixed line segment reached HUF 7.6 bn with mobile at HUF 11.4 bn. Within the mobile segment, HUF 2.2 bn was spent on UMTS-related investments and HUF 4.0 bn on the EDR project.

 

                  Fixed line segment: external revenues (after elimination of inter-segment revenues) increased by 3.7% to HUF 82.0 bn, mainly as increased internet broadband and interconnection-related revenues offset the decline, primarily in outgoing traffic revenues. EBITDA amounted to HUF 30.3 bn and the EBITDA margin on external revenues was 36.9%.

 

                  Mobile segment: external revenues increased by 10.5% to HUF 71.2 bn driven by voice revenues and enhanced services revenues. EBITDA amounted to HUF 31.7 bn with the EBITDA margin on external revenues reaching a strong 44.6%.

 

                  Profit attributable to equity holders of the company (net income) increased by 5.5%, from HUF 18.0 bn (EUR 73.3 m) to HUF 18.9 bn (EUR 74.5 m).

 

                  Net cash from operating activities grew to HUF 42.8 bn due to the combined impact of the growth in EBITDA, the lower interest paid and a decrease in working capital requirements (driven mainly by a change in trade receivables). Net cash utilized in investing activities fell to HUF 28.1 bn, mainly driven by the TCG acquisition in Q1 2005.

 

1



 

                  Net debt decreased by HUF 18.8 bn compared to the end of December 2005, driven by the loan repayment during the first quarter of 2006. The net debt ratio (net debt to net debt plus equity plus minority interests) fell to 30.6% at end-March 2006 (33.1% at end-2005).

 

Elek Straub, Chairman and CEO commented: “The key driver of the impressive Group-level top line growth in the first quarter were our international activities, helped by the Hungarian mobile business. In the Hungarian mobile market, we were able to increase profitability, reaching a strong 40% EBITDA margin, despite a slight decrease in our market share. At the end of February, the Court of Registry registered the merger of Magyar Telekom and T-Mobile Hungary, completing the merger process. In the Hungarian fixed line business, customer retention played an important role. The number of flat rate solutions grew, reflecting our focus on access revenues, whilst the successful ADSL sales campaign contributed to continued growth in internet revenues. The improvement in productivity, despite fixed line erosion, is reflected in parent company lines per employee ratio of over 500 at end-February 2006, allowing us to reach our public target earlier than planned. International operations in Macedonia and Montenegro drove healthy Group revenue and EBITDA growth. Despite the delay to the General Meeting, the Board of Directors considers a dividend payment for 2005 in line with last year’s level to be reasonable, based on a review of unaudited 2005 financial statements.”

 

Hungarian fixed line operations: robust growth in broadband connections, lines per employee ratio target met earlier than planned

 

Revenues before elimination fell by 2.5% to HUF 69.8 bn in Q1 2006 over the same period in 2005 with an EBITDA margin for the quarter at 33.8%. Domestic and international traffic revenues combined declined by 21.0%, mainly due to mobile substitution and traffic loss to fixed line competitors, despite broadly stable local and increased domestic long distance traffic. In addition, lower mobile termination rates and discounts provided in our packages contributed to the revenue decline. At the same time, internet revenues grew by 18.8% as a result of a significant increase in the number of installed ADSL lines. The total number of broadband connections (mainly ADSL and cable) exceeded 400 thousand at end-March 2006. The strong mobile substitution and number portability, both in the business and residential segments, resulted in a continuous decline in the total number of fixed lines (down 5.0% at end-March 2006 compared to a year ago). The strong focus on improving efficiency is reflected in the lines per employee ratio of 501 at parent company level at the end of February, reaching our end-2006 public target earlier than planned. Customised tariff packages at parent company represented 78% of the total number of lines, with over 1.8 million lines at the end of the first quarter of 2006.

 

International fixed line operations: strong EBITDA margin, consolidation impact of TCG Revenues before elimination grew by 50.1% to HUF 15.8 bn in Q1 2006, reflecting the consolidation impact of Telekom Montenegro. EBITDA increased to HUF 6.7 bn with an EBITDA margin of 42.4%. MakTel’s fixed line business revenues grew by 5.3%, reflecting a favourable foreign exchange movement (4.3%), growing international incoming traffic and internet-related revenues. The results were also affected by lower traffic revenue driven by lower usage. EBITDA showed an impressive growth of 18.5%, and EBITDA margin reached 49.1%. Telekom Montenegro’s fixed line operations contributed HUF 4.2 bn to Group revenues in the first quarter of 2006, whilst the EBITDA contribution was HUF 1.4 bn.

 

Hungarian mobile operations: healthy EBITDA margin, clear market leadership preserved

Revenues before elimination grew by 4.1% to HUF 65.4 bn in Q1 2006 as a result of higher enhanced service revenues, and to a lesser extent, higher traffic and access revenues. EBITDA

 

2



 

was HUF 26.1 bn with an EBITDA margin of 39.9%, reflecting lower employee-related expenses and cost of equipment sales. Average acquisition cost per customer fell by nearly 22% in the first quarter, due to reduced subsidies in both prepaid and postpaid segments. When calculating subscriber acquisition cost, we include the connection margin (SIM card cost less the connection fee) and the sales-related equipment subsidy and agent fee. Although the introduction of new packages generated higher usage and growth in value added services, the discounts offered, combined with the impact of regulatory changes and the extensive use of closed user group offers, resulted in a broadly stable ARPU (monthly average revenue per user). MOU (monthly average minutes of use per subscriber) grew to 129 in the first quarter of 2006, indicative of the improved price elasticity.

 

International mobile operations: improving Monet’s profitability, robust EBITDA margin at Mobimak

Revenues before elimination grew strongly by 42.7% to HUF 10.9 bn in Q1 2006, primarily driven by the consolidation impact of Monet. EBITDA was HUF 5.6 bn with a high EBITDA margin of 51.9%. MakTel’s mobile business reported 8.0% revenue growth in a growing market characterised by strong tariff competition. EBITDA at Mobimak was HUF 4.4 bn with an impressive EBITDA margin of 53.7%. The results of the international mobile operations also included those of Monet, the mobile subsidiary of Telekom Montenegro, which posted revenues of HUF 2.6 bn and an EBITDA of HUF 1.2 bn in Q1 2006.

 

As disclosed on April 26, 2006 and March 30, 2006, as well as in the full-year 2005 results announcement made on February 13, 2006, the Company is still inquiring into certain consultancy contracts, totalling approximately HUF 700 million, to determine whether they have been entered into in violation of company policy or applicable law or regulation. This inquiry, which is being conducted by an independent law firm and supervised by the Audit Committee, is still ongoing and it is at this point still too early to determine its outcome. Pending the outcome of the investigation, the Board of Directors of Magyar Telekom has decided to suspend certain employees. The Company has notified the Hungarian Financial Supervisory Authority, the U.S. Securities and Exchange Commission and the U.S. Department of Justice of the investigation and is in contact with these authorities regarding the investigation. The Company is committed to complying fully with the requirements and requests of these and other authorities with jurisdiction over it. No assurance can be given that, as a result of the investigation, the audited financial statements for 2005 and financial statements for any other period will not vary from those published prior to the completion of the investigation.

 

About Magyar Telekom

Magyar Telekom is the principal provider of telecom services in Hungary. Magyar Telekom provides a broad range of services including traditional fixed line and mobile telephony, data transmission and value-added services. Magyar Telekom owns 51% of the shares of MakTel, the sole fixed line operator and its subsidiary Mobimak, the leading mobile operator in Macedonia. Magyar Telekom has a majority stake in Telekom Montenegro. TCG Group provides fixed, mobile and Internet services in Montenegro. Key shareholders of Magyar Telekom as of March 31, 2006 include MagyarCom Holding GmbH (59.21%), owned by Deutsche Telekom AG. The remainder, 40.79% is publicly traded.

