Business-wise 2020 was a very challenging year due to COVID-19 implications on the economic activity. Still it was also a year of great milestone achievements for Hrvatski Telekom that remained committed to supporting the economy, business and the society. In terms of finances, with the exception of visitor revenues that were hit by lower tourism contributions, we managed to close the year on a positive note with a set of solid financial results with our investments remaining strong during the whole year.
As a direct result, total consolidated net revenue decreased by HRK 247 million or 3.2% in 2020 compared to 2019, which is better than the initial outlook. The revenue decrease was caused by lower realization in mobile revenue (HRK 139 million or 4.0%), fixed revenue (HRK 130 million or 3.9%) and miscellaneous revenue (HRK 16 million or 93.9%) but was partially offset by higher System Solutions (HRK 38 million or 4.3%) revenue hence continuing with the positive trends from Q3. When looking at quarterly development, after Q3 2020 stabilization in revenues, and this despite ongoing pressures in visitor numbers, in Q4 2020 revenue decreased slightly due to lower ICT revenues.
EBITDA AL decreased by HRK 170 million or 5.9% in 2020 due to decreases at both HT Group in Croatia (HRK 152 million or 5.6%) and Crnogorski Telekom (HRK 18 million or 8.6%), mainly resulting from the COVID-19 effects, and missing positive one-timer from 2019. The EBITDA AL margin was 36.7%. Noteworthy development is that after six quarters of decline EBITDA AL in Q4 2020 showed growth of 1.2% compared to the same period the previous year.
Net profit after non-controlling interests decreased by HRK 151 million or 20.5%. Total CAPEX amounted to HRK 1,824 million or 7.3% higher than initial outlook, driven by investments that are not only supporting the economy to get back to growth, but are also essential for company’s future success.
In regard to the outlook, despite a volatile environment, we delivered better than expected top-line results in 2020. Due to different business mix and slower decline in revenues, the extended lockdown in Q4 and earthquakes in Croatia, we posted a lower EBITDA AL margin compared to our outlook for 2020. Our CAPEX AL was higher due to a slightly different dynamic in the timing of projects in Q4 2020. We continue to monitor and evaluate potential acquisition to create value for our shareholders.
The first in Croatia to launch commercial 5G network
Despite the challenging environment Hrvatski Telekom continued strongly investing in the infrastructure, we accelerated the fiber-optic roll-out across Croatia to a record level never reached before, and we launched the first commercial 5G network, which are the two key levers for Croatia's digitalization.
By launching the commercial 5G network on 29 October, Hrvatski Telekom opened a new chapter in the development of the digital society and economy, preparing Croatia for the digital transformation based on the Industry 4.0, and put the country alongside numerous European and world markets that are already taking advantage of the opportunities provided by 5G technology. The introduction of 5G, with which we are at the moment covering 17 cities across Croatia and over 1.2 million of the country’s population, represents an important milestone for the country and the foundation of the future technological, economic and social development as its broad application will enable a number of innovations and the development of smart industries, modern cities, and the society of the future.
Record high over 75,000 new homes covered with fiber
In 2020, a strong focus has been placed on building the fiber-optic infrastructure and implementation of the next generation fixed access network (NGA), targeting an increase in the fiber-optic network footprint which represents the future of the fixed network and the primary prerequisite for the country’s digitalization. In 2020 Hrvatski Telekom covered additional 75,000 new households with FTTH. Overall, our fiber-based access network (FTTx) is now available to 520,000 households (11% YOY growth), with investments in fiber growing by over 50% in 2020 in comparison to the previous year.
Hrvatski Telekom also continues to deliver on its promise of connecting everyone with the opportunities of digitalization and has received 13 grant agreements within the remit to construct next-generation networks (NGN)/next generation access networks (NGA) in NGA “white areas” with a total value of HRK 820.5 million, of which HRK 323.2 million were grants. The implementation of these 13 projects, financed from the European Structural and Investment Funds, will enable the construction of the NGA network and fast and ultra-fast broadband access to network infrastructure for an additional 149,000 private, business and public users from remote, sparsely populated, and less developed areas of Croatia.
Leading network status confirmed, recognized as one of 10 fastest mobile networks in the world
The substantial investments in network modernization that Hrvatski Telekom made over the past years, resulted in improvements in both the fixed and mobile network and in the delivery of the best network experience in the market, garnering independent awards both from Ookla and umlaut (former P3) and confirming Hrvatski Telekom’s leading network status in Croatia. The progress has been recognized also on international level with the analysis of millions of user-run tests across each network showing that Hrvatski Telekom's mobile network is one of ten fastest in the world.
The best ever customer satisfaction driven by consistently high employee satisfaction
As a result of network, product and service improvements, further reductions in complaints and technical faults our customers enjoyed the best ever experience which was reflected in the highest ever satisfaction. These improvements were visible in both residential and business segments and accompanied with strong digital channel growth as evident in the Moj Telekom app penetration reaching over 500,000 users, meaning 50% of the customer base.
