1 Magyar Telecom B.V. Investor Presentation for the period ended June 30, 2012 August 10, 2012
Safe Harbor Statement 2 This presentation of Magyar Telecom B.V. ( the Company ) contains forward-looking statements. These and all forward-looking statements are only predictions or statements of current plans that are constantly under review by the Company. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Actual results could differ materially from those expressed in the forward-looking statements for a variety of reasons, including but not limited to: fluctuation in foreign exchange rates and interest rates; changes in Hungarian and Central and Eastern European economic conditions and consumer and business spending; the amount that the Company invests in new business opportunities and the timing of those investments; the mix of services sold; competition; management of growth and expansion; future integration of acquired businesses; the performance of IT Systems; technological changes; the Company's indebtedness; and government regulation. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's financial reports, which are available on the Company s website, www.invitel.hu. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. The Company does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date the statements are made. Investors should, however, consult any further disclosures the Company may make in its reports.
Overview 3 Little change seen in overall performance of general outlook since Q1 2012 call. Weak macroeconomic environment persists, with some recent reported improvements in unemployment rate along with a short period strenghtened Forint. However, company liquidations have gathered pace in the first half of 2012. Our Voice business continues to decline at a double-digit rate (Yr/Yr) across both the Residential and Corporate business segments, with increased costconsciousness causing both line-churn and cost-effective usage in both segments. Initiatives to stabilize Data and Internet through service bundling continues to show promise amid fierce pricing pressure. Our Cable segment appears to be stabilizing. Tactical deployment of fiber continues.
Macroeconomic Background 4 In the first quarter of 2012 GDP decreased by 1.2%(Yr/Yr). The National Bank forecasts 2012 Yr/Yr GDP decrease to be at 0.8%. In the beginning of the year 2012 the Hungarian forint strengthened from 315 HUF/EUR to 285 HUF/EUR levels. In May 2012 it weakened again to 300 HUF/EUR levels, currently stands at 280 HUF/EUR level. Inflation was 5.6% in June 2012 (Yr/Yr). Inflation is forecasted to stay at 5-6% level in 2012 and to decrease to 3-4% levels in 2013. EUR/HUF Historical Movement 320 310 300 290 280 270 260 250 240 06-11 09-11 12-11 03-12 06-12 Since January 2011 the National Bank has maintained its policy rate at 6.0%. In November 2011 the rate was increased by 0.5% and in December 2011 by another 0.5%. Currently the policy rate is at 7.0%. Unemployment slightly decreased during the period and currently stands at 11.2% compared to 11.7% in March 2012 and 10.7% in December 2011. 104 102 100 98 96 100.0 Real GDP 101.0 101.6 95.2 96.4 98.1 Company liquidations have gathered pace in the first half of 2012; the number of liquidations started in July are 20% higher than in the same period of last year. 94 92 2006A 2007A 2008A 2009A 2010A 2011A
Financial Highlights for the six months period ended June 30, 2012 5 The functional currency of Magyar Telecom B.V. and its subsidiaries ( the Company ) is the Hungarian forint. The Hungarian forint depreciated against the EUR by 10% during the period ended June 30, 2012 compared to the average Hungarian forint/euro exchange rate in the period ended June 30, 2011. Revenue in EUR decreased by 15% for the period ended June 30, 2012 compared to the same period of the prior year. In HUF terms, revenue decreased by 6% for the period ended June 30, 2012 compared to the same period of the prior year. Segment gross margin in EUR decreased by 14% for the period ended June 30, 2012 compared to the same period of the prior year. In HUF terms, segment gross margin decreased by 6% for the period ended June 30, 2012 compared to the same period of the prior year. Segment gross margin percentage was 83% and 82% for the period ended June 30, 2012 and 2011, respectively.
