Europe

Customer development

Total

Last year, customer development was initially hampered by the lockdown measures imposed by the governments in response to the coronavirus pandemic. Our crisis management clearly paid off over the remainder of the year: the focus on expanding digital sales channels, such as our service app and service center services, almost brought customer development back to normal. When lockdown measures were reimposed during the third coronavirus wave it did not slump again until the end of March 2021. Our MagentaOne convergent product portfolio, in particular, generated growth of 3.3 % in FMC customers thanks to ongoing demand. We are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased marginally to 7.0 million.

In mobile business, we recorded slight growth in high-value contract customers, which only partially offset the decline in the prepaid customer base. Seven national companies have already launched the commercial sale of 5G products and services.

Mobile communications

In the Europe operating segment, we had 45.5 million mobile customers at the end of the first quarter of 2021, which is stable compared with the end of 2020. The number of high-value contract customers increased slightly by 0.6 %. The contract customer bases developed positively in almost all of our national companies, with growth recorded in particular in Austria, Croatia, Romania, and the Czech Republic. Overall, contract customers account for 59.4 % of the total customer base. In addition to our innovative services and rate plans, this growth is driven by our product portfolio, which is based on the “more for more” principle. Our customers can select high-value add-on services – e.g., more data – for a small additional monthly fee. This data volume can also be used for video streaming and gaming services. In addition, thanks to our integrated network strategy our customers benefited from greater coverage with fast mobile broadband. As of March 31, 2021, we covered 97.7 % of the population in the countries of our operating segment with LTE, reaching around 108 million people in total.

By contrast, the prepaid customer base declined slightly, in line with expectations, in particular in Romania and Greece. This was due in part to the negative impact of the coronavirus pandemic. But also, our market approach is focused on contract rate plans and we offer our prepaid customers attractive high-value contract rate plans. Already, significantly more than one third of new contract customer adds are former prepaid customers who have taken advantage of these offerings. Furthermore, inactive SIM cards are deactivated from the customer base at regular intervals.

Fixed network

The broadband business recorded slight growth in the first quarter of 2021 compared with the end of the prior year to a total of 7.0 million customers. The customer bases of almost all national companies, especially in Greece, Hungary, Poland, the Czech Republic, and Slovakia saw substantial growth. Romania was the exception. By continuing to invest in innovative fiber-optic technologies, we are systematically building out our fixed-network infrastructure. Thus, we increased household coverage with optical fiber at our four largest national companies to 4.3 million households as of March 31, 2021. The number of IP-based lines increased to account for 93.4 % of all fixed-network lines by the end of March 2021. The total number of fixed-network lines in our Europe operating segment edged up on the prior-year level to 9.1 million.

The TV and entertainment business had a total of 5.1 million customers as of March 31, 2021, up by a marginal 0.9 % compared with the end of the prior year. With both telecommunications providers and OTT players offering TV services, the TV market is already saturated in many countries of our segment.

FMC – fixed-mobile convergence

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. In the first quarter of 2021, we had 5.9 million FMC customers; this corresponds to growth of 3.3 % compared with the end of the prior year. Our national companies in Greece, Hungary, and Austria in particular contributed to this growth.

Development of operations

Total revenue

Our Europe operating segment generated total revenue of EUR 2.7 billion in the first quarter of 2021, a slight year-on-year decrease of 1.1 %. In organic terms, i.e., assuming constant exchange rates, revenue increased slightly against the prior-year level, despite the difficult economic situation in consequence of the coronavirus pandemic.

Organic growth was driven by the strong performance of the mobile business, especially the increase in revenues from terminal equipment sales and in higher-margin service revenues (excluding roaming and visitors). By contrast, the fixed-network business recorded a decline in revenues. The systems solutions business declined compared with the prior-year period, especially in Romania; revenue from voice telephony also recorded substantial losses.

Looking at the development by country, our national companies in Austria, Greece, Croatia, and the Czech Republic recorded the best organic development of revenue in the first quarter of 2021. This offset the decline in revenue in Romania and Poland in particular. In Romania, the downward trend was mainly due to declining systems solutions revenues.

Revenue from Consumers remained stable against the prior-year quarter. Higher revenue from mobile terminal equipment business compensated for the coronavirus-induced decline in higher-margin service revenues. In the fixed network, revenue from broadband/TV business increased thanks to our innovative TV and entertainment offerings as well as the continuous rollout of fiber-optic technology. This offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

Operations with Business Customers in Europe were unable to match the prior-year results, posting a contraction of 3.8 % in the first quarter of 2021 due to the sharp decline in revenue at the fixed-network business held for sale in Romania. One year into the coronavirus pandemic, B2B business is characterized in particular by more cautious decision-making processes and shifting demand. Yet, all trends point to growth, which we observed both in stronger mobile revenues in the first quarter of 2021 almost across our entire footprint, and in ICT business – for instance, with our private cloud solutions in Greece and Hungary. Our security solutions in Poland also generated strong revenue growth year-on-year.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 946 million in the first quarter of 2021, up 1.1 % against the prior-year quarter, despite the impact of the coronavirus pandemic. In organic terms, i.e., assuming constant exchange rates and adjusted for the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased by 4.1 %, thus continuing to make a positive contribution to earnings. In addition to the positive revenue effects, savings in indirect costs, primarily due to lower personnel, marketing, and travel costs, contributed to this development.