 

This investor news contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore should not have undue reliance placed upon them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such

 

3



 

factors are described in, among other things, our Annual Report on Form 20-F for the year ended December 31, 2004 filed with the U.S. Securities and Exchange Commission.

 

For detailed information on Magyar Telekom’s Q1 2006 results please visit our website:

(www.magyartelekom.hu/english/investorrelations/main.vm) or the website of the Budapest Stock Exchange (www.bse.hu).

 

4



 

MAGYAR TELEKOM

Consolidated

Balance Sheets -

(HUF million)

 

 

 

Mar 31, 2005

 

Mar 31, 2006

 

% change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

46 493

 

56 517

 

21,6

%

Other financial assets held for trading

 

1 168

 

1 850

 

58,4

%

Trade and other receivables

 

91 203

 

90 638

 

(0,6

)%

Current income tax receivable

 

4 107

 

1 122

 

(72,7

)%

Inventories

 

8 213

 

10 342

 

25,9

%

Assets held for disposal

 

3 052

 

2 056

 

(32,6

)%

Total current assets

 

154 236

 

162 525

 

5,4

%

 

 

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

Property, plant and equipment - net

 

588 315

 

579 042

 

(1,6

)%

Intangible assets - net

 

309 290

 

320 889

 

3,8

%

Associates

 

4 090

 

4 841

 

18,4

%

Deferred taxes

 

12 247

 

15 112

 

23,4

%

Other non current assets

 

8 396

 

5 868

 

(30,1

)%

Total non current assets

 

922 338

 

925 752

 

0,4

%

 

 

 

 

 

 

 

 

Total assets

 

1 076 574

 

1 088 277

 

1,1

%

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Loans from related parties

 

123 675

 

20 000

 

(83,8

)%

Loans and other borrowings - third party

 

40 671

 

56 480

 

38,9

%

Trade and other payables

 

100 736

 

101 021

 

0,3

%

Current income tax payable

 

330

 

2 061

 

524,5

%

Deferred revenue

 

1 474

 

864

 

(41,4

)%

Provisions for liabilities and charges

 

11 045

 

4 718

 

(57,3

)%

Short term derivatives

 

0

 

87

 

n.a.

 

Total current liabilities

 

277 931

 

185 231

 

(33,4

)%

 

 

 

 

 

 

 

 

Non current liabilities

 

 

 

 

 

 

 

Loans from related parties

 

132 000

 

239 432

 

81,4

%

Loans and other borrowings - third party

 

54 669

 

20 230

 

(63,0

)%

Deferred revenue

 

830

 

89

 

(89,3

)%

Deferred taxes

 

2 407

 

3 613

 

50,1

%

Provisions for liabilities and charges

 

1 981

 

3 330

 

68,1

%

Other non current liabilities

 

47

 

5 467

 

11 531,9

%

Total non current liabilities

 

191 934

 

272 161

 

41,8

%

 

 

 

 

 

 

 

 

Total liabilities

 

469 865

 

457 392

 

(2,7

)%

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock

 

104 281

 

104 277

 

(0,0

)%

Additional paid in capital

 

27 382

 

27 380

 

(0,0

)%

Treasury stock

 

(3 842

)

(1 926

)

(49,9

)%

Cumulative translation adjustment

 

(2 827

)

5 454

 

n.m.

 

Retained earnings

 

409 044

 

419 062

 

2,4

%

Total shareholders’ equity

 

534 038

 

554 247

 

3,8

%

Minority interests

 

72 671

 

76 638

 

5,5

%

Total equity

 

606 709

 

630 885

 

4,0

%

 

 

 

 

 

 

 

 

Total liabilities and equity

 

1 076 574

 

1 088 277

 

1,1

%

 

5



 

MAGYAR TELEKOM

Consolidated

Income Statements - IFRS

(HUF million)

 

 

 

3 months ended Mar 31,

 

%

 

 

 

2005

 

2006

 

change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Subscriptions

 

22 471

 

23 206

 

3,3

%

Domestic outgoing traffic revenues

 

22 802

 

18 359

 

(19,5

)%

International outgoing traffic revenues

 

2 613

 

2 514

 

(3,8

)%

Value added, cable voice and other services

 

2 294

 

2 478

 

8,0

%

Voice - retail revenues

 

50 180

 

46 557

 

(7,2

)%

 

 

 

 

 

 

 

 

Domestic incoming traffic revenues

 

1 690

 

2 665

 

57,7

%

International incoming traffic revenues

 

3 204

 

4 345

 

35,6

%

Voice - wholesale revenues

 

4 894

 

7 010

 

43,2

%

 

 

 

 

 

 

 

 

Voice revenues total

 

55 074

 

53 567

 

(2,7

)%

 

 

 

 

 

 

 

 

Internet broadband

 

6 756

 

9 351

 

38,4

%

Internet narrowband, content and other

 

2 615

 

2 103

 

(19,6

)%

 

 

 

 

 

 

 

 

Internet revenues total

 

9 371

 

11 454

 

22,2

%

Data

 

6 014

 

6 724

 

11,8

%

SI/IT

 

2 208

 

2 534

 

14,8

%

Multimedia

 

3 786

 

4 314

 

13,9

%

Equipment sales

 

1 097

 

1 225

 

11,7

%

Other revenues

 

1 600

 

2 223

 

38,9

%

 

 

 

 

 

 

 

 

Total fixed segment revenues

 

79 150

 

82 041

 

3,7

%

 

 

 

 

 

 

 

 

Network usage and access

 

50 646

 

55 376

 

9,3

%

Enhanced services

 

8 769

 

10 430

 

18,9

%

Equipment sales

 

4 714

 

5 005

 

6,2

%

Other revenues

 

323

 

428

 

32,5

%

Total mobile segment revenues

 

64 452

 

71 239

 

10,5

%

Total revenues

 

143 602

 

153 280

 

6,7

%

 

 

 

 

 

 

 

 

Employee-related expenses

 

(21 613

)

(21 500

)

(0,5

)%

Depreciation and amortization

 

(27 333

)

(29 216

)

6,9

%

Payments to other network operators

 

(20 932

)

(21 868

)

4,5

%

Cost of telecommunications equipment sales

 

(7 868

)

(8 095

)

2,9

%

Other operating expenses - net

 

(34 062

)

(39 792

)

16,8

%

Total operating expenses

 

(111 808

)

(120 471

)

7,7

%

 

 

 

 

 

 

 

 

Operating profit

 

31 794

 

32 809

 

3,2

%

 

 

 

 

 

 

 

 

Net financial expenses

 

(7 514

)

(7 736

)

3,0

%

 

 

 

 

 

 

 

 

Share of associates’ profits/losses after tax

 

(284

)

(26

)

(90,8

)%

 

 

 

 

 

 

 

 

Profit before income tax

 

23 996

 

25 047

 

4,4

%

 

 

 

 

 

 

 

 

Income tax

 

(3 775

)

(3 262

)

(13,6

)%

 

 

 

 

 

 

 

 

Profit for the period

 

20 221

 

21 785

 

7,7

%

 

 

 

 

 

 

 

 

Equity holders of the Company (Net income)

 

17 956

 

18 948

 

5,5

%

Minority interests

 

2 265

 

2 837

 

25,3

%

 

 

20 221

 

21 785

 

7,7

%

 

6



 

MAGYAR TELEKOM

Consolidated

Cashflow Statement - IFRS

(HUF million)

 

 

 

3 months ended Mar 31,

 

%

 

 

 

2005

 

2006

 

change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Cashflows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

31 794

 

32 809

 

3,2

%

Depreciation and amortization of fixed assets

 

27 333

 

29 216

 

6,9

%

Change in working capital

 

(6 363

)

(3 454

)

(45,7

)%

Amortization of deferred income

 

(416

)

(232

)

(44,2

)%

Interest paid

 

(10 088

)

(8 403

)

(16,7

)%

Bank and other finance charges paid

 

(672

)

(855

)