Financial Highlights for the six months period ended June 30, 2012 6 Adjusted operating expenses* in EUR increased by 1% for the period ended June 30, 2012 compared to the same period of the prior year. In HUF terms, adjusted operating expenses increased by 8% for the period ended June 30, 2012 compared to the prior year. The increase is mainly due to the addition of Fibernet. Adjusted EBITDA** in EUR decreased by 23% to EUR 36.8 million for the period ended June 30, 2012 compared to the same period of the prior year. Adjusted EBITDA** in HUF decreased by 16% to HUF 10.9 billion for the period ended June 30, 2012 compared to the same period of the prior year. Adjusted EBITDA** margin was 43% and 48% for the period ended June 30, 2012 and 2011, respectively. * Adjusted operating expenses are operating expenses adjusted for non-recurring items. See slide 9. ** Adjusted EBITDA is a non-ifrs financial measure. See the reconciliation to net income on slide 10.
Financial Information for the six months period ended June 30, 2012 7 ended June 30, Change Change ended June 30, Change Change 2012 2011* % 2012 2011* % (in thousands of EUR) (in millions of HUF) Revenue 84 835 99 384 (14 549) (15%) 25 080 26 772 (1 692) (6%) Segment Cost of Sales (14 831) (17 623) 2 792 16% (4 385) (4 747) 362 8% Segment Gross Margin 70 004 81 761 (11 757) (14%) 20 695 22 025 (1 330) (6%) Gross Margin % 83% 82% 83% 82% Adjusted Operating expenses** (33 191) (33 687) 496 1% (9 812) (9 074) (738) (8%) Adjusted EBITDA*** 36 813 48 074 (11 261) (23%) 10 883 12 951 (2 068) (16%) Adjusted EBITDA Margin %**** 43% 48% 43% 48% Non-recurring items (6 555) (10 864) 4 309 40% (1 938) (2 926) 988 34% EBITDA*** 30 258 37 210 (6 952) (19%) 8 945 10 025 (1 080) (11%) EBITDA Margin %**** 36% 37% 36% 37% The average HUF/EUR exchange rates were 269.38 HUF/EUR in YTD Q2 2011 and 295.64 HUF/EUR in YTD Q2 2012. (*) Fibernet is consolidated from March 1, 2011 in our income statement for the period ended June 30, 2011. (**) Adjusted Operating Expenses do not include the non-recurring items presented below Adjusted EBITDA. See slide 8. (***) EBITDA and Adjusted EBITDA are non-ifrs financial measures. See the reconciliation on slide 9. (****) EBITDA Margin % and Adjusted EBITDA Margin % are EBITDA and Adjusted EBITDA as a percentage of Revenue.
Non recurring items for the six months period ended June 30, 2012 8 ended June 30, Change Change ended June 30, Change Change 2012 2011 % 2012 2011 % (in thousands of EUR) (in millions of HUF) Cost of restructuring (a) (669) (3 018) 2 349 78% (198) (813) 615 76% Crisis tax (b) (4 792) (5 641) 849 15% (1 417) (1 520) 103 7% Management fee (c) (516) (500) (16) (3%) (152) (135) (17) (13%) Consulting expenses relating to strategic projects (d) - (881) 881 100% - (237) 237 100% Legal penalty (e) - (742) n/a n/a - (200) n/a n/a Other items (f ) (578) (82) (496) (605%) (171) (21) (150) (714%) Total non-recurring items (6 555) (10 864) 4 309 40% (1 938) (2 926) 988 34% a. Cost of restructuring is related to reorganizations and mainly includes severance expenses. Cost of restructuring for the period ended June 30, 2011 is mainly related to the reorganization undertaken following the acquisition of Fibenret. b. Crisis tax was introduced by the Hungarian government in 2010 until the end of 2012. c. Management fee includes costs charged by our trustee as well as management fees paid to Mid Europa. d. Consulting expenses relating to strategic projects mainly include non-recurring financial and legal consulting expenses. In 2011, these expenses mainly related to due diligences of cable operators. e. Legal penalty for the period ended June 30, 2011 is related to a legal case with the Competition Office in connection with a breach of the telecoms regulation in 2005 regarding carrier selection by Hungarotel (one of the predecessor companies of Invitel). f. Other items for the period ended June 30, 2012 mainly include vacation accrual of (EUR 668 thousand), income from sales of Fibernet receivables amounting to EUR 212 thousand and other legal and audit fees related to liquidation of Invitel Holdings AS and HoldCo companies amounting to (EUR 128 thousand).