Looking at the development by country, the increase in adjusted organic EBITDA AL was largely attributable to the positive trend at almost all of our national companies, but in particular in Austria and Greece. A contrasting development was reported in particular at the national company in Hungary.

EBITDA AL increased by 4.3 % year-on-year to EUR 936 million. The expense arising from special factors was well below the prior-year level. In organic terms, EBITDA AL grew by 7.5 %.

Development of operations in selected countries

Greece. In Greece, revenue increased by 1.4 % against the prior-year quarter to EUR 717 million. The encouraging development in mobile operations was mainly driven by higher revenue from terminal equipment sales. This growth offset the negative effects from the decline in fixed-network business, especially lower TV revenues, which were only partially offset by an increase in revenue in the broadband business due to the momentum in the fiber-optic and vectoring rollout.

In the first quarter of 2021, adjusted EBITDA AL in Greece stood at EUR 298 million, which was an increase of 3.5 % against the prior year: the stable net margin, driven largely by higher direct costs, was offset in full by savings in indirect costs, in particular personnel costs.

Hungary. Revenue in Hungary totaled EUR 406 million in the first quarter of 2021, a decrease of 4.9 % against the prior-year quarter. This decline was due to negative exchange rate effects. In organic terms, revenue was up 1.2 % against the prior year. Mobile business grew, driven by higher service revenues, due in part to much higher data usage. Fixed-network operations developed positively, with rising TV and broadband revenues, both driven by larger customer bases. Our MagentaOne convergence products also continued to perform well, with customer additions and a corresponding increase in revenue.

Adjusted EBITDA AL stood at EUR 106 million, down 7.0 % year-on-year. In organic terms, adjusted EBITDA AL decreased marginally by just 1.2 % compared with the prior-year period. This decline was mainly due to higher expenses in connection with indirect costs.

Poland. Our revenue in Poland decreased by 5.3 % in the first quarter of 2021 to EUR 341 million. This decline was due to negative exchange rate effects. In organic terms, revenue decreased only slightly by 0.5 %. While fixed-network revenue remained stable, the mobile business recorded slight losses as a result of reduced revenue from national roaming.

Adjusted EBITDA AL stood at EUR 95 million in the first quarter of 2021, down 1.0 % year-on-year. In organic terms, adjusted EBITDA AL increased by 4.1 %, mainly on the back of lower costs.

Czech Republic. In the first quarter of 2021, revenue in the Czech Republic stood at EUR 269 million, an increase of 1.1 % against the prior-year level. In organic terms, i.e., assuming constant exchange rates, revenue increased by 2.8 %. The fixed-network business is increasingly establishing itself as a key driver of growth, with the continuous investments in our fiber-optic network paying off in terms of customer numbers: the broadband customer base grew by 7.7 % compared with the prior-year quarter. Mobile revenues were up on the prior-year level, mainly due to increased revenue from terminal equipment. Business with higher-margin service revenues (excluding roaming and visitors) also increased its contribution to revenue. However, these two effects only partially offset the declines in roaming and visitor revenues resulting from the coronavirus pandemic.

Adjusted EBITDA AL increased by 0.9 % year-on-year to EUR 111 million in the first quarter of 2021. In organic terms, earnings grew by 3.3 % year-on-year largely driven by the growth in revenue.

Austria. Revenue in Austria totaled EUR 326 million in the first quarter of 2021. This increase of 4.2 % was mainly attributable to higher mobile terminal equipment sales. Business with higher-margin service revenues (excluding roaming and visitors) also contributed positively to revenue. These two effects more than offset the declines in roaming and visitor revenues resulting from the coronavirus pandemic. Revenue in the fixed-network business also developed encouragingly. The broadband business in particular generated positive growth rates, among other things as a result of a larger customer base.

Adjusted EBITDA AL increased as of March 31, 2021 by 1.6 % year-on-year to EUR 125 million. In organic terms, i.e., excluding the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased substantially by 14.4 %. In addition to the positive revenue effects, a reduced cost base also contributed to this growth, with an increase in direct costs in consequence of the market approach being more than offset by a decrease in indirect costs, also as a result of the acquisition of UPC Austria.

EBIT

Our Europe operating segment recorded an increase in EBIT of EUR 37 million in the first quarter of 2021. In addition to an increase of EUR 22 million in EBITDA, depreciation and amortization were below the level the prior-year quarter, mainly due to depreciation and amortization being suspended in the first quarter of 2021 as a result of the fixed-network business in Romania being held for sale.

Cash capex

In the first quarter of 2021, the Europe operating segment reported cash capex of EUR 485 million, up 10.7 % year-on-year. This increase is due to a rise in cash outflows for the acquisition of spectrum licenses, primarily in the Czech Republic. Excluding the acquisition of spectrum, cash capex was slightly down against the prior-year quarter. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.