27,2

%

Income tax paid

 

(3 116

)

(3 474

)

11,5

%

Other cashflows from operations

 

(3 847

)

(2 767

)

(28,1

)%

 

 

 

 

 

 

 

 

Net cashflows from operating activities

 

34 625

 

42 840

 

23,7

%

 

 

 

 

 

 

 

 

Cashflows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of tangible and intangible assets

 

(19 746

)

(27 661

)

40,1

%

Purchase of subsidiaries and business units

 

(34 416

)

(2 052

)

(94,0

)%

Cash acquired through business combinations

 

761

 

22

 

(97,1

)%

Interest received

 

401

 

675

 

68,3

%

Dividends received

 

1 376

 

157

 

(88,6

)%

Proceeds from sale of trading investments - net

 

(61

)

(31

)

(49,2

)%

Proceeds from disposal of non current assets

 

158

 

807

 

410,8

%

 

 

 

 

 

 

 

 

Net cashflows from investing activities

 

(51 527

)

(28 083

)

(45,5

)%

 

 

 

 

 

 

 

 

Cashflows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid to shareholders and minority interest

 

(52

)

(16

)

(69,2

)%

Net proceeds of loans and other borrowings

 

26 466

 

(8 513

)

n.m.

 

Proceeds from sale of treasury stock

 

0

 

0

 

n.a.

 

Other charges

 

0

 

(18

)

n.a.

 

 

 

 

 

 

 

 

 

Net cashflows from financing activities

 

26 414

 

(8 547

)

n.m.

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

102

 

4 247

 

4 063,7

%

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

9 614

 

10 457

 

8,8

%

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

36 879

 

46 060

 

24,9

%

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

46 493

 

56 517

 

21,6

%

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

9 614

 

10 457

 

8,8

%

 

7



 

Summary of key operating statistics

 

GROUP

 

Mar 31, 2005

 

Mar 31, 2006

 

% change

 

 

 

 

 

 

 

 

 

EBITDA margin

 

41,2

%

40,5

%

n.a.

 

Operating margin

 

22,1

%

21,4

%

n.a.

 

Net income margin

 

12,5

%

12,4

%

n.a.

 

ROA

 

6,8

%

7,0

%

n.a.

 

Net debt

 

303 354

 

277 775

 

(8,4

)%

Net debt to total capital

 

33,3

%

30,6

%

n.a.

 

Number of employees (closing full equivalent)

 

14 025

 

12 014

 

(14,3

)%

 

FIXED LINE SEGMENT

 

Mar 31, 2005

 

Mar 31, 2006

 

% change

 

 

 

 

 

 

 

 

 

Hungarian fixed line operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed line penetration

 

37,1

%

35,3

%

n.a.

 

Digitalization of exchanges with ISDN

 

93,5

%

100,0

%

n.a.

 

Number of closing lines (1)

 

 

 

 

 

 

 

Residential

 

2 057 898

 

1 961 997

 

(4,7

)%

Business

 

258 770

 

244 750

 

(5,4

)%

Payphone

 

26 136

 

21 933

 

(16,1

)%

ISDN channels

 

525 322

 

495 880

 

(5,6

)%

Total lines

 

2 868 126

 

2 724 560

 

(5,0

)%

 

 

 

 

 

 

 

 

Traffic in minutes (thousands) (1)

 

 

 

 

 

 

 

Local

 

886 657

 

882 369

 

(0,5

)%

Long distance

 

280 153

 

301 903

 

7,8

%

Fixed to mobile

 

196 408

 

155 087

 

(21,0

)%

Domestic outgoing traffic

 

1 363 218

 

1 339 359

 

(1,8

)%

International outgoing traffic

 

28 614

 

25 471

 

(11,0

)%

Internet (2)

 

675 197

 

345 282

 

(48,9

)%

Total outgoing traffic

 

2 067 029

 

1 710 112

 

(17,3

)%

 

 

 

 

 

 

 

 

Data products

 

 

 

 

 

 

 

ADSL lines

 

226 813

 

370 362

 

63,3

%

Number of Internet subscribers

 

 

 

 

 

 

 

Dial-up

 

106 254

 

73 938

 

(30,4

)%

Leased line

 

820

 

735

 

(10,4

)%

DSL

 

152 785

 

240 967

 

57,7

%

W-LAN

 

1 230

 

1 467

 

19,3

%

CATV

 

16 795

 

30 971

 

84,4

%

Total Internet subscribers

 

277 884

 

348 078

 

25,3

%

Market share in the dial-up market (estimated)

 

43

%

42

%

n.a.

 

Managed leased lines (Flex-Com connections) (1)

 

10 718

 

9 854

 

(8,1

)%

Cable television customers

 

386 536

 

406 682

 

5,2

%

Total broadband Internet access (4)

 

245 658

 

403 535

 

64,3

%

 

International fixed line operations

 

8



 

Macedonian fixed line penetration

 

28,0

%

25,3

%

n.a.

 

Number of closing lines

 

 

 

 

 

 

 

Residential

 

507 154

 

454 750

 

(10,3

)%

Business

 

51 601

 

48 000

 

(7,0

)%

Payphone

 

2 651

 

2 264

 

(14,6

)%

ISDN channels

 

41 708

 

41 032

 

(1,6

)%

Total Macedonian lines

 

603 114

 

546 046

 

(9,5

)%

 

 

 

 

 

 

 

 

Macedonian traffic in minutes (thousands)

 

 

 

 

 

 

 

Local

 

378 857

 

314 095

 

(17,1

)%

Long distance

 

55 393

 

44 859

 

(19,0

)%

Fixed to mobile

 

34 163

 

30 171

 

(11,7

)%

Domestic outgoing traffic

 

468 413

 

389 125

 

(16,9

)%

International outgoing traffic

 

8 130

 

7 021

 

(13,6

)%

Internet

 

60 494

 

54 980

 

(9,1

)%

Total outgoing Macedonian traffic

 

537 037

 

451 126

 

(16,0

)%

 

 

 

 

 

 

 

 

Data products (Macedonia)

 

 

 

 

 

 

 

ADSL lines

 

4 074

 

9 558

 

134,6

%

Number of Internet subscribers

 

 

 

 

 

 

 

Dial-up

 

69 857

 

90 122

 

29,0

%

Leased line

 

154

 

136

 

(11,7

)%

DSL

 

4 074

 

9 558

 

134,6

%

Total Internet subscribers

 

74 085

 

99 816

 

34,7

%

Market share in the dial-up market (estimated)

 

n.a.

 

92

%

n.a.

 

 

 

 

 

 

 

 

 

Montenegrin fixed line penetration

 

n.a.

 

31,2

%

n.a.

 

Number of closing lines

 

 

 

 

 

 

 

PSTN lines

 

n.a.

 

174 227

 

n.a.

 

ISDN channels

 

n.a.

 

19 486

 

n.a.

 

Total Montenegrin lines

 

n.a.

 

193 713

 

n.a.

 

 

 

 

 

 

 

 

 

Montenegrin traffic in minutes (thousands)

 

 

 

 

 

 

 

Local

 

n.a.

 

81 435

 

n.a.

 

Long distance

 

n.a.

 

31 153

 

n.a.

 

Fixed to mobile

 

n.a.

 

8 902

 

n.a.

 

Domestic outgoing traffic

 

n.a.

 

121 490

 

n.a.

 

International outgoing traffic

 

n.a.

 

2 892

 

n.a.

 

Internet

 

n.a.

 

106 462

 

n.a.

 

Total outgoing Montenegrin traffic

 

n.a.

 

230 844

 

n.a.

 

 

 

 

 

 

 

 

 

Data products (Montenegro)

 

 

 

 

 

 

 

ADSL lines

 

n.a.

 

2 003

 

n.a.

 

Number of Internet subscribers

 

 

 

 

 

 

 

Prepaid

 

n.a.

 

27 605

 

n.a.