The focus on employee satisfaction and engagement translated into a number of different activities as well as the introduction of the new SmartWork operating model, and in 2020 resulted with the best ever employee satisfaction results in the history of Hrvatski Telekom, and this continues to be the driver of constantly improving customer satisfaction.
Positive developments in reduction of fees for radiofrequency spectrum, RoW fees still too high
Hrvatski Telekom welcomed the decisions by the Ministry of Sea, Transport and Infrastructure for a significant reduction in the radio frequency spectrum fees, which provides an additional incentive for further investments in the mobile networks, especially in regard to the 5G developments and the upcoming 3.6 Ghz spectrum auction in 2021.
However, Hrvatski Telekom still pays very high right of way fees, which present an obstacle to further investing in fiber-optic networks and which are the main prerequisite for the country’s digitalization vis-a-vis the European front runners.
As evidenced by its substantial investments, Hrvatski Telekom remains focused on supporting the country’s economy, noting that already significant investments would have an even bigger effect in a more investment-friendly environment that would enable additional acceleration of growth fostering fiber-optic infrastructure deployment across Croatia.
Future spectrum assignments
Following the public consultation on the future assignment of frequency bands, which was held in the period between 24 June and 15 July 2020, HAKOM announced its plan to: conduct a public auction of the spectrum in 700 MHz, 3.6 GHz and 26 GHz frequency bands in the first half of 2021 and award the spectrum in 800 MHz, 900 MHz, 1800 MHz, 2100 MHz and 2600 MHz frequency bands during 2022.
Strong focus on shareholder returns
During 2020 Hrvatski Telekom acquired at the Zagreb Stock Exchange a further 528,245 Company shares, as part of its ongoing Share Buyback program. For the acquisition of Company shares in 2020, Hrvatski Telekom paid out an equivalent value of HRK 90.4 million.
In July, the General Assembly confirmed the joint proposal of the Management Board and the Supervisory Board for the distribution of net profit for 2019. The amount of HRK 646 million represents a ratio of the dividend payment in relation to the realized profit of the Company of 90.2%.
Overall, in 2020 Hrvatski Telekom returned HRK 737 million to its shareholders through a combination of dividend and share buybacks, which represents a total yield of 5.0% based on the last price in 2020.
In Q4 Hrvatski Telekom transitioned its shares to the Prime Market of the Zagreb Stock Exchange (ZSE) from the Official Market. Being listed on ZSE's Prime Market is the latest confirmation of the highest level of corporate governance by which Hrvatski Telekom operates.
At the end of the year Hrvatski Telekom received the ‘Share of the Year’ award by public vote, and the ‘Top Turnover Share’ award, which are clear confirmations that the financial community and the public recognize the value Hrvatski Telekom creates for its shareholders.
Although the environment remains uncertain, we expect to deliver on our 2021 outlook (including Optima Telekom until end-June 2021). We expect revenue to be mid-single digit lower. For the EBITDA AL, we expect low single digit increase compared to 2020. Our CAPEX expectations are at around HRK 1.6 billion, down from the 2020 total of HRK 1.82 billion. In terms of regional expansion, we reiterate that we continue to monitor and evaluate potential acquisition opportunities.
Commenting on the business results for FY 2020, Konstantinos Nempis, CEO of Hrvatski Telekom, stated: 2020 was by all means a demanding year with the consequences of the COVID-19 felt across the industries. At the same time it made it clear just how vital the digital infrastructure and digitalization are for all aspects of our lives, businesses, local communities and the society as a whole.
In a challenging environment, faced with the situation like we had never faced before, it was of the upmost importance to stay connected - personally and professionally. Here our continuous investments in infrastructure, in our networks and our service quality played an essential role in enabling us to adapt to the unprecedented conditions, to confirm our leadership status and to ensure the best experience for our customers.
As the biggest private investor in digitalization in Croatia, Hrvatski Telekom during 2020 remained focused on supporting the economy, businesses and society to find ways to overcome, digitalize and move forward. We continued strongly investing in the infrastructure, we had a record year in terms of fiber-optics roll-out across Croatia, we signed a Partnership Agreement with local governments for bringing broadband network to rural areas, and we launched the first commercial 5G network in Croatia covering 17 cities and over 1.2 million people. These are only a few of the achievements from the last year which are all key levers for Croatia's digitalization, development and economic recovery and as such the foundation for moving forward.
Although the Croatian economy and society is still facing a challenging environment, we in Hrvatski Telekom strongly believe, that it can and will emerge out of this situation as more innovative and above everything more digitally empowered and we will continue doing everything in our power to support the country’s development by connecting everyone with the opportunities of digitization.