FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

Report on Form 6-K dated February 13, 2006

MAGYAR TELEKOM TELECOMMUNICATIONS CO. LTD.

(Translation of registrant’s name into English)

Budapest, 1013, Krisztina krt. 55, Hungary

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ý  Form 40-F  o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  o   No  ý

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-              

2005 full year results: solid Group performance, continued focus on growth through value creative acquisitions

Budapest – February 13, 2006 – Magyar Telekom (Reuters: NYSE: MTA.N, BSE: MTEL.BU and Bloomberg: NYSE: MTA US, BSE: MTELEKOM HB), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the full year of 2005, in accordance with International Financial Reporting Standards (IFRS). From the second quarter of 2005, the consolidated income statement includes the results of Telekom Montenegro Group (“TCG”), while the company’s balance sheet has been consolidated in Magyar Telekom’s accounts as of March 31, 2005.

Highlights:

•                  Reported revenues grew by 3.2% to HUF 620.7 bn (EUR 2,502.4 m) in 2005 compared to 2004. The higher mobile and data transmission revenues compensated for the decline in revenues from outgoing domestic and international traffic. The consolidation of TCG’s revenues from Q2 2005 had a positive effect of HUF 19.9 bn. Without the consolidation effect of TCG, Group revenues were broadly flat at HUF 600.8 bn.

•                  Reported EBITDA increased by 12.1% to HUF 249.9 bn, with an EBITDA margin of 40.3%. Without the impact of TCG, EBITDA was HUF 244.3 bn with an EBITDA margin of 40.7%.

•                  Employee related expenses fell by 15.3% compared to 2004, when this figure included a HUF 20.2 bn headcount rationalisation related severance provision and expenses (HUF 16.8 bn in Q4). At the same time, employee related expenses in 2005 included a HUF 5.1 bn provision and severance related expenses, of which HUF 1.3 bn were accounted for at Telekom Montenegro in the second quarter of 2005.

•                  Gross additions to tangible and intangible assets were HUF 99.4 bn. The portion relating to the fixed line segment reached HUF 53.1 bn with mobile at HUF 46.3 bn. Within this, HUF 6.6 bn was spent on UMTS-related investments.

•                  Following the change to IFRS rules, amortization of goodwill has been discontinued from January 1, 2005, and impairment testing is now carried out on an annual basis. In 2004, depreciation and amortization expenses of the Magyar Telekom Group included HUF 13.9 bn of goodwill amortization. In addition, in Q1 2004, the impairment charge relating to the rebranding of Westel to T-Mobile Hungary amounted to HUF 4.4 bn. As a result, in 2005, depreciation and amortization fell to HUF 114.7 bn from HUF 137.7 bn a year earlier.

•                  Fixed line segment: external revenues (after elimination of inter-segment revenues) fell by 0.9% to HUF 331.1 bn as increased data transmission (mainly ADSL) revenues only partially offset the decline, primarily in outgoing traffic revenues. EBITDA amounted to HUF 121.9 bn and the EBITDA margin on external revenues was 36.8%.

•                  Mobile segment: external revenues grew by 8.4% to HUF 289.6 bn driven by voice revenues and enhanced services revenues. EBITDA amounted to HUF 127.9 bn with the EBITDA margin on external revenues reaching a strong 44.2%.

•                  Group operating profit grew 58.5% to HUF 135.2 bn, driven mainly by a decline in depreciation and amortization as well as a reduction in the employee-related expenses and cost of equipment sales. Net income increased significantly from HUF 34.6 bn (EUR 137.6 m) to HUF 80.1 bn (EUR 323.0 m).

•                  Net cash from operating activities grew to HUF 202.5 bn due to the combined impact of the growth in EBITDA, the lower income tax paid and the reversal of severance provisions booked in 2004. Net

1

cash utilized in investing activities increased to HUF 132.7 bn, mainly driven by the acquisition of the majority stake in TCG. Net cash used in financing activities decreased to HUF 61.8 bn, primarily due to increased borrowing as a result of the TCG transaction, partly offset by the increased dividend payment at MakTel.

