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Magyar Telecom B.V. Announces Financial Results for the Year Ended December 31, 2013 and the Quarter Ended March 31, 2014 and Investor Call

Magyar Telecom B.V. (“Matel B.V.”) announced today that on May 16, 2014 (at 14:00 UK time, 15:00 CET, 9:00 AM ET), Matel B.V. will host a conference call to discuss financial results for the year ended December 31, 2013 and the quarter ended March 31, 2014.

The results for the year ended December 31, 2013 and the quarter ended March 31, 2014 reflect the consolidated financial results of Magyar Telecom B.V. and its subsidiaries (collectively, the “Company”) in accordance with International Financial Reporting Standards, as adopted by the E.U. (“IFRS”).

The reporting currency is euro (“EUR”), however the functional currency of operations is the Hungarian forint (“HUF”), being the currency of the primary economic environment in which the Company operates.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 2013

When comparing the financial results for the year ended December 31, 2013 to the financial results for the year ended December 31, 2012, the reported results in euro have been affected by the difference between the average HUF/EUR exchange rates. The Hungarian forint depreciated against the euro by 3% with an average HUF/EUR exchange rate of 296.92 during the year ended December 31, 2013 compared to the average HUF/EUR exchange rate of 289.42 during the year ended December 31, 2012.

The Company’s revenue was EUR 163.8 million for the year ended December 31, 2013 which represents a 6% decrease compared to the year ended December 31, 2012. Segment gross margin decreased by 10% from EUR 141.2 million for the year ended December 31, 2012 to EUR 126.6 million for the year ended December 31, 2013. General operating expense decreased by 6% from EUR 81.5 million for the year ended December 31, 2012 to EUR 77.0 million for the year ended December 31, 2013, mainly as a result of cost control. Income from operations changed to a loss of EUR 0.3 million for the year ended December 31, 2013 from a loss of EUR 27.4 million for the year ended December 31, 2012 mainly as a result of impairment loss of EUR 31.6 million recorded in 2012. Net result for the year ended December 31, 2013 was an income of EUR 54.0 million compared to a loss of EUR 74.9 million for the year ended December 31, 2012. The 2013 net result includes a gain of EUR 81.1 million on extinguishment of debt relating to the restructuring of the Company’s notes.

Residential Voice – Residential Voice segment gross margin was EUR 28.1 million for the year ended December 31, 2013, representing a decrease of 14% compared to the year ended December 31, 2012. The decrease was mainly due to lower acquisition ARPU of new customers.

Residential Internet & TV – Residential Internet & TV segment gross margin was EUR 23.6 million for the year ended December 31, 2013, representing a decrease of 8% compared to the year ended December 31, 2012. This decrease was mainly due to decrease in Residential Internet gross margin due to lower ADSL revenue, which is partly offset by an increase in Residential TV gross margin mainly as a result of the increase in IPTV customers.

Cable - Cable segment gross margin was EUR 12.8 million for the year ended December 31, 2013 representing an increase of 1% compared to the year ended December 31, 2012, indicating successful stabilization of this business (in HUF terms, Cable segment gross margin has increased by 4%).

Corporate – Corporate segment gross margin was EUR 43.5 million for the year ended December 31, 2013, representing a decrease of 6% compared to the year ended December 31, 2012. This decrease was mainly due to the decrease in Corporate voice and data revenue as a result of price erosion on contract renewals due to competition, partly offset by higher hosting and IT services revenue.

Wholesale – Wholesale segment gross margin was EUR 18.6 million for the year ended December 31, 2013, representing a decrease of 23% compared to the year ended December 31, 2012, which is primarily attributable to the decrease of revenue of the sub 2M lines and decreasing data revenue.

Segment gross margin is a non-IFRS financial measure, which is used by management to evaluate the performance of the business segments. The following table represents the reconciliation of segment gross margin to income / (loss) from operations as per the Consolidated Statement of Profit and Loss and Other Comprehensive Income / (Loss) in the consolidated financial statements the Company:

    Year ended December 31,
(euro in millions) 2013  

2012
Restated

 
Residential Voice 28.1 32.8
Residential Internet & TV 23.6 25.7
Cable 12.8 12.6
Corporate 43.5 46.1
Wholesale 18.6 24.0
Segment gross margin 126.6 141.2
Network operating expenses (18.6) (20.2)
Direct personnel expenses (9.7) (11.3)
Selling, general and administrative expenses (48.7) (50.0)
Depreciation and amortization (48.6) (83.9)
Cost of restructuring (1.3) (3.2)
Income (loss) from operations (0.3) (27.4)
 

Net cash provided by operations, which includes interest paid but excludes capital expenditure and debt repayments, was EUR 41.8 million for the year ended December 31, 2013.

