Hungary Magyar Telekom publishes Q4 earnings report, dividend proposal

Magyar Telekom's revenue grew by more than 15% year-on-year in the fourth quarter of 2023, slightly beating analyst consensus and setting a new quarterly record.

"This expansion was primarily driven by the continued strong demand for mobile data and fixed broadband services, coupled with the positive effects of inflation-based fee adjustments in Hungary," MTel said in the earnings report.

On the earnings level, the company also showed strong growth, with EBITDA up 16% and after-tax profit up by more than 38% year-on-year. EBITDA and operating profit were slightly below market expectations, while after-tax profit was significantly higher than the consensus estimate.

At the end of the year, the Board of Directors published its proposals for shareholder cash returns, which is a significant item for Telekom and therefore receives particular attention from investors.

The Board is proposing a total annual shareholder remuneration of up to HUF 65.56 billion, comprising a total dividend payment of HUF 41.56 billion for the 2023 financial year and a share buyback of up to HUF 24.0 billion. This represents approximately 70% of the adjusted net income generated during 2023 (the remuneration policy sets a range between 60 and 80%), just like in the previous year.

The dividend equals HUF 44.7 per share, a dividend yield of 5.6% at thursday's closing price.

This is a significant increase from the previous year's dividend of HUF 30.6 per share, and also above the Refinitiv analyst consensus of HUF 37 two days ago.

Management has also updated its 2024 objectives:

CEO Tibor Rékasi commented:

"[...] despite the significant macroeconomic challenges we faced in 2023, we maintained strong commercial momentum, experiencing increased demand for both mobile data and gigabit broadband services.

"[...] Reflecting our dedication and the implementation of an inflation-based fee adjustment effective 1st March, our revenue saw a notable increase of 13.8% in 2023. Despite facing higher electricity costs which were four-fold higher year-on-year, and inflationary pressures on our cost base, particularly vendor expenses, we achieved robust year-on-year growth of 16.4% in EBITDA AL."

How did Magyar Telekom perform in Q4?

Total revenue rose 15.1% yr/yr to an all-time high of HUF 229.2 billion in Q4, primarily driven by continued growth in mobile data and fixed broadband revenue, reflecting the underlying business growth as well as the positive impact of the inflation-based fee adjustment implemented to the Hungarian subscription fees from March 1, 2023. These increases were coupled with yr/yr higher equipment sales and SI/IT revenues at the Hungarian operation that more than offset the lower contribution from North Macedonia due to the weakening of the Macedonian denar vs the Hungarian forint.

Mobile revenue rose by 14.8% year-on-year to HUF 131.7 billion in Q4, thanks to the increase in service revenues coupled with higher equipment sales.

Fixed line revenue increased by 16.0% year-on-year, to HUF 72.2 billion in Q4. This improvement was primarily driven by increases in fixed broadband and TV revenues that were also coupled with higher equipment sales revenues.

System Integration and IT (‘SI/IT’) revenue increased by 13.9% to HUF 25.3 billion in Q4, as a result of higher revenue at the Hungarian operation thanks to increased revenue from high value projects.

Mobile equipment revenue rose by 11.3% year-on-year, amounting to HUF 36.6 billion in Q4 as seasonal promotional offers at the Hungarian operation resulted in higher sales volumes. Fixed equipment revenue was higher by HUF 2.1 billion year-on-year and amounted to HUF 7.3 billion in Q4, reflecting the increase in overall sales volumes thanks to the introduced year-end promotions.

EBITDA, the most closely watched profit indicator for telecoms operators, grew slightly more than revenue on a year-on-year basis, so the EBITDA margin also improved compared to the same quarter of 2022. EBITDA AL increased by 17.4% year-on-year in Q4 and by 16.4% for the full year 2023, as the growth in gross profit offset the rise in indirect costs.

Direct costs were up by 14.2% year-on-year at HUF 106.7 billion in Q4, driven by higher bad debt expenses and other direct costs.

• Interconnect costs were lower by 6.5% year-on-year, at HUF 5.8 billion in Q4, reflecting lower outgoing traffic volumes, especially at the Hungarian operation.
• SI/IT service-related costs were up by 16.4% year-on-year at HUF 18.5 billion in Q4, in line with the higher revenue.
• Impairment losses and gains on financial assets and contract assets (bad debt expenses) was up by HUF 3.0 billion year-on-year, amounting to HUF 6.9 billion in Q4, reflecting partly the higher revenue base as well as the HUF 3.5 billion additional forward-looking impairment recognized at the Hungarian operation in relation to the outstanding installment sales receivables due to the increased probability of deteriorating recovery rates. This was partly offset by lower bad debt expenses at the North Macedonian operation driven by favorable change in the local impairment rates.
• Telecom tax was lower moderately year-on-year, amounting to HUF 6.4 billion in Q4, reflecting the declining mobile voice usage.
• Other direct costs were up by 13.5% year-on-year to HUF 69.2 billion in Q4, driven by higher equipment costs and TV content fees.

Indirect costs rose by 15.4% year-on-year, to HUF 49.7 billion in Q4 2023, reflecting higher employee-related expenses, energy costs and supplementary telecommunication tax expense at the Hungarian operations.

• Employee-related expenses amounted to HUF 22.7 billion in Q4, representing a 17.9% increase year-on-year. This was the combined result of the wage increases implemented at the Hungarian operation and the higher expenses at the North Macedonian operation following the insource of certain maintenance functions.
• Supplementary telecommunication tax was recognized in the amount of HUF 7.7 billion in Q4, reflecting the annual revenue development.
• Other operating expenses (excluding the utility tax and the supplementary telecommunication tax) rose by 6.5% year-on-year to HUF 21.9 billion in Q4, reflecting higher energy costs and further inflation-driven cost pressures at the Hungarian operation partly mitigated by cost efficiency measures and favourable year-on-year development in the North Macedonian energy costs.
• Other operating income increased by 8.4% year-on-year to HUF 2.6 billion in Q4, reflecting accrual reversals as well as earned income of the energy saving certificates from the energy efficiency obligation system in relation to the Company’s energy efficiency projects.

Profit for the period rose by 38.7% year-on-year to HUF 24.3 billion in Q4 2023 driven by the higher EBITDA.

Adjusted net income for Q4 amounted to HUF 25.8 billion and reached HUF 93.6 billion for the full year 2023, reflecting the improvement in operational performance.

The management had previously set a target for growth in real terms, which the company has achieved nicely, with the 2022 figure being HUF 63 billion. Adjustments to reported net income of HUF 14.7 billion in 2023 are primarily attributable to unrealized losses related to measurement of derivatives at fair value.

The annual figures

Along with the fourth quarter figures, Magyar Telekom also published 12 months of results, of which the main ones are:

• Total revenue was HUF 849.4 billion in 2023, up 13.8% from a year earlier.
• Operating profit was HUF 148 billion, an increase of 35.6%.
• EBITDA and EBITDA AL were HUF 287.1 billion and HUF 257.9 billion, respectively, an increase of 15.8% and 16.4%.
• After-tax profit was HUF 84.4 billion, up 25.8% yr/yr.
• Free cash flow amounted to HUF 86.5 billion in 2023, exceeding management's target of HUF 60 billion.

Cover photo: Portfolio