•                  Net debt grew slightly by HUF 13.4 bn compared to the end of December 2004, driven by the dividend payment and the TCG transaction. The net debt ratio (net debt to net debt plus equity plus minority interests) reached 33.1% at end-2005 (32.9% at the end-2004).

Elek Straub, Chairman and CEO commented: “2005 was a very dynamic year for Magyar Telekom. Despite intense competition in both fixed line and mobile segments, we preserved our leading position in our key businesses. In the domestic fixed line business, we entered other LTO areas with the aim of acquiring new customers by offering combined new services. Despite continued fixed line erosion, the productivity in this segment grew, which is reflected in the improved lines per employee ratio of 484 at end-2005. Following a positive response to the rebranding of the mobile business, we decided to introduce the “T” brand portfolio across all business areas. Another important milestone in 2005 was the decision to merge Magyar Telekom Rt. and T-Mobile Hungary in the second half of last year, which will enable us to achieve improvements in efficiency, profitability and cash-flow in the coming years. In line with our strategy, we capitalised on acquisition-driven growth opportunities in the region through the purchase of Telekom Montenegro and Orbitel in Bulgaria. In addition, we are currently finalising the acquisition of Dataplex, a Hungarian IT outsourcing company. Thanks to the above mentioned investments, we target a single digit revenue growth of above 3% in 2006 and 2007.  In terms of EBITDA, please note that our recent initiatives (IT investments, EDR project, entry to the Romanian retail market etc.) are expected to bring tangible results only from next year. We also expect the positive impact of the fixed-mobile merger on Group profitability to be visible from 2007. As a result, our aim for this year is to maintain the 2005 EBITDA levels, and to continue to grow our EBITDA in forint terms in 2007. We target a gross additions to tangible and intangible assets to revenues (capex to sales) ratio of below 15% in 2006, excluding EDR-related investments (around HUF 20-22bn). This ratio is expected to fall below 14% in 2007. Our goal remains to seek growth opportunities in the form of suitable acquisitions in the future.”

Hungarian fixed line operations: strong growth in broadband connections, improving headcount efficiency

Revenues before elimination grew by 1.7% to HUF 74.7 bn in Q4 2005 over the same period in 2004 with an EBITDA margin at 32.5% for the quarter. The quarterly revenue increase is due to a HUF 3.0 bn reversal of revenue reduction booked in the last quarters related to the change in mobile termination fees. Domestic and international traffic revenues combined declined by 10.3%, mainly due to traffic loss to fixed line competitors and mobile substitution. In addition, lower mobile termination rates and discounts provided in our packages contributed to the revenue decline. However, leased line and data revenues continued to grow, recording a 19.1% rise as the number of installed ADSL lines increased. The total number of broadband connections (mainly ADSL and cable) was close to 358 thousands at end-2005. The increased mobile substitution and number portability, both in the business and residential segments, accelerated the decline in the total number of fixed lines (down 5.1% at end-2005 compared to end-2004). The strong focus on improving efficiency is reflected in the lines per employee ratio, which reached 489 at parent company level. Customised tariff packages at the parent company represented 66% of the total number of lines, with nearly 1.8 million lines at the end of the fourth quarter of 2005. Magyar Telekom’s Internet subsidiary, T-Online Hungary, reported HUF 7.7 bn in revenues in the last three months of 2005, against HUF 5.8 bn in the same period of 2004.

International fixed line operations: further headcount reduction at both MakTel and Telekom Montenegro aimed at improving efficiency

Revenues before elimination grew by 37.3% to HUF 15.1 bn in Q4 2005 driven by the consolidation impact of Telekom Montenegro. EBITDA fell to HUF 4.1 bn with an EBITDA margin of 27.3% due to a HUF 1.5 bn headcount rationalisation provision and expenses at MakTel. MakTel’s fixed line business revenues were broadly stable as a combined result of lower traffic revenue and increasing data revenues.

2

The results were also affected by lower usage and a favourable foreign exchange movement (2.5%). Increased employee related expenses, including the headcount reduction related provision and expenses, resulted in a lower EBITDA margin of 31.3%. Telekom Montenegro’s fixed line operations contributed HUF 4.0 bn to Group revenues in the fourth quarter, whilst the EBITDA was HUF 0.8 bn in Q4 2005.

