NEWS IN ENGLISH | Magyar Telekom result for the first quarter of 2019
Total revenues increased by 5.5% year-on-year to HUF 158.9 billion in Q1 2019, primarily driven by a strong increase in equipment sales and mobile data usage.
Direct costs increased by 12.3% year-on-year, to HUF 66.8 billion in Q1 2019, primarily driven by higher equipment costs, in line with the growth in related revenue lines.
Gross profit increased by 1.1% year-on-year to HUF 92.2 billion in Q1 2019, thanks to a strong increase in revenues, but partly offset by the impact of the increasing weight of lower margin services in the sales mix.
Indirect costs improved by 5.7% year-on-year to HUF 45.8 billion in Q1 2019. Excluding the impact of IFRS 16 implementation, indirect costs were 4.7% higher at HUF 50.9 billion. The increase in costs was driven by growth in severance expenses booked in relation to the Hungarian headcount reduction programme, though this was partially offset by savings in other operating expenses.
EBITDA increased by 9.0% year-on-year to HUF 46.4 billion in Q1 2019. Excluding the impact of IFRS 16 adoption, EBITDA was 2.9% lower year-on-year. This decline reflects higher severance expenses in Hungary, which more than offset increases in gross profit in both countries, and improvements in other operating expenses at the Hungarian operation.
Depreciation and amortization (D&A) expenses rose by HUF 7.0 billion year-on-year to HUF 33.8 billion in Q1 2019, with IFRS 16 adoption accounting for HUF 4.5 billion of that increase. The underlying increase of HUF 2.4 billion or 9.0% year-on-year was due to the shortened useful lives of customer connection related network elements.
Profit for the period declined by 58.1% year-on-year to HUF 4.0 billion in Q1 2019, as a combined result of higher severance expenses, an increase in tax expense, and the HUF 0.9 billion impact resulting from the adoption of IFRS 16.
Free cash flow decline reflects payment of the 2100 MHz frequency license extension fee along with some deterioration of working capital developments.
Net debt increased from HUF 272.8 billion at the end of 2018 to HUF 404.7 billion at the end of Q1 2019, reflecting the recognition of lease liabilities in line with IFRS 16 adoption.
Tibor Rékasi, CEO commented:
"I am pleased to confirm that Magyar Telekom has maintained its momentum from 2018 to deliver both revenue and EBITDA growth in Q1 2019. We increased revenue by 5.5% to HUF 158.9 billion through strong performance of data driven services in both the fixed and the mobile segments and by continuing to grow equipment sales. While we recorded 9% growth in EBITDA, this was attributable to IFRS16 implementation, without which a slight decline was registered on the account of severance expenses incurred in Hungary. On Free Cash Flow we experienced a stronger than usual Q1 decline in our figures, but with the planned sale of real-estate in 2019, we remain confident that we will meet our guidance for 2019.
In Hungary, positive business trends continued in the first quarter, with revenue growth across all three major business lines.
In the mobile segment, demand for mobile data continued to grow alongside equipment sales revenues, offsetting a slight decline in voice revenues. This was reinforced by our ongoing strategy for equipment sales. Thanks to our efforts, Magyar Telekom became the largest online seller of mobile phones and tablets, taking a third of the Hungarian market in 2018, according to GKI Digital's market analysis.
In the fixed market, we continue to focus on the rollout of our fiber network, providing an increasing number of households with 100+ MB connections. We continued to see the positive results of this strategy in the growth of fixed line revenue, where - despite the industry-wide trend of declining voice revenues - we grew revenues by 2.1% year-on-year to HUF 52.7 billion in Q1 2019. While TV revenues remained broadly stable across the Group, we again succeeded in growing both equipment sales and broadband retail revenues.
With the strong performance of both our fixed and mobile business lines, we were able to focus on the third pillar of our core business strategy, our FMC customer base. In Q1 2019 we are still the only truly integrated player in the Hungarian market and are taking full advantage of this position to enforce our market presence and prepare for future developments in the market. The Magenta1 offering introduced in 2018, delivering discounted prices for services and related equipment, remains popular with our customers and supports the sustained growth in our Magenta1 customer base.
In line with our strategy, in Q1 2019 we continued to strengthen our online presence focusing on sales and customer service, providing simpler and more attractive solutions to our customers.
In the System Integration and IT segment we maintained our growth, with revenues increasing 3.1% year-on-year to reach HUF 21.4 billion in Q1 2019, primarily driven by public sector hardware and software delivery projects. We continue to pursue our strategy focused on building long-term relationships in the market and converting these deals into higher margin service contracts.
Group performance during the year was further supported by the continued turnaround in North Macedonia. Both revenues and EBITDA improved, thanks to a solid performance in both the fixed and mobile segments."
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