 

Leased line

 

n.a.

 

114

 

n.a.

 

DSL

 

n.a.

 

2 003

 

n.a.

 

Total Internet subscribers  (3)

 

n.a.

 

29 722

 

n.a.

 

Market share in the dial-up market (estimated)

 

n.a.

 

98

%

n.a.

 

 


(1) Magyar Telekom Plc. + Emitel (100% owned by Magyar Telekom Plc.)

 

9



 

(2) Internet minutes include traffic both on analog lines (reported earlier as local traffic) and on ISDN lines (not reported earlier as traffic minutes)

(3) Internet RPC figures in Montenegro are not consistent yet with the Magyar Telekom group standard

(4) Includes ADSL lines operated by Magyar Telekom Plc. and Emitel plus T-Online Hungary’s broadband customers (other than the ADSL purchased from Magyar Telekom)

 

MOBILE SEGMENT

 

Mar 31, 2005

 

Mar 31, 2006

 

% change

 

 

 

 

 

 

 

 

 

Hungarian mobile operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile penetration

 

87,4

%

93,3

%

n.a.

 

Market share of T-Mobile Hungary

 

45,9

%

44,9

%

n.a.

 

Number of customers (RPC)

 

4 051 778

 

4 222 206

 

4,2

%

Postpaid share in the RPC base

 

29,4

%

32,1

%

n.a.

 

MOU

 

113

 

129

 

14,2

%

ARPU

 

4 653

 

4 690

 

0,8

%

Postpaid ARPU

 

10 754

 

10 139

 

(5,7

)%

Prepaid ARPU

 

2 142

 

2 147

 

0,2

%

Overall churn rate

 

15,1

%

15,8

%

n.a.

 

Postpaid

 

11,2

%

10,4

%

n.a.

 

Prepaid

 

16,8

%

18,3

%

n.a.

 

Enhanced services within ARPU

 

663

 

740

 

11,6

%

Average acquisition cost (SAC) per customer

 

7 884

 

6 176

 

(21,7

)%

 

 

 

 

 

 

 

 

International mobile operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Macedonian mobile penetration

 

51,2

%

62,0

%

n.a.

 

Market share of Mobimak

 

73,7

%

68,3

%

n.a.

 

Number of customers (RPC)

 

777 048

 

877 228

 

12,9

%

Postpaid share in the RPC base

 

15,7

%

16,8

%

n.a.

 

MOU

 

58

 

61

 

5,2

%

ARPU

 

2 928

 

2 754

 

(5,9

)%

 

 

 

 

 

 

 

 

Montenegrin mobile penetration

 

n.a.

 

79,1

%

n.a.

 

Market share of Monet

 

n.a.

 

41,4

%

n.a.

 

Number of customers (RPC)

 

n.a.

 

203 037

 

n.a.

 

Postpaid share in the RPC base

 

n.a.

 

17,9

%

n.a.

 

MOU

 

n.a.

 

124

 

n.a.

 

ARPU

 

n.a.

 

3 766

 

n.a.

 

 

 

 

 

 

 

 

 

 

10



 

Analysis of the Financial Statements

for the three months ended March 31, 2006

 

Exchange rate information

 

The Euro strengthened by 7.4% against the Hungarian Forint year on year (from 247.18 HUF/EUR on March 31, 2005 to 265.54 HUF/EUR on March 31, 2006). The average HUF/EUR rate increased from 245.13 in the first three months of 2005 to 254.49 in the same period of 2006.

 

The U.S. Dollar strengthened by 14.9% against the Hungarian Forint year on year (from 190.81 HUF/USD on March 31, 2005 to 219.20 HUF/USD on March 31, 2006).

 

Analysis of group income statements

 

Magyar Telekom acquired a 51.12% stake in the Montenegrin Telecommunications Company (“Telekom Montenegro” or “TCG”) from the government of Montenegro in March 2005. At the same time, we acquired an additional 21.92% of TCG’s shares from minority shareholders. As the result of a public offer, Magyar Telekom acquired a 3.49% stake in TCG on May 24, 2005 increasing its total stake to 76.53%.

 

TCG’s balance sheet was consolidated in our accounts as of March 31, 2005, while the results of TCG are included in our consolidated income statement from the second quarter of 2005.

 

On December 20, 2005, Magyar Telekom Plc.’s Extraordinary General Meeting approved the decision on the merger of Magyar Telekom Plc. and T-Mobile Hungary (“TMH”). The court registration of the merger took place on February 28, 2006. From March 1, 2006, Magyar Telekom Plc. is the legal successor of TMH. At the same time, TMH will continue its operations within Magyar Telekom Plc. under an independent brand and as an independent line of business.

 

On March 1, 2006, Magyar Telekom Rt. changed its name to Magyar Telekom Nyilvánosan Mukodo Rt. (Magyar Telekom Telecommunications Public Limited Company) and its abbreviated name became Magyar Telekom Plc.

 

On April 26, 2006, the Board of Directors of Magyar Telekom has reviewed the current status of the investigation and the audit process and decided not to call the AGM as the investigation relating to two contracts regarding consultancy services, entered into by one of its subsidiaries, is still ongoing.

 

As disclosed on March 30, 2006, as well as in the full-year 2005 results announcement made on February 13, 2006, the Company is still inquiring into certain consultancy contracts, totalling approximately HUF 700 million, to determine whether they have been entered into in violation of company policy or applicable law or regulation. This inquiry, which is being conducted by an independent law firm and supervised by the Audit Committee, is still ongoing and it is at this point still too early to determine its outcome. Pending on the outcome of the investigation, the

 

11



 

Board of Directors of Magyar Telekom has decided to suspend certain employees. The Company has notified the Hungarian Financial Supervisory Authority, the U.S. Securities and Exchange Commission and the U.S. Department of Justice of the investigation and is in contact regarding the investigation with these authorities. The Company is committed to complying fully with the requirements and requests of these and other authorities that have jurisdiction over it.

 

As a result of this delay to the Annual General Meeting, the Company will fail to meet certain deadlines prescribed by the Hungarian laws and regulations for preparing and filing audited annual results (including the decision on the use of after-tax profit) approved by the AGM with the Budapest Stock Exchange (BSE), the Hungarian Financial Supervisory Authority and the Court of Registration. On May 5, 2006, the Hungarian Financial Supervisory Authority imposed a HUF 6 million fine on Magyar Telekom Plc. for not meeting its reporting obligations. The Company could also be subject to further penalties in Hungary and the United States for further failures to meet reporting obligations or for other violations of law.

 

The Company will seek to hold an AGM and have its annual results and dividend proposal approved as soon as reasonably practicable.

 

No assurance been given that as a result of the investigation the audited financial statements for 2005 and financial statements for any other period will not vary from those published prior to the completion of the investigation.

 

Revenues

 

Voice-retail revenues decreased by 7.2% in the first quarter of 2006 compared to the same period in 2005, mainly driven by lower domestic outgoing traffic revenues at Magyar Telekom Plc. due to the lower fixed to mobile terminating fees and loss of traffic.

 

Subscription fees showed an increase at Magyar Telekom reflecting the positive effect of the consolidation of TCG’s revenues in 2006. The subscription revenue from supplementary packages at Magyar Telekom Plc. also generated higher revenues in line with their higher customer base. These increases were partly offset by decreased ISDN subscription revenues resulting from lower average number of customers and lower prices.

 

Domestic outgoing fixed line traffic revenues in the first three months of 2006 amounted to HUF 18.4 bn compared to HUF 22.8 bn in the same period of 2005. Domestic outgoing traffic decreased by 1.8% in the Hungarian fixed line operations, mainly due to competition from other fixed line service providers and mobile substitution. The decrease in revenue is higher than the decrease in traffic, due to lower average per minute fees. In line with the decision of the National Regulatory Authority to reduce fixed to mobile termination rates, Magyar Telekom recorded a reduction in the fixed to mobile revenues. Both Magyar Telekom Plc. and Emitel offered several price discounts to customers choosing different tariff packages. Customized tariff packages represented 78.3% of the lines at Magyar Telekom Plc. at March 31, 2006. The most popular of these packages is the Felezo (Halving) package and the Favorit packages. Domestic outgoing traffic revenues also decreased at Maktel due to lower usage, partly compensated by price increases in August 2005. The consolidation of TCG’s revenues in 2006 partly offset these decreases.