EBITDA reconciliation to Net Income for the six months period ended June 30, 2012 9 ended June 30, Change Change ended June 30, Change Change 2012 2011* % 2012 2011* % (in thousands of EUR) (in millions of HUF) EBITDA** 30 258 37 210 (6 952) (19%) 8 945 10 025 (1 080) (11%) EBITDA Margin %*** 36% 37% 36% 37% Depreciation and amortization (26 410) (28 591) 2 181 8% (7 808) (7 702) (106) (1%) Financing expenses, net (19 102) (14 768) (4 334) (29%) (5 647) (3 978) (1 669) (42%) Foreign exchange gains (losses), net (1 618) (1 222) (396) (32%) (479) (329) (150) (46%) Gains (losses) on derivatives (242) (352) 110 31% (71) (95) 24 25% Other financing expenses (4 768) - (4 768) n/a (1 410) - (1 410) n/a Gain on acquisition - 28 540 (28 540) n/a - 7 688 (7 688) n/a Taxes on net income (1 513) (1 944) 431 22% (447) (524) 77 15% Net profit / (loss) for the period (23 395) 18 873 (42 268) (224%) (6 917) 5 085 (12 002) (236%) Headcount 1 330 1 346 (16) (1%) Financing expenses, net include interest income, interest expense, amortization of bond discount, amortization of deferred borrowing costs and other, net financial expenses. Financing expenses, net in 2011 include a gain of EUR 3.1 million realized on the repurchases of our debt. Financing expenses, net in 2012 include higher amortization of deferred borrowing cost as a result of the refinancing expenses related to the 2011 March refinancing. Foreign exchange gains (losses), net mainly include unrealized losses relating to the revaluation of our EUR denominated assets and liabilities at period end. Other financing expenses relate to the waiving of intercompany receivables and liabilities in connection with the ongoing liquidation of HTCC Holdco I. B.V. and the closed liquidation of Matel N.V. the currently and former holding companies of Magyar Telecom B.V. Gains (losses) on derivatives include realized losses on interest rate swap and forward deals closed. Gain on acquisition represents the difference between the fair value of the acquired net assets of Fibernet and the purchase price paid. Taxes on net income include local business tax. (*) Fibernet is consolidated from March 1, 2011 in our income statement for the period ended June 30, 2011. (**) EBITDA is a non-ifrs financial measure. (***) EBITDA Margin % is EBITDA as a percentage of Revenue.
Segment Gross Margin for the six months period ended June 30, 2012 10 ended June 30, Change Change ended June 30, Change Change 2012 2011* % 2012 2011* % (in thousands of EUR) (in millions of HUF) Residential Voice In 14 675 19 266 (4 591) (24%) 4 338 5 190 (852) (16%) Residential Voice Out 2 288 4 088 (1 800) (44%) 677 1 101 (424) (39%) Residential Internet 12 928 14 413 (1 485) (10%) 3 822 3 883 (61) (2%) Cable 6 184 4 874 1 310 27% 1 828 1 313 515 39% Corporate Voice 8 875 10 707 (1 832) (17%) 2 624 2 884 (260) (9%) Corporate Data 14 079 15 412 (1 333) (9%) 4 162 4 152 10 0% Wholesale 10 975 13 001 (2 026) (16%) 3 244 3 502 (258) (7%) Total Segment Gross Margin 70 004 81 761 (11 757) (14%) 20 695 22 025 (1 330) (6%) Residential Voice In: decrease in gross margin is due to line churn, customers migrating to lower cost packages and mainly due to lower traffic revenue as a result of shift towards lower cost off-peak minutes and lower mobile calls. Residential Voice Out: decrease in gross margin is due to a reduction in the number of customers, and a reduction in traffic driven in part by very aggressive pricing from competitors. Residential Internet: decrease in gross margin is due to decreasing ADSL ARPU. Cable: Cable segment was included from March 1, 2011 and relates to the gross margin generated by ex-fibernet. Corporate Voice: gross margin is mainly impacted by a reduction in the traditional voice business and price erosion due to competition on contract renewals. Corporate Data: Corporate Data business remains stable. Wholesale: gross margin is impacted mainly by the decreasing revenue from wholesale small bandwidth leased lines. * Fibernet is consolidated from March 1, 2011 in our income statement for the period ended June 30, 2011.
