MTel’s Q3 profits tumble on tax charge and rising provisions

10 Nov 2011

Hungarian fixed and mobile operator Magyar Telekom (MTel) has reported a 45.6% decline in net profit for the July-September 2011 quarter, as an increase in provisions related to an investigation into some foreign contracts combined with the negative impact of a government telecoms tax to hit its bottom line. MTel booked net profit of HUF13.34 billion (USD58 million) in the third quarter of this year, down sharply from HUF24.51 billion a year ago, and below analyst expectations of net income of HUF16.15 billion in a poll conducted by local business news portal portfolio.hu.

The operator recorded HUF8.20 billion-worth of ‘new provisions’ in 3Q11, as part of the investigation into contracts at its Macedonian assets worth more than EUR31 million (USD42.5 million), being carried out by the US Department of Justice (DOJ). The move follows an agreement in principle with the US Securities and Exchange Commission (SEC) to settle an investigation into MTel, amid allegations that the Hungarian firm – which has conducted its own internal review into the contracts – may have violated US laws, including the Foreign Corrupt Practices Act. MTel continues to seek a settlement with the DOJ, but says it may be liable to further penalties and even criminal sanctions.

MTel’s profits were also dented by a government-imposed telecoms sector tax of HUF6.30 billion – part of the state’s efforts to trim the country’s budget deficit and national debt. The telco’s third-quarter revenues dipped 1.7% year-on-year to HUF152.12 billion – beating analyst expectations – although it noted that the pace of revenue growth slowed in Q3 from an average 3.9% in the first six months of this year. ‘For the full year, we remain cautious due to the deteriorating economic indicators, while the competitive environment is also expected to strengthen as we approach the year end,’ said MTel chairman and CEO Christopher Mattheisen. ‘Despite this, we have maintained our guidance for revenue decline of 3%-5%, a 4% decline in underlying EBITDA and CAPEX reduction of approximately 5% for 2011,’ he added. MTel’s underlying EBITDA for the third quarter (adjusted to account for the new provisions and telecoms tax) dropped by 6.9% y-o-y to HUF64.0 billion, while reported EBITDA slumped 23.5% to HUF51.6 billion.

Hungary,Magyar Telekom,

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