INVESTOR PRESENTATION MAGYAR TELEKOM GROUP – JULY 2013 STRATEGY, OUTLOOK AND GUIDANCE OVERVIEW – MAGYAR TELEKOM GROUP AT A GLANCE
International presence Overview Czech Republic Slovakia Leading telecommunications operator in Austria Moldova Hungary Slovenia Hungary, Macedonia and Montenegro CroatiaCroatia Romania BiH Serbia Serbia Montenegro Kosovo BulgariaBulgaria MacedoniaMacedonia Albania Majority owned by Deutsche Telekom (59.2%) Greece
EUR 1.1.1. 222 bnbnbn market capitalization as at July 201 3
Incumbents in Hungary Stock exchange listings
primary listing on the Budapest Stock Exchange
Level I ADR program, ADSs traded on the OTC Market
Magyar Telekom Invitel UPC Telekom
3 HUNGARIAN ECONOMIC ENVIRONMENT Growth structure and wages Contribution to GDP growth (%) Economic challenges 8 0.2% 6 Continued deleveraging keeps internal 4 demand low 2 GDP performance dependent on export 0 dynamics 2 continued decline in household spending 4 due to the weakening HUF and high 6 unemployment has put pressure on Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q1 FY consumption 2010 2011 2012 2013 2013* MT financials strongly correlated with Consumption Net exports Investment trends in domestic demand Inflation GDP y o y growth * European Commission May 2013 forecast Tax burdens introduced to reduce budget Additional taxes levied on Magyar Telekom deficit HUF bn special, revenue based sector tax levied 40 on a temporary basis between 2010 2012
30 8.7 traffic based permanent telecom tax introduced from July 2012 and increased 20 ca. 25.0 from August 2013 27.0 25.4 24.3 10 permanent tax on utility and telecom 7.3 0 networks levied from 2013 2010 2011 2012 2013F Telecom tax Special tax Utility tax 4 MARKET POSITIONS ON THE HUNGARIAN TELECOMMUNICATION MARKET Mobile voice market shares (based on total SIMs) Mobile broadband market shares (based on total SIMs) Subscribers Subscribers 15,000,000 3,500,000
3,000,000 25.9% 12,000,000 25.9% 2,500,000 23.0% 22.8% 22.7% 9,000,000 Vodafone 28.5% 2,000,000 23.8% 28.3% 32.0% 31.3% 31.0% Telenor 1,500,000 6,000,000 T Mobile 27.5% 1,000,000 45.6% 3,000,000 46.3% 45.8% 45.0% 45.9% 500,000 48.7%
0 0 2011 2012 Q1 2013 2011 2012 Q1 2013 Fixed broadband market shares* TV market shares* Subscribers Subscribers 2,500,000 4,000,000
2,000,000 27.6% 27.4% Other 3,000,000 30.1% 26.4% 24.7% 24.6% DIGI 1,500,000 13.6% 13.7% 12.6% UPC 2,000,000 23.0% 23.2% 23.1% 1,000,000 20.7% 21.9% 21.9% MT 25.9% 26.7% 26.7% 1,000,000 500,000 36.6% 36.9% 37.0% 24.7% 25.4% 25.6% 0 0 2011 2012 Q1 2013 2011 2012 Q1 2013 *based on the total fixed BB /TV market estimated by the National Media and Infocommunications Authority 5 HUNGARIAN ICT REVENUE TRENDS
Hungarian ICT market development (HUF bn)
1.2% 1,189 1,211 1,146 1,167 1,125 1,123 1,131 1,146 ICT market Hungarian ICT market is expected to IT expand moderately
CAGR of ca. 1% expected Fixed data between 2012 and 2018 TV growth to be mainly driven by Mobile BB mobile broadband and IT Fixed BB services
Mobile voice continued decline in traditional voice revenues Fixed voice
2012 2013 2014 2015 2016 2017 2018 Source: Magyar Telekom and IDC estimates, April 2013
Magyar Telekom’s revenue market share
Magyar Telekom has a blended market share of 46% in the retail telco market in Hungary
supported by 17% market share in the IT service market
6 MAGYAR TELEKOM’S REVENUE MIX
Transformation of Magyar Telekom’s Hungarian revenue mix
100% Revenue turnaround
New Significant revenue potential from nonnon corecore 80% New revenue revenue activities sources sources New ca.30% ca.45% revenue revenues from new services expected 60% sources to surpass traditional voice revenues ca.60% within the next few years
40% demand for our energy service Voice exceeding expectations revenues Voice ca.60% revenues 20% Voice strong growth in equipment sales ca.45% revenues ca.30% revenues