Hungarian mobile operations: continued balanced focus on market share and profitability

Revenues before elimination grew by 1.5% to HUF 68.9 bn in Q4 2005 as a result of higher enhanced service and access revenues. EBITDA was HUF 25.3 bn with an EBITDA margin of 36.7% driven by higher employee related expenses and agency fees. Average acquisition cost per customer fell by 21% in the last quarter, reflecting lower subsidies in both prepaid and postpaid segments. When calculating subscriber acquisition cost, we include the connection margin (SIM card cost less the connection fee) and the sales-related equipment subsidy and agent fee. Although the introduction of new packages generated higher usage and growth in value added services, the discounts offered, combined with the impact of regulatory changes and the extensive use of the closed user group offers, resulted in a broadly stable ARPU (monthly average revenue per user). MOU (monthly average minutes of use per subscriber) grew to 134 in the last quarter of 2005, reflecting improved price elasticity.

International mobile operations: impressive profitability at Mobimak, consolidation impact of Monet

Revenues before elimination grew strongly by 31.2% to HUF 11.4 bn in Q4 2005, driven by the consolidation impact of Monet. EBITDA was HUF 4.8 bn with an EBITDA margin of 42.0%. MakTel’s mobile business reported slight revenue growth in a growing market characterised by strong tariff competition. EBITDA at Mobimak was HUF 4.4 bn with an impressive EBITDA margin of 50.5%. The results of the international mobile operations also included those of Monet, the mobile subsidiary of Telekom Montenegro, which posted revenues of HUF 2.6 bn and an EBITDA of HUF 0.3 bn in Q4 2005.

About Magyar Telekom

Magyar Telekom is the principal provider of telecom services in Hungary. Magyar Telekom provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiary, T-Mobile Hungary, is Hungary’s largest mobile telecom provider. Magyar Telekom owns 51% of the shares of MakTel, the sole fixed line operator and its subsidiary Mobimak, the leading mobile operator in Macedonia. Magyar Telekom has a majority stake in Telekom Montenegro (TCG). TCG Group provides fixed, mobile and Internet services in Montenegro. Key shareholders of Magyar Telekom as of December 31, 2005 include MagyarCom Holding GmbH (59.21%), owned by Deutsche Telekom AG. The remainder, 40.79% is publicly traded.

This investor news contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore should not have undue reliance placed upon them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors are described in, among other things, our Annual Report on Form 20-F for the year ended December 31, 2004 filed with the U.S. Securities and Exchange Commission.

For detailed information on Magyar Telekom’s full year 2005 results please visit our website:

(www.magyartelekom.hu/english/investorrelations/main.vm) or the website of the Budapest Stock Exchange (www.bse.hu).

3

MAGYAR TELEKOM

Consolidated Balance Sheets - IFRS

(HUF million)

4

MAGYAR TELEKOM

Consolidated Income Statements - IFRS

(HUF million)

5

MAGYAR TELEKOM

Consolidated Cashflow Statements - IFRS

(HUF million)

6

Summary of key operating statistics

7

8

(1) Includes employees at Telekom Montenegro from March 31, 2005.

(2) Magyar Telekom Rt. and Emitel

(3) Due to reclassification of long distance I. (agglomeration) minutes from long distance to local minutes from January 2005, the 2004 and 2005 figures are not comparable.

(4) Internet minutes include traffic both on PSTN lines (reported earlier as local traffic) and on ISDN lines (not reported earlier as traffic minutes)

(5) Internet RPC figures in Montenegro are not consistent yet with the Magyar Telekom Group standard.

(6) Includes ADSL lines operated by Magyar Telekom Rt. and Emitel plus T-Online’s broadband customers (other than the ADSL. purchased from Magyar Telekom Rt.)

9

Analysis of the Financial Statements for the year ended December 31, 2005

Exchange rate information

The Euro strengthened by 2.8% against the Hungarian Forint year on year (from 245.93 HUF/EUR on December 31, 2004 to 252.73 HUF/EUR on December 31, 2005). The average HUF/EUR rate decreased from 251.68 in 2004 to 248.05 in 2005.

