Hrvatski Telekom Stable in Nine Months 2020, Increase of CAPEX by 13 Percent

As a direct result of crises, Hrvatski Telekom total consolidated net revenue decreased by HRK 221 million or 3.9% in 9M 2020 compared to 9M 2019. The revenue decrease was caused by lower realization in mobile revenue (HRK 175 million or 6.7%), fixed revenue (HRK 138 million or 5.5%), and miscellaneous revenue (HRK 11 million or 93.5%) but was partially offset by higher System Solutions (HRK 103 million or 18.3%).

Still, Hrvatski Telekom, despite challenging environment, recorded a solid overall operational performance and development. When looking at quarterly development, Q3 2020 revenues stabilized despite a negative impact from summer season visitor revenues mainly as a result of System Solutions and mobile postpaid revenues growth.

EBITDA AL decreased by HRK 178 million or 8.0% in 9M 2020 due to decreases at both HT Group in Croatia (HRK 164 million or 7.9%) and Crnogorski Telekom (HRK 14 million or 8.4%), mainly resulting from the EvoTV transaction in Q1 2019 and the COVID-19 impact. Excluding this one-off EvoTV transaction in Q1 2019, EBITDA AL was 5.4% lower. The EBITDA AL margin was 37.5%.

Net profit after non-controlling interests decreased by HRK 118 million or 17.5%. Total CAPEX amounted to HRK 1,231 million, up 13.3% against the same period last year.

Although the environment remains uncertain, we still expect to deliver on our revised targets from the revised 2020 outlook that Hrvatski Telekom issued in Q2 2020. Revenue, which we had previously anticipated to be stable to slightly lower than in 2019, we expect to be mid-to-high single digit lower, as outlined in July when we reported on Q2 results. EBITDA AL margins, which we previously expected to be around 38%, we expect at around 39%. Our CAPEX expectations are at around HRK 1.7 billion. In terms of regional expansion, we reiterate that we continue to monitor and evaluate potential acquisition opportunities.

Positive business developments from the beginning of the year were outweighed by decrease in revenues related to COVID-19 effects. Nevertheless, Hrvatski Telekom at all times supported its customers, businesses and society, and despite the challenging outlook remains focused on continuing with its investment plans into network quality, fiber-optic roll-out and 5G development which are critical for Croatia's economic recovery and transition to a digital society.

Hrvatski Telekom is dedicated to supporting the country when it matters the most and to driving the digitalization agenda which is the basis for future growth remain unprecedented, which is also evident from the over 10% YOY increase in investments.

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 the nine months of 2020 Hrvatski Telekom covered additional 43,000 households with FTTH in the access network, covering in total 324,000 households (20% YOY growth), putting Hrvatski Telekom well in line with the plan for this year. Overall, our fiber-based access network (FTTx) is now available to 475,000 households (11% YOY growth).

The substantial investments in network modernization that Hrvatski Telekom made over the past years, with the biggest in 10 years coming in 2019, resulted with improvements in both fixed and mobile network and in the delivery of the best network experience in the market, garnering several independent awards and confirming Hrvatski Telekom’s leading network status. Following the two Ookla awards for “The Fastest Mobile Network” and “The Best Mobile Coverage” in Croatia, Hrvatski Telekom also received the “Best in Test” and the “Best Broadband Coverage” award from international analysis conducted by umlaut (formerly P3).

Following its modernization Hrvatski Telekom’s mobile network is 5G ready. The importance of 5G technology cannot be overstated due to its broad scale application and it is resonating with Croatia’s needs, i.e. smart city developments, enabling better health services, higher energy, agricultural and transport efficiencies, as well as being the basis of economic growth. Hrvatski Telekom is the leader in the segment of 5G technology and continues testing to prepare for the commercial launch.

