Cutting Costs Not Enough For A T-HT Turnaround

BMI View: Constrained household spending from declining wages and high unemployment, combined with saturated telecoms markets and increased capital expenditures will continue to weigh on T-HT over the next two to three years. While managed services contracts and 3G/4G uptake are important, these will not have a strong enough impact to turn the company around.

The Croatian subsidiary of Deutsche Telekom, T-Hrvatski Telekom (T-HT), has announced its intention to initiate redundancy procedures to release 160 employees during the course of September and October, in order to bring overall costs down. This move follows the earlier August 2014 decision to transfer 640 staff to Ericsson Nikola Tesla Servisi, as part of a five-year managed services contract. The partnership with Ericsson will also cut costs of maintaining T-HT's wireline and mobile networks.

As the incumbent operator, T-HT holds a strong position across the Croatian telecoms industry, with a leading share of the mobile, fixed line and internet markets. Despite this, the company has suffered as a result of the slow recovery from the economic crisis, which has resulted in a deterioration of the telecoms market. In Q214, T-HT once again reported a decline in its revenue, to HRK1.680bn, a decrease of 4.3% compared to Q213. EBITDA and net profit also declined over this period, by 18.4% and 38.9%, respectively. T-HT has seen its mobile subscribers drop over the last two to three years, as well as ARPU, while capital expenditures have increased to rollout 4G networks. The rest of the mobile market has also been in decline, with overall penetration falling from 134.5% in Q211, to 116.1% in Q214.

Financial KPIs Under Pressure
HRKmn, 2011-2014

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Geography: Croatia

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