NEWS IN ENGLISH | Magyar Telekom result for the second quarter of 2019
Total revenues declined by 4.1% year-on-year to HUF 160.8 billion in Q2 2019 as the continued positive trend in fixed and mobile service revenues was offset by a sharp decline in System Integration and IT revenues. Total revenues remained broadly stable in the first half of 2019 compared to the same period in 2018, as the increase in service revenues were coupled with higher equipment sales as well thus could counterbalance the lower SI/IT revenues.
Direct costs were down 9.3% year-on-year, at HUF 68.1 billion in Q2 2019, and broadly stable in H1 2019 versus H1 2018. While other direct costs continued to rise in Q2 2019, SI/IT related expenses were significantly lower thus resulting in a year-on-year cost decline in the second quarter.
Gross profit remained stable at HUF 92.6 billion in Q2 2019 and at HUF 184.8 billion in H1 2019. This result is broadly attributable to improved performance of telecommunication services, offset by lower SI/IT profit contribution.
Indirect costs improved by 15.6% year-on-year, to HUF 35.7 billion in Q2 2019, and by 10.4% year-on-year to HUF 81.5 billion in H1 2019. If the impact of IFRS 16 implementation is excluded, indirect costs were down 4.6% at HUF 40.4 billion in Q2 2019 and broadly stable at HUF 91.2 billion in H1 2019.
EBITDA increased by 13.4% year-on-year to HUF 56.9 billion in Q2 2019, and by 11.4% to HUF 103.3 billion in H1 2019. Excluding the impact of IFRS 16 adoption, EBITDA was 4.1% higher year-on-year in Q2 2019 and improved 0.9% year-on-year in H1 2019.
Depreciation and amortization (D&A) expenses rose by HUF 3.1 billion year-on-year, to HUF 32.2 billion in Q2 2019, with IFRS 16 adoption accounting for HUF 4.0 billion increase; the underlying decline reflects the one-off increase in D&A driven by the shortened useful life of customer connection related network elements in Q2 2018. In the first half of 2019, D&A increased by HUF 10.1 billion, HUF 8.6 billion of this increase relates to the adoption of IFRS 16, with the remaining balance attributable to the shortened useful lives of customer connection related network elements.
Profit for the period declined moderately by 1.5% year-on-year to HUF 14.5 billion in Q2 2019, resulting from the HUF 0.8 billion impact resulting from the adoption of IFRS 16. In the first half of 2019, net profit declined by 23.7% year-on-year to HUF 18.5 billion as a combined result of higher severance expenses, an increase in tax expense in Q1 2019, and the overall HUF 1.7 billion impact resulting from the adoption of IFRS 16.
Profit attributable to non-controlling interests increased by 14.2% year-on-year to HUF 1.1 billion in Q2 2019, as higher EBITDA led to increased profits at the North Macedonian operation.
Free cash flow decline reflects payment of the 2100 MHz frequency license extension fee together with a deterioration in working capital.
Net debt increased to HUF 411.4 billion at the end of Q2 2019 reflecting the recognition of lease liabilities in accordance with IFRS 16 and the payment of dividends in May 2019.
Tibor Rékasi, CEO commented:
"I am pleased to announce that, in H1 2019, positive trends across both the fixed and mobile segments in Hungary and all business segments in North-Macedonia facilitated consolidated moderate revenue and EBITDA growth, despite challenges in the Hungarian Systems Integration and IT (SI/IT) segment. With this performance, we are well on track to meet our guidance for 2019, which assumes a moderate decline in revenues and continued EBITDA growth.
Looking at Q2 2019, specifically, the revenue decline in the quarter is solely due to lower Hungarian SI/IT revenues attributable to a significant reduction in the volume of public sector contracts realized and the absence of a one-off project that was completed in the prior year. We recorded revenue growth across all other segments in Hungary and in North Macedonia during the quarter.
In the Hungarian mobile segment, strong demand for data helped offset the decline in voice revenues and lower equipment sales driven by a temporary slowdown in purchases of Huawei handsets. As long expected, DIGI launched its mobile service in Hungary during the quarter; however, their service offering, and availability remains very limited.
In the fixed segment, the ongoing rollout of our fiber network, which replaces crucial parts of our legacy network with fiber optic, played a key role in facilitating further development of our product offering. We are pleased to report that this has resulted in continued growth of our customer base and broadband ARPU. We were also successful in maintaining momentum in the TV segment, growing both revenues and our customer base. Despite the structural decline in voice revenues, we delivered 3.1% year-on-year fixed revenue growth in Q2 2019.
In line with our strategy, we continued to place strong emphasis on growing our FMC customer base. Even with the recent market changes we are the leading integrated player in the Hungarian market and we are taking full advantage of this position to reinforce our market presence and prepare for future developments in the market. Our Magenta1 offering, introduced in 2018 to deliver highly attractive services and related equipment, remains popular with our customers and supports the sustained growth in our FMC customer base.
Our efforts to further strengthen our online presence are reflected in improved sales and customer service, as we deliver increasingly simple and attractive solutions to our customers."
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