A1 Croatia

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In 2018, competition in the Croatia segment focused on convergent solutions and heavily discounted offers in order to acquire customers. In addition to upselling measures, the grow­ing demand for mobile WiFi routers developed into a driving factor in the mobile business. As bundles and convergent products with content became increasingly important, Vipnet launched a new sports TV package in June 2018. From October 1, 2018, Vipnet was successfully rebranded into A1 Hrvatska.

With regards to regulation, frequency usage fees were cut for the first time in December 2017, and a further reduction was announced in November 2018. In connection with this, the government announced in the third quarter of 2018 that it would reimburse the excess frequency usage fees of EUR 3.9 mn paid.

The higher number of mobile subscribers is attributable to growth in the contract subscriber base. This was due to the solid growth in mobile WiFi routers, the ongoing shift from prepaid to postpaid subscribers and cross selling. Despite the shift toward mobile WiFi routers, the revenue generating units (RGUs) in the fixed-line business increased, which was driven mainly by the strong demand for TV solutions.

In the Croatia segment, total revenues increased by 1.6 % year-on-year (reported: +2.2 %), as the lower revenues from visitor roaming and lower interconnection revenues were compensated by the strong demand for mobile WiFi routers and higher equipment revenues. Revenues from visitor roaming declined as a result of prices within the A1 Group and with other com­panies were lowered which could not be compensated for with higher data usage. Interconnection revenues fell due to the termination rate cut in July 2017. Equipment revenues rose as a result of higher quantities on the basis of measures to prevent customer churn. Fixed-line service revenues also increased as the shift toward mobile WiFi routers was more than offset by higher solutions and connectivity revenues.

The rise in total costs and expenses in the year under review was attributable to higher costs for equipment driven by higher quantities resulting from churn-prevention activities. Content costs rose due to UEFA Champions League rights. Rebranding costs and commissions as well as higher roaming costs also contributed to the increase, while bad debt expenses and frequency costs decreased. The latter were also influenced by a positive one-off effect of EUR 3.9 mn, which resulted from the reimbursement of frequency fees mentioned above.

The higher costs and expenses were more than offset by revenue growth, which excluding the above mentioned one-off effect led to an EBITDA increase of 0.4 % (reported: +5.7 %). As a result of the higher depreciation and amortization, due primarily to the brand value amortization in the amount of EUR 19.7 mn (2017: EUR 6.9 mn) in conjunction with the group-wide rebranding, this led to 41.4 % lower operating
income (reported: –38.6 %). Excluding the D&A of the above mentioned brand value amortization, operating income in­creased by 36.9 % year-on-year (reported: +41.1 %).

The previous analysis is based on proforma figures if not stated otherwise. 1)

1) Proforma figures are not audited and include effects of M&A transactions executed between the start of the comparison period and the end of the reporting period. In the Croatia segment, this applies to the acquisition of fixed-line operator Metronet in Croatia, consolidated as of February 1, 2017.