Hrvatski Telekom 3Q 2020 - Stable top line driven by strong system solutions revenues

The results came in better than expected, especially in terms of top line, on the back of strong system solutions revenues (+48%) related to infrastructure and digitalization services. Moreover, mobile revenues beat our estimates (-7.6% yoy vs. RCBest: -10% yoy) as lower visitor revenues in summer season were cushioned by very good result of the mobile postpaid segment, both in terms of number of customers (+3.2%) and ARPU (+6%), which is a result of prepaid to postpaid migration and more for more customer base development activities. Other fixed revenue decrease (-14.7%) is mainly driven by lower contribution of Optima Telekom (HRK -22 mn) owed to cancelation of the contract with Telekom Slovenia (mid 2019) and Orion (end of 2019). However, the impact is EBITDA neutral. Overall, the reported margins were better than expected. Material & merchandise expenses were yoy higher, at 24% of sales (18.4% in 3Q 19), due to higher ICT costs, i.e. higher related revenues. On the other hand, lower visitor revenues resulted in lower services expenses. Employees expenses booked yoy decline on lower FTEs and different seasonality of severance payments compared to 3Q 19. One off expenses refer to severance payments and amounted to HRK 6 mn. Savings were also made on other operating expenses (12% of sales vs. 13.3% in 3Q 19), which is partially attributable to lowered RF spectrum fees starting from June 2020.