0% further new services to be launched 2007 2012 2017F Other SI/IT Mobile non voice Mobile voice NonNon corecore activities positively effect retention Energy TV Fixed BB & data Fixed voice 85% of TV customers are 2Play or Average annual churn level 3Play package subscribers
fixed churn decreases further with 20% energy contracts 15% 45% of energy customers have 3Play 10% 14.4% 15% package 8.1% 5% 8% 5.0% 5% 0% 1 Play 2 Play 3 Play 7 OPEX AND CAPEX DEVELOPMENTS Cost structure Capex structure
HUF bn HUF bn 15%15%15%14%14%14% 15%15%15% Capex/Sales 250 3% 3%3%3% 100 92 92 213 204 203 84 200 22% 75 33% 32% 44% 45% 46% 150 30% 50 33% 36% 100 11%
9% 56% 25 50 55% 54% 10% 37% 25% 22% 0 0 2010 2011 2012 2010 2011 2012*** Employee related expenses Other opex w/o investigation costs and telecom taxes* Maintenance New services Efficiency Susidiaries
Continuous savings Efficiency measures dominate Capex spending TWM (Total Workforce Management) savings**: major part of Capex is spent on network modernization HUF 3.4 bn in 2012 compared to 2010 internal efficiency projects were accelerated HUF 5.8 bn in 2013 compared to 2011 HUF 10.7 bn to be paid for a new Macedonian cost efficiency improvements reflected in the decline headquarter in 6 annual installments (accounted for as in other operating expenses book Capex in 2012) *including bad debt expenses (reclassified as direct expense from 2011) ***excluding spectrum license fee **technical changes in the TWM cost structure distort comparability 8 FREE CASH FLOW AND DIVIDENDS Free cash flow* generation Dividend payment
HUF bn Net debt ratio** DPS (HUF)
120 50% 80
26 70 100 40% 28 34.1% 34.3% 60 14 32.7% Target 80 30.8% 14 33 12 30% 50 60 40 14 74 20% 30 40 78 69 50 50 50 65 20 48 10% 20 10
0 0% 0 2009 2010 2011 2012 2009 2010 2011 2012 Special&Telecom. taxes Minorities FCF to shareholders Net debt ratio Dividend payment
Free cash flow generation Dividend policy FCF declined in 2012 due to a number of exceptional costs: in order to maintain an efficient capital structure, we have spectrum acquisition (HUF 10.9 bn) a net debt ratio target of 30 40% DOJ/SEC settlement (HUF 22.1 bn) 12% dividend yield based on the share price of HUF 407 at February 28, 2013) new telecom tax introduced in July 2012 (HUF 8.7 bn) partially mitigated by proceeds from Pro M sale (HUF 20 bn)
*defined as Operating CF + Investing CF adjusted for proceeds from/payments for other **defined as net debt / total capital financial assets
9 PUBLIC TARGETS FOR 2013 AND Q1 RESULTS
2013 targets Q1 2013 results
approximately flat +6.8% Revenue s results pressure on real disposable income to lead to a strong contribution from energy services due further decline in household consumption to heating season
spending power in the business sector is higher revenues from SI/IT and fixed and expected to remain limited mobile equipment sales
higher energy and equipment sale revenues positive impact of price increases in H2 2012
EBITDA 999 121212 % decline *** 24.3%
changing revenue mix with increasing proportion booking the full annual utility tax of HUF *changed from 4 7% of sales made up by lower margin services 7.3bn decline negative direct margin on energy service due to EBITDA decline w/o utility tax is 10.1% cut in the regulated prices
agressive price competition in Macedonia
ca. 5% decline +29.4% CAPEX** network modernization, LTE roll out launch of the new CRM system in April
**excluding spectrum internal efficiency programs different within year dynamics license fee
10 Q1 2013 GROUP RESULTS – REVENUES AND EBITDA
Group revenues Group EBITDA
HUF bn HUF bn 160 60 9.4 0.3 156.6 51.6 6.8 155 50 6.5 150 2.1 39.0 146.6 3.8 2.4 40 1.4 1.7 145 2.8 2.7 0.9 1.0 30 140 20 135 5 10