Segment Gross Margin Cable 11 Cable RGUs Cable Gross Margin (million HUF) 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 180 160 140 120 100 80 60 40 20 0 Cable Voice Cable Internet Cable Analogue TV Cable Digital TV Cable Voice Cable Internet Cable TV RGUs 2011 2012 Gross Margin 2011 2012 Q2 Q3 Q4 Q1 Q2 million HUF Q2 Q3 Q4 Q1 Q2 Cable Voice 15085 16108 17405 19536 20734 Cable Voice 67 71 59 60 63 Cable Internet 48473 48415 48593 49204 49522 Cable Internet 451 446 430 433 438 Cable TV 85047 83988 82314 81655 81091 Cable TV 445 446 437 413 421 Total Cable 964 962 925 906 922
Segment Gross Margin Residential Voice 12 mhuf; min 350 HUF/min 14 300 13 250 12 200 11 150 100 10 50 9 0 11/06 11/07 11/08 11/09 11/10 11/11 11/12 12/01 12/02 12/03 12/04 12/05 12/06 Traffic revenue (mhuf) Outgoing minutes per line (min) Traffic revenues per minutes (HUF) 8 Traffic remains flat though subscribers are increasingly optimizing their usage.
Capital Expenditure for the period ended June 30, 2012 13 ended June 30, Change Change ended June 30, Change Change 2012 2011 % 2012 2011 % (in thousands of EUR) (in millions of HUF) Variable Telco Capex 10 183 10 101 82 1% 3 010 2 722 288 11% Fixed Telco Capex 1 411 2 326 (915) (39%) 417 626 (209) (33%) Telco Capex 11 594 12 427 (833) (7%) 3 427 3 348 79 2% IT Capex 597 1 081 (484) (45%) 176 291 (115) (40%) Miscapex 198 149 49 33% 59 40 19 48% Capitalised OPEX 2 097 2 149 (52) (2%) 621 579 42 7% Total Core CAPEX 14 486 15 806 (1 320) (8%) 4 283 4 258 25 1% ADSL BOOST 195 768 (573) (75%) 58 207 (149) (72%) Fibernet Integration 187 179 8 4% 55 48 7 15% Fibernet Digitalization 368-368 n/a 109-109 n/a Data center hosting equipments - 4 161 (4 161) n/a - 1 121 (1 121) n/a FTTx Phase 2 4 077-4 077 n/a 1 205-1 205 n/a Trafficom IRU purchase 441-441 n/a 130-130 n/a Other projects 5 268 5 108 160 3% 1 557 1 376 181 13% TOTAL CAPEX 19 754 20 914 (1 160) (6%) 5 840 5 634 206 4% Capex to Revenue % 23% 21% 23% 21%
Financial Information as of and for the period ended June 30, 2012 14 Financial Information (in thousands of EUR) As of and for the period ended June 30, 2012 Balance Sheet Data (at period end): Cash and cash equivalents 26 886 Third party debt (1) 330 345 Other Pro-forma Financial Data: Annualized Adjusted EBITDA (2) 73 626 Net third party debt (3) 303 459 Ratio of Net third party debt to Annualized Adjusted EBITDA 4.1x (1) Third party debt includes long term debt from the 2009 Notes reduced by 2009 Notes repurchased not yet cancelled, liabilities relating to finance leases, but excludes liabilities relating to derivative financial instruments. (2) Annualized Adjusted EBITDA is calculated by multiplying Adjusted EBITDA for the period ended June 30, 2012 by two. See slide 9 for a reconciliation of Adjusted EBITDA to Net Income. (3) Net third party debt equals third party debt less cash and cash equivalents.