Aside from the fact that Hrvatski Telekom is the market leader, we constantly strive to be better, more efficient, to provide the best customer experience, and to create even more value for our shareholders. Which is where investments play a crucial role and are essential in setting up the company for future success as well as for supporting the economy to get back to growth trajectory. An example of such investments is the extension of the Management Services Agreement (MSA) for the construction and maintenance of fixed and mobile telecommunications infrastructure, supervision of the telecommunications network, and field maintenance of the active access network and passive network Hrvatski Telekom and Ericsson Nikola Tesla Servisi d.o.o. signed in August, with duration until 2023, and whose frame value is over HRK 1.6 billion.

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 call Construction of 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 was 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.

The COVID-19 pandemic has made it clear just how vital the ICT industry and digitalization are for individuals, businesses and society. We are witnessing a growing need for digitalization with everything pointing in the direction that this trend will continue.

Despite the challenging environment the positive business trends in Hrvatski Telekom’s mobile postpaid, TV and data business segments as well as in ICT solutions have become even more evident in Q3. This is in particular visible in positive trends in penetration and usage of digital channels i.e. strong growth of the My Telecom application, a key lever for digitalizing customer experience and which, at the end of September 2020, had more than 560,000 users (72% growth YOY) and whose penetration is now at 47% of the subscriber base. Magenta 1, the converged offering service, recorded notable growth as well, being today used by 257,000 households (7.5% YOY growth) and 31,000 business users (3.3% YOY growth).

Hrvatski Telekom welcomed the decisions by the Republic of Croatia Government for a significant reduction in the radio frequency spectrum fees, which provide an additional incentive for further investments in the mobile networks, especially looking forward to the 5G era.

However, Hrvatski Telekom still pays very high right of way fees, which are 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 such 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 throughout Croatia.

During 9M 2020 Hrvatski Telekom acquired at the Zagreb Stock Exchange a further 428,909 Company shares, as part of its ongoing Share Buyback program. For the acquisition of Company shares in 9M 2020, Hrvatski Telekom paid out an equivalent value of HRK 72.8 million. Since the start of the Program and through to 30 September 2020, Hrvatski Telekom has acquired at the Zagreb Stock Exchange a total of 1,548,749 Company shares. For the said acquisition of Company shares, Hrvatski Telekom paid out an equivalent value of HRK 254 million. In March 2020, the Management Board adopted amendments to the provision of the Share Buyback Program, removing some limitations regarding everyday trading (volume and price) to be able to more efficiently execute the program.

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 8.00 represents a ratio of the dividend payment in relation to the realized profit of the Company of 90.2%.

On 12 October, Hrvatski Telekom transitioned its shares to the Prime Market of the Zagreb Stock Exchange from the Official Market. Being listed on ZSE's Prime Market is the latest confirmation of the highest level of corporate governance by which we operate. Along with the fact that Hrvatski Telekom is the largest private investor in Croatian digitalization, and Hrvatski Telekom shares are one of the most liquid shares on the market, entering the Prime Market was also a move that was welcomed by the investor community as it not only testifies to Hrvatski Telekom’s 'blue-chip' status, but it also strongly signals that Hrvatski Telekom shares are a valued and prudent long-term investment.

“The year 2020 continues to be strongly impacted by COVID-19, and though we have undertaken actions to adjust to the present situation and are seeing concrete improvements in our performance, our results for the first nine months were inevitably affected. Nevertheless, and despite the challenging environment and outlook Hrvatski Telekom remains focused on continuing with its investment plan for 2020, supporting customers, business and society to find ways to overcome the present situation and move forward. We have continued strongly investing, evident from our double-digit growth of investments YOY, into network quality, which is the foundation for business development, and we have even accelerated our fiber-optic roll-out and preparations for 5G development which are critical levers for Croatia's digitalization, development and economic recovery. We in Hrvatski Telekom are proud to drive the digitization agenda and will remain dedicated to connecting everyone with the opportunities of digitization. This is the time when we as a crucial enabler, a trustworthy partner, by providing connectivity and essential services continue to prove our value by bringing clear benefits to the economy and the society”, stated Kostas Nebis, CEO of Hrvatski Telekom.

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