Hungary Magyar Telekom keeps dividend policy unchanged

Group financial targets

Besides giving an update on corporate strategy including an in-depth look at how MTel is addressing the challenges arising from its operating environment, Magyar Telekom also announced its financial targets for the period 2014 to 2017. Following on from 2012 when the decline in revenues was reversed, a significant achievement in itself, Magyar Telekom forecasts revenues to grow by 2017 by around a 2% compound annual growth rate (CAGR) compared with 2012 levels.

Although Group EBITDA is still expected to decline in 2014, equivalent to a compound annual decline rate of 6%-8% compared with 2012, by 2017 the 2013 EBITDA level will be surpassed. These positive developments in EBITDA will not just be down to increases in revenue but also boosted by an average reduction of 2% per annum by 2017 compared to 2012 in indirect costs (excluding the telecommunication and utility taxes, and depreciation and amortization).

Magyar Telekom also intends to reduce its capital expenditures (CAPEX) going forward and targets spend of ca. HUF 87 billion in 2014 falling to ca. HUF 80 billion in 2017. Mirroring the turnaround in EBITDA, Magyar Telekom expects its free cash flow to start to improve from 2015 onwards, with the 2012 level expected to be exceeded in 2017. It is then that Magyar Telekom will be judged to have achieved a complete financial performance turnaround.

Diversification strategy

Over the past number of years, Magyar Telekom has been active in expanding into new business areas and aims to continue on this path going forward: by 2017, 18% of revenues are expected to come from beyond core activities as compared to 6% in 2012. This expansion will encompass activities such as insurance, e-commerce or Digital Home offers. In the current legislative environment, MTel also intends to pursue its strategy regarding its energy service and expects that under the current regulatory and market conditions, the energy service will have an overall positive contribution to the Group’s financial performance.

MTel expects such beyond core activities to have lower EBITDA margins (on average around 10%-20%) than traditional telecommunication services. Conversely, their capital requirements are also expected to be lower (with average CAPEX-to-Sales ratios of around 2%-5%), thus these services are forecast to have a Cash contribution-to-Sales figures of between 8%-12% overall in 2017.

International subsidiaries

The Macedonian subsidiary successfully continues to maintain its leading market positions, whilst its technological leadership is being consolidated through initiatives such as the IP transformation project.

Although the challenges faced in the recent periods are expected to prevail going forward, MTel plans to keep its mobile voice market share above 48% and capitalize on the synergy opportunities that will arise from the integration of the fixed and mobile arms.

The Montenegrin subsidiary intends to preserve its revenues above EUR 100 million thanks to initiatives that will improve the traditional core portfolio as well as expansion into near core and beyond core services. At the same time, EBITDA is expected to remain above EUR 40 million out to 2017.

Dividend policy

Magyar Telekom intends to maintain its current dividend policy, targeting a net debt to total capital ratio between 30%-40%.

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