The U.S. Dollar strengthened by 18.5% against the Hungarian Forint year on year (from 180.29 HUF/USD on December 31, 2004 to 213.58 HUF/USD on December 31, 2005).

Analysis of group income statements

Magyar Telekom acquired a 51.12% stake in the Montenegrin Telecommunications Company (“Telekom Montenegro” or “TCG”) from the government of Montenegro in March 2005. At the same time, we acquired an additional 21.92% of TCG’s shares from minority shareholders. As the result of a public offer, Magyar Telekom acquired a 3.49% stake in TCG on May 24, 2005 increasing its total stake to 76.53%.

TCG’s balance sheet was consolidated in our accounts as of March 31, 2005, while the results of TCG are included in our consolidated income statement from the second quarter of 2005.

Revenues

Revenues from fixed line subscriptions, connections and other charges decreased by 0.5% for the year ended December 31, 2005 compared to the same period in 2004 mainly driven by lower ISDN subscription fee revenues at Magyar Telekom Rt. due to the lower number of average ISDN connections. Lower value-added services relating to Sulinet as well as decreased PBX revenues at BCN Rendszerház also had negative influence on revenues from other charges.

In our international fixed line operations, PSTN subscription fees showed a decrease at Maktel reflecting the lower average number of customers and higher number of disconnected lines. These decreases were partly compensated by the consolidation of TCG’s revenues in 2005.

Outgoing domestic fixed line traffic revenues decreased to HUF 90.9 bn in 2005 compared to HUF 112.4 bn in 2004. In the Hungarian fixed line operations outgoing domestic traffic decreased by 12.5%, mainly due to mobile substitution and competition from other fixed line service providers. The proportion of calls changed unfavorably as well, as the higher priced long distance and fixed to mobile traffic decreased to greater extent than local traffic. The decrease in revenue is higher than the decrease in traffic, due to lower average per minute fees. In line with the decision of the National Regulatory Authority to reduce fixed to mobile termination rates, Magyar Telekom recorded a reduction in the fixed to mobile revenues. Both Magyar Telekom Rt. and Emitel offered several price discounts to customers choosing different tariff packages. At the end of December 2005, approximately 66% of Magyar Telekom Rt.’s customers had chosen customized tariff packages, the most popular of which is the Felezo (Halving) package with over 530,000 subscribers and the Favorit packages with approximately 325,000 customers. In the Macedonian fixed line operations outgoing domestic traffic revenues decreased due to lower usage, partly compensated by price increases in July 2004 and in August 2005. The consolidation of TCG’s revenues in 2005 partly offset these decreases.

Outgoing international fixed line traffic revenues decreased by 9.1%, from HUF 12.3 bn in 2004 to HUF 11.1 bn in 2005. This decrease is mainly due to lower volume of minutes as well as price discounts given to subscribers of optional tariff packages at Magyar Telekom Rt. Outgoing international traffic

10

revenues also decreased at Maktel as a result of lower traffic. The consolidation of TCG’s revenues in 2005 partly offset these decreases.

Incoming domestic fixed line traffic revenues in 2005 increased by 63.5% compared to 2004, mainly due to the consolidation of TCG in 2005. At Magyar Telekom Rt. revenues from LTOs increased due to higher interconnection traffic (both call origination and call termination) resulting from the increased customer base of other fixed line service providers, partly offset by lower LRIC-based rates introduced on June 15, 2004. These increases were partly offset by decreased incoming domestic traffic revenues from mobile operators at Magyar Telekom Rt. resulting from lower traffic as well as lower interconnection rates mainly in the mobile to international call relation.

Incoming international fixed line traffic revenues increased to HUF 16.0 bn in 2005 compared to HUF 15.8 bn in 2004, mostly due to the consolidation of TCG’s revenues in 2005. This increase was mitigated by decreased incoming international revenues mainly at Maktel as a result of lower average settlement rates and stronger MKD against the SDR. Incoming international traffic revenues at the Hungarian fixed line operations declined as well, mainly due to significant decrease in average settlement rates and lower HUF/SDR exchange rate. The volume of incoming international traffic somewhat increased as higher traffic terminated in Magyar Telekom Rt. and LTO areas was only partly offset by lower mobile terminated international traffic transited by Magyar Telekom Rt. (due to migration of international calls to mobile networks).

