Europe

Customer development

Total

In the Europe operating segment, almost all key performance indicators for customer development improved compared with the end of 2022. Our convergent product portfolio, in particular, generated growth compared with year-end 2022 of 7.2 % in FMC customers thanks to ongoing demand. As a consequence, we are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased by 3.5 %. The number of mobile customers increased by 1.3 % compared with the end of 2022. Our build-out of the 5G network is making good progress.

Mobile communications

We had a total of 47.9 million mobile customers at the end of the first nine months, an increase of 1.3 % compared with the end of 2022. The number of contract customers increased by 1.9 %. The contract customer base grew in all of our national companies, but in particular in Greece, the Czech Republic, Poland, Croatia, Austria, and Slovakia. Overall, contract customers accounted for 56.3 % of the total customer base. Our customers benefited from greater coverage with fast mobile broadband – a result of our integrated network strategy. The footprint countries of our operating segment are also making excellent headway with 5G. As of September 30, 2023, our national companies covered 63.0 % of the population on average with 5G.

The prepaid customer base grew slightly compared with the end of 2022. In addition, as part of our regular business activities we offer our prepaid customers high-value contract plans with the resulting number of contract conversions also contributing positively to contract customer business.

Fixed network

The broadband business increased by 3.5 % compared with the end of 2022 to a total of 6.9 million customers. This growth is mainly driven by the national companies in Poland, Hungary, Greece, and the Czech Republic. By continuing to invest in optical fiber, we are systematically building out our fixed-network infrastructure. As of the end of the first nine months of 2023, around 8.7 million households have access to our high-performance fiber-optic network offering gigabit speeds. We have already won some 34 % of the households in these areas as active customers for one of our fiber-optic broadband products. The total number of fixed-network lines subscribed to increased again slightly by 1.1 %, reaching 8.0 million as of September 30, 2023.

The TV and entertainment business had a total of 4.2 million customers as of the end of the third quarter of 2023, up by 2.8 % compared with the end of the prior year. This was attributable among other things to the acquisition of exclusive rights to broadcast sports events in the prior year. With both telecommunications providers and OTT players offering TV services, the TV market is already saturated in many countries of our segment. In order to remain competitive here, we are constantly developing our offerings and integrate these OTT services in our platforms. This includes both local (e.g., Voyo in Slovakia and in the Czech Republic) and international (Disney+ in Austria) offerings.

FMC – fixed-mobile convergence and digitalization

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. As of September 30, 2023, we had 7.5 million FMC customers; this corresponds to growth of 7.2 % compared with the end of the prior year. Our national companies in particular in Poland, Greece, Hungary, and the Czech Republic contributed to this growth. At the end of the first nine months of 2023, FMC customers accounted for 62.0 % of the broadband customer base. We have also seen rising customer numbers from the marketing of our MagentaOne Business product to business customers.

We continue to expand our digital interaction with customers, which means we can meet customer needs in a more personalized and efficient way, and position products and innovative services on the market more quickly. Around 67 % of our consumers use our service app.

Development of operations

Revenue, service revenue

Our Europe operating segment generated revenue of EUR 8.7 billion in the first nine months of 2023, a year-on-year increase of 5.1 %. In organic terms, revenue increased by 4.5 %. Service revenues grew by 4.0 % year-on-year, or by 3.5 % in organic terms.

Organic revenue growth was largely driven by the strong performance of the mobile business, especially the increase in mobile service revenues with higher margins: alongside the larger contract customer base, higher prices in several countries and increases in roaming and visitor revenues further contributed to this trend. Contract customer additions also had positive effects on terminal equipment revenues. Fixed-network service revenues increased against the prior year. Our intense focus on the continued build-out of high-speed network infrastructure drove growth in broadband and TV revenues, which offset the expected declines in voice telephony revenues and wholesale revenues. The systems solutions business made a positive contribution to revenue overall. Regulatory interventions such as the reduction in termination rates had a negative impact on our organic development of revenue in the reporting period.

Most countries contributed to the growth in revenue in organic terms, with our national companies in Hungary, Poland, the Czech Republic, Austria, Croatia, and Slovakia recording the best absolute development by country.

Revenue from Consumers increased in organic terms by 5.4 % year-on-year, due to the mobile business, where both service revenues and sales of mobile terminal equipment increased. In the fixed network, revenue from broadband and TV business increased thanks to our continuous fiber-optic build-out and our TV and entertainment offerings. This more than offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

Revenue from Business Customers grew by 5.4 % against the first three quarters of 2022, with Hungary, Poland, and Greece making the most significant contributions in core business. All product areas – mobile communications, fixed network and systems solutions – recorded growth. The number of mobile contract customers increased by 1.9 %, with almost all national companies contributing to growth, in particular Poland, Austria, and Greece, which offset the census-driven decline in Hungary. In the fixed-network business, the number of broadband customers rose by 4.9 %. Growth was reported across all customer segments, with the highest growth recorded in the segment of smaller business customers. ICT revenue grew strongly compared with the prior-year period due to an increase in systems solutions business and data communication, especially in Hungary, Greece, and Poland. Digital Infrastructure developed positively as a result of the expansion of capacities and strong growth in the cloud and security solutions business.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 3.1 billion in the first nine months of 2023, up 3.2 % against the level in the prior-year period. In organic terms, adjusted EBITDA AL grew by 2.4 %, again making a positive contribution to earnings, with a positive net margin more than sufficient to offset the rise in indirect costs. This rise in costs is mainly driven by inflation-induced cost increases (especially energy and personnel costs). In Hungary, the supplementary telecommunications tax continues to have an adverse impact on our EBITDA AL.

