Magyar Telekom 1Q Net Profit Nearly Halves in 1Q

By Margit Feher

BUDAPEST--Hungary's largest telecommunications provider by market share, Magyar Telekom Nyrt. (MTELEKOM.BU), saw its net profit fall by more than analysts expected in the first quarter as a result of sharply rising financial losses in the wake of the Hungarian forint's fall and higher amortization costs relating to recent frequency purchases.

Net profit nearly halved to 2.5 billion Hungarian forints ($9.2 million) in January-March from HUF4.83 billion in the same period a year earlier. The figure was lower than the median forecast of HUF3.4 billion according to a poll of 20 analysts by local business news agency Portfolio.

Deutsche Telekom AG (DTE.EXE) holds a 59.3% stake in Magyar Telekom.

Financial losses increased to HUF8.6 billion from HUF6 billion on the forint's decline against the euro and higher debt payments related to recent frequency purchases. As a result of the spectrum buys, amortization increased to HUF27.7 billion from HUF24.4 billion a year earlier.

Still, earnings before interest, taxes, depreciation and amortization, a key indicator of profitability in the telecommunications sector, increased 4.8% to HUF42.47 billion. The Ebitda margin, which analysts watch closely, was 27.1%, in line with forecasts for 27% and up from 26.7% a year earlier and 25.3% in the previous quarter.

Ebitda rose due to higher average revenue per user, more post-paying mobile customers, lower discounts on energy sales, and personnel expenditure cuts.

Revenue rose 3.3% to HUF151.9 billion, on increased mobile telecom and power retailing businesses. That was less than analysts' expectations for HUF155.1 billion.

Some analysts regard Magyar Telekom as the best indicator of Hungary's economic recovery.

Underpinning that claim, Magyar's home unit in Hungary was the primary growth driver for the first quarter's revenue growth, with a 6.9% increase from a year earlier. It also has subsidiaries in Macedonia and Montenegro. The company said it will exit the Hungarian household natural gas market by July 31 but will continue to sell gas to businesses and remain in the power retailing business.

As a result of its partial gas-market exit and plans to set up joint ventures with its business customers for energy sales, the company has revised its revenue projection downward for this year. Revenue will remain steady in 2015 compared with 2014, against its earlier guidance for an up to 3% increase on last year, it said.

Still, Magyar left its 2015 Ebitda and capital expenditure guidance in place. The company said February its Ebitda wouldn't fall more than 3% this year and capital expenditure would total about HUF105 billion. It set a free cashflow target of at least HUF50 billion for 2017.

Write to Margit Feher at [e-mail]; Twitter: @margitfeher

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