Hrvatski Telekom 2013 Profit Drops as Recession Continues

T-Hrvatski Telekom d.d., Croatia’s biggest phone company and a unit of Deutsche Telekom AG, said profit fell for a sixth year in 2013 as domestic recession in the European Union’s newest member continues.

Net income dropped 15 percent to 1.44 billion kuna ($258 million), the company said in a regulatory statement today. Revenue declined 6.8 percent to 7.04 billion kuna, it said.

“The economic downturn and significant regulatory changes had a strong impact on the 2013 performance,” Chief Executive Officer Davor Tomaskovic said in the statement. The company “has maintained its leading position across all segments of the Croatian telecommunication market,” he said.

Croatia’s $63 billion economy hasn’t grown since 2008, while foreign direct investment has dropped 80 percent. Unemployment in December reached 21.6 percent and retail trade in the same month declined 1.2 percent from a year earlier.

The operator’s shares fell for a second day, losing 1 percent to 169.5 kuna at 3 p.m. in Zagreb and extending this year’s decline to 4.2 percent.

Investment Plans

The company plans to intensify investment in infrastructure development and seek regional business opportunities as well as undertake a “further internal transformation” in an attempt to reverse the declining trend, Tomaskovic said.

Management proposed a 2013 dividend of 9 kuna per share, or 51.5 percent of the income, according to the statement. The rest, or 694 million kuna, may be allocated for reinvestment.

“The most probable reason for retaining earnings could be that the company is preparing its balance sheet for the acquisition of Telekom Slovenije,” Attila Gyurcsik, head of research at Budapest-based Concorde Securities Ltd., said in an e-mail.

Gyurcsik said the company’s “revenue erosion” should slow this year, adding a future stock recommendation will depend on the details of the potential acquisition of Telekom Slovenije.

Lawmakers in neighboring Slovenia in June approved a plan to sell 15 state-controlled companies, including the country’s biggest phone operator. Deutsche Telekom, Hrvatski’s majority owner, is interested in buying Telekom Slovenije, Handelsblatt reported on Feb. 5.

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