RESULTS FOR THE QUARTER ENDED MARCH 31, 2014

When comparing the financial results for the quarter ended March 31, 2014 to the financial results for the quarter ended March 31, 2013, the reported results in euro have been affected by the difference between the average HUF/EUR exchange rates. The Hungarian forint depreciated against the euro by 4% with an average HUF/EUR exchange rate of 307.90 during the quarter ended March 31, 2014 compared to the average HUF/EUR exchange rate of 296.42 during the quarter ended March 31, 2013.

The Company’s revenue was EUR 36.9 million for the quarter ended March 31, 2014 which represents a 7% decrease compared to the quarter ended March 31, 2013. Segment gross margin decreased by 7% from EUR 31.5 million for the quarter ended March 31, 2013 to EUR 29.3 million for the quarter ended March 31, 2014. General operating expense decreased by 13% from EUR 26.3 million for the quarter ended March 31, 2013 to EUR 23.0 million for the quarter ended March 31, 2014, mainly as a result of cost control initiatives. Income from operations changed to a loss of EUR 4.5 million for the quarter ended March 31, 2014 from a loss of EUR 6.7 million for the quarter ended March 31, 2013. Net result for the quarter ended March 31, 2014 was a loss of EUR 9.1 million compared to a loss of EUR 16.2 million for the quarter ended March 31, 2013.

Residential Voice – Residential Voice segment gross margin was EUR 6.1 million for the quarter ended March 31, 2014, representing a decrease of 18% compared to the quarter ended March 31, 2013. The decrease was mainly due to lower acquisition ARPU of new customers.

Residential Internet & TV – Residential Internet & TV segment gross margin was EUR 5.7 million for the quarter ended March 31, 2014, representing a decrease of 1% compared to the quarter ended March 31, 2013. This decrease was mainly due to decrease in Residential Internet gross margin due to lower ADSL revenue, which is partly offset by an increase in Residential TV gross margin mainly as a result of the increase in customer base.

Cable - Cable segment gross margin was EUR 3.2 million for the quarter ended March 31, 2014, representing an increase of 7% compared to the quarter ended March 31, 2013, mainly due to the increase in the number of customers.

Corporate – Corporate segment gross margin was EUR 10.6 million for the quarter ended March 31, 2014, representing a decrease of 3% compared to the quarter ended March 31, 2013. This decrease was mainly due to the decrease in Corporate voice revenue as a result of a decrease in traffic and price erosion on contract renewals due to competition.

Wholesale – Wholesale segment gross margin was EUR 3.7 million for the quarter ended March 31, 2014, representing a decrease of 15% compared to the quarter ended March 31, 2013, which is primarily attributable to the decrease of revenue of the sub 2M lines and decreasing data revenues.

Segment gross margin is a non-IFRS financial measure, which is used by management to evaluate the performance of the business segments. The following table represents the reconciliation of segment gross margin to income / (loss) from operations as per the Interim Consolidated Statement of Profit and Loss and Other Comprehensive Income / (Loss) in the interim consolidated financial statements the Company:

    Three months ended March 31,
(euro in millions) 2014   2013
 
Residential Voice 6.1 7.4
Residential Internet & TV 5.7 5.8
Cable 3.2 3.0
Corporate 10.6 10.9
Wholesale 3.7 4.4
Segment gross margin 29.3 31.5
Network operating expenses (4.1) (4.8)
Direct personnel expenses (2.6) (2.8)
Selling, general and administrative expenses (16.4) (18.7)
Depreciation and amortization (10.6) (11.7)
Cost of restructuring (0.1) (0.2)
Income (loss) from operations (4.5) (6.7)
 

Net cash provided by operations, which includes interest paid but excludes capital expenditure and debt repayments, was EUR 5.9 million for the quarter ended March 31, 2014.

