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Magyar Telekom Plc. 6-K 2006

Documents found in this filing:

  1. 6-K
  2. Graphic
  3. Graphic
  4. Graphic

 

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 February 13, 2006

 

MAGYAR TELEKOM TELECOMMUNICATIONS CO. LTD.

(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

Krisztina Förhécz

 

Magyar Telekom IR

 

+36 1 457 6029

investor.relations@telekom.hu

 

 

 

 

 

2005 full year results: solid Group performance, continued focus on growth through value creative acquisitions

 

Budapest – February 13, 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 full year of 2005, 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 3.2% to HUF 620.7 bn (EUR 2,502.4 m) in 2005 compared to 2004. The higher mobile and data transmission revenues compensated for the decline in revenues from outgoing domestic and international traffic. The consolidation of TCG’s revenues from Q2 2005 had a positive effect of HUF 19.9 bn. Without the consolidation effect of TCG, Group revenues were broadly flat at HUF 600.8 bn.

 

                  Reported EBITDA increased by 12.1% to HUF 249.9 bn, with an EBITDA margin of 40.3%. Without the impact of TCG, EBITDA was HUF 244.3 bn with an EBITDA margin of 40.7%.

 

                  Employee related expenses fell by 15.3% compared to 2004, when this figure included a HUF 20.2 bn headcount rationalisation related severance provision and expenses (HUF 16.8 bn in Q4). At the same time, employee related expenses in 2005 included a HUF 5.1 bn provision and severance related expenses, of which HUF 1.3 bn were accounted for at Telekom Montenegro in the second quarter of 2005.

 

                  Gross additions to tangible and intangible assets were HUF 99.4 bn. The portion relating to the fixed line segment reached HUF 53.1 bn with mobile at HUF 46.3 bn. Within this, HUF 6.6 bn was spent on UMTS-related investments.

 

                  Following the change to IFRS rules, amortization of goodwill has been discontinued from January 1, 2005, and impairment testing is now carried out on an annual basis. In 2004, depreciation and amortization expenses of the Magyar Telekom Group included HUF 13.9 bn of goodwill amortization. In addition, in Q1 2004, the impairment charge relating to the rebranding of Westel to T-Mobile Hungary amounted to HUF 4.4 bn. As a result, in 2005, depreciation and amortization fell to HUF 114.7 bn from HUF 137.7 bn a year earlier.

 

                  Fixed line segment: external revenues (after elimination of inter-segment revenues) fell by 0.9% to HUF 331.1 bn as increased data transmission (mainly ADSL) revenues only partially offset the decline, primarily in outgoing traffic revenues. EBITDA amounted to HUF 121.9 bn and the EBITDA margin on external revenues was 36.8%.

 

                  Mobile segment: external revenues grew by 8.4% to HUF 289.6 bn driven by voice revenues and enhanced services revenues. EBITDA amounted to HUF 127.9 bn with the EBITDA margin on external revenues reaching a strong 44.2%.

 

                  Group operating profit grew 58.5% to HUF 135.2 bn, driven mainly by a decline in depreciation and amortization as well as a reduction in the employee-related expenses and cost of equipment sales. Net income increased significantly from HUF 34.6 bn (EUR 137.6 m) to HUF 80.1 bn (EUR 323.0 m).

 

                  Net cash from operating activities grew to HUF 202.5 bn due to the combined impact of the growth in EBITDA, the lower income tax paid and the reversal of severance provisions booked in 2004. Net

 

1



 

cash utilized in investing activities increased to HUF 132.7 bn, mainly driven by the acquisition of the majority stake in TCG. Net cash used in financing activities decreased to HUF 61.8 bn, primarily due to increased borrowing as a result of the TCG transaction, partly offset by the increased dividend payment at MakTel.

 

                  Net debt grew slightly by HUF 13.4 bn compared to the end of December 2004, driven by the dividend payment and the TCG transaction. The net debt ratio (net debt to net debt plus equity plus minority interests) reached 33.1% at end-2005 (32.9% at the end-2004).

 

Elek Straub, Chairman and CEO commented: “2005 was a very dynamic year for Magyar Telekom. Despite intense competition in both fixed line and mobile segments, we preserved our leading position in our key businesses. In the domestic fixed line business, we entered other LTO areas with the aim of acquiring new customers by offering combined new services. Despite continued fixed line erosion, the productivity in this segment grew, which is reflected in the improved lines per employee ratio of 484 at end-2005. Following a positive response to the rebranding of the mobile business, we decided to introduce the “T” brand portfolio across all business areas. Another important milestone in 2005 was the decision to merge Magyar Telekom Rt. and T-Mobile Hungary in the second half of last year, which will enable us to achieve improvements in efficiency, profitability and cash-flow in the coming years. In line with our strategy, we capitalised on acquisition-driven growth opportunities in the region through the purchase of Telekom Montenegro and Orbitel in Bulgaria. In addition, we are currently finalising the acquisition of Dataplex, a Hungarian IT outsourcing company. Thanks to the above mentioned investments, we target a single digit revenue growth of above 3% in 2006 and 2007.  In terms of EBITDA, please note that our recent initiatives (IT investments, EDR project, entry to the Romanian retail market etc.) are expected to bring tangible results only from next year. We also expect the positive impact of the fixed-mobile merger on Group profitability to be visible from 2007. As a result, our aim for this year is to maintain the 2005 EBITDA levels, and to continue to grow our EBITDA in forint terms in 2007. We target a gross additions to tangible and intangible assets to revenues (capex to sales) ratio of below 15% in 2006, excluding EDR-related investments (around HUF 20-22bn). This ratio is expected to fall below 14% in 2007. Our goal remains to seek growth opportunities in the form of suitable acquisitions in the future.”

 

Hungarian fixed line operations: strong growth in broadband connections, improving headcount efficiency

 

Revenues before elimination grew by 1.7% to HUF 74.7 bn in Q4 2005 over the same period in 2004 with an EBITDA margin at 32.5% for the quarter. The quarterly revenue increase is due to a HUF 3.0 bn reversal of revenue reduction booked in the last quarters related to the change in mobile termination fees. Domestic and international traffic revenues combined declined by 10.3%, mainly due to traffic loss to fixed line competitors and mobile substitution. In addition, lower mobile termination rates and discounts provided in our packages contributed to the revenue decline. However, leased line and data revenues continued to grow, recording a 19.1% rise as the number of installed ADSL lines increased. The total number of broadband connections (mainly ADSL and cable) was close to 358 thousands at end-2005. The increased mobile substitution and number portability, both in the business and residential segments, accelerated the decline in the total number of fixed lines (down 5.1% at end-2005 compared to end-2004). The strong focus on improving efficiency is reflected in the lines per employee ratio, which reached 489 at parent company level. Customised tariff packages at the parent company represented 66% of the total number of lines, with nearly 1.8 million lines at the end of the fourth quarter of 2005. Magyar Telekom’s Internet subsidiary, T-Online Hungary, reported HUF 7.7 bn in revenues in the last three months of 2005, against HUF 5.8 bn in the same period of 2004.