Balance Sheet as of June 30, 2012 15 Consolidated Balance Sheet As of June 30, As of December 31, (in thousands of EUR) 2012 2011 Non-Current Assets Intangible Assets 34 296 32 281 Property, Plant and Equipment 274 754 257 169 Other Non-Current Assets 165 109 309 215 289 559 Current Assets Cash and Cash Equivalents 26 886 35 676 Trade and Other Receivables 26 530 30 386 Other Current Assets 2 586 1 873 56 002 67 935 Total Assets 365 217 357 494 Equity Share Capital 92 201 92 201 Reserves 242 375 239 354 Cumulative Translation Reserve (59 803) (87 114) Accumulated Losses (282 225) (258 830) Non-Controlling Interest 13 13 (7 439) (14 376) Non-Current Liabilities Borrowings 315 786 313 494 Other Non-Current Liabilities 14 109 13 967 329 895 327 461 Current Liabilities Trade and Other Payables 24 986 25 423 Other Current Liabilities 17 775 18 986 42 761 44 409 Total Equity and Liabilities 365 217 357 494
Cash Flow Statement for the period ended June 30, 2012 16 Cash Flow Statement ended June 30, (in thousands of EUR) 2012 2011 Net cash provided by operating activities exluding interest paid 30 287 38 421 Purchase of tangible and intangible assets (22 455) (23 270) Proceeds from Sale of Property, Plant and Equipment 647 714 Purchase of subsidiaries - (17 604) Net cash used in investing activities (21 808) (40 160) Cash flow available for debt service 8 479 (1 739) Proceeds from Issuance of Additional 2009 Notes - 79 200 Repurchase of the 2009 Notes - (5 271) Repurchase of the 2007 Notes - (75 634) Repurchase of the 2006 Notes - (20 365) Refinancing cost - (5 412) Interest paid (16 874) (19 165) Settlement of derivative financial instruments (272) (2 508) Net cash used in financing activities (17 146) (49 155) Effect of Exchange Rate Changes on Cash and Cash Equivalents (123) 300 Cash flow after debt service (8 790) (50 594) Cash and cash equivalents at beginning of period 35 676 109 010 Cash and cash equivalents at end of period 26 886 58 416 Net increase in cash and cash equivalents (8 790) (50 594)
Appendix 17 Non-IFRS Financial Measures Magyar Telecom B.V. ( the Company ) has included certain non-ifrs financial measures in this presentation, including EBITDA and Adjusted EBITDA. Reconciliations of the differences between EBITDA and Adjusted EBITDA and the most directly comparable financial measure calculated and presented in accordance with IFRS is included in this presentation. The non-ifrs financial measures presented are by definition not a measure of financial performance or financial condition under IFRS and are not alternatives to operating income or net income/loss reflected in the income statement and statement of comprehensive income (loss) and are not necessarily indicative of cash available to fund all cash flow needs. These non-ifrs financial measures used may not be comparable to similarly titled measures of other companies. Management uses these non-ifrs financial measures for various purposes including: measuring and evaluating the Company s financial and operational performance and its financial condition; making compensation decisions; planning and budgeting decisions; and financial planning purposes. Magyar Telecom B.V. believes that presentation of these non-ifrs financial measures is useful to investors because it (i) reflects management s view of core operations and cash flow generation and financial condition upon which management bases financial, operational, compensation and planning decisions and (ii) presents a measurement that equity and debt investors and lending banks have indicated to management is important in assessing the Company's financial performance and financial condition. While Magyar Telecom B.V. utilizes these non-ifrs financial measures in managing its business and believes that they are useful to management and to investors for the reasons described above, these non-ifrs financial measures have certain shortcomings. In particular, these EBITDA and Adjusted EBITDA measurements do not take into account changes in working capital and financial statement items below income from operations, and the resultant effect of these items on the Company s cash flows. Management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable IFRS financial measures. The information in this presentation should be read in conjunction with the financial statements and footnotes contained in the Company's financial reports.