Magyar Telekom Q2 net more than doubles, but economy weighs

Thu Aug 9, 2012 1:26am EDT

* Q2 net profit lifted by absence of one-off cost item

* Underlying profit deteriorates due to weak economy, taxes

* Flags cost cuts, price rises to meet 2012 profit guidance

BUDAPEST, Aug 9 (Reuters) - Magyar Telekom said on Thursday its second-quarter net profit more than doubled from a year ago when it was hit with one-off legal fees, and flagged price rises and spending cuts for the second half to improve its underlying profitability.

Net profit for the three-month period came in at 10.68 billion Hungarian forints, up from 4.36 billion in the same period of 2011, but below market expectations for 12.05 billion in a recent survey by business news website portfolio.hu.

In the second quarter of 2011, the company, a unit of Deutsche Telekom, booked 10.6 billion forints in legal fees to settle an investigation with U.S. authorities into certain contracts.

The absence of that cost item lifted Magyar Telekom's bottom line. But income from its core fixed line and mobile businesses shrank as consumers tightened their belts due to a weak economy and high unemployment, prompting a fall in its profitability.

Overall revenues rose by 1.3 percent to 145.46 billion forints due to an increase in systems integration and energy service revenues, while income from higher margin mobile and fixed line businesses fell from a year ago.

"Telecommunication spending in Hungary came under increasing pressure accelerating the decline in our traditional voice revenues in the second quarter," Chairman and Chief Executive Christopher Mattheisen said in the company's earnings report.

"As our growth businesses could not fully compensate for the fallout of high-margin voice revenues, our underlying EBITDA in the second quarter declined by 9 percent year-on-year," he said.

Earnings before interest, taxes, depreciation and amortisation adjusted for special cost items fell to 56.2 billion forints from 61.8 billion a year ago, also missing analyst expectations for 57.11 billion in portfolio's survey.

GUIDANCE AFFIRMED

For the full year, Magyar Telekom affirmed its guidance for a 4-6 percent annual decline in underlying EBITDA, saying cost-cutting measures from the second half and planned price hikes in the autumn would help it achieve that target.

"Despite the worsening EBITDA trends, outlook for our revenues looks more positive," Mattheisen said.

"For the first half of the year, revenues increased by 2 percent compared to the first half of 2011, comfortably exceeding our guidance of flat to a maximum decline of 2 percent for the full year," he said.

The company's profitability is also weighed down by government measures to reduce the budget deficit, such as a special tax on the telecommunications sector first levied in 2010 and a new levy on phone calls and text messages.

Magyar Telekom said the sectoral tax would cost it more than 24 billion forints this year, while the impact of the new phone call tax levied from the second half is estimated at 8 billion forints by the end of the year.

Magyar Telekom shares finished trade flat at 410 forints on the Budapest Stock Exchange on Wednesday, underperforming the blue chip index, which closed 0.8 percent higher. (Reporting by Gergely Szakacs; Editing by Muralikumar Anantharaman)

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