Earnings Report /
Croatia

Hrvatski Telekom: Solid Store of Value in Volatile Times

  • In Q1 2022, organic revenue down -0.7% YoY to HRK 1.7bn, driven by lower system solutions and fixed non-service revenue

  • Organic adjusted EBITDA AL grew by 5.1% YoY to HRK 650m, driven by solid performance in HT Croatia (HRK 28m or +4.9%)

  • Net profit after non-controlling interests increased significantly to HRK 175m, growing by 250% YoY

Tea Pevec
Tea Pevec

Head of Research

InterCapital
3 May 2022
Published by

In Q1 2022, organic revenue was down -0.7% YoY to HRK 1.7bn, driven by the lower system solutions and fixed non-service revenue, offset by higher mobile service, mobile non-service, and fixed service revenue. Organic results mean that Optima Telekom’s contribution was excluded. Reported revenue decreased by -4.4% YoY, driven by the decrease in HT Group in Croatia (-1%) or HRK 16m, slightly offset by CT (+2.7%) or HRK 4m. Excluding OT contribution, mobile service revenue grew by HRK 27m or 4.6% supported by strong postpaid and visitors’ revenue, offset by lower prepaid revenue. Mobile non-service revenue increased by HRK 27m (or 11.2%), supported by stronger handset sales. Fixed service and fixed non-service revenues also increased by HRK 4m (or +0.6%) and HRK 17m (or 12.4%) YoY. Finally, System solution revenue decreased by HRK 53m (or 29.6%), due to the structural shift to more profitable projects. Meanwhile, OPEX decreased by 5.5% (or HRK 60m), due to lower material and employee benefits expenses. Material expenses decreased by HRK 29m (or 8.1%) because of lower merchandise, material, and energy costs, as well as the lower service expenses, which decreased by HRK 13m (or 6.8%). Employee benefit expenses decreased by -7.2% YoY to HRK 287m, mainly due to the decrease in HT Group in Croatia (HRK 9m or 3.3%), while the total number of FTEs amounts to 4,669 FTEs, a decrease of 545 FTEs compared to 2021, coming mainly from the Optima deconsolidation.

Organic adjusted EBITDA AL grew by 5.1% YoY to HRK 650m, driven by solid performance in HT Croatia (HRK 28m or +4.9%) and CT (HRK 3m or +6.8%), as well as the strong net margin and the operating model transformation measures. Reported adjusted EBITDA after leases increased by 0.9% which is lower than the organic EBITDA increase, showing the negative impact of Optima Telekom’s deconsolidation. Depreciation and amortization decreased by HRK 148m or -23.6%, influenced mainly by the lower depreciation in HT Croatia. As a result of the lower depreciation and EBITDA growth, net profit after non-controlling interests increased significantly to HRK 175m, growing by 250% YoY. CAPEX increased slightly by 0.3% YoY to HRK 356m. If we were to exclude OT contribution in 2021, CAPEX AL without Spectrum increased by HRK 23m (or 7%), due to the different seasonality of IT and network projects.

The Company also continues its dividend payout policy, having paid out HRK 8 DPS in 2022, as well as its share buyback program, having purchased 943,423 shares during Q1, for an equivalent value of HRK 173.8m, representing a growth of 372% YoY.

The results and developments of HT in Q1 2022 are widely in line with our estimates. Considering that the Company still has more room to increase prices if the current inflationary pressure continues, as well as the fact that the Company is not directly impacted by the current Russia-Ukraine conflict, we still think that HT is a good “storer” of value, and as such, we keep our BUY recommendation on Hrvatski Telekom.