Commenting on the results, David McGowan, Chief Executive Officer of Invitel, the Company’s operating subsidiary, noted: “With last year’s successful financial restructuring now behind us, the Company has been focusing on delivering on its bundling strategies. The 2013 and 2014 Q1 results released today demonstrate the continued progress made in TV-led bundling in the Residential segment and IT Services bundling in Corporate, as well as operational improvements in the other parts of the business.”

CONFERENCE CALL

On May 16, 2014 (at 14:00 UK time, 15:00 CET, 9:00 AM ET), Matel B.V. will host a conference call to discuss financial results for the year ended December 31, 2013 and the first quarter ended March 31, 2014.

You can participate in the conference call by dialing 0800-756-3429 (UK toll free), +1-201-689-8049 (International) or +1-877-407-9210 (U.S. toll free) and referencing “Matel B.V.”.

A webcast of the call and the presentation materials will be available on Invitel’s website at http://invitel.hu/english under “Investor Relations”. The webcast will be available for replay until August 18, 2014. In addition, a replay of the call will be available until May 29, 2014 at 11:59 PM ET. To access the replay of the call, please dial +1-877-407-7177 (U.S. toll free) or internationally dial +1-201-689-8016 and enter the conference ID (13581263).

ABOUT MAGYAR TELECOM B.V.

Magyar Telecom B.V., through its subsidiary, Invitel is one of the leading service providers in the Hungarian telecommunications market, offering a broad portfolio of services for residential and business customers. Residential products include a variety of multimedia and entertainment services such as interactive, digital and High Definition television, fast internet offerings and telephony services. Business solutions include the most up-to-date ICT and cloud-based IT solutions, in addition to voice and data services, all using Invitel's nationwide fiber-optic backbone network. Invitel is headquartered in Budaörs, with customer touch points throughout Hungary.

  Magyar Telecom B.V.
Financial Highlights

(in millions of euro)

 
Statement of Operations
   

Year ended
December 31,
2013

Year ended
December 31,
2012
Restated*

 
Residential Voice 30.8 36.5
Residential Internet & TV 32.0 32.1
Cable 17.6 16.9
Corporate 60.4 58.7
Wholesale 23.0   29.3  
Total Revenue 163.8 173.5
 
Segment Cost of Sales 37.2 32.3
 
Income (Loss) from Operations (0.3 ) (27.4 )
 
Interest Expense 26.0 38.7
 
Foreign Exchange Gains (Losses), net 0.4 (1.8 )
 
Gains (Losses) on Derivative Financial Instruments 0.6 (1.1 )
 
Gain on Extinguishment of Debt 81.1 0.0
 
Income (Loss) for the Year 54.0 (74.9 )
 

*: From January 1, 2013 the Group has changed its accounting policy with respect to sales commissions relating to the Corporate segment that are managed on portfolio basis. The comparative figures have been restated accordingly for the year ended December 31, 2012.

  Magyar Telecom B.V.
Financial Highlights

(in millions of euro)

 
Statement of Operations
   

Three months
ended
March 31,
2014

Three months
ended
March 31,
2013

 
Residential Voice 6.6 8.2
Residential Internet & TV 7.7 8.0
Cable 4.5 4.2
Corporate 13.6 13.9
Wholesale 4.5   5.4  
Total Revenue 36.9 39.7
 
Segment Cost of Sales 7.7 8.2
 
Income (Loss) from Operations (4.5 ) (6.7 )
 
Interest Expense 3.6 9.2
 
Foreign Exchange Gains (Losses), net (0.4 ) 0.0
 
Gains (Losses) on Derivative Financial Instruments (0.1 ) (0.3 )
 
Income (Loss) for the Period (9.1 ) (16.2 )
 
  Magyar Telecom B.V.
Financial Highlights

(in millions of euro)

 
Balance Sheet
   
March 31, December 31,
2014 2013
 
 
Current Assets 43.2 48.8
Property, Plant and Equipment, net 203.6 215.3
Total Assets 271.8 290.5
 
Total Current Liabilities 42.7 44.1
Long Term Debt 151.6 151.6
Total Shareholders’ Equity 67.1 83.7
Total Liabilities and Shareholders’ Equity 271.8 290.5

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