 

International fixed line operations: further headcount reduction at both MakTel and Telekom Montenegro aimed at improving efficiency

 

Revenues before elimination grew by 37.3% to HUF 15.1 bn in Q4 2005 driven by the consolidation impact of Telekom Montenegro. EBITDA fell to HUF 4.1 bn with an EBITDA margin of 27.3% due to a HUF 1.5 bn headcount rationalisation provision and expenses at MakTel. MakTel’s fixed line business revenues were broadly stable as a combined result of lower traffic revenue and increasing data revenues.

 

2



 

The results were also affected by lower usage and a favourable foreign exchange movement (2.5%). Increased employee related expenses, including the headcount reduction related provision and expenses, resulted in a lower EBITDA margin of 31.3%. Telekom Montenegro’s fixed line operations contributed HUF 4.0 bn to Group revenues in the fourth quarter, whilst the EBITDA was HUF 0.8 bn in Q4 2005.

 

Hungarian mobile operations: continued balanced focus on market share and profitability

 

Revenues before elimination grew by 1.5% to HUF 68.9 bn in Q4 2005 as a result of higher enhanced service and access revenues. EBITDA was HUF 25.3 bn with an EBITDA margin of 36.7% driven by higher employee related expenses and agency fees. Average acquisition cost per customer fell by 21% in the last quarter, reflecting lower 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 the 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 134 in the last quarter of 2005, reflecting improved price elasticity.

 

International mobile operations: impressive profitability at Mobimak, consolidation impact of Monet

 

Revenues before elimination grew strongly by 31.2% to HUF 11.4 bn in Q4 2005, driven by the consolidation impact of Monet. EBITDA was HUF 4.8 bn with an EBITDA margin of 42.0%. MakTel’s mobile business reported slight 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 50.5%. 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 0.3 bn in Q4 2005.

 

About Magyar Telekom

 

Magyar Telekom is the principal provider of telecom services in Hungary. Magyar Telekom provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiary, T-Mobile Hungary, is Hungary’s largest mobile telecom provider. 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). TCG Group provides fixed, mobile and Internet services in Montenegro. Key shareholders of Magyar Telekom as of December 31, 2005 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 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 full year 2005 results please visit our website:

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

 

3



 

MAGYAR TELEKOM

Consolidated Balance Sheets - IFRS

(HUF million)

 

 

 

Dec 31, 2004

 

Dec 31, 2005

 

% change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

36 879

 

46 060

 

24.9

%

Other financial assets held for trading

 

576

 

1 817

 

215.5

%

Trade and other receivables

 

83 440

 

96 484

 

15.6

%

Current income tax receivable

 

3 549

 

504

 

(85.8

)%

Inventories

 

7 669

 

8 414

 

9.7

%

Assets held for disposal

 

3 063

 

2 302

 

(24.8

)%

Total current assets

 

135 176

 

155 581

 

15.1

%

 

 

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

Property, plant and equipment - net

 

571 090

 

580 736

 

1.7

%

Intangible assets - net

 

298 351

 

320 942

 

7.6

%

Associates

 

5 750

 

5 020

 

(12.7

)%

Deferred taxes

 

12 527

 

14 785

 

18.0

%

Other non current assets

 

6 664

 

6 201

 

(6.9

)%

Total non current assets

 

894 382

 

927 684

 

3.7

%

Total assets

 

1 029 558

 

1 083 265

 

5.2

%

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Loans from related parties

 

60 000

 

74 648

 

24.4

%

Loans and other borrowings - third party

 

34 538

 

43 602

 

26.2

%

Trade and other payables

 

109 921

 

118 107

 

7.4

%

Current income tax payable

 

52

 

1 472

 

2 730.8

%

Deferred revenue

 

1 502

 

918

 

(38.9

)%

Provision for liabilities and charges

 

15 537

 

6 817

 

(56.1

)%

Total current liabilities

 

221 550

 

245 564

 

10.8

%

 

 

 

 

 

 

 

 

Non current liabilities

 

 

 

 

 

 

 

Loans from related parties

 

177 675

 

212 000

 

19.3

%

Loans and other borrowings - third party

 

48 395

 

14 215

 

(70.6

)%

Deferred revenue

 

1 186

 

267

 

(77.5

)%

Deferred taxes

 

1 280

 

3 281

 

156.3

%

Provisions for liabilities and charges

 

2 761

 

3 141

 

13.8

%

Other non current liabilities

 

47

 

5 521

 

11 646.8

%

Total non current liabilities

 

231 344

 

238 425

 

3.1

%

Total liabilities

 

452 894

 

483 989

 

6.9

%

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock

 

104 281

 

104 281

 

0.0

%

Additional paid in capital

 

27 382

 

27 382

 

0.0

%

Treasury stock

 

(3 842

)

(1 926

)

(49.9

)%

Cumulative translation adjustment

 

(3 026

)

(695

)

(77.0

)%

Retained earnings

 

391 772

 

400 115

 

2.1

%

Total shareholders’ equity

 

516 567

 

529 157

 

2.4

%

Minority interests

 

60 097

 

70 119

 

16.7

%

Total equity

 

576 664

 

599 276

 

3.9

%

 

 

 

 

 

 

 

 

Total liabilities and equity

 

1 029 558

 

1 083 265

 

5.2

%

 

4



 

MAGYAR TELEKOM

Consolidated Income Statements - IFRS

(HUF million)

 

 

 

Year ended December 31,

 

 

 

2004

 

2005

 

%
change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Subscriptions, connections and other charges

 

106 224

 

105 665

 

(0.5

)%

Outgoing domestic traffic revenues

 

112 381

 

90 933

 

(19.1

)%

Outgoing international traffic revenues

 

12 255

 

11 141

 

(9.1

)%

Total outgoing traffic revenues

 

124 636

 

102 074

 

(18.1

)%

Incoming domestic traffic revenues

 

5 883

 

9 618

 

63.5

%

Incoming international traffic revenues

 

15 781

 

16 007

 

1.4

%

Total incoming traffic revenues

 

21 664

 

25 625

 

18.3

%

 

 

 

 

 

 

 

 

Leased lines and data transmission

 

50 976

 

63 743

 

25.0

%

 

 

 

 

 

 

 

 

Equipment sales

 

3 678

 

4 046

 

10.0

%

 

 

 

 

 

 

 

 

Other revenues

 

26 996

 

29 909

 

10.8

%

Total fixed line revenues

 

334 174

 

331 062

 

(0.9

)%

 

 

 

 

 

 

 

 

Network usage and access

 

208 193

 

226 176

 

8.6

%

Enhanced services

 

31 945

 

38 421

 

20.3

%

Equipment sales

 

24 549

 

22 653

 

(7.7

)%

Activation fees

 

820

 

819

 

(0.1

)%

Other revenues

 

1 757

 

1 566

 

(10.9

)%

Total mobile revenues

 

267 264

 

289 635

 

8.4

%

 

 

 

 

 

 

 

 

Total revenues

 

601 438

 

620 697

 

3.2

%

 

 

 

 

 

 

 

 

Employee-related expenses

 

(109 497

)

(92 783

)

