Hellenic Telecommuns Org

Ladies and gentlemen, thank you for standing by. I am Gail, your chorus call operator. Welcome and thank you for joining the OTEC conference call and live webcast to present and discuss the first quarter 2024 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Michael Tzamas, Chairman and CEO, Mr. Babis Mazarakis, Chief Financial Officer, Mr. Panagiotis Gavrilidis, Chief Marketing Officer, Consumer Segmental Tech Group, and Mr. Evrikos Arcedis, Head of IR and M&A. Mr. Tzamas, you may proceed.

Thank you, operator. Good morning to all of you. Happy to welcome you to the Test First Quarter 2024 results call. This is my 54th consecutive quarterly call as a test CEO and it's my last one. I'm honored to have held this position since November 2010 and to have had the opportunity to talk with you and with the market repeatedly over all these years. Looking back at the past 13 and a half years, I essentially see three phases in the transformation we undertook together. In the first five years, our priority was to fix the basics and focus on growth. We set about to change the culture and to transform mindset and processes everywhere in the organization. We invested massively in technology, networks, people, and customer experience, developed or revitalized services, unified the brand. And we cleaned up our financials, cutting debt, and trimming our cost structure. By 2016, in a difficult environment, we have become a modern, high-performing, integrated, fixed mobile operator focusing on growth. In the second phase, our focus has been on simplification and digitalization of all internal processes and customer touchpoints. Our mobile app became the central interface with our clients. We outsourced all non-core activities. We built a lean and profitable growth model. By the end of this phase, three years ago or so, OTAE has become an efficient, agile digital services provider, leveraging state-of-the-art networks to offer superior customer experience. We are now well into the third phase of our evolution. OTAE is continuing to build its positions as a sustainable digital services provider with a positive impact on society and environment. Network superiority is a key element of our strategy, and our advanced deployment of the country's densest fiber-to-the-home infrastructure is a testimony to our commitment. Same thing with 5G mobile networks, where we operate far and away the most extensive coverage available nationwide. We've extended our brand territory in customer interactions with the successful launch of new digital services in financial services, insurance, food delivery. We are constantly gaining share in our markets. All told, over this period, this is a new tear that has emerged. In a highly responsible manner, we have reduced our personnel expenses by more than 50 percent. We have also applied the most stringent cost discipline in other areas as well. As a result, while being subjected to stressful external developments, we consistently delivered some of the highest EBITDA margins amongst European telcos. Over the same period, we have returned more than 3 billion euros to our shareholders in dividends and share buybacks, and our test market capitalization has doubled to nearly 6 billion euros. My last full year, 2023, has seen with intensifying competition. Our strong standing in the market has enabled us to come out ahead and improve our positions quarter after quarter. Now, almost halfway through 2024, we're in good shape for the coming periods. I'm proud of the work we have done together to get to where it is now. It has not always been straightforward, and I'm sure the next years will also bring the share of challenges. But the organization I will be handing over is in good operating and financial shape. It is designed for creating value for all its shareholders. A word on this first quarter before I turn the colt over to Babis, who will give you the more details. Illustrating the fundamentals I just discussed, it was a good period of steady growth in revenue and EBITDA, as well as operating KPIs. Taken together, fixed, and mobile, retail revenue growth was consistent. ICT posted another sharp increase. Our fiber deployment continued at a rapid pace, as did fiber to the home take-up. In other words, all signs are pointing in the right direction, and we confirmed our 2024 guidance and shareholder remuneration. Babis, up to you.

