Magyar Telecom B.V. Investor Presentation for the quarter ended March 31, 2016 David Blunck, EO Invitel Ákos Balogh, O Invitel May 19, 2016
Safe Harbor Statement 2 This presentation of Magyar Telecom B.V. (the ompany ) 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 ompany. orward-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 entral and Eastern European economic conditions and consumer and business spending; the amount that the ompany 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 ompany'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 ompany's financial reports, which are available on the ompany 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 ompany does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date the statements are made.
Overview 3 Q1 performance tracking with management expectations 2016 Q1 Adjusted EBITDA is 3% down compared to 2015 Q1 Reaffirming full year guidance of EBITDA growth Positive cash flow for the period 22m cash balance at March 2016 Process of legally separating the Residential Unit from the orporate Unit is progressing Legal separation resulting in a Reso, orpo and Admino expected to complete by July Bedding-in period in the second half of the year (e.g. Intercompany structures) Newo-based reporting as of 2017
Updates 4 1.5m Utility Tax exemption for those high-speed upgrades completed in 2H 2015 Utility Tax (per meter network tax) liability 5.2m for 2016 vs 6.7m for 2015 Telco Tax (per minute) liability ~ 2.6m for 2016 vs 3.0m for 2015 The EU Digital Agenda high-speed internet upgrade subsidy awards have yet to be made Delay has no material impact on 2016 financial results Internet VAT reduction from 27% to 18% included in Hungary s 2017 draft budget The two leading Hungarian commercial TV channels, currently broadcast freeto-air, are expected to introduce programming fees Legal barriers previously in place preventing these channels from charging TV service providers programming fees were removed in late April Net impact currently unknown
Residential Unit ustomer Metrics (1) 5 opper TTx ble Residential Small Business 344k ustomers (#) ARPA (HU) RGUs (#) RGU/ustomer (#) Penetration % 341k Average revenue per customer 11,330 11,100 662k Revenue generating units 693k 2.7 2.7 ustomers / Homes Passed 31% 31% 30% 30% 26% 216k 191k 6,300 6,390 375k 341k 2.1 1.9 2.2 2.0 23% 90k 38k 14k 91k 59k 13k 5,590 5,410 5,250 5,090 4,760 4,770 185k 102k 24k 196k 156k 23k 1.8 1.7 1.8 1.8 18% 15% Q1 15 Q1 On-net customers and RGUs at end of period excluding mobile broadband RGU and off-net customers ARPA excludes equipment sales, DVB-T and insurance brokerage revenue
Residential Unit ustomer Metrics (2) 6 In-LTO opper In-LTO TTx ble Invitel Triple-play % Multi-play % TV uptake % TV ustomer % hurn % 3P / Total ustomers 2P+3P / Total ustomers Sales with TV / Total sales TV customers / Total customers Quarterly average annualized 68% 69% 99% 99% 80% 79% 76% 91% 91% 74% 73% 11.8% 12.7% 36% 43% 67% 76% 64% 71% 45% 49% 11.3% 10.7% 11.5% 10.6% 27% 17% 34% 19% 66% 62% 54% 55% 57% 40% 54% 21% 23% 9.5% 8.3% On-net Residential customers at end of period
Residential Network Metrics 7 In-LTO opper In-LTO TTx ble Invitel Homes Passed (HP) by Technology High-speed HP High-speed HP % TTx TTx + D3 % of TTx / In-LTO, % of D3 / ble HP GPON 102k VDSL 277k 379k (45%) 843k In-LTO HP 585k 69% 70% opper IPTV Not IPTV capable 160k (19%) 304k (36%) 411k 379k 36% 51% 45% 203k 206k Docsis3 ble 208k 25% Digital 200k Not Docsis3 capable 87k (30%) 206k (70%) 293k ble HP
inancial Information for the period ended March 31, 2016 8 or the period or the period ended March 31, hange hange ended March 31, hange hange 2016 2015 % 2016 2015 % (in thousands of EUR) (in millions of HU) Revenue 35,487 37,444 (1,957) (5%) 11,073 11,562 (489) (4%) Segment ost of Sales (7,688) (7,426) (262) (4%) (2,399) (2,293) (106) (5%) Segment Gross Margin 27,799 30,018 (2,219) (7%) 8,674 9,269 (595) (6%) Segment Gross Margin % 78% 80% 78% 80% Adjusted Operating Expenses (1) (19,370) (21,340) 1,970 9% (6,044) (6,589) 545 8% Revenue % (55%) (57%) (55%) (57%) Adjusted EBITDA (2) 8,429 8,678 (249) (3%) 2,630 2,680 (50) (2%) Adjusted EBITDA Margin % 24% 23% 24% 23% Non-recurring Items (581) (1,073) 492 46% (181) (331) 150 45% EBITDA (2) 7,848 7,605 243 3% 2,449 2,349 100 4% EBITDA Margin % 22% 20% 22% 20% The average EUR:HU exchange rates were 312.02 in 2016 Q1 and 308.78 in 2015 Q1 (1) Adjusted Operating Expenses do not include non-recurring items presented below Adjusted EBITDA; included in Adjusted Operating Expenses: telco tax 0.7 million and utility tax 5.2 million in 2016Q1 and telco tax 0.8 million and utility tax 6.7 million in 2015Q1 (2) EBITDA and Adjusted EBITDA are non-irs financial measures. See the reconciliation to net results on slide 8