Looking at the development by country, the increase in adjusted organic EBITDA AL was attributable to positive absolute trends, in particular at our national companies in Hungary, Austria, Croatia, and Greece.

At EUR 3.0 billion, EBITDA AL increased slightly by 0.8 % against the prior-year level. The net expense arising from special factors was higher than in the prior-year.

Development of operations in selected countries

Greece. Revenues in Greece amounted to EUR 2.3 billion in the first nine months of 2023, almost on a par with the level in the prior-year period. This trend is due to higher mobile revenues. Alongside higher service revenues, the addition of new contract customers drove an increase in terminal equipment revenues. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. Revenue declined in the fixed-network business, where traditional voice telephony revenues are tapering off. Wholesale revenues also decreased as a result of lower volumes of international traffic. Our convergence products, however, performed well, with further customer additions and corresponding revenue. Systems solutions business recorded a further substantial rise in revenue.

Adjusted EBITDA AL stood at EUR 988 million, up 1.0 % year-on-year, driven by lower indirect costs.

Hungary. Revenues in Hungary totaled EUR 1.5 billion in the first three quarters of 2023, which corresponds to substantial growth of 15.6 %. Excluding positive exchange rate effects, revenue increased by 14.9 % against the prior-year period in organic terms. The biggest driver of this increase was mobile business, mainly on account of significantly higher service revenues. Fixed-network revenue also increased markedly against the prior-year period. We also recorded higher service revenues in the broadband and TV business, both driven again by larger customer bases. Thanks to our increased investments in the build-out of fiber-optic lines, our offerings have won over large numbers of customers. Our convergence products also continued to perform well, with further customer additions and corresponding revenue. Systems solutions business also recorded a significant increase in revenue.

Adjusted EBITDA AL stood at EUR 443 million, up 19.7 % year-on-year. In organic terms, the increase was 19.3 %. The increase in indirect costs, especially for energy, was more than offset by the higher net margin.

Poland. Revenues in Poland increased by 7.4 % in the first nine months of 2023 to EUR 1.1 billion. Excluding positive exchange rate effects, revenues increased by 5.3 % in organic terms. Mobile business was the main driver of this uptrend in revenue, with growth in the contract customer base also having a positive effect on terminal equipment business. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. The number of FTTH customers in the fixed-network business also increased significantly, creating the basis for further broadband growth. This is reflected in higher broadband service revenues, and is also thanks to our successful partnership agreements on network infrastructure. The number of FMC customers increased again substantially in the first nine months of 2023. This had a corresponding positive impact on revenues. We recorded substantial revenue growth in the systems solutions business.

Adjusted EBITDA AL stood at EUR 299 million, 1.7 % above the prior-year period level. In organic terms, it remained stable. The revenue-driven increase in the net margin was entirely offset by the increase in indirect costs, in particular as a result of higher energy costs.

Czech Republic. Revenues in the Czech Republic stood at EUR 982 million in the first nine months of 2023, an increase of 9.4 % against the prior-year period. Excluding positive exchange rate effects, organic growth was 5.8 %. This is largely attributable to our mobile business, which recorded higher service revenues and increased revenues from terminal equipment sales, the latter driven in part by renewed growth in the number of contract customers. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. The fixed-network business also contributed to revenue growth. Thanks to our investments in the build-out of fiber-optic lines, our offerings have won over large numbers of customers. Our convergence products recorded further customer additions and corresponding revenue growth.

Adjusted EBITDA AL decreased by 5.6 % year-on-year to EUR 354 million. In organic terms, earnings fell by 8.6 %. The decrease was attributable to a slight decrease in the net margin and higher indirect costs, in particular as a result of higher energy and personnel costs.

Austria. In the first three quarters of 2023, we recorded revenue of EUR 1.1 billion in Austria. This increase of 4.2 % was mainly attributable to growth in mobile revenues, despite the adverse effects from the termination rate cuts. Alongside higher service revenues, terminal equipment revenues also increased, driven in part by growth in the contract customer base. Broadband revenues in the fixed-network business recorded substantial growth. Revenues from systems solutions business increased slightly.

Adjusted EBITDA AL increased by 4.6 % year-on-year to EUR 411 million. In organic terms, earnings grew by 3.4 %, driven mainly by a revenue-related increase in the net margin.

Profit/loss from operations (EBIT)

Our Europe operating segment recorded an increase in EBIT of 4.3 % to EUR 1.5 billion in the first nine months of 2023, mainly due to the 3.3 % increase in EBITDA. Depreciation, amortization and impairment losses were up 2.3 % against the prior-year period.

Cash capex (before spectrum investment), cash capex

In the first three quarters of 2023, our Europe operating segment reported cash capex (before spectrum investment) of EUR 1.3 billion, up 12.5 % year-on-year, largely due to the timing of the allocation of capital expenditure. Cash capex increased by 28.5 % against the prior-year period as a result of the acquisition of spectrum licenses in Croatia, Poland and the Czech Republic. We continue to invest in the provision of broadband, fiber-optic technology, and 5G as part of our integrated network strategy.