Sweden's Telia provided a further sign that telecom operators are not immune to COVID-19 by warning investors it will miss profit targets for the current fiscal year due to the worsening pandemic.
The service provider has slashed dividend proposals because of the expected impact that COVID-19 will have on its TV and media business, telling shareholders that other operations also look vulnerable in the current climate.
Accordingly, it expects to fall below targets for earnings (before interest, tax, depreciation and amortization) and operational free cash flow and is therefore suggesting a dividend of 1.80 Swedish krona per share, down from its previous offer of SEK2.45.
It had previously issued guidance for growth of between 2% and 5% in adjusted EBITDA, having made about SEK31 billion ($3.1 billion) last year, and was also expecting to generate between SEK10.5 billion ($1.1 billion) and SEK11.5 billion ($1.2 billion) in operational free cash flow, down from SEK12.6 billion ($1.3 billion) in 2019.
The update follows widespread reports of an explosion in network usage throughout countries that have forced people into their homes while the virus rages. That has led to some optimism that broadband networks will become an even more essential tool for society and escape the worst effects of COVID-19.
Yet while Telia has witnessed a surge in viewing and online activity, its TV and media units appear to have been hit by a slump in advertising revenues, which has also prompted Internet firms Twitter and Facebook to issue similar financial warnings this week.
"Despite an increased TV consumption, which has resulted in an increase in reach for our already popular TV channels, Telia Company has witnessed a rapid decline in the advertising revenues," said Christian Luiga, Telia's acting president and CEO. "In addition, the global cancellation of sporting events has had a negative impact on our pay-TV revenues."
Buried in the detail of its press release, the company's forecasts will provoke some queasiness among investors. In the worst-case scenario, Telia thinks earnings could be wiped out entirely at the TV and media business this year, while in the best it anticipates just SEK500 million [$50.1 million] in EBITDA. Last year, this part of the company made three times that amount.
"This implies the ambition of an operational free cash flow of around SEK0.5 billion [$50.1 million] from TV and media in 2020 will not be met but we cannot give a new level at this point," said Luiga.
The TV and media unit is not the only one that could be in trouble. While Telia has not been able to quantify the impact elsewhere, it has identified a number of "risk areas" where the damage may depend on the duration of the current pandemic.
These include disruption to the supply chain; a sharper fall in TV revenues linked to the absence of sports content; the wellbeing of employees, suppliers and customers; a change in market dynamics that affects commercial plans; and a decline in roaming revenues triggered by the current restrictions on travel.
With planes grounded and about a quarter of the world's population under lockdown, operators could lose more than $25 billion in revenues they generate from international travel during the next nine months, according to a new study by Juniper Research.
That figure, which represents a worst-case scenario, would equal about half of all "roaming" revenues for the year and roughly 3% of total operator-billed revenues.
GlobalData, another market research firm, has also drawn attention to the risks now ahead of the telecom industry. "The global telecom market will face sales challenges due to retail store closures and supply chain disruption, and may also take an average revenue per user hit as states insist on bill waive programs to keep the financially weak sectors of society online," said Sapana Maheria, the practice head of thematic research for the company.
"Customer support lines will also be affected, as call-center staff are required to work from home wherever possible," Maheria added. "5G spectrum auctions and rollouts are facing delays in several countries."
Telia said it was continuously monitoring and evaluating the identified risks and had already started work on mitigating the potential impact for the entire group.
Commenting on the latest dividend proposals, Telia Chairman Lars-Johan Jarnheimer said: "Depending on how the situation develops, the board of directors may consider calling for an extra general meeting in the autumn to decide on a potential additional dividend, provided the market and visibility stabilize."
Telia's share price was down about 2% in Stockholm at the time of publication and has lost nearly a fifth of its value since February 20.
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— Iain Morris, International Editor, Light Reading