Magyar Telekom Q2 profit plunges 73% on investigation provision, telco tax

Analysts polled by Porfolio.hu had put Magyar Telekom's net profit for the period at around HUF 4.0 billion.

Magyar Telekom Q2 profit plunges 73% on investigation provision, telco tax

Basic and diluted earnings per share fell to HUF 4.18 in Q2 from HUF 15.31 in the same period a year earlier.

Magyar Telekom’s revenue fell 4.6% to HUF 143.6 billion, but operating expenses were up 8.6% at HUF 124.2 billion, causing operating profit to fall 43.8% to HUF 20.5 billion.

The company set aside an HUF 11.5 billion provision during the quarter under an agreement with US market watchdog SEC to settle its investigation of questionable contracts at foreign units that ongoing for years. Most of the amount was booked on the “other operating expenses” line which was up 28.3% at HUF 37.5 billion.

The telco tax was introduced in Hungary in Q4 2010 and was booked at group level only in that quarter. In Q2, Magyar Telekom recorded a HUF 6.3 billion impact related to the tax.

In a breakdown of revenue, Magyar Telekom said turnover from fixed line services fell 5.1% to HUF 58.5 billion and mobile turnover edged down 3.1% to HUF 75.8 billion. System integration and IT revenue was down 12.2% at HUF 9.3 billion.

Net financial losses rose 39.2% to HUF 8.1 billion although these included HUF 1.1 billion of the investigation related provisions booked here.

Second-quarter pre-tax profit dropped 59.4% to HUF 12.5 billion.

The same factors – the investigation-related provision and the telco tax – impacted Magyar Telekom’s first-half net income, which was down 39.7% at HUF 19.5 billion.

The company booked HUF 12.7 billion for the telco tax during the period.

First-half revenue fell 3.9% to HUF 286.1 billion, but operating expenses rose 4.9% to HUF 239.6 billion, causing operating profit to fall 29.0% to HUF 49.8 billion.

Net financial losses rose HUF 15.4% to HUF 16.5 billion. Pre-tax profit was down 40.3% at HUF 33.3 billion.

CAPEX fell 26.2% to HUF 26.7 billion.

Magyar Telekom had total assets of HUF 1,054.2 billion on June 30, down 4.9% from the end of 2010. Net assets (total equity) fell 8.3% to HUF 545.5 billion. Non-current liabilities slipped 15.9% to HUF 224.8 billion and current liabilities rose 15.0% to HUF 283.9 billion.

The company said its net debt ratio reached 35.1% at the end of the period. Net debt stood at HUF 295.1 billion at the end of June, down HUF 2.3 billion in one year.

Chairman and CEO Christopher Mattheisen said Magyar Telekom’s management continues to stand by its guidance for an underlying EBITDA decline of 4-6% for the full year “although we now expect this decline to be towards the more optimistic end” as well as a 3-5% drop in revenue and a 5c reduction in CAPEX.

Magyar Telekom's underlying EBITDA -- excluding investigation-related costs and provisions, severance expenses and the telco tax -- fell 2.1% from a year earlier to HUF 61.8% in Q2 and inched up 0.8% to HUF 123.3 billion in H1.