(15.3

)%

Depreciation and amortization

 

(137 666

)

(114 686

)

(16.7

)%

Payments to other network operators

 

(87 580

)

(89 097

)

1.7

%

Cost of telecommunications equipment sales

 

(40 971

)

(37 221

)

(9.2

)%

Other operating expenses - net

 

(140 460

)

(151 746

)

8.0

%

 

 

 

 

 

 

 

 

Total operating expenses

 

(516 174

)

(485 533

)

(5.9

)%

 

 

 

 

 

 

 

 

Operating profit

 

85 264

 

135 164

 

58.5

%

 

 

 

 

 

 

 

 

Net financial expenses

 

(36 146

)

(31 288

)

(13.4

)%

 

 

 

 

 

 

 

 

Share of associates’ profits/losses after tax

 

1 896

 

330

 

(82.6

)%

 

 

 

 

 

 

 

 

Profit before income tax

 

51 014

 

104 206

 

104.3

%

 

 

 

 

 

 

 

 

Income tax

 

(7 687

)

(13 732

)

78.6

%

 

 

 

 

 

 

 

 

Profit for the year

 

43 327

 

90 474

 

108.8

%

 

 

 

 

 

 

 

 

Equity holders of the Company (Net income)

 

34 641

 

80 128

 

131.3

%

Minority interests

 

8 686

 

10 346

 

19.1

%

 

 

43 327

 

90 474

 

108.8

%

 

5



 

MAGYAR TELEKOM

Consolidated Cashflow Statements - IFRS

(HUF million)

 

 

 

Year ended Dec 31,

 

 

 

2004

 

2005

 

%
change

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Cashflows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

85 264

 

135 164

 

58.5

%

Depreciation and amortization of fixed assets

 

137 666

 

114 686

 

(16.7

)%

Change in working capital

 

3 851

 

(31

)

n.m.

 

Amortization of deferred income

 

(1 758

)

(1 503

)

(14.5

)%

Interest paid

 

(34 030

)

(31 078

)

(8.7

)%

Bank and other finance charges paid

 

(3 183

)

(3 157

)

(0.8

)%

Income tax paid

 

(10 900

)

(4 524

)

(58.5

)%

Other cashflows from operations

 

12 841

 

(7 101

)

n.m.

 

 

 

 

 

 

 

 

 

Net cashflows from operating activities

 

189 751

 

202 456

 

6.7

%

 

 

 

 

 

 

 

 

Cashflows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of tangible and intangible assets

 

(91 748

)

(103 587

)

12.9

%

Purchase of subsidiaries and business units

 

(17 273

)

(37 047

)

114.5

%

Cash acquired through business combinations

 

16

 

1 866

 

11 562.5

%

Interest received

 

1 452

 

2 195

 

51.2

%

Dividends received

 

2 633

 

1 729

 

(34.3

)%

Proceeds from sale of trading investments - net

 

43

 

(371

)

n.m.

 

Proceeds from disposal of non current assets

 

4 090

 

2 529

 

(38.2

)%

 

 

 

 

 

 

 

 

Net cashflows from investing activities

 

(100 787

)

(132 686

)

31.6

%

 

 

 

 

 

 

 

 

Cashflows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid to shareholders and minority interest

 

(78 294

)

(84 551

)

8.0

%

Net proceeds of loans and other borrowings

 

6 199

 

20 734

 

234.5

%

Proceeds from sale of treasury stock

 

0

 

1 969

 

n.a.

 

 

 

 

 

 

 

 

 

Net cashflows from financing activities

 

(72 095

)

(61 848

)

(14.2

)%

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

(2 122

)

1 259

 

n.m.

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

14 747

 

9 181

 

(37.7

)%

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

22 132

 

36 879

 

66.6

%

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

36 879

 

46 060

 

24.9

%

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

14 747

 

9 181

 

(37.7

)%

 

6



 

Summary of key operating statistics

 

GROUP

 

Dec 31, 2004

 

Dec 31, 2005

 

% change

 

 

 

 

 

 

 

 

 

EBITDA margin

 

37.1

%

40.3

%

n.a.

 

Operating margin

 

14.2

%

21.8

%

n.a.

 

Net income margin

 

5.8

%

12.9

%

n.a.

 

ROA

 

3.3

%

7.6

%

n.a.

 

Net debt

 

283 153

 

296 588

 

4.7

%

Net debt to total capital

 

32.9

%

33.1

%

n.a.

 

Number of employees (closing full equivalent) (1)

 

13 724

 

11 919

 

(13.2

)%

 

FIXED LINE SEGMENT

 

Dec 31, 2004

 

Dec 31, 2005

 

% change

 

 

 

 

 

 

 

 

 

Hungarian fixed line operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed line penetration

 

37.5

%

35.6

%

n.a.

 

Digitalization of exchanges with ISDN

 

92.9

%

100.0

%

n.a.

 

Number of closing lines (2)

 

 

 

 

 

 

 

Residential

 

2 080 408

 

1 981 876

 

(4.7

)%

Business

 

263 889

 

248 955

 

(5.7

)%

Payphone

 

27 818

 

22 112

 

(20.5

)%

ISDN channels

 

530 250

 

500 696

 

(5.6

)%

Total lines

 

2 902 365

 

2 753 639

 

(5.1

)%

 

 

 

 

 

 

 

 

Traffic in minutes (thousands) (2)

 

 

 

 

 

 

 

Local (3)

 

3 185 485

 

3 282 575

 

3.0

%

Long distance (3)

 

1 711 256

 

1 096 685

 

(35.9

)%

Fixed to mobile

 

963 226

 

747 195

 

(22.4

)%

Domestic outgoing traffic

 

5 859 967

 

5 126 455

 

(12.5

)%

International outgoing traffic

 

133 773

 

113 315

 

(15.3

)%

Internet (4)

 

2 826 753

 

1 953 968

 

(30.9

)%

Total outgoing traffic

 

8 820 493

 

7 193 738

 

(18.4

)%

 

 

 

 

 

 

 

 

Data products

 

 

 

 

 

 

 

ADSL lines

 

205 886

 

329 314

 

59.9

%

Number of Internet subscribers

 

 

 

 

 

 

 

Dial-up

 

111 638

 

80 938

 

(27.5

)%

Leased line

 

907

 

751

 

(17.2

)%

DSL

 

137 910

 

218 954

 

58.8

%

W-LAN

 

1 153

 

1 467

 

27.2

%

CATV

 

14 412

 

26 425

 

83.4

%

Total Internet subscribers

 

266 020

 

328 535

 

23.5

%

Market share in the dial-up market (estimated)

 

42

%

42

%

n.a.

 

Managed leased lines (Flex-Com connections) (2)

 

10 939

 

10 289

 

(5.9

)%

Cable television customers

 

383 904

 

403 631

 

5.1

%

Total broadband Internet access (6)

 

222 358

 

357 957

 

61.0

%

 

 

 

 

 

 

 

 

Employees

 

 

 

 

 

 

 

Fixed line employees (closing full equivalent) (2)

 

8 009

 

5 684

 

(29.0

)%

Lines per fixed line employees (2)

 

362.4

 

484.4

 

33.7

%

Fixed line employees (Magyar Telekom Rt., closing full equivalent)

 

7 740

 

5 478

 

(29.2

)%

Lines per fixed line employees (Magyar Telekom Rt.)