 

12



 

International outgoing fixed line traffic revenues decreased by 3.8%, from HUF 2.6 bn in the first quarter of 2005 to HUF 2.5 bn in the same period of 2006. This decrease is mainly due to decreased outgoing minutes as well as price discounts given to subscribers of optional tariff packages at Magyar Telekom Plc. Outgoing international traffic revenues also decreased at Maktel as a result of lower volume of minutes. The consolidation of TCG’s revenues in 2006 partly offset these decreases.

 

Voice-wholesale revenues increased by 43.2% in the first quarter of 2006 compared to the same period in 2005 mainly driven by the consolidation of TCG.

 

Domestic incoming fixed line traffic revenues for the first three months of 2006 increased by 57.7% compared to the same period in 2005. The main reason for this increase is the additional revenue resulting from the consolidation of TCG. At Magyar Telekom Plc., revenues from LTOs increased due to higher interconnection traffic (both call origination and call termination) resulting from the increased customer base of other fixed line service providers, partly offset by lower LRIC-based rates (introduced on June 15, 2004). Domestic incoming traffic revenues from mobile operators increased significantly at Magyar Telekom Plc. resulting from higher traffic mainly in the mobile to international call relation.

 

International incoming fixed line traffic revenues increased to HUF 4.3 bn for the three months ended March 31, 2006 compared to HUF 3.2 bn for the same period in 2005. International incoming revenues increased mainly due to the inclusion of TCG’s revenues.

 

At Maktel, higher international incoming revenue is resulting from the 42.4% higher international incoming traffic. International incoming traffic revenues are also higher at Magyar Telekom Plc. due to the increased volume of international incoming traffic and higher HUF/EUR exchange rate, partly offset by lower average settlement rates. Higher traffic terminated in Magyar Telekom Plc. and LTO areas was only partly offset by lower mobile terminated international traffic transited by Magyar Telekom Plc. (due to migrations of international calls to mobile networks).

 

Internet revenues of the fixed line operations grew to HUF 11.5 bn in the first three months of 2006 compared to HUF 9.4 bn in the same period last year. This growth was due to the strong increase in the number of ADSL and Internet subscribers in the Hungarian fixed line operations. The number of ADSL subscribers of Magyar Telekom Plc. and Emitel grew to 370,362 (from 226,813 at the end of the first quarter of 2005) and the number of T-Online Internet connections grew by 25.3% to 348,078 compared to the previous year. The proportion of higher revenue generating leased line and broadband Internet customers grew within the customer base, which also contributed to the revenue growth. By end of March 2006, the total number of our broadband connections was over 400,000. Revenue increase, to a smaller extent, was also attributable to the consolidation of TCG’s revenues in 2006.

 

Data revenues grew by 11.8% to HUF 6.7 bn in the first three months of 2006 compared to the same period in 2005. The increase is mainly driven by higher data wholesale revenues at Combridge and by the inclusion TCG and Orbitel revenues.

 

System Integration and IT revenues increased by 14.8% and reached HUF 2.5 bn in the first quarter of 2006 compared to the same period last year, deriving from higher IT service fees at Magyar Telekom Plc.

 

13



 

Multimedia revenues amounted to HUF 4.3 bn in the first three months of 2006 as compared to HUF 3.8 bn in the same period of 2005. The increase is mainly due to the growth in cable TV revenues resulting from the increase in average number of cable TV subscribers and price increases effective from January 1, 2006.

 

Revenues from fixed line equipment sales increased to HUF 1.2 bn for the three months ended March 31, 2006 compared to HUF 1.1 bn for the same period in 2005. Equipment sales revenue increase is due to higher amount of phonesets and ADSL modems sold in connection with the intensive media campaign, partly offset by lower rental fees of telecommunications equipment at Magyar Telekom Plc.

 

Other fixed line revenues increased by 38.9% and amounted to HUF 2.2 bn in the first quarter of 2006. Other revenues include construction, maintenance, rental, wholesale infrastructure service and miscellaneous revenues. The increase in other revenues is mainly due to higher telephone book revenues related to telephone book publishing and higher real estate rental revenues at Magyar Telekom Plc.

 

Revenues from mobile telecommunications services amounted to HUF 71.2 bn for the three months ended March 31, 2006 compared to HUF 64.5 bn for the same period in 2005 (a 10.5% increase). From the second quarter of 2005, the consolidated revenue of Monet, our Montenegrin mobile operator positively affected the revenues from mobile operations. As of March 31, 2006, Monet had about 203,000 customers.

 

The majority of mobile telecommunications revenue is generated by T-Mobile Hungary, where the growth in revenues mainly resulted from the 14.2% higher average Minutes of Use (“MOU”) and the 4.2% higher average customer base. While the penetration growth of mobile customers has slowed down in Hungary, TMH still maintains its leading position with 44.9% market share. The proportion of postpaid customers increased to 32.1% at March 31, 2006 from 29.4% a year earlier as some of the prepaid customers migrated to more favorable, for example flat-rate postpaid packages.

 

Within mobile telecommunications services, voice revenues represent the largest portion of revenues. It increased by 9.3% and amounted to HUF 55.4 bn in the first quarter of 2006. Its growth was mainly driven by the increased traffic generated by T-Mobile Hungary’s customers. TMH’s average usage per customer per month measured in MOU increased by 14.2% from 113 minutes in the first three months of 2005 to 129 minutes in the same period of 2006. TMH’s monthly average revenue per user (“ARPU”) increased by 0.8% from HUF 4,653 in the first quarter of 2005 to HUF 4,690 for the same period of 2006 as the proportion of postpaid customers generating monthly subscription fees have increased.

 

Within mobile telecommunications services, enhanced services show the highest increase as it grew from HUF 8.8 bn to HUF 10.4 bn by 18.9% year over year. This revenue includes primarily short message service (“SMS”) and multimedia message service (“MMS”). The revenue growth is due to the increasing proportion of content messages with higher rates and higher access (data, WAP, Internet, GPRS, etc.) revenues.

 

Mobile equipment sales revenues increased by 6.2% in the first quarter of 2006 compared to the same period of last year due to higher average price of phonesets and more gross additions to customers at T-Mobile Hungary.

 

14



 

Revenues from mobile telecommunications services at Mobimak increased as a result of higher average number of mobile customers and higher MOU, partly offset by lower per minute rates and lower interconnection prices. The number of Mobimak customers increased by 12.9% and reached 877,228 at March 31, 2006. Mobimak’s average usage per customer per month measured in MOU increased by 5.2% from 58 minutes in the first quarter of 2005 to 61 minutes in the same period of 2006. The revenue increase in HUF was also supported by the weakening of the HUF against the MKD.

 

Operating Expenses

 

Employee-related expenses for the first quarter of 2006 amounted to HUF 21.5 bn compared to HUF 21.6 bn for the same period in 2005 (a decrease of 0.5%). The decrease is mainly due to lower wage expenses and social security contributions at Magyar Telekom Plc. and Maktel driven by the significant decrease in average headcount. The group headcount figure fell from 14,025 on March 31, 2005 to 12,014 on March 31, 2006.

 

As a result of decreased headcount, the number of lines per fixed line employee at Magyar Telekom Plc. increased to 501 by the end of February 2006 and thereby reached the year-end target of 500. As Magyar Telekom Plc. merged with T-Mobile Hungary and many of the functions are centralized, we can not measure this operational statistical figure precisely any more, therefore we will not publish it in future reports.

