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One-off surprise from Magyar Telekom in Q3

Magyar Telekom today published its consolidated financial results for the third quarter of 2012. The revenues are in line with analysts' expectations, however, growth in underlying EBITDA was mainly driven by a one-off item, namely a real estate transaction in Macedonia, where four old buildings were replaced with a new one.

Revenues decreased by 1.3% in the third quarter of 2012 compared to the same period of 2011, from HUF 152.1 billion to HUF 150.1 billion. The decline in fixed and mobile voice revenues coupled with lower SI/IT revenues could not be offset by the significant increase in revenues from energy services and growing TV, mobile internet and mobile equipment sales revenues generated by higher smartphone sales, Magyar Telekom published in its earning reports in accordance with International Financial Reporting Standards (IFRS).
EBITDA increased by 9.7%, from HUF 51.6 billion to HUF 56.6 billion, owing mainly to the HUF 5.7 billion increase in other operating income. This was mainly driven by a real estate transaction in Macedonia, where four old buildings were replaced with a new one in the third quarter of 2012, resulting in a gain of HUF 3.7 billion. The sale of Pro-M Zrt. to National Infocommunications Service Company Limited for HUF 19.9 billion also contributed to the increase. These, coupled with strict cost control measures, offset the negative impact of the new telecom tax which was introduced in July 2012.
Underlying third quarter EBITDA, excluding investigation-related costs and provisions, severance expenses and the special and new telecom taxes, increased by 5.4%, from HUF 64.0 billion to HUF 67.4 billion, year-on-year. Underlying EBITDA margin was 44.9% in Q3 2012 compared to 42.0% in the same period last year. According to management, the EBITDA showed a decline of 2.9 percent q/q without the effect of one-off items. Based on this value the underlying EBITDA would have been approximately HUF 62 billion, still 1.6 billion higher than what analysts expected.
Employee-related expenses increased by HUF 0.9 billion in the third quarter compared to the same period last year, as the previously temporary labour force related to call center customer care and customer experience services became permanent employees of Magyar Telekom as of April 2012. This led to an increase of around 1,700 in the Group headcount.
On May 18, 2012 the Parliament of Hungary adopted an act imposing a telecommunication tax on service providers for fixed and mobile voice and mobile SMS/MMS services, effective from July 1, 2012 for an indefinite period of time. The tax imposed on fixed and mobile usage amounts to HUF 2 per minute and HUF 2 per SMS/MMS which resulted in a tax liability of HUF 4.4 billion in Q3 2012 for Magyar Telekom Group, accounted as other operating expenses. The tax payment in Q3 2012 amounted to HUF 1.5 billion, as these payments are due two months after the period they relate to.
“In the third quarter, Magyar Telekom faced increasing recessionary pressures which were reflected in declining household consumption and reduced business spending. Despite these headwinds, we have made significant progress in our operational activities as demonstrated by the growth of our fixed and mobile broadband, TV and mobile voice customer bases, and the fact that we have maintained our market position in all segments. These are significant achievements given the current challenging market environment," Christopher Mattheisen, Chairman and CEO commented on the results.
Magyar Telekom's dividend policy is seen unchanged, as its dividend is still tied to the company's net debt ratio, which now stands at 36.4%. The size of the dividend will be announced in February, together with the targets for next year, CFO Thilo Kusch said at a press conference on Thursday, after the telco published its Q3 earnings. Magyar Telekom paid out a HUF 50-per-share dividend on both 2010 and 2011 profits. The company dipped into profit reserves to pay the dividend on 2011.