EBITDA Reconciliation to Net Results for the period ended March 31, 2016 9 or the period or the period ended March 31, hange hange ended March 31, hange hange 2016 2015 % 2016 2015 % (in thousands of EUR) (in millions of HU) EBITDA (1) 7,848 7,605 243 3% 2,449 2,349 100 4% EBITDA Margin % (2) 22% 20% 22% 20% Depreciation and amortization (9,235) (9,866) 631 6% (2,881) (3,047) 166 5% inancing expenses, net (3,679) (3,641) (38) (1%) (1,148) (1,124) (24) (2%) oreign exchange gains / (losses), net 40 (44) 84 190% 13 (14) 27 198% Gains / (losses) on derivatives (9) 101 (110) (109%) (3) 31 (34) (109%) Taxes on net income (607) (629) 22 3% (190) (194) 4 2% Net profit / (loss) for the period (5,642) (6,474) 832 13% (1,761) (1,999) 238 12% Headcount 1,152 1,175 (1) EBITDA is a non-irs financial measure (2) EBITDA Margin % is EBITDA as a percentage of Revenue
Segment Gross Margin for the period ended March 31, 2016 10 or the period ended March 31, or the period hange hange ended March 31, hange hange 2016 2015 % 2016 2015 % (in thousands of EUR) (in millions of HU) opper 7,726 8,828 (1,102) (12%) 2,411 2,726 (315) (12%) iber 2,562 1,693 869 53% 799 523 276 53% ble 3,636 3,525 111 3% 1,135 1,088 47 4% Offnet 494 694 (200) (29%) 154 214 (60) (28%) Small Business 1,462 1,657 (195) (12%) 456 512 (56) (11%) Residential Unit 15,880 16,397 (517) (3%) 4,955 5,063 (108) (2%) Enterprise & Government 5,220 5,392 (172) (3%) 1,629 1,665 (36) (2%) Midsize 2,645 2,704 (59) (2%) 825 835 (10) (1%) orporate 7,865 8,096 (231) (3%) 2,454 2,500 (46) (2%) Wholesale 4,054 5,525 (1,471) (27%) 1,265 1,706 (441) (26%) orporate Unit 11,919 13,621 (1,702) (12%) 3,719 4,206 (487) (12%) Total Gross Margin 27,799 30,018 (2,219) (7%) 8,674 9,269 (595) (6%) Product detail: opper & iber TV 1,183 991 192 19% 369 306 63 21% Datacenter & IT services 1,286 1,109 177 16% 401 343 58 17%
Quarterly Proforma Gross Margin Q1 2015 Q1 2016 11 2015 2016 2015 2016 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 (in thousands of EUR) (in millions of HU) opper 8,828 8,722 8,300 7,828 7,726 2,726 2,669 2,593 2,446 2,411 iber 1,693 1,809 1,946 2,270 2,562 523 554 607 710 799 ble 3,525 3,568 3,508 3,537 3,636 1,088 1,092 1,096 1,106 1,135 Offnet 694 642 574 525 494 214 197 179 164 154 Small Business 1,657 1,588 1,504 1,486 1,462 512 486 469 464 456 Residential Unit - new 16,397 16,329 15,832 15,646 15,880 5,063 4,998 4,944 4,890 4,955 hanges 922 890 838 858-284 272 263 266 - Residential Unit - previously reported 15,475 15,439 14,994 14,788-4,779 4,726 4,681 4,624 - Enterprise & Government 5,392 5,369 5,147 5,147 5,220 1,665 1,642 1,608 1,609 1,629 Midsize 2,704 2,678 2,668 2,602 2,645 835 820 833 813 825 orporate - new 8,096 8,047 7,815 7,749 7,865 2,500 2,462 2,441 2,422 2,454 hanges (2,001) (2,119) (2,326) (2,983) - (618) (650) (725) (931) - orporate - previously reported 10,097 10,166 10,141 10,732-3,118 3,112 3,166 3,353 - Wholesale - new 5,525 4,173 4,326 5,421 4,054 1,706 1,277 1,351 1,694 1,265 hanges 1,079 1,229 1,488 2,125-334 378 462 665 - Wholesale - previously reported 4,446 2,944 2,838 3,296-1,372 899 889 1,029 - orporate Unit - new 13,621 12,220 12,141 13,170 11,919 4,206 3,739 3,792 4,116 3,719 hanges (922) (890) (838) (858) - (284) (272) (263) (266) - orporate Unit - previously reported 14,543 13,110 12,979 14,028-4,490 4,011 4,055 4,382 - Total Gross Margin 30,018 28,549 27,973 28,816 27,799 9,269 8,737 8,736 9,006 8,674 2015 quarters have been restated to reflect the inter-segment change put in place in January 2016