 

The decrease in employee-related expenses was partly offset by the inclusion of TCG expenses and also by the 5.6% average wage rate increase from April 1, 2005 at Magyar Telekom Plc.

 

Depreciation and amortization increased by 6.9% to HUF 29.2 bn in the first three months of 2006 from HUF 27.3 bn in the same period last year. The increase in depreciation is mainly driven by the consolidation of TCG. In addition, depreciation increased at T-Mobile Hungary due to their higher gross asset base of telecommunications and IT equipment as well as the capitalized UMTS concession. These increases were partly offset by lower depreciation expenses in our Hungarian fixed line operations mainly resulting from the revised useful life of assets in the first quarter of 2005 which caused higher expenses last year.

 

Payments to other network operators reached HUF 21.9 bn in the first three months of 2006 compared to HUF 20.9 bn in the same period of 2005, mainly due to the consolidation of TCG’s expenses. The increase was also due to the 2.8% increase in outpayments to mobile operators, mainly driven by T-Mobile Hungary’s outpayments to other GSM service providers due to higher mobile penetration and increased traffic. In addition, with the introduction of flat-rate packages, the proportion of calls to the networks of other service providers increased, resulting in higher outpayments. Interconnection traffic between Magyar Telekom Plc. and the LTOs slightly increased as well, but the traffic increase was partly offset by lower LRIC-based rates. Higher network rental fee expenses primarily resulted from the inclusion of TCG group. Domestic outpayments at Mobimak increased as well due to the higher subscriber base of the other mobile service provider in Macedonia. In addition, international outpayments were higher at Magyar Telekom Plc. owing to higher volume of minutes, the weakening of HUF against the EUR as well as higher average settlement rates with foreign service providers.

 

These increases were party offset by Magyar Telekom’s lower outpayments to mobile operators due to decreased volume of traffic and lower fixed to mobile termination rates. International

 

15



 

mobile outpayments showed a slight decrease at T-Mobile Hungary, as a result of favorable agreements concluded with other mobile operators, mainly with other T-Mobile companies.

 

The cost of telecommunications equipment sales for the three months ended March 31, 2006 was HUF 8.1 bn compared to HUF 7.9 bn for the same period in 2005 as the sale of phonesets increased significantly due to intensive Favorit and ADSL campaigns at Magyar Telekom Plc. At Mobimak, cost of equipment sales also increased as a result of higher number of gross additions and higher average cost of phonesets, partly offset by lower equipment sales ratio. The inclusion of TCG expenses also contributed to the increase. These increases were partly offset by lower equipment sales cost of TMH mainly driven by lower average cost of phonesets.

 

Other operating expenses - net increased by 16.8% year over year. Other operating expenses include materials, maintenance, marketing, service fees, outsourcing expenses, energy and consultancy. This increase was primarily due to the inclusion of TCG’s expenses. Agency fees also grew as a result of increased commissions related to tariff packages sold both in LTOs’ and Magyar Telekom Plc.’s service areas. Commissions paid for new subscribers increased at TMH as well in line with increased gross additions to customers. Higher marketing fees resulting from intensive advertising activity at Magyar Telekom Plc., T-Online and TMH also contributed to the expense growth. The increase was also driven by higher fees for outsourcing services (real estate, accounting, call centers, transportation services). These increases were partly offset by lower provisions for receivables at TMH, Magyar Telekom Plc. and Maktel.

 

Operating Profit

 

Operating margin for the first quarter ended March 31, 2006 was 21.4%, while operating margin for the same period in 2005 was 22.1%. The decrease is mainly due to the fact, that in percentage terms the increase in expenses was higher than the growth in revenues.

 

Net financial expenses

 

Net financial expenses were HUF 7.7 bn in the first three months of 2006 compared to HUF 7.5 bn in the same period of 2005. Net financial expenses increased mainly due to the combined effect of higher foreign exchange losses and lower foreign exchange gains due to the weakening of the Hungarian forint. Foreign exchange loss increased at Maktel as well due to the unfavorable fluctuations of the MKD against USD and SDR. These increases were partly offset by the HUF 1.1 bn decrease in HUF interest expenses due to lower average HUF interest rates. The proportion of loan portfolio with variable interest rates was higher than a year earlier. Net financial expenses included HUF 0.8 bn net FX loss, HUF 6.8 bn interest expense, HUF 0.9 bn other financial charges and HUF 0.7 bn interest and other financial income in the first three months 2006.

 

16



 

Share of associates’ results after income tax

 

Share of associates’ results amounted to HUF 26 million loss for the first quarter of 2006 compared to HUF 284 million loss for the same period in 2005. Lower loss is mainly due to the improving performance of T-Systems Hungary.

 

Income tax

 

Income tax expense slightly decreased from HUF 3.8 bn in the first three months 2005 to HUF 3.3 bn in the first three months 2006 despite the higher profit before tax of Magyar Telekom’s subsidiaries and the inclusion of TCG group. Lower tax expense is mostly due to increase in the investment tax credit adjustment and the change in local tax deductibility.

 

Minority interests

 

Minority interests in the first quarter of 2006 were HUF 2.8 bn compared to HUF 2.3 bn for the same period in 2005. The increase mainly results from the consolidation of TCG and the better performance of Maktel and Mobimak.

 

Analysis of group balance sheets

 

Total assets and total shareholders’ equity and liabilities as of March 31, 2005 were HUF 1,077 bn. Total assets and total shareholders’ equity and liabilities amounted to HUF 1,088 bn as of March 31, 2006.

 

Loans and other borrowings

 

The current portion of loans and other borrowings decreased by 53.5% from March 31, 2005 to HUF 76.5 bn at March 31, 2006. This decrease in current loans and other borrowings is mainly due to HUF 73.7 bn of loans from DT International Finance BV, which matured in January 2006 and was financed by a long term inter-company loan.

 

Non current loans and other borrowings increased by 39.1% from March 31, 2005 to HUF 259.7 bn at March 31, 2006. This significant increase reflects the balance of two effects. On the one hand, the maturity date of the existing loan portfolio has come closer; on the other hand, new long term loans increased the amount of the non current loan portfolio.

 

At March 31, 2006, almost 100% of the loan portfolio was HUF denominated. At the end of the first quarter of 2006, 44.0% of the loans bore floating interest rates. The gearing ratio defined as net debt divided by net debt plus equity plus minority interest was 30.6% at March 31, 2006 compared to 33.3% a year earlier.

 

17



 

Analysis of group cashflow

 

Net cashflows from operating activities increased by 23.7% compared to the first three months of 2005 and amounted to HUF 42,840 million in the same period of 2006 due to higher EBITDA, favorable change in working capital requirement and lower amount of interest paid.

 

Net cashflows from investing activities amounted to minus HUF 28,083 million in the first quarter of 2006, while it was minus HUF 51,527 million for the same period in 2005. This HUF 23,444 million decrease in cash outflow is predominantly due to the amounts paid for the purchase of subsidiaries as Magyar Telekom acquired a total share of 76.53% in TCG in 2005. In connection with the purchase of tangible and intangible assets the cash outflow was HUF 7,915 million higher in the first three month of 2006, than a year earlier.

 

Net cashflows from financing activities amounted to HUF 26,414 million in the first three months of 2005 compared to minus HUF 8,547 million in the same period of 2006. While during the first quarter of 2005, Magyar Telekom took a net HUF 26,466 million loan, mainly in connection with the acquisition of Telekom Montenegro and the dividend payments of Magyar Telekom Plc., in the same period of 2006 it repaid a net HUF 8,513 million.

 

Analysis of segment results

 

Magyar Telekom divides the two business segments (fixed line and mobile) into Hungarian and international operations, thus the segment reporting information below presents these four activities. The sum of the financial results of the four operations presented below does not equal to the group financial results because of intra- and intersegment eliminations.

 

18



 

Hungarian fixed line operations

 

Hungarian fixed line operations include Magyar Telekom Plc. and its consolidated subsidiaries, other than T-Mobile Hungary and our foreign subsidiaries.