 

364.9

 

489.0

 

34.0

%

 

7



 

International fixed line operations

 

 

 

 

 

 

 

Macedonian fixed line penetration

 

29.0

%

26.0

%

n.a.

 

Number of closing lines

 

 

 

 

 

 

 

Residential

 

524 722

 

467 559

 

(10.9

)%

Business

 

56 329

 

48 252

 

(14.3

)%

Payphone

 

2 725

 

2 063

 

(24.3

)%

ISDN channels

 

42 082

 

41 262

 

(1.9

)%

Total Macedonian lines

 

625 858

 

559 136

 

(10.7

)%

 

 

 

 

 

 

 

 

Macedonian traffic in minutes (thousands)

 

 

 

 

 

 

 

Local

 

1 601 981

 

1 368 786

 

(14.6

)%

Long distance

 

233 325

 

201 206

 

(13.8

)%

Fixed to mobile

 

154 880

 

139 203

 

(10.1

)%

Domestic outgoing traffic

 

1 990 186

 

1 709 195

 

(14.1

)%

International outgoing traffic

 

35 691

 

31 557

 

(11.6

)%

Internet

 

248 667

 

207 213

 

(16.7

)%

Total outgoing Macedonian traffic

 

2 274 544

 

1 947 965

 

(14.4

)%

 

 

 

 

 

 

 

 

Data products (Macedonia)

 

 

 

 

 

 

 

ADSL lines

 

2 447

 

7 798

 

218.7

%

Number of Internet subscribers

 

 

 

 

 

 

 

Dial-up

 

64 780

 

83 930

 

29.6

%

Leased line

 

164

 

137

 

(16.5

)%

DSL

 

2 447

 

7 798

 

218.7

%

Total Internet subscribers

 

67 391

 

91 865

 

36.3

%

Market share in the dial-up market (estimated)

 

75

%

81

%

n.a.

 

 

 

 

 

 

 

 

 

Macedonian employees

 

 

 

 

 

 

 

Fixed line employees (closing full equivalent)

 

2 382

 

1 776

 

(25.4

)%

Lines per fixed line employees

 

262.7

 

314.9

 

19.9

%

 

 

 

 

 

 

 

 

Montenegrin fixed line penetration

 

n.a.

 

31.2

%

n.a.

 

Number of closing lines

 

 

 

 

 

 

 

PSTN lines

 

n.a.

 

175 122

 

n.a.

 

ISDN channels

 

n.a.

 

18 750

 

n.a.

 

Total Montenegrin lines

 

n.a.

 

193 872

 

n.a.

 

 

 

 

 

 

 

 

 

Montenegrin traffic in minutes (thousands)

 

 

 

 

 

 

 

Local

 

n.a.

 

301 927

 

n.a.

 

Long distance

 

n.a.

 

126 024

 

n.a.

 

Fixed to mobile

 

n.a.

 

42 206

 

n.a.

 

Domestic outgoing traffic

 

n.a.

 

470 157

 

n.a.

 

International outgoing traffic

 

n.a.

 

12 662

 

n.a.

 

Internet

 

n.a.

 

385 264

 

n.a.

 

Total outgoing Montenegrin traffic

 

n.a.

 

868 083

 

n.a.

 

 

 

 

 

 

 

 

 

Data products (Montenegro)

 

 

 

 

 

 

 

ADSL lines

 

n.a.

 

1 085

 

n.a.

 

Number of Internet subscribers

 

 

 

 

 

 

 

Prepaid

 

n.a.

 

25 594

 

n.a.

 

Leased line

 

n.a.

 

117

 

n.a.

 

DSL

 

n.a.

 

1 085

 

n.a.

 

Total Internet subscribers (5)

 

n.a.

 

26 796

 

n.a.

 

Market share in the dial-up market (estimated)

 

n.a.

 

96

%

n.a.

 

Montenegrin employees

 

 

 

 

 

 

 

Fixed line employees (closing full equivalent)

 

n.a.

 

975

 

n.a.

 

Lines per fixed line employees

 

n.a.

 

198.8

 

n.a.

 

 

8



 


(1) Includes employees at Telekom Montenegro from March 31, 2005.

(2) Magyar Telekom Rt. and Emitel

(3) Due to reclassification of long distance I. (agglomeration) minutes from long distance to local minutes from January 2005, the 2004 and 2005 figures are not comparable.

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

(5) Internet RPC figures in Montenegro are not consistent yet with the Magyar Telekom Group standard.

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

 

MOBILE SEGMENT

 

Dec 31, 2004

 

Dec 31, 2005

 

% change

 

 

 

 

 

 

 

 

 

Hungarian mobile operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile penetration

 

86.4

%

92.4

%

n.a.

 

Market share of T-Mobile Hungary

 

46.2

%

45.0

%

n.a.

 

Number of customers (RPC)

 

4 032 045

 

4 193 855

 

4.0

%

Postpaid share in the RPC base

 

28.9

%

31.6

%

n.a.

 

MOU

 

115

 

127

 

10.4

%

ARPU

 

4 945

 

4 917

 

(0.6

)%

Postpaid ARPU

 

11 828

 

11 007

 

(6.9

)%

Prepaid ARPU

 

2 380

 

2 287

 

(3.9

)%

Overall churn rate

 

15.9

%

18.5

%

n.a.

 

Postpaid

 

11.9

%

10.4

%

n.a.

 

Prepaid

 

17.4

%

22.0

%

n.a.

 

Enhanced services within ARPU

 

612

 

706

 

15.4

%

Average acquisition cost (SAC) per customer

 

10 275

 

7 062

 

(31.3

)%

 

 

 

 

 

 

 

 

International mobile operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Macedonian mobile penetration

 

48.1

%

61.3

%

n.a.

 

Market share of Mobimak

 

76.3

%

69.2

%

n.a.

 

Number of customers (RPC)

 

752 462

 

877 142

 

16.6

%

Postpaid share in the RPC base

 

15.8

%

15.9

%

n.a.

 

MOU

 

66

 

63

 

(4.5

)%

ARPU

 

3 804

 

3 065

 

(19.4

)%

 

 

 

 

 

 

 

 

Montenegrin mobile penetration

 

n.a.

 

78.6

%

n.a.

 

Market share of Monet

 

n.a.

 

42.7

%

n.a.

 

Number of customers (RPC)

 

n.a.

 

208 094

 

n.a.

 

Postpaid share in the RPC base

 

n.a.

 

15.0

%

n.a.

 

MOU

 

n.a.

 

127

 

n.a.

 

ARPU

 

n.a.

 

3 745

 

n.a.

 

 

9



 

Analysis of the Financial Statements for the year ended December 31, 2005

 

Exchange rate information

 

The Euro strengthened by 2.8% against the Hungarian Forint year on year (from 245.93 HUF/EUR on December 31, 2004 to 252.73 HUF/EUR on December 31, 2005). The average HUF/EUR rate decreased from 251.68 in 2004 to 248.05 in 2005.