pital Expenditure for the period ended March 31, 2016 12 or the period ended March 31, or the period hange hange ended March 31, hange hange 2016 2015 % 2016 2015 % (in thousands of EUR) (in millions of HU) Variable pex 3,841 3,011 (830) (28%) 1,198 930 (268) (29%) ixed pex 2,213 1,057 (1,156) (109%) 691 326 (365) (112%) Base pex 6,054 4,068 (1,986) (49%) 1,889 1,256 (633) (50%) Base pex to Revenue % 17% 11% 17% 11% Data center expansion 501 - (501) n/a 156 - (156) n/a Other 258 1,019 761 75% 81 314 233 74% Project pex 759 1,019 260 26% 237 314 77 25% Project pex to Revenue % 2% 3% 2% 3% Total pex 6,813 5,087 (1,726) (34%) 2,126 1,570 (556) (35%) Total pex to Revenue % 19% 14% 19% 14%
sh low Statement for the period ended March 31, 2016 13 sh low Statement or the period ended March 31, (in thousands of EUR) 2016 2015 Net cash provided by operating activities excluding interest paid 7,256 6,036 Purchase of property, plant and equipment and intangible assets (7,074) (7,164) Proceeds from sale of property, plant and equipment and intangible assets 130 1,461 Net cash used in investing activities (6,944) (5,703) sh flow available for debt service 312 333 Net cash used in financing activities including interest paid - - Effect of exchange rate changes on cash and cash equivalents 36 510 sh flow after debt service 348 843 sh and cash equivalents at beginning of period 21,664 20,823 sh and cash equivalents at end of period 22,012 21,666
Balance Sheet 14 As of March 31, As of December 31, (in thousands of EUR) 2016 2015 Non-urrent Assets Intangible Assets 23,246 23,832 Property, Plant and Equipment 182,509 184,940 Other Non-urrent inancial Assets 45 43 205,800 208,815 urrent Assets sh and sh Equivalents 22,012 21,664 Trade and Other Receivables 17,338 17,225 Other urrent Assets 1,493 1,444 40,843 40,333 Total Assets 246,643 249,148 Equity Share pital 297,148 297,148 Reserves 137,848 137,848 umulative Translation Reserve (82,673) (82,089) Accumulated Losses (315,936) (309,895) Non-ontrolling Interest 10 10 36,397 43,022 Non-urrent Liabilities Borrowings 157,705 157,705 Other Non-urrent Liabilities 8,651 8,957 166,356 166,662 urrent Liabilities Trade and Other Payables 21,920 19,076 Other urrent Liabilities 21,970 20,388 43,890 39,464 Total Equity and Liabilities 246,643 249,148
Other inancial Information 15 As of March 31, 2016 (in thousands of EUR) Balance Sheet Data (at period end): sh and cash equivalents 22,012 Third party debt (1) 157,705 Other Pro-forma inancial Data: Annualized Adjusted EBITDA (2) 49,193 Net third party debt (3) 135,693 Ratio of Net third party debt to Annualized Adjusted EBITDA 2.8x (1) Third party debt includes long term debt from the 2013 Notes but excludes liabilities relating to finance leases and liabilities relating to derivative financial instruments (2) Annualized Adjusted EBITDA is calculated by multiplying Adjusted EBITDA before Utility Tax for the three month period ended March 31, 2016 by 4 less Utility Tax for the full year of 2016 in the amount of 5.2 million recorded in January 2016. Annualized Adjusted EBITDA is a non- IRS financial measure (3) Net third party debt equals third party debt less cash and cash equivalents
Reaffirming 2016 inancial Expectations 16 Revenue slightly down EBITDA Adjusted EBITDA slightly up pex Excluding potential EU Digital Agenda subsidies up to 26% of revenue sh maintain balance above 15m
Appendix 17 Non-IRS inancial Measures Magyar Telecom B.V. has included certain non-irs 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 IRS is included in this presentation. The non-irs financial measures presented are by definition not a measure of financial performance or financial condition under IRS 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-irs financial measures used may not be comparable to similarly titled measures of other companies. Management uses these non-irs financial measures for various purposes including: measuring and evaluating the ompany 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-irs 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 ompany's financial performance and financial condition. While Magyar Telecom B.V. utilizes these non-irs financial measures in managing its business and believes that they are useful to management and to investors for the reasons described above, these non-irs 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 ompany s cash flows. Management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable IRS financial measures. The information in this presentation should be read in conjunction with the financial statements and footnotes contained in the ompany's financial reports.