 

HUF millions

 

3 months ended
March 31, 2005

 

3 months ended
March 31, 2006

 

Change (%)

 

Voice - retail revenues

 

43,407

 

37,398

 

(13.8

)%

Voice - wholesale revenues

 

3,917

 

4,851

 

23.8

%

Internet

 

8,920

 

10,593

 

18.8

%

Other revenues

 

15,344

 

16,950

 

10.5

%

Total revenues

 

71,588

 

69,792

 

(2.5

)%

EBITDA

 

26,522

 

23,581

 

(11.1

)%

Operating profit

 

11,238

 

8,522

 

(24.2

)%

Property, plant and equipment

 

370,714

 

351,924

 

(5.1

)%

Intangible assets

 

31,833

 

36,127

 

13.5

%

Gross additions to tangible and intangible fixed assets

 

5,209

 

6,693

 

28.5

%

 

EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

 

Revenues from the Hungarian fixed line operations showed a 2.5% decrease year over year. The domestic outgoing fixed voice business experienced a decline mainly due to price discounts and lower fixed to mobile termination rates. International outgoing traffic revenues decreased as well as a result of lower per minute rates included in our various tariff packages and lower outgoing traffic. The increase in domestic incoming traffic revenues was mainly due to higher LTO call origination and termination traffic in line with the higher customer base of other fixed line telecommunications service providers, which was partly offset by lower LRIC-based rates. Domestic traffic revenues from mobile operators increased significantly due to higher traffic mainly in the mobile to international direction transited by Magyar Telekom Plc. International incoming traffic revenues increased as well, due to higher traffic and the weakening of HUF against EUR, partly offset by lower international average settlement rates. Internet revenues increased by 18.8% in the first three months of 2006 compared to the same period of 2005 driven by strong volume increases in the number of ADSL and Internet customers.

 

Operating profit of the Hungarian fixed line operations decreased by 24.2% due to lower traffic revenues and higher operating expenses, mainly increased cost of equipment sales and net-other operating expenses. These negative effects were partly offset by lower employee related expenses, depreciation and payments to other network operators.

 

19



 

International fixed line operations

 

In the first quarter of 2005, international fixed line operations include Maktel, Stonebridge, Telemacedonia and the related goodwill arising on consolidation. In the first quarter of 2006, these figures also include the results of the fixed line and the Internet operations of Telekom Montenegro. International fixed line operations also include the results of Orbitel, Combridge, Novatel, Novatel Ukraine and Viabridge in both periods.

 

HUF millions

 

3 months ended
March 31, 2005

 

3 months ended
March 31, 2006

 

Change (%)

 

Voice - retail revenues

 

7,064

 

9,304

 

31.7

%

Voice - wholesale revenues

 

1,901

 

3,531

 

85.7

%

Internet

 

486

 

881

 

81.3

%

Other revenues

 

1,069

 

2,076

 

94.2

%

Total revenues

 

10,520

 

15,792

 

50.1

%

EBITDA

 

4,425

 

6,701

 

51.4

%

Operating profit

 

2,371

 

3,952

 

66.7

%

Property, plant and equipment

 

81,184

 

82,082

 

1.1

%

Intangible assets

 

18,554

 

22,332

 

20.4

%

Gross additions to tangible and intangible fixed assets

 

596

 

895

 

50.2

%

 

EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

 

From the second quarter of 2005, the consolidation of TCG’s fixed line operation had significant effect on the results of the international fixed line operations. TCG’s revenue reached HUF 4.2 bn with an operating profit of HUF 835 million and HUF 1.4 bn EBITDA. The closing number of fixed line employees was 974 on March 31, 2006.

 

Higher subscriptions revenues at Maktel in the first three months of 2006 resulted from the higher tariffs, partly offset by the lower average number of customers. The total number of fixed line subscribers at Maktel decreased by 9.5% to 546,046 at March 31, 2006. Domestic outgoing traffic revenues decreased mainly due to usage decrease, partly compensated by higher tariffs. Lower international outgoing traffic revenues resulted from decreased volume of traffic. International incoming traffic revenues increased, mainly due to higher traffic.

 

Revenues from Internet showed an increase, resulting from the significantly higher number of ADSL subscribers as well as increased average number of Internet customers. The number of Maktel’s Internet subscribers increased further and reached 99,816 by March 31, 2006 from 74,085 a year earlier.

 

Increase in operating expenses in the international fixed line operations mainly due the consolidation of TCG. Operating expenses decreased at Maktel mainly because of decreases in payments to other network operators and other operating expenses. Due to the successful cost-cutting efforts, the decrease in expenses and the revenue growth led to higher operating profit at Maktel.

 

20



 

Hungarian mobile operations

 

Hungarian mobile operations include T-Mobile Hungary and the related goodwill arising on consolidation.

 

HUF millions

 

3 months ended
March 31, 2005

 

3 months ended
March 31, 2006

 

Change (%)

 

Voice revenues

 

50,006

 

51,144

 

2.3

%

Enhanced services

 

8,018

 

9,339

 

16.5

%

Equipment sales

 

4,380

 

4,400

 

0.5

%

Other revenues

 

415

 

501

 

20.7

%

Total revenues

 

62,819

 

65,384

 

4.1

%

EBITDA

 

24,194

 

26,103

 

7.9

%

Operating profit

 

15,898

 

17,210

 

8.3

%

Property, plant and equipment

 

113,970

 

122,436

 

7.4

%

Intangible assets

 

202,954

 

203,163

 

0.1

%

Gross additions to tangible and intangible fixed assets

 

6,332

 

10,475

 

65.4

%

 

EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

 

Mobile penetration reached 93.3% in Hungary and T-Mobile Hungary accounts for 44.9% market share in the highly competitive mobile market.

 

Revenues in the Hungarian mobile operations increased by 4.1% in the first three months of 2006 compared to the same period in 2005 due to the increase in the number of mobile customers. T-Mobile Hungary’s customer base increased by 4.2% to 4,222,206 subscribers, including 2,865,174 prepaid customers by March 31, 2006. Average monthly usage per T-Mobile Hungary subscriber increased by 14.2% from 113 minutes in the first three months of 2005 to 129 minutes in the same period of 2006. T-Mobile Hungary’s ARPU increased by 0.8% from HUF 4,653 in the first quarter of 2005 to HUF 4,690 in the same period of 2006. Revenues from call terminations remained stable in the Hungarian mobile operations. While interconnection fees from Magyar Telekom Plc. decreased due to the lower per minute termination fees, interconnection fees received from other mobile service providers increased due to higher mobile penetration and traffic.

 

Operating profit shows an 8.3% increase as total operating expenses increased by HUF 1.3 bn and revenues increased by HUF 2.6 bn year over year. Operating expenses increased by 2.7% mainly due to the combined effect of higher other operating expenses - net (higher marketing fees resulting from the intensive advertising activity and higher agency fees) and lower employee-related expenses as well as lower cost of equipment sales.

 

21



 

International mobile operations

 

In the first quarter of 2005, international mobile operations include Mobimak and the related goodwill arising on consolidation. In the first quarter of 2006, these figures also include the results of Monet, the mobile subsidiary of Telekom Montenegro.

 

HUF millions

 

3 months ended
March 31, 2005

 

3 months ended
March 31, 2006

 

Change (%)

 

Voice revenues

 

6,320

 

8,893

 

40.7

%

Enhanced services

 

802

 

1,233

 

53.7

%

Equipment sales

 

407

 

624

 

53.3

%

Other revenues

 

84

 

116

 

38.1

%

Total revenues

 

7,613

 

10,866

 

42.7

%

EBITDA

 

3,989

 

5,638

 

41.3

%

Operating profit

 

2,287

 

3,125

 

36.6

%

Property, plant and equipment

 

22,447

 

22,600

 

0.7

%

Intangible assets

 

55,949

 

59,267

 

5.9

%

Gross additions to tangible and intangible fixed assets

 

262

 

920

 

251.1

%

 

EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

 

The acquisition of Monet had positive impact on the results of the international mobile operations. Total revenues of Monet amounted to HUF 2.6 bn with an operating profit of HUF 0.6 bn and EBITDA reached HUF 1.2 bn. The closing number of Monet employees was 159 at the end of March 2006.