 

The U.S. Dollar strengthened by 18.5% against the Hungarian Forint year on year (from 180.29 HUF/USD on December 31, 2004 to 213.58 HUF/USD on December 31, 2005).

 

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.

 

Revenues

Revenues from fixed line subscriptions, connections and other charges decreased by 0.5% for the year ended December 31, 2005 compared to the same period in 2004 mainly driven by lower ISDN subscription fee revenues at Magyar Telekom Rt. due to the lower number of average ISDN connections. Lower value-added services relating to Sulinet as well as decreased PBX revenues at BCN Rendszerház also had negative influence on revenues from other charges.

 

In our international fixed line operations, PSTN subscription fees showed a decrease at Maktel reflecting the lower average number of customers and higher number of disconnected lines. These decreases were partly compensated by the consolidation of TCG’s revenues in 2005.

 

Outgoing domestic fixed line traffic revenues decreased to HUF 90.9 bn in 2005 compared to HUF 112.4 bn in 2004. In the Hungarian fixed line operations outgoing domestic traffic decreased by 12.5%, mainly due to mobile substitution and competition from other fixed line service providers. The proportion of calls changed unfavorably as well, as the higher priced long distance and fixed to mobile traffic decreased to greater extent than local traffic. 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 Rt. and Emitel offered several price discounts to customers choosing different tariff packages. At the end of December 2005, approximately 66% of Magyar Telekom Rt.’s customers had chosen customized tariff packages, the most popular of which is the Felezo (Halving) package with over 530,000 subscribers and the Favorit packages with approximately 325,000 customers. In the Macedonian fixed line operations outgoing domestic traffic revenues decreased due to lower usage, partly compensated by price increases in July 2004 and in August 2005. The consolidation of TCG’s revenues in 2005 partly offset these decreases.

 

Outgoing international fixed line traffic revenues decreased by 9.1%, from HUF 12.3 bn in 2004 to HUF 11.1 bn in 2005. This decrease is mainly due to lower volume of minutes as well as price discounts given to subscribers of optional tariff packages at Magyar Telekom Rt. Outgoing international traffic

 

10



 

revenues also decreased at Maktel as a result of lower traffic. The consolidation of TCG’s revenues in 2005 partly offset these decreases.

 

Incoming domestic fixed line traffic revenues in 2005 increased by 63.5% compared to 2004, mainly due to the consolidation of TCG in 2005. At Magyar Telekom Rt. 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. These increases were partly offset by decreased incoming domestic traffic revenues from mobile operators at Magyar Telekom Rt. resulting from lower traffic as well as lower interconnection rates mainly in the mobile to international call relation.

 

Incoming international fixed line traffic revenues increased to HUF 16.0 bn in 2005 compared to HUF 15.8 bn in 2004, mostly due to the consolidation of TCG’s revenues in 2005. This increase was mitigated by decreased incoming international revenues mainly at Maktel as a result of lower average settlement rates and stronger MKD against the SDR. Incoming international traffic revenues at the Hungarian fixed line operations declined as well, mainly due to significant decrease in average settlement rates and lower HUF/SDR exchange rate. The volume of incoming international traffic somewhat increased as higher traffic terminated in Magyar Telekom Rt. and LTO areas was only partly offset by lower mobile terminated international traffic transited by Magyar Telekom Rt. (due to migration of international calls to mobile networks).

 

Revenues from leased lines and data transmission of the fixed line operations grew to HUF 63.7 bn in 2005 compared to HUF 51.0 bn in 2004. 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 in the Hungarian fixed line operations grew to 329,314 (from 205,886 at the end of 2004) and the number of T-Online Internet connections grew by 23.5% to 328,535 compared to the previous year. The consolidation of TCG’s revenues in 2005 also contributed to the revenue increase to a smaller extent.

 

Revenues from fixed line equipment sales slightly increased to HUF 4.0 bn for the year ended December 31, 2005 compared to HUF 3.7 bn for the same period in 2004. Equipment sales revenue increase is due to the higher amount of phonesets sold at Magyar Telekom Rt. and higher revenues at BCN, partly offset by reduced prices and less equipment sold at Maktel.

 

Other fixed line revenues increased by 10.8% and amounted to HUF 29.9 bn in 2005. Other revenues include construction, maintenance, cable television and miscellaneous revenues. The increase in other revenues is mainly due to the growth in cable TV revenue resulting from the increase in average number of cable TV subscribers and price increases effective from January 1, 2005. Our Hungarian cable television operations had over 400,000 customers at the end of 2005.

 

Revenues from mobile telecommunications services amounted to HUF 289.6 bn in 2005 compared to HUF 267.3 bn in 2004 (an 8.4% 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 December 31, 2005, Monet had over 208,000 customers.

 

The majority of mobile telecommunications revenue is generated by T-Mobile Hungary, where the growth in revenues mainly resulted from the 10.4% higher average Minutes of Use (“MOU”) and the 4.4% higher average customer base. While the penetration growth of mobile customers has slowed down in Hungary, T-Mobile Hungary still maintains its leading position with 45.0% market share. The proportion of prepaid customers has decreased as many customers migrated to more favorable, for example flat-rate postpaid packages. Prepaid customers represent 68.4% of total T-Mobile Hungary customers as of December 31, 2005 compared to 71.1% a year earlier.

 

Within mobile telecommunications services, network usage and access represents the largest portion of revenues. It increased by 8.6% and amounted to HUF 226.2 bn in 2005. Its growth was mainly driven by the increased traffic generated by T-Mobile Hungary’s customers. T-Mobile Hungary’s average usage per customer per month measured in MOU increased by 10.4% from 115 minutes in 2004 to 127

 

11



 

minutes in 2005. T-Mobile Hungary’s monthly average revenue per user (“ARPU”) slightly decreased from HUF 4,945 in 2004 to HUF 4,917 in 2005 partly due to lower fixed to mobile termination rates.

 

Within mobile telecommunications services, enhanced services show the highest increase as it grew over 20% year over year at T-Mobile Hungary. The revenue growth is due to the increasing proportion of content messages with higher rates, and also due to higher access (data, Internet, GPRS, etc.) revenues.

 

Mobile equipment sales revenues decreased by 7.7% in 2005 compared to 2004 on group level, mainly due to lower average price of phonesets, partly compensated by higher gross additions to customers as well as higher number of phoneset upgrades at T-Mobile Hungary.

 

Revenues from mobile telecommunications services at Mobimak moderately increased as a result of higher average number of mobile customers, partly offset by lower MOU and tariffs. The number of Mobimak customers increased by 16.6% and reached 877,142 at December 31, 2005. Mobimak’s average usage per customer per month measured in MOU decreased by 4.5% from 66 minutes in 2004 to 63 minutes in 2005. The revenue increase in MKD was also offset by the strengthening of the HUF against the MKD.