Revenues from leased lines and data transmission of the fixed line operations grew to HUF 63.7 bn in 2005 compared to HUF 51.0 bn in 2004. This growth was due to the strong increase in the number of ADSL and Internet subscribers in the Hungarian fixed line operations. The number of ADSL subscribers in the Hungarian fixed line operations grew to 329,314 (from 205,886 at the end of 2004) and the number of T-Online Internet connections grew by 23.5% to 328,535 compared to the previous year. The consolidation of TCG’s revenues in 2005 also contributed to the revenue increase to a smaller extent.

Revenues from fixed line equipment sales slightly increased to HUF 4.0 bn for the year ended December 31, 2005 compared to HUF 3.7 bn for the same period in 2004. Equipment sales revenue increase is due to the higher amount of phonesets sold at Magyar Telekom Rt. and higher revenues at BCN, partly offset by reduced prices and less equipment sold at Maktel.

Other fixed line revenues increased by 10.8% and amounted to HUF 29.9 bn in 2005. Other revenues include construction, maintenance, cable television and miscellaneous revenues. The increase in other revenues is mainly due to the growth in cable TV revenue resulting from the increase in average number of cable TV subscribers and price increases effective from January 1, 2005. Our Hungarian cable television operations had over 400,000 customers at the end of 2005.

Revenues from mobile telecommunications services amounted to HUF 289.6 bn in 2005 compared to HUF 267.3 bn in 2004 (an 8.4% increase). From the second quarter of 2005, the consolidated revenue of Monet, our Montenegrin mobile operator positively affected the revenues from mobile operations. As of December 31, 2005, Monet had over 208,000 customers.

The majority of mobile telecommunications revenue is generated by T-Mobile Hungary, where the growth in revenues mainly resulted from the 10.4% higher average Minutes of Use (“MOU”) and the 4.4% higher average customer base. While the penetration growth of mobile customers has slowed down in Hungary, T-Mobile Hungary still maintains its leading position with 45.0% market share. The proportion of prepaid customers has decreased as many customers migrated to more favorable, for example flat-rate postpaid packages. Prepaid customers represent 68.4% of total T-Mobile Hungary customers as of December 31, 2005 compared to 71.1% a year earlier.

Within mobile telecommunications services, network usage and access represents the largest portion of revenues. It increased by 8.6% and amounted to HUF 226.2 bn in 2005. Its growth was mainly driven by the increased traffic generated by T-Mobile Hungary’s customers. T-Mobile Hungary’s average usage per customer per month measured in MOU increased by 10.4% from 115 minutes in 2004 to 127

11

minutes in 2005. T-Mobile Hungary’s monthly average revenue per user (“ARPU”) slightly decreased from HUF 4,945 in 2004 to HUF 4,917 in 2005 partly due to lower fixed to mobile termination rates.

Within mobile telecommunications services, enhanced services show the highest increase as it grew over 20% year over year at T-Mobile Hungary. The revenue growth is due to the increasing proportion of content messages with higher rates, and also due to higher access (data, Internet, GPRS, etc.) revenues.

Mobile equipment sales revenues decreased by 7.7% in 2005 compared to 2004 on group level, mainly due to lower average price of phonesets, partly compensated by higher gross additions to customers as well as higher number of phoneset upgrades at T-Mobile Hungary.

Revenues from mobile telecommunications services at Mobimak moderately increased as a result of higher average number of mobile customers, partly offset by lower MOU and tariffs. The number of Mobimak customers increased by 16.6% and reached 877,142 at December 31, 2005. Mobimak’s average usage per customer per month measured in MOU decreased by 4.5% from 66 minutes in 2004 to 63 minutes in 2005. The revenue increase in MKD was also offset by the strengthening of the HUF against the MKD.

