Hrvatski Telekom (Reuters: HT.ZA, Bloomberg: HT CZ), the leading telecommunications provider in Croatia, announces its unaudited consolidated results for the three months ended with March 31, 2020.
Total consolidated net revenue decreased by HRK 40 million or 2.2% in Q1 2020 compared to Q1 2019. The revenue decrease was caused by lower realization in fixed revenue (HRK 47 million or 5.7%), mobile revenue (HRK 28 million or 3.5%) and miscellaneous revenue (HRK 3 million or 92.2%), partially offset by higher system solutions (HRK 38 million or 26.6%).
EBITDA AL decreased by HRK 53 million or 7.9% in Q1 2020 driven by HT Group in Croatia (HRK 55 million or 8.8%), while Crnogorski Telekom contributed an increase (HRK 2 million or 4.3%). Excluding one-off EVO TV transaction in Q1 2019, EBITDA AL increased by 1%. EBITDA AL margin was at level of 35.7%.
At the bottom-line, net profit after non-controlling interests decreased by HRK 41 million or 21.7%. Total CAPEX amounted HRK 413 million or 7% higher comparing the same period last year.
Following a stable quarter, Hrvatski Telekom anticipates a number of COVID-19 related challenges as a result of (1) Service suspensions from closed businesses, (2) Lower prepaid recharges due to less customer mobility, (3) Delayed payments and write offs from struggling businesses, (4) Visitor revenue decrease due to substantially lower tourist arrivals, all of which will require a prudent cost optimization approach with the goal of maintaining CAPEX investment plan intact and ensuring future sustainable growth.
Notwithstanding the good performance in Q1 2020, with the current high level of uncertainty and volatility, it is not possible to provide financial outlook with reliable accuracy, therefore we put our 2020 outlook under-review.
Stable performance in demanding times, challenging outlook ahead
The end of the first quarter of 2020 was marked by the pandemic of COVID-19. Despite the operational demands that arose from the situation Hrvatski Telekom was fully committed to provide connectivity of its users and undertook all measures to ensure that its telecommunications network operated at full capacity, in a reliable and stable manner.
The new conditions of doing business, working from home, higher demand for connectivity, supporting the national online schooling program combined with additional data and voice benefits that Hrvatski Telekom provided its users with, resulted in a strong traffic increase in both fixed and mobile network. In March, compared to February, there was a 25% increase in mobile data traffic and 32% increase in mobile voice traffic. In the fixed network, a 35% increase in Internet traffic and a 45% increase in voice traffic minutes was recorded. Radio access network modernization, which was completed in 2019, made meeting such traffic requirements possible while maintaining the key network quality indicators high, and this despite the fact that the earthquake that hit the Zagreb area on March 22 required the power be temporarily turned off due to security reasons, at the Draškovićeva Data Centre. As a result of a fast intervention most of the services were re-established within 24 hours.
Investments into network and customer experience remain in focus
In 2020, a strong focus has been placed on the implementation of next generation fixed access network (NGA) targeting an increase in the optical network footprint. By the end of the first quarter of 2020, an additional 9,154 households were covered by FTTH technology in the access network, covering in total (FTTH) 289 thousand households.
Ensuring great customer experience is one of Hrvatski Telekom’s strategic objectives and the results of the proactive approach and the series of customer-centric efforts were visible in the increase of customers satisfaction both from residential and business customers in Q1 2020.
At the end of March, the My Telecom application had 415,000 users (36% of the base). The number of users of the unique concept of converged offering, Magenta 1, continued to grow as well, with 248,000 households (Q1 2019: 209,000) and 24,000 business users at end of March 2020 (Q1 2019: 21,000).
Postponed application of MSM and impact of reduced wholesale prices
Due to occurrence of the COVID-19 epidemic and extraordinary measures adopted by the Croatian Government, on March 31, 2020 HAKOM adopted an amended Margin Squeeze Methodology (MSM) and postponed its application on existing portfolio from April 1, 2020 to January 1, 2021 - with the possibility of further extension of the deadline (depending on the development of the current extraordinary circumstances caused by COVID-19).
HAKOM’s decision made in October 2019 to reduce WACC from January 1, 2020 reduced wholesale (WS) prices for the mass infrastructure WS services (like LLU, Bitstream, Naked Bistream, Cable Ducts) causing WS fixed revenue reductions. The impact of the reduction of WS prices due to the WACC change resulted in 12 to 21% lower prices in Q1 2020.
The deadline for the switching to the new DVB-T2/HEVC system which is used for digital terrestrial television has been postponed for at least 6 months (not before the end of November or the beginning of December 2020.) by HAKOM. Transition from DVB-T/MPEG-2 system to DVB-T2/HEVC system will enable 700 MHz spectrum availability for mobile networks.
Cancellation of the General Assembly
In light of the National Civil Protection Authority measures aimed at preventing the spreading of COVID-19, on April 8, 2020 the management Board passed the decision on cancelation of the General Assembly of the Company, convoked for April 29, 2020. The new General Assembly shall be convoked as soon as possible, in compliance with the measures of the National Civil Protection Authority and in line with the Companies Act, to enable the participation of shareholders in the work of the General Assembly under the same conditions and with participation rate as large as possible.
Commenting on the business results for Q1 2020, Konstantinos Nempis, CEO of Hrvatski Telekom, stated: "The first quarter of 2020 was anything but ordinary, still Hrvatski Telekom successfully managed to adapt to the new normal. We have in a demanding business environment delivered a stable performance, reorganized every aspect of our business, set up a new operating model that enabled us not only to maintain our efficiency, productivity and high customer service levels, but also to grow our digital channels and deliver the best network experience in the market. In the process we made substantial contributions to the economy, successfully delivered on our promise of connectivity and provided stability, reliability and value to our customers and society in a time when this was crucial.
Nevertheless, the unprecedented situation we faced in Q1 will inevitably impact the economy as a whole, as well as the year-end results, with a very challenging outlook foreseen for the remainder of 2020. This will require necessary adjustments on the cost management and investment side.
Despite this, our commitment to supporting Croatian economy and society remains strong as ever. Hrvatski Telekom will continue to strive for operational excellence, drive the digitalization agenda, and we are looking forward to enabling the opportunities the digital technology and convergence, especially the roll-out of fiber can provide. In the process, by connecting individuals, businesses and communities, by raising the awareness and appreciation of what we as the leading telecom and the largest investor in Croatia are enabling we will continue creating value for our shareholders, customers and employees."