 

Operating Expenses

Employee-related expenses for the year ended December 31, 2005 amounted to HUF 92.8 bn compared to HUF 109.5 bn for the same period in 2004 (a decrease of 15.3%). The main driver of the decrease is the significant decrease in severance expenses at Magyar Telekom Rt. and Maktel. In addition, average headcount decreased significantly, especially at Magyar Telekom Rt. and Maktel. The closing group headcount figure fell from 13,724 on December 31, 2004 to 11,919 on December 31, 2005 (including 1,132 employees of TCG Group on December 31, 2005). As a result of decreased headcount, the number of lines per fixed line employee at Magyar Telekom Rt. increased to 489 at the end of December 2005 compared to 365 a year earlier.

 

The decrease in employee-related expenses was partly offset by the 5.6% average wage rate increase from April 1, 2005 at Magyar Telekom Rt. and the consolidation of TCG expenses (including their HUF 1.3 bn severance costs for the voluntary leave program).

 

Depreciation and amortization decreased significantly by 16.7% to HUF 114.7 bn in 2005 from HUF 137.7 bn last year. In accordance with the IFRS 3 standard, no amortization of goodwill was accounted relating to acquisitions after March 31, 2004, and existing goodwill is not amortized from January 1, 2005 which caused significant decrease in 2005. The decrease is also due to the impairment of Westel brand name as a result of rebranding as T-Mobile Hungary, which resulted in a HUF 4.4 bn additional amortization charge in the first quarter of 2004. Lower depreciation expense at Magyar Telekom Rt. is also the result of decreased depreciation of certain fixed assets because of scrapping and impairments in 2004. The inclusion of TCG’s depreciation expenses partly offset the decrease.

 

Payments to other network operators reached HUF 89.1 bn in 2005 compared to HUF 87.6 bn in 2004, mainly due to the consolidation of TCG’s expenses. The increase was also due to the 4.0% 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 higher 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. Magyar Telekom Rt.’s outpayments to mobile operators decreased to a large extent due to the lower fixed to mobile termination rates. Interconnection traffic between Magyar Telekom Rt. and the LTOs increased significantly as well, but the traffic increase was offset by lower LRIC-based rates. Higher network rental fee expenses primarily resulted from increased fees at Combridge, our Romanian subsidiary. Domestic outpayments at Mobimak increased as well due to the higher subscriber base of the other mobile service provider in Macedonia. International roaming outpayments showed a significant decrease at T-Mobile Hungary as a result of favorable agreements concluded with other mobile operators, mainly with other T-Mobile companies. International outpayments decreased at Maktel as well, mainly driven by decreased traffic.

 

12



 

The cost of telecommunications equipment sales was HUF 37.2 bn in 2005 compared to HUF 41.0 bn in 2004. The 9.2% decrease is mainly due to lower average cost of phonesets at T-Mobile Hungary, as a result of the development of central procurement process within Deutsche Telekom Group. Mobimak’s equipment sales costs also showed a decrease due to lower average cost of phonesets, partly compensated by the higher amount of gross additions to subscribers. These decreases were slightly offset by increased cost of equipment sales at Magyar Telekom Rt. due to more equipment sold as part of the Favorit campaigns.

 

Other operating expenses - net increased by 8.0% year over year. Other operating expenses include materials, maintenance, marketing, service fees, outsourcing expenses, consultancy and bad debt expenses. This increase was primarily due to the inclusion of TCG’s expenses. Subcontractor’s fees also increased as a result of increased commissions related to tariff packages sold both in LTOs’ and Magyar Telekom Rt.’s service areas. These increases were partly offset by lower fees and levies at T-Mobile Hungary as a result of the reversal of HUF 1.1 bn accrual for its contribution to the Universal Telecommunications Support Fund. At the same time, Magyar Telekom Rt. has written off its related receivables, which had a negative impact of HUF 0.8 bn on this expense line. Although individual elements of other operating expenses increased also due to the rebranding of the fixed line operations, these expenses are compensated by the parent company (Deutsche Telekom), therefore on net terms they do not result in increased net operating expenses.

 

Operating Profit

 

Operating margin for the year ended December 31, 2005 was 21.8%, while operating margin for the same period in 2004 was 14.2%. The increase is mainly due to the significant decrease in depreciation and amortization charges in connection with the discontinuation of the goodwill amortization from January 1, 2005, the write-off of Westel brand name and lower employee-related expenses. In addition, the growth of our mobile business also contributed to the higher operating margin.

 

Net financial expenses

 

Net financial expenses were HUF 31.3 bn in 2005 compared to HUF 36.1 bn in 2004. This decrease mainly results from the HUF 3.5 bn decrease in HUF interest expenses due to lower average HUF interest rates. In addition, the lower expenses were driven by the higher foreign exchange gain at Maktel as a result of the weakening of MKD against USD, in which the majority of its foreign currency cash and receivables are denominated. Interest income increased at Maktel as it held higher amount of cash and deposits in banks at longer maturities. Net financial expenses included HUF 1.0 bn net FX gain, HUF 31.3 bn interest expense, HUF 3.2 bn other financial charges and HUF 2.2 bn interest and other financial income in 2005.

 

Share of associates’ profits/losses after tax

 

Share of associates’ results amounted to HUF 330 million for the year ended December 31, 2005 compared to HUF 1,896 million for the same period in 2004, reflecting the significant gain on Hunsat’s sale of its investment in Eutelsat in the first quarter of 2004. The low performance of T-Systems Hungary also contributed to the decrease.

 

Income tax

 

Income tax expense increased from HUF 7.7 bn in 2004 to HUF 13.7 bn in 2005 as a result of the significantly higher profit before tax at almost all members of the Group. The lower effective tax rate in 2005 (13.2% compared to 15.1% in 2004) was mostly due to the compounding of the tax credit carried forward related to the Hungarian broadband investments, which resulted in tax credits with no impact on profit before tax. In addition, the higher amount of other income related to the rebranding, which is not taxable, also contributed to the lower effective tax rate.

 

Minority interests

 

Minority interests for the year ended December 31, 2005 were HUF 10.3 bn compared to HUF 8.7 bn for the same period in 2004. The increase mainly results from the better performance of Maktel.

 

13



 

Analysis of group balance sheets

 

Total assets and total equity and liabilities as of December 31, 2004 were HUF 1,030 bn. Total assets and total equity and liabilities amounted to HUF 1,083 bn as of December 31, 2005.

 

Loans and other borrowings

 

The current portion of loans and other borrowings increased by 25.1% from December 31, 2004 to HUF 118.3 bn at December 31, 2005. Non current loans and other borrowings remained flat and reached HUF 226.2 bn at December 31, 2005.

 

The total amount of loans and other borrowings increased by 7.4% from December 31, 2004 to HUF 344.5 bn at December 31, 2005 due to the financing of the TCG acquisition and the higher amount of dividends. These affected the current portion of the loan portfolio more than the non current.

 

At December 31, 2005, almost 100% of the loan portfolio was HUF denominated. At the end of 2005, 24.6% of the loans were subject to floating interest rates. The gearing ratio defined as net debt divided by net debt plus equity was 33.1% at December 31, 2005 compared to 32.9% a year earlier.

