Our analysis of forward financial guidance announced by many of the largest publicly listed telecoms groups reveals slightly less confidence in revenue growth in 2018 but steady progression in profits and (in most cases) capex. Ovum tracks quarterly financial results of the world’s largest telecoms service providers within its World Telecoms Financial Benchmarks service (available by subscription).
Muted revenue and EBITDA growth are expected, given accounting changes and macro-related challenges
With financial results for calendar 2017 and the year to March 2018 now reported, we have examined telecom management announcements relating to the year ahead.
Prospects appear to be more tempered, particularly in Asia. For example, Axiata expects flat revenues in 2018, based on forecast currency, versus 10% growth expected (and delivered) in 2017. Singapore Telecom anticipates low-single-digit revenue growth in 2018, compared with last year’s mid-single-digit growth guidance for 2017. BT, Swisscom, and Etisalat outlooks all suggest a decline in both revenues and EBITDA (earnings before interest, tax, depreciation, and amortization), although this guidance may be conservative.
Some of this is accounting related, with new revenue-recognition standards such as IFRS 15 (now in effect in several countries) and ASC 606 (in the US) reallocating revenues away from service revenues to equipment. There are also new rules covering leases within IFRS 9. As handset subsidies have tended to decline over recent years, equipment revenue reallocations may not fully offset service revenue declines, causing pressure on total reported revenues (other things being equal). Additionally, some wholesale or pass-through type revenues are now regarded as non-monetary transactions, accounted for on a “net” basis, lowering reported revenues. Individual companies may have different profiles, but 2018 looks like a tougher year in which to generate revenue growth, with macroeconomic volatility and interest-rate increases by several central banks adding to the accounting changes.
Companies are, however, finding ways to preserve, but not significantly increase, profitability as measured by EBITDA, with a median outlook suggesting growth of 2.5% in 2018, notwithstanding some pressure on EBITDA from the accounting changes. EBITDA, while still expected to rise in absolute terms, is set to increase at a lower rate in previously faster-growing companies such as Ooredoo and Axiata, which are both projected flat. A majority of companies providing outlooks either state or imply EBITDA growth in the 0–3% range.
Our World Telecoms Financial Benchmarks – Group Guidance Tracker 2018 also outlines shifts in forecast capital expenditure, with US and several emerging market groups guiding to increased capex, while reductions are projected in China. Please contact us for further details.
World Telecoms Financial Benchmarks – Group Guidance Tracker 2018, PT0016-000004 (June 2018)
Telecom Industry and Operator Benchmarks by Key Financial Metrics: 4Q17, PT0016-000006 (April 2018)
IFRS15 will encourage deeper scrutiny of the business of handset subsidies, GLB007-000028 (January 2018)
Upin Dattani, CFA, Principal Financial Analyst