Operating Expenses

Employee-related expenses for the year ended December 31, 2005 amounted to HUF 92.8 bn compared to HUF 109.5 bn for the same period in 2004 (a decrease of 15.3%). The main driver of the decrease is the significant decrease in severance expenses at Magyar Telekom Rt. and Maktel. In addition, average headcount decreased significantly, especially at Magyar Telekom Rt. and Maktel. The closing group headcount figure fell from 13,724 on December 31, 2004 to 11,919 on December 31, 2005 (including 1,132 employees of TCG Group on December 31, 2005). As a result of decreased headcount, the number of lines per fixed line employee at Magyar Telekom Rt. increased to 489 at the end of December 2005 compared to 365 a year earlier.

The decrease in employee-related expenses was partly offset by the 5.6% average wage rate increase from April 1, 2005 at Magyar Telekom Rt. and the consolidation of TCG expenses (including their HUF 1.3 bn severance costs for the voluntary leave program).

Depreciation and amortization decreased significantly by 16.7% to HUF 114.7 bn in 2005 from HUF 137.7 bn last year. In accordance with the IFRS 3 standard, no amortization of goodwill was accounted relating to acquisitions after March 31, 2004, and existing goodwill is not amortized from January 1, 2005 which caused significant decrease in 2005. The decrease is also due to the impairment of Westel brand name as a result of rebranding as T-Mobile Hungary, which resulted in a HUF 4.4 bn additional amortization charge in the first quarter of 2004. Lower depreciation expense at Magyar Telekom Rt. is also the result of decreased depreciation of certain fixed assets because of scrapping and impairments in 2004. The inclusion of TCG’s depreciation expenses partly offset the decrease.

Payments to other network operators reached HUF 89.1 bn in 2005 compared to HUF 87.6 bn in 2004, mainly due to the consolidation of TCG’s expenses. The increase was also due to the 4.0% increase in outpayments to mobile operators, mainly driven by T-Mobile Hungary’s outpayments to other GSM service providers due to higher mobile penetration and higher traffic. In addition, with the introduction of flat-rate packages, the proportion of calls to the networks of other service providers increased, resulting in higher outpayments. Magyar Telekom Rt.’s outpayments to mobile operators decreased to a large extent due to the lower fixed to mobile termination rates. Interconnection traffic between Magyar Telekom Rt. and the LTOs increased significantly as well, but the traffic increase was offset by lower LRIC-based rates. Higher network rental fee expenses primarily resulted from increased fees at Combridge, our Romanian subsidiary. Domestic outpayments at Mobimak increased as well due to the higher subscriber base of the other mobile service provider in Macedonia. International roaming outpayments showed a significant decrease at T-Mobile Hungary as a result of favorable agreements concluded with other mobile operators, mainly with other T-Mobile companies. International outpayments decreased at Maktel as well, mainly driven by decreased traffic.

12

The cost of telecommunications equipment sales was HUF 37.2 bn in 2005 compared to HUF 41.0 bn in 2004. The 9.2% decrease is mainly due to lower average cost of phonesets at T-Mobile Hungary, as a result of the development of central procurement process within Deutsche Telekom Group. Mobimak’s equipment sales costs also showed a decrease due to lower average cost of phonesets, partly compensated by the higher amount of gross additions to subscribers. These decreases were slightly offset by increased cost of equipment sales at Magyar Telekom Rt. due to more equipment sold as part of the Favorit campaigns.

Other operating expenses - net increased by 8.0% year over year. Other operating expenses include materials, maintenance, marketing, service fees, outsourcing expenses, consultancy and bad debt expenses. This increase was primarily due to the inclusion of TCG’s expenses. Subcontractor’s fees also increased as a result of increased commissions related to tariff packages sold both in LTOs’ and Magyar Telekom Rt.’s service areas. These increases were partly offset by lower fees and levies at T-Mobile Hungary as a result of the reversal of HUF 1.1 bn accrual for its contribution to the Universal Telecommunications Support Fund. At the same time, Magyar Telekom Rt. has written off its related receivables, which had a negative impact of HUF 0.8 bn on this expense line. Although individual elements of other operating expenses increased also due to the rebranding of the fixed line operations, these expenses are compensated by the parent company (Deutsche Telekom), therefore on net terms they do not result in increased net operating expenses.