 

Analysis of group cashflow

 

Net cashflows from operating activities increased by 6.7% compared to 2004 and amounted to HUF 202,456 million in 2005. The increase in EBITDA and the lower amount of income tax paid was partly offset by severance payments made in 2005.

 

Net cashflows from investing activities amounted to minus HUF 132,686 million in 2005, while it was minus HUF 100,787 million in 2004. This HUF 31,899 million increase in cash outflow is predominantly due to higher amounts paid for the purchase of subsidiaries as Magyar Telekom acquired a total share of 76.53% in TCG in 2005.

 

Net cashflows from financing activities amounted to minus HUF 72,095 million in 2004 compared to minus HUF 61,848 million in 2005. While during 2004, Magyar Telekom took a net HUF 6,199 million loan, in the same period of 2005 it took a net HUF 20,734 million mainly in connection with the acquisition of Telekom Montenegro. Dividends paid to shareholders increased by HUF 6,257 million mainly due to higher amount of dividends paid to minority shareholders of Maktel in 2005.

 

Other

 

The Company is currently inquiring certain contracts, totaling approximately HUF 700 million, entered into by one of its subsidiaries to determine whether they have been entered into in violation of company policy or applicable law or regulation.  This inquiry, which is being supervised by the audit committee who receives regular reports, is still in its early stages.

 

14



 

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.

 

Hungarian fixed line operations

 

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

 

HUF millions

 

Year ended
Dec 31, 2004

 

Year ended
Dec 31, 2005

 

Change (%)

 

Subscriptions, connections and other charges

 

96,452

 

95,044

 

(1.5

)

Traffic revenues

 

121,522

 

95,169

 

(21.7

)

Leased lines and data transmission

 

52,995

 

63,866

 

20.5

 

Equipment sales and other revenues

 

30,774

 

33,971

 

10.4

 

Total revenues

 

301,743

 

288,050

 

(4.5

)

EBITDA before restructuring charges

 

102,367

 

104,087

 

1.7

 

EBITDA

 

85,627

 

102,333

 

19.5

 

Operating profit

 

13,061

 

40,944

 

213.5

 

Property, plant and equipment

 

380,895

 

360,184

 

(5.4

)

Intangible assets

 

32,669

 

38,509

 

17.9

 

Gross additions to tangible and intangible fixed assets

 

33,511

 

46,813

 

39.7

 

Headcount (closing full equivalent)

 

9,145

 

6,861

 

(25.0

)

 

EBITDA = Earnings before net financial expenses, taxes, depreciation and amortization

 

Revenues of the Hungarian fixed line operations showed a 4.5% decrease year over year. The outgoing domestic fixed voice business experienced a decline due to average price and usage decreases. Outgoing international 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 incoming domestic 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. This increase was partly offset by lower revenue from mobile operators owing to lower LRIC-based rates and decreased volume of interconnection minutes mainly in mobile to international direction at Magyar Telekom Rt. Incoming international traffic revenues declined due to significantly lower international average settlement rates and to a lesser extent due to the stronger HUF against the SDR. Leased lines and data transmission services increased by 20.5% in 2005 compared to 2004 driven by strong volume increases in the number of ADSL and Internet customers.

 

Operating profit of the Hungarian fixed line operations increased by 213.5% due to significantly lower employee-related expenses, lower payments to other network operators and depreciation and amortization expenses. These positive effects were partly offset by lower traffic revenues and increased other operating expenses.

 

15



 

International fixed line operations

 

In 2004, international fixed line operations include Maktel, Stonebridge, Telemacedonia and the goodwill allocated to them. In 2005, these figures also include the second, third and fourth quarter results of the fixed line and the Internet operations of Telekom Montenegro.

 

HUF millions

 

Year ended
Dec 31, 2004

 

Year ended
Dec 31, 2005

 

Change (%)

 

Subscriptions, connections and other charges

 

10,578

 

11,513

 

8.8

 

Traffic revenues

 

29,168

 

37,072

 

27.1

 

Leased lines and data transmission

 

3,691

 

5,453

 

47.7

 

Equipment sales and other revenues

 

1,747

 

1,812

 

3.7

 

Total revenues

 

45,184

 

55,850

 

23.6

 

EBITDA before restructuring charges

 

19,466

 

22,354

 

14.8

 

EBITDA

 

16,123

 

19,572

 

21.4

 

Operating profit

 

7,028

 

9,067

 

29.0

 

Property, plant and equipment

 

57,766

 

77,569

 

34.3

 

Intangible assets

 

15,832

 

19,914

 

25.8

 

Gross additions to tangible and intangible fixed assets

 

4,840

 

6,239

 

28.9

 

Headcount (closing full equivalent)

 

2,382

 

2,751

 

15.5

 

 

EBITDA = Earnings before net financial expenses, 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 standalone nine month revenue reached HUF 13.5 bn with an operating profit of HUF 461 million and HUF 2.3 bn EBITDA. The closing number of fixed line employees was 975 on December 31, 2005.

 

Increases in subscription, connections and other charges as well as traffic revenues were due to the consolidation of TCG from the second quarter of 2005, which was partly offset by the lower revenues of Maktel.

 

Lower subscriptions revenues at Maktel in 2005 resulted from the lower average number of PSTN customers. Outgoing domestic traffic revenues decreased mainly due to usage decrease, partly offset by general price increases as tariff rebalancing occurred in July 2004 and in August 2005. Lower outgoing international traffic revenues resulted from decreased volume of traffic. Incoming international traffic revenues decreased as well, mainly due to lower average settlement rates and stronger MKD against the SDR, partly offset by increased traffic.

 

Revenues from leased lines and data transmission showed an increase because of 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 91,865 by December 31, 2005 from 67,391 a year earlier. These increases were partly compensated by decreased international leased line revenues due to lower number of international leased line contracts. Equipment sales revenues of Maktel decreased due to less phonesets sold and lower average price of phonesets.

 

Total operating expenses of Maktel decreased mainly because of decreases in employee-related expenses, payments to other network operators, depreciation and amortization (mainly due to cessation of goodwill amortization). Because of the successful cost-cutting efforts, the decrease in expenses exceeded revenue loss and this led to higher operating profit at Maktel.

 

16



 

Hungarian mobile operations

 

Hungarian mobile operations include T-Mobile Hungary and the goodwill allocated to these operations.

 

HUF millions

 

Year ended
Dec 31, 2004

 

Year ended
Dec 31, 2005

 

Change (%)

 

Network usage and access

 

208,918

 

211,993

 

1.5

 

Enhanced services

 

28,684

 

34,656

 

20.8

 

Equipment sales

 

22,965

 

21,021

 

(8.5

)

Activation fees and other revenues

 

2,456

 

2,692

 

9.6

 

Total revenues

 

263,023

 

270,362

 

2.8

 

EBITDA before restructuring charges

 

103,787

 

107,351

 

3.4

 

EBITDA

 

103,699

 

106,745

 

2.9

 

Operating profit

 

56,128

 

72,848

 

29.8

 

Property, plant and equipment

 

115,545

 

119,925

 

3.8

 

Intangible assets

 

203,360

 

204,199

 

0.4

 

Gross additions to tangible and intangible fixed assets

 

50,883

 

39,231

 

(22.9

)

Headcount (closing full equivalent)

 

1,780

 

1,708

 

(4.0

)

 

EBITDA = Earnings before net financial expenses, taxes, depreciation and amortization

 

Mobile penetration reached 92.4% in Hungary and T-Mobile Hungary accounts for a 45.0% market share in the highly competitive mobile market.