 

Total revenues of Mobimak in MKD terms increased by 3.6%, which was largely intensified by the 4.3% weakening of the HUF against the MKD. The 8.0% revenue increase in HUF terms in the first three months of 2006 was mainly due to higher average customer base. Mobimak’s subscriber base increased significantly by 12.9% to 877,228 including 729,725 prepaid customers on March 31, 2006. Mobimak had 68.3% share in the Macedonian mobile market and mobile penetration was 62.0% at the end of the first quarter of 2006.

 

Traffic revenues increased due to higher MOU and higher average number of customers, partly offset by lower per minute rates and lower interconnection prices. Equipment sales revenues increased as a result of higher average sales price of phonesets and higher gross additions.

 

Total operating expenses increased by 6.9% in HUF terms, due to increase in payments to other network operators, employee-related expenses and depreciation and amortization, which were partly offset by decrease in other operating expenses.

 

22



 

Company name:

 

Magyar Telekom Plc.

Company address:

 

H-1013 Budapest Krisztina krt. 55.

Sector:

 

Telecommunications

Reporting period:

 

January 1, 2006 — March 31, 2006

Telephone:

 

36-1-458-04-24

Fax:

 

36-1-458-04-43

E-mail address:

 

investor.relations@telekom.hu

Investor Relations manager:

 

Szabolcs Czenthe

 

PK1. General information about financial data

 

 

 

Yes

 

No

 

 

Audited

 

 

 

x

 

 

Consolidated

 

x

 

 

 

 

Accounting principles

 

Hungarian

 

IFRS x

 

Other

 

PK2. Consolidated Companies with direct ownership of Magyar Telekom Plc.

 

Name

 

Equity /
Registered
Capital (mHUF)

 

Interest held
(direct and
indirect)

 

Voting right

 

Classification

 

Stonebridge

 

mEUR 349

 

100.00

%

100.00

%

L

 

Telekom Crne Gore

 

mEUR 141

 

76.53

%

76.53

%

L

 

BCN Rendszerház

 

6,191

 

100.00

%

100.00

%

L

 

Pro-M

 

5,200

 

100.00

%

100.00

%

L

 

InvesTel

 

4,862

 

100.00

%

100.00

%

L

 

Emitel

 

3,110

 

100.00

%

100.00

%

L

 

Vidanet

 

2,000

 

90.00

%

50.00

%

L

 

T-Online Hungary

 

1,906

 

100.00

%

100.00

%

L

 

Egertel

 

1,425

 

100.00

%

100.00

%

L

 

T-Kábel Hungary

 

920

 

100.00

%

100.00

%

L

 

EPT

 

777

 

97.20

%

97.20

%

L

 

Integris Rendszerház

 

615

 

100.00

%

100.00

%

L

 

EurAccount

 

450

 

100.00

%

100.00

%

L

 

Cardnet

 

58

 

72.00

%

72.00

%

L

 

Tele-Data

 

39

 

50.98

%

50.98

%

L

 

ProMoKom

 

21

 

100.00

%

100.00

%

L

 

X-Byte

 

20

 

100.00

%

100.00

%

L

 

Mindentudás Egyeteme

 

5

 

60.00

%

60.00

%

L

 

Matáv

 

3

 

100.00

%

100.00

%

L

 

Axelero

 

3

 

100.00

%

100.00

%

L

 

MatávKábel TV

 

3

 

100.00

%

100.00

%

L

 

Viabridge

 

mEUR 1.16

 

100.00

%

100.00

%

L

 

Telemacedonia

 

mEUR 0.01

 

100.00

%

100.00

%

L

 

Novatel Ukraine

 

mEUR 0.28

 

100.00

%

100.00

%

L

 

 

PK6. Significant off-balance sheet items

 

Description

 

Value (HUF million)

 

Future finance lease obligations

 

2,439

 

Future obligations from rental and operating lease contracts

 

31,101

 

Future obligation from capex contracts

 

12,281

 

Other future obligations

 

4,564

 

 

23



 

TSZ2/1. Changes in the headcount (number of persons) employed

 

 

 

End of reference
period

 

Current period
opening

 

Current period closing

 

Company

 

6,732

 

5,478

 

6,992

 

Group

 

14,025

 

11,919

 

12,014

 

 

TSZ2/2. Changes in the headcount (number of persons) employed in full time by the company/group

 

 

 

Start of the
business year

 

End of the I.
quarter

 

End of the II.
quarter

 

End of the III. 
quarter

 

End of the 
business year

 

Company

 

5,478

 

6,992

 

 

 

 

 

 

 

Group

 

11,919

 

12,014

 

 

 

 

 

 

 

 

RS1. Ownership Structure, Ratio of Holdings and Votes

 

 

 

Total equity

 

 

 

Year Opening (January 1st, 2006)

 

 

 

Closing (March 31st , 2006)

 

Description of owners

 

Ownership
ratio %

 

Voting
right 
%

 

No. of shares

 

Ownership
ratio%

 

Voting
right %

 

No. of shares

 

Domestic institution/company

 

3.48

 

3.49

 

36,322,446

 

3.70

 

3.71

 

38,597,558

 

Foreign institution/company

 

91.51

 

91.73

 

954,250,296

 

92.86

 

93.08

 

968,354,548

 

Domestic individual

 

1.45

 

1.46

 

15,162,132

 

1.24

 

1.24

 

12,885,677

 

Foreign individual

 

0.01

 

0.01

 

133,954

 

0.01

 

0.01

 

152,338

 

Employees, senior officers

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

Treasury Shares

 

0.24

 

n.a.

 

2,456,659

 

0.24

 

n.a.

 

2,456,659

 

Government Institutions

 

0.35

 

0.35

 

3,630,080

 

0.30

 

0.30

 

3,113,194

 

International Development Institutions

 

0.00

 

0.00

 

0

 

0.00

 

0.00

 

0

 

Not registered*

 

1.83

 

1.83

 

19,037,080

 

0.84

 

0.84

 

8,725,426

 

Depositaries

 

1.13

 

1.13

 

11,775,568

 

0.81

 

0.82

 

8,482,815

 

Other**

 

0.00

 

0.00

 

43,385

 

0.00

 

0.00

 

43,385

 

“B” Share

 

0.00

 

0.00

 

1

 

0.00

 

0.00

 

1

 

Total

 

100.00

 

100.00

 

1,042,811,601

 

100.00

 

100.00

 

1,042,811,601

 

 


*Category “Not registered” includes shares deposited on accounts where account holder is not specified. The owners of these shares are mainly foreign, partly domestic institutions.

 

** The holders of these shares do not wish to be a shareholder of the merged company in connection with the merger of Magyar Telekom Plc. and T-Mobile Hungary Ltd.

 

RS2. Volume (qty) of treasury shares held in the year under review

 

 

 

1, January

 

31, March

 

30, June

 

30, September

 

31, December

 

Company

 

2,456,659

 

2,456,659

 

 

 

 

 

 

 

Subsidiaries

 

0

 

0

 

 

 

 

 

 

 

Total

 

2,456,659

 

2,456,659

 

 

 

 

 

 

 

 

RS3. List and description of shareholders with more than 5% (at the end of period)

 

Name

 

Nationality

 

Activity

 

Quantity

 

Interest
(%)

 

Voting
right (%)

 

Remarks

 

MagyarCom Holding GmbH

 

Foreign

 

Institutional

 

617,452,081

 

59.21

 

59.35

 

Strategic owner

 

JP Morgan Chase Bank

 

Foreign