Operating Profit

Operating margin for the year ended December 31, 2005 was 21.8%, while operating margin for the same period in 2004 was 14.2%. The increase is mainly due to the significant decrease in depreciation and amortization charges in connection with the discontinuation of the goodwill amortization from January 1, 2005, the write-off of Westel brand name and lower employee-related expenses. In addition, the growth of our mobile business also contributed to the higher operating margin.

Net financial expenses

Net financial expenses were HUF 31.3 bn in 2005 compared to HUF 36.1 bn in 2004. This decrease mainly results from the HUF 3.5 bn decrease in HUF interest expenses due to lower average HUF interest rates. In addition, the lower expenses were driven by the higher foreign exchange gain at Maktel as a result of the weakening of MKD against USD, in which the majority of its foreign currency cash and receivables are denominated. Interest income increased at Maktel as it held higher amount of cash and deposits in banks at longer maturities. Net financial expenses included HUF 1.0 bn net FX gain, HUF 31.3 bn interest expense, HUF 3.2 bn other financial charges and HUF 2.2 bn interest and other financial income in 2005.

Share of associates’ profits/losses after tax

Share of associates’ results amounted to HUF 330 million for the year ended December 31, 2005 compared to HUF 1,896 million for the same period in 2004, reflecting the significant gain on Hunsat’s sale of its investment in Eutelsat in the first quarter of 2004. The low performance of T-Systems Hungary also contributed to the decrease.

Income tax

Income tax expense increased from HUF 7.7 bn in 2004 to HUF 13.7 bn in 2005 as a result of the significantly higher profit before tax at almost all members of the Group. The lower effective tax rate in 2005 (13.2% compared to 15.1% in 2004) was mostly due to the compounding of the tax credit carried forward related to the Hungarian broadband investments, which resulted in tax credits with no impact on profit before tax. In addition, the higher amount of other income related to the rebranding, which is not taxable, also contributed to the lower effective tax rate.

Minority interests

Minority interests for the year ended December 31, 2005 were HUF 10.3 bn compared to HUF 8.7 bn for the same period in 2004. The increase mainly results from the better performance of Maktel.

13

Analysis of group balance sheets

Total assets and total equity and liabilities as of December 31, 2004 were HUF 1,030 bn. Total assets and total equity and liabilities amounted to HUF 1,083 bn as of December 31, 2005.

Loans and other borrowings

The current portion of loans and other borrowings increased by 25.1% from December 31, 2004 to HUF 118.3 bn at December 31, 2005. Non current loans and other borrowings remained flat and reached HUF 226.2 bn at December 31, 2005.

The total amount of loans and other borrowings increased by 7.4% from December 31, 2004 to HUF 344.5 bn at December 31, 2005 due to the financing of the TCG acquisition and the higher amount of dividends. These affected the current portion of the loan portfolio more than the non current.

At December 31, 2005, almost 100% of the loan portfolio was HUF denominated. At the end of 2005, 24.6% of the loans were subject to floating interest rates. The gearing ratio defined as net debt divided by net debt plus equity was 33.1% at December 31, 2005 compared to 32.9% a year earlier.

Analysis of group cashflow

Net cashflows from operating activities increased by 6.7% compared to 2004 and amounted to HUF 202,456 million in 2005. The increase in EBITDA and the lower amount of income tax paid was partly offset by severance payments made in 2005.

Net cashflows from investing activities amounted to minus HUF 132,686 million in 2005, while it was minus HUF 100,787 million in 2004. This HUF 31,899 million increase in cash outflow is predominantly due to higher amounts paid for the purchase of subsidiaries as Magyar Telekom acquired a total share of 76.53% in TCG in 2005.

Net cashflows from financing activities amounted to minus HUF 72,095 million in 2004 compared to minus HUF 61,848 million in 2005. While during 2004, Magyar Telekom took a net HUF 6,199 million loan, in the same period of 2005 it took a net HUF 20,734 million mainly in connection with the acquisition of Telekom Montenegro. Dividends paid to shareholders increased by HUF 6,257 million mainly due to higher amount of dividends paid to minority shareholders of Maktel in 2005.