 

Revenues in the Hungarian mobile operations increased by 2.8% for the year ended December 31, 2005 compared to the same period in 2004 due to the increase in enhanced services revenues and higher number of mobile customers. T-Mobile Hungary’s customer base increased by 4.0% to 4,193,855 subscribers, including 2,870,041 prepaid customers by December 31, 2005. Average monthly usage per T-Mobile Hungary subscriber increased by 10.4% from 115 minutes in 2004 to 127 minutes in 2005. T-Mobile Hungary’s ARPU decreased by 0.6% from HUF 4,945 in 2004 to HUF 4,917 in 2005. Revenues from call terminations remained stable in the Hungarian mobile operations. While interconnection fees from Magyar Telekom Rt. 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 a 29.8% increase as total operating expenses decreased by HUF 9.4 bn and revenues increased by HUF 7.3 bn year over year. The decrease in operating expenses is due to the significant decrease in depreciation charges resulting from the discontinuation of the goodwill amortization from January 1, 2005 and the impairment on the Westel brand name recognized in the first quarter of 2004 as well as lower cost of equipment sales, partly offset by higher other operating expenses and payments to other network operators.

 

17



 

International mobile operations

 

In 2004, international mobile operations include Mobimak and the goodwill allocated to it. In 2005, these figures also include the second, third and fourth quarter results of Monet, the mobile subsidiary of Telekom Montenegro.

 

HUF millions

 

Year ended
Dec 31, 2004

 

Year ended
Dec 31, 2005

 

Change (%)

 

Network usage and access

 

27,417

 

36,088

 

31.6

 

Enhanced services

 

3,309

 

4,196

 

26.8

 

Equipment sales

 

2,062

 

1,843

 

(10.6

)

Activation fees and other revenues

 

946

 

566

 

(40.2

)

Total revenues

 

33,734

 

42,693

 

26.6

 

EBITDA before restructuring charges

 

17,481

 

21,199

 

21.3

 

EBITDA

 

17,481

 

21,199

 

21.3

 

Operating profit

 

9,047

 

12,305

 

36.0

 

Property, plant and equipment

 

16,884

 

23,058

 

36.6

 

Intangible assets

 

46,490

 

58,320

 

25.4

 

Gross additions to tangible and intangible fixed assets

 

5,916

 

7,091

 

19.9

 

Headcount (closing full equivalent)

 

417

 

599

 

43.6

 

 

EBITDA = Earnings before net financial expenses, taxes, depreciation and amortization

 

The acquisition of Monet had positive impact on the results of the international mobile operations. Standalone nine month revenues of Monet amounted to HUF 8.8 bn with an operating profit of HUF 1.4 bn and EBITDA reached HUF 3.3 bn. The closing number of Monet employees was 157 at the end of December 2005.

 

Total standalone revenues of Mobimak in MKD terms increased by 1.6%, which was partly offset by the 1.0% stronger HUF against the MKD. The 0.6% revenue increase in HUF terms in 2005 was mainly due to higher average customer base. Mobimak’s subscriber base increased by 16.6% to 877,142 including 737,775 prepaid customers on December 31, 2005. Mobimak had 69.2% share in the Macedonian mobile market where mobile penetration was 61.3% at the end of 2005.

 

Lower MOU and lower tariffs had negative effects on mobile traffic revenues. Equipment sales revenues decreased as a result of lower average sales price of phonesets, slightly offset by the increased number of gross additions.

 

Total standalone operating expenses decreased at Mobimak by 6.5%, mainly because from January 1, 2005 no amortization of goodwill is accounted for in line with IFRS 3, lower cost of equipment sales and lower other expenses.

 

18



 

Company name:

 

Magyar Telekom Rt.

Company address:

 

H-1013 Budapest Krisztina krt. 55.

Sector:

 

Telecommunications

Reporting period:

 

January 1, 2005 - December 31, 2005

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 Rt.

 

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

 

T-Mobile Hungary

 

8,031

 

100.00

%

100.00

%

L

 

BCN Rendszerház

 

6,161

 

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

 

Pro-M

 

200

 

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

 

1,805

 

Future obligations from rental and operating lease contracts

 

29,806

 

Future obligation from capex contracts

 

3,154

 

Other future obligations

 

4,480

 

 

19



 

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

 

 

 

End of reference
period

 

Current period
opening

 

Current period
closing

 

Company

 

7,740

 

7,740

 

5,478

 

Group

 

13,724

 

13,724

 

11,919

 

 

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

 

7,740

 

6,732

 

6,364

 

5,886

 

5,478

 

Group

 

13,724

 

14,025

 

13,683

 

12,913

 

11,919

 

 

RS1. Ownership Structure, Ratio of Holdings and Votes

 

 

 

Year Opening (January 1st, 2005)

 

Total equity
Closing (December 31
st , 2005)

 

Description of owners

 

Ownership
ratio %

 

Voting
right %

 

No. of shares

 

Ownership
ratio %

 

Voting
right %

 

No. of shares

 

Domestic institution/company

 

3.51

 

3.53

 

36,581,576

 

3.48

 

3.49

 

36,322,446

 

Foreign institution/company

 

88.37

 

88.79

 

921,543,267

 

91.51

 

91.73

 

954,250,296

 

Domestic individual

 

1.96

 

1.97

 

20,451,358

 

1.45

 

1.46

 

15,162,132

 

Foreign individual

 

0.02

 

0.02

 

207,289

 

0.01

 

0.01

 

133,954

 

Employees, senior officers

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

n.a.

 

Treasury Shares

 

0.47

 

n.a.

 

4,900,000

 

0.24

 

n.a.

 

2,456,659

 

Government Institutions

 

0.31

 

0.31

 

3,244,326

 

0.35

 

0.35

 

3,630,080

 

International Development Institutions

 

0.00

 

0.00

 

0

 

0.00

 

0.00

 

0

 

Not registered*

 

4.51

 

4.53

 

47,067,116

 

1.83

 

1.83

 

19,037,080

 

Depositaries

 

0.84

 

0.84

 

8,765,839

 

1.13

 

1.13

 

11,775,568

 

Other**

 

0.01

 

0.01

 

50,829

 

0.00

 

0.00

 

0

 

Other***

 

0.00

 

0.00

 

0

 

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.

**Shares not submitted for dematerialisation

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

 

4,900,000

 

4,900,000

 

4,900,000

 

2,532,025

 

2,456,659

 

Subsidiaries

 

0

 

0

 

0

 

0

 

0

 

Total

 

4,900,000

 

4,900,000

 

4,900,000

 

2,532,025

 

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

 

Depository

 

89,627,745

 

8.59

 

8.62

 

ADR Depository

 

 

20



 

TSZ3. Senior officers, strategic employees

 

Type(1)