0 0 Q1 Mobile Fixed Fixed M. non Mobile Fixed SI/IT Energy Other Q1 Q1 2012 Taxes* Direct Employee Net other Q1 2013 2012 voice voice data voice equip. equip. 2013 margin related Opex Revenue development EBITDA development Group revenues up by 6.8% yyy y oooo yyyy EBITDA down 24.3% yyy y oooo yyyy strong contribution from energy service revenues HUF 7.3 billion accounted in relation to the utility tax increase in contribution from mobile internet revenues and further erosion of traditional voice and data revenues smartphone sales negative margin of energy services due to the 10% cut in higher fixed equipment revenues thanks to the success of regulated energy prices effective from January TV set and tablet sales lower direct margin contribution of equipment sales and fixed and mobile voice revenue decline reflect depressed SI/IT household consumption and MTR cuts cost cutting measures partly mitigate margin erosion decrease in fixed data revenues primarily due to public sector insourcing *special, telecom and utility taxes 11 Q1 2013 RESULTS TELEKOM HUNGARY – FINANCIAL PERFORMANCE
Telekom Hungary revenues
+12% HUF million 120,000 116,574 104,510 15,337 Telekom Hungary 5,957 90,000 Fixed line revenues up by 2% 55,023 56,659 higher revenues from equipment sales 60,000 and TV services compensating for voice revenue erosion 30,000 Energy 43,530 44,578 Mobile Mobile revenues increased by 3% Fixed higher non voice and equipment 0 Q1 2012 Q1 2013 revenues offset the decreasing tariffs and MTR rates EBITDA and margin significantly higher energy retail revenues HUF million increasing number of PODs 24% 24%24%24% 40,000 40 % 34.2 % Decrease in EBITDA of 24% booking of HUF 6.8bn of utility tax, w/o 30,000 30 % that EBITDA decline is 5% 23.4 % energy service has negative EBITDA 20,000 20 % 35,704 margin due to the 10% cut in regulated 27,267 prices 10,000 10 % cost savings in other opex and employee related expenses 0 0 % Q1 2012 Q1 2013
13 HUNGARY – FIXED VOICE MARKET
Telekom Hungary fixed voice subscribers
Subscribers 2,000,000 -3%
1,585,092 1,535,271 1,500,000 Market trends
1,000,000 significant reduction in fixed voice churn due to the retention benefit of: VoCa 500,000 • Hoppá package VoIP PSTN • 2Play/3Play offers 0 March 2012 March 2013 • retail energy bundling decline in 1Play customer base to 46% Multi-Play developments
Subscribers 1,500,000
18% 18%18%18% 1,200,000 KPIs (changes Q1-o-Q1) 900,000 ARPU: HUF 2,792 ( 5%)
+3%+3%+3% Fixed MOU: 196 (+3%) 600,000 +21% Q1 2011 300,000 Q1 2012 Q1 2013 0 1 Play 2 Play 3 Play 14 HUNGARY – ENERGY RETAIL
Gas and electricity points of delivery (POD)
PODs 200,000 Gas Electricity 168,147 Market trends 160,000 147,845 126,017 soft launch in 2010, nationwide from April 120,000 2012 87,819 80,000 customers receive discounts of 3-8% on 61,516 their energy bill depending on the number of 35,262 40,000 24,628 fixed line services they subscribe to 11,080 15,226 0 retention impact is significant: fixed churn Mar 2011 June Sep 2011 Dec 2011 Mar 2012 June Sep 2012 Dec 2012 Mar 2013 decreases further with energy contract 2011 2012 success of the retail energy business Revenue performance demonstrated by a significant increase in the HUF million number of energy delivery points
18,000 45% of energy customers subscribe to a 15,337 15,000 3Play package energy market is strongly seasonal 12,000 11,248
9,000 5,957 6,000 5,225 2,875 3,056 3,000 682 384 573 0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 15 HUNGARY -- FIXED BROADBAND AND TV MARKET
T-Home fixed broadband subscriber breakdown Subscribers +3%+3%+3% 1,000,000 Market trends 858,791 884,043 4.1% 5.1% broadband market growth driven by cable and 750,000 25.8% 28.8% fiber , while ADSL is slightly decreasing
internet service portfolio restructured to 500,000 support fixed broadband market share Fiber 58.1% 56.7% 250,000 Cable BB TV ARPU supported by increasing ratio of ADSL interactive IPTV customers 12.0% 9.4% Wholesale 0 significant migration from cable to IPTV March 2012 March 2013 3Play offers from HUF 7,640/month (EUR 26) T-Home TV subscriber breakdown
