Ovum tracks quarterly financial results of the world's largest telecoms service providers within its World Telecoms Financial Benchmarks service (available by subscription). We look at how operators have changed their guidance, and whether the trends might change into 2020.
Modest revenue growth but better EBITDA growth is expected given macro-related challenges and accounting changes
With calendar 3Q19 financial results for calendar 2019 complete, we have updated and reexamined key telecoms management announcements relating to the year ahead.
Changes in revenue outlooks for 2019 have been mixed, as highlighted below:
NTT marginally upgraded its revenue outlook to +0.1% (from −0.4% originally).
Singtel revenue is now expected to be flat (previously mid-single-digit growth).
Etisalat revenue is now expected to decline around 1%, with 9M19 reported as −1.3%.
MTS revenue is expected to rise 6% to 7%, previously 4% to 6%.
The outlook for profitability is much brighter, at least at the EBITDA level, with most revisions positive:
Deutsche Telekom expects EBITDA to rise 3.3% (originally +2.4%).
Vodafone's headline EBITDA outlook of €14.8–15.0bn is €800m–1bn higher than originally expected, but primarily reflects M&A, namely the acquisition of Liberty Global assets and disposal of New Zealand.
MTS now expects EBITDA to rise 4% to 5%. The original guidance of "slightly negative" in 4Q18 has been upgraded in each of the following three quarters.
Turkcell's EBITDA margin outlook is now 39% to 41% (up from 37% to 40% originally), suggesting absolute EBITDA growth of around 14%.
Etisalat now expects EBITDA to rise (guidance suggests +1.2%) versus a previous slight decline.
KPN sees EBITDA slightly growing (originally expected to be in line with 2018).
Millicom sees Latin America EBITDA to show only 2.5% organic growth, versus 4–6% originally.
The trend of improved good cost control is likely a familiar one to industry followers. However, we note that the boosts provided to EBITDA by IFRS 16 and related accounting standards (such as ASC 842 in the US) in the first year of adoption are sizeable across the industry, with certain costs that would previously have been expensed now being capitalized. The effect seems particularly strong in some developing economies such as Russia and Turkey. Despite a challenging revenue growth environment, the outlook for free cash flow remains encouraging and, in the cases of AT&T and Singtel, have improved further through the year.
While predictions about the future are by their nature fraught with error, 2020 could conceivably look quite different. Initial 5G offerings in some wealthier markets may push some (not all) customer segments to spend more, and other markets (India being a key example) are benefiting from some market improvement. Revenue trends may therefore be slightly improved. Telstra, for example, issued guidance on its fiscal year to June 2020, of around 4% revenue growth. With accounting effects wearing off, and cost-cutting gains potentially slowing (operators have been seeking efficiencies for years, after all) reported profitability could well be more mixed.
Our World Telecoms Financial Benchmarks – Group Guidance Tracker 2019 lists guidance and revisions, with several companies incorporating changes of scope after M&A. Please contact us for further details.
Telecoms Industry and Operator Benchmarks by Key Financial Metrics: 2Q19, PT0016-000012 (September 2019)
World Telecoms Financial Benchmarks – Group Guidance Tracker, PT0016-000004 (December 2019)
"IFRS 16 accounting standard set to muddy reported financials (again)," GLB007-000179 (December 2018)
Communications Provider Revenue & Capex Forecast: 2019–24, GLB007-000267 (July 2019)
Communications Provider Revenue & Capex Forecast Highlights: 2019–24, GLB007-000272 (August 2019)
Upin Dattani, CFA, Principal Financial Analyst