Subscribers +5%+5%+5% 1,000,000 846,468 803,211 KPIs (changes Q1-o-Q1) 750,000 35.0% 35.4% Broadband ARPU: HUF 3,702 ( 4%) 500,000 31.9% 39.8% TV ARPU: HUF 3,073 (+0.4%) 250,000 Satelite TV IPTV 32.7% 25.2% Cable TV 0 March 2012 March 2013 16 HUNGARY – MOBILE MARKET
T-Mobile smartphone penetration
% of total handsets Market trends 40 % 34.4 % 31.3 % improving customer mix : y o y increase in 30 % postpaid ratio to 47% from 46%
smartphone sales reached 68% 20 % 18.4 % broadband subscription attach rate at ca. 83%
10 % full LTE coverage in Budapest and 65 additional towns in Hungary
0 % MTR cut : 25% from Jan 2013 to 2.4 eurocents 2011 2012 March 2013 Mobile termination rate cuts
HUF/min 35 KPIs (changes Q1-o-Q1) 30 25 ARPU: HUF 3,245 ( 3%)
20 7.06 Mobile MOU: 156 ( 2%) HUF/min 15 SAC/gross add: HUF 5,755 (+3%) 10 SRC/retained customer: HUF 13,714 (+1%) 5 2006 2007 2008 2009 2010 2010 2012 2013 Jan Febr Jan Jan Jan Dec Jan Jan VAS within ARPU: HUF 827 (+6% ) T Mobile Telenor Vodafone 17 T-SYSTEMS HUNGARY – FINANCIAL PERFORMANCE
Revenues
+1%+1%+1% HUF million T-Systems Hungary 30,000 27,833 28,083 Falling voice and data revenues 47.5% 20,000 56.2% lower usage on fixed voice and data networks
continued pressure on tariff levels 28.6% 10,000 23.3% SI/IT 19% increase in SI/IT revenues Mobile 24.0% 20.5% Fixed line higher amount of infrastructure and 0 Q1 2012 Q1 2013 application projects
leading market position with 16% market EBITDA and margin share
HUF million EBITDA margin declined by 5 pptpptppt 30% 30%30%30% 6,000 20 % 17.8% booking of HUF 0.5bn utility tax, w/o that EBITDA decline was 17% 4,500 15 % 12.3% decline of the higher margin
3,000 10 % telecommunication revenues 4,948 shift in SI/IT to lower margin projects 3,464 1,500 5 %
0 0 % Q1 2012 Q1 2013
18 MACEDONIA – FINANCIAL PERFORMANCE
Revenues
HUF million Macedonia 20,000 9% 9%9%9% Mobile revenues under pressure 16,329 14,843 15,000 10.9% strong price competition 14.2% MOU up due to increasing volume of 44.9% 10,000 43.1% bundled minutes
Mobile other #1 position maintained with 48% market 18.6% 5,000 20.1% Mobile voice share Fixed other & SI/IT 25.5% 22.5% Fixed voice Fixed voice hit primarily by cable competition 0 Q1 2012 Q1 2013 restructured service portfolio featuring attractively priced bundled offers EBITDA and margin EBITDA reflects severe price pressure in both fixed and mobile business HUF million 9,000 27% 27%27%27% 60 % 46.7 % KPIs (changes Q1-o-Q1) 37.3 % 6,000 40 % Fixed churn: 7%
7,622 Fixed outgoing traffic: 16% 3,000 20 % 5,534 Mobile ARPU: HUF 2,136 ( 4%)
Mobile MOU: 179 (+23%) 0 0 % Q1 2012 Q1 2013
19 MONTENEGRO – FINANCIAL PERFORMANCE
Revenues
HUF million Montenegro 10,000 6% 6%6%6% Competitive mobile market 7,870 8,000 7,415 unfavorable economic environment and SIM 10.8% 15.0% based tax put pressure on retail voice 6,000 32.2% revenues 26.4% lower wholesale revenues driven by 43% cut 4,000 Mobile other 25.8% 27.3% in interconnection tariffs in January 2013 Mobile voice 2,000 Fixed other & SI/IT 35% market share on the mobile voice market 31.2% 31.3% Fixed voice 0 Stable performance of the fixed segment Q1 2012 Q1 2013 growing TV revenues
EBITDA and margin mobile substitution leading to lower usage EBITDA decline of 15% due to the SIM based tax HUF million and oneone offoff items 4,000 15% 15%15%15% 50 % 40.6% 36.8% 40 % 3,000 30 % KPIs (changes Q1-o-Q1) 2,000 3,195 20 % 2,730 Fixed churn: 2% 1,000 10 % Mobile ARPU: HUF 2,743 ( 14%)
0 0 % Mobile MOU: 162 (+7%) Q1 2012 Q1 2013
20 FINANCIALS MAGYAR TELEKOM – CONSOLIDATED INCOME STATEMENT
HUF million 1Q 2012 1Q 2013 Change Mobile revenues 73 586 73 213 0.5% Fixed line revenues 55 449 54 047 2.5% System Integration/Information Technology revenues 11 656 14 012 20.2% Revenue from Energy Services 5 957 15 337 157.5% Revenues 146 648 156 609 6.8% Direct costs (43 006) (59 504) 38.4% Employee related expenses (21 218) (22 601) 6.5% Depreciation and amortization (25 312) (24 779) 2.1% Hungarian telecommunications and other crisis taxes (6 085) (5 529) 9.1% Utility tax 0 (7 321) n.a. Other operating expenses (25 562) (23 483) 8.1% Total operating expenses (121 183) (143 217) 18.2% Other operating income 799 856 7.1% Operating profit 26 264 14 248 -45.8% Net financial expenses (7 600) (7 745) 1.9% Share of associates' profits 0 0 n.a. Profit before income tax 18 664 6 503 -65.2% Income tax (3 724) (3 574) 4.0% Profit for the period 14 940 2 929 -80.4% Non controlling interests 1 922 1 234 35.8% Equity holders of the Company (Net income) 13 018 1 695 -87.0%
22 MAGYAR TELEKOM - CONSOLIDATED BALANCE SHEET
HUF million Mar 31, 2012 Mar 31, 2013 Change Current assets 223 028 231 042 3.6% Cash and cash equivalents 41 364 34 799 15.9% Other current financial assets 38 259 42 560 11.2% Non current assets 863 704 845 670 -2.1% Property, plant and equipment net 521 526 505 277 3.1% Intangible assets 315 305 314 685 0.2% Total assets 1 086 732 1 076 712 -0.9% Equity 559 752 521 970 -6.7% Current liabilites 253 926 251 038 -1.1% Financial liabilities to related parties 64 908 25 947 60.0% Other financial liabilities 64 714 62 898 2.8% Non current liabilites 273 054 303 704 11.2% Financial liabilities to related parties 216 121 165 830 23.3% Other financial liabilities 17 504 5 531 68.4% Total equity and liabilites 1 086 732 1 076 712 -0.9%
23 MAGYAR TELEKOM - CONSOLIDATED CASHFLOW STATEMENT
HUF million Mar 31, 2012 Mar 31, 2013 Change Net cash generated from operating activities 22 255 13 003 -41.6% Investments in tangible and intangible assets (23 841) (16 712) 29.9% Adjustments to cash purchases (13 974) (3 875) 72.3% Purchase of subsidiaries and business units (23) 0 n.a. Cash acquired through business combinations 0 0 n.a. Payments for / proceeds from other financial assets net 21 781 12 716 41.6% Proceeds from disposal of subsidiaries 84 0 n.a. Proceeds from disposal of PPE and intangible assets 261 165 36.8% Net cash used in investing activities (15 712) (7 706) -51.0% Dividends paid to shareholders and minority interest (27) (10) 63.0% Net payments of loans and other borrowings 21 395 13 473 37.0% Net cash used in financing activities 21 368 13 463 -37.0%
Free cash flow* (15 238) (7 419) -51.3% * Free cash flow defined as Net cash generated from operating activities plus Net cash used in investing activities, adjusted with Proceeds from / (Payments for) other financial assets
24 For further questions please contact the IR department:
Investor Relations
Phone: +36 1 458 0424 Fax: +36 1 458 0443 e mail: [email protected]
Abbreviations: 3G: third generation, 4G: fourth generation, ARPU: average revenue per user, BB: broadband, CUG: closed user group, HQ: headquarters, HSDPA: high speed downlink packet access, IC: interconnection, IP: internet protocol, IT: information technology, LTE: long term evolution, LTO: local telecommunication operator, MOU: minutes of use, NGN: next generation network, NRA: National Regulatory Authority, POD: points of delivery, RIO: reference interconnection offer, RPC: revenue producing customer, SI: system integration, SIM: subscriber identity module, SMP: significant market power, Special influences: investigation and headcount reduction related expenses, Tetra: Terrestrial Trunked Radio, TWM: Total Workforce Management, UMTS: Universal Mobile Telecommunication System, VAS: value added services, VoCaTV: Voice over Cable TV, WiMax: Worldwide Interoperability for Microwave Access, WS: wholesale HUF/EUR exchange rate: 295.5 (average Q1 2013)
In addition to figures prepared in accordance with IFRS, Magyar Telekom also presents non GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, and net debt. These non GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For further information relevant to the interpretation of these terms, please refer to the chapter “Reconciliation of pro forma figures”, which is posted on Magyar Telekom’s Investor Relations webpage at www.telekom.hu/investor_relations.