Thank you, Michael. Yes, it's been quite a ride. And hello to all of you out there, and welcome to this milestone call. As Michael noted, the beginning of this year has been solid on virtually all metrics. The quarter's total group revenues rose by an exceptional 9% on a very strong Greece top line. Romania was impacted by further cuts in mobile termination rates. Group adjusted BDA after leases was up a steady 1%, due once again to the mix of revenues during the quarter in Greece and to another contribution from Romania. starting with Greece, where revenues jumped more than 10%. Like last quarter, the bulk of the revenues in Greece is attributable to low-margin revenue categories, mainly ICT and international wholesale. Our retail revenues were also quite up, nicely, particularly if we look at fixed and mobile as a whole. Revenues from retail fixed services were basically unchanged from last year recording a steady improvement in underlying trends. While legacy voice services continue to decline, revenue from broadband and TV are moving in the right direction. In a context of secular contraction of the total access market, accentuated in the first quarter, we sustained and even extended our share of the retail fixed market. relying on our traditional strengths in network, technology and customer service. TV posted another very robust quarter with an increase in revenues of more than 6%. We posted another record quarter in terms of total FTTH subscriber additions at 36,000, raising the total FTTH base to 287,000. Once more, this 73% year-on-year jump didn't benefit from any form of government incentives to either connection or usage. We continue to expect a coupon program later in the year to give additional momentum to FTTH take-up and revenues. We maintained our lead in nationwide FTTH rollout moving closer to approximately 1.4 million homes passed at the end of Q1. By the end of the year, we are aiming for a total of nearly 1.8 million homes. FTTH utilization rate as a percentage of home passed by OTE reached 22% or 35% of OTE customers alone. These represent material improvements over the previous year and attest to our technical and customer service capabilities. Year-on-year, OTE's total number of Fiber subscribers was up 76,000 to not far from the 1.6 million users, accounting for about two-thirds of our total broadband base. Turning now to TV. We had 688,000 customers at the end of the first quarter, up 6% from the year earlier level, driving the revenue increase for this segment with a strong sales mix skewed towards better packages. A major highlight of the period, consolidating our content portfolio, was the renewal for the next three seasons of our premium UEFA League football competition rights. We are also continuing to work with all parties involved in the fight against pay TV piracy, which remains a brake on our growth. Other fixed revenues, poor students amplify their post-election catch-up and come back. In the first quarter, they jumped by nearly 50%. ICT projects, for their part, saw their revenue contribution rise by more than 56%, as public administration and private organizations continue to tap our expertise in network infrastructure, IT deployment, and cloud computing. While this exceptional pace of growth reflects the delays we experienced in 2023, our pipeline is solid, and we expect a double-digit upward trajectory to continue throughout this year. Wholesale revenues were also up sharply by nearly 20%, once again due to international transit while higher-margin domestic wholesale continued to shrink by almost 2 million euros. In Greek mobile, we had another very strong quarter. Service revenues were up more than 3%, fueled by continuing pre- to post-migration and the renewal of COSMOTES more-for-more contracts. Both prepaid and postpaid delivered positive performances, with a particular solid contribution from postpaid, as you can expect. But higher top-up values also had a positive impact on prepaid ARPU. Hence, the revenues were also up this quarter. Data usage is continuing to increase at a rapid pace. In the first quarter, it averaged 12 GB per user per month, a 39% increase compared to Q1 of 2023. This underlines the high quality of our networks, notably in 5G, in supporting customer experience together with growth of postpaid customer numbers and, of course, revenues. This quarter, we added 57,000 new postpaid users to a total of 3.2 million. The prepaid customer base was reduced on a mix of migration to postpaid and rationalization. Contact subscribers now account for 45% of the total mobile base. Finally, we are ahead of targets when it comes to blanketing the country with 5G coverage and we continue to score very high in terms of customer appreciation across the board. Looking at our fixed and mobile operations as a whole, we continue to be satisfied by our performance and competitive standing and remain confident in delivering solid full-year numbers. Total operating expenses, excluding depreciation and amortization, and one-offs in Greece, rose nearly 19%, largely reflecting the sharp higher contribution in the revenue mix this quarter from activities associated with direct cost consumption, like interconnection, handset sales, ICT, and FTTH-related costs were all up significantly while we were successful in keeping structural costs under control. In particular, personnel expenses were down this quarter, largely reflecting cost-saving achievement through recent retirement programs. Personal cost-containment efforts will be pursued throughout 2024. As we had anticipated, we recorded an increase in energy costs of approximately 5 million euros following the expiration at the end of 2023 of beneficial negotiated contracts. This is expected to persist throughout 2024, but our energy consumption should be reduced over time and future costs might be controlled through longer-term contracts. Adjusted EBITDA after least increase exceeded €323 million and was up 1.5%, resulting in a solid EBITDA margin of 39.8%. Total revenues from Romania mobile operations were down 4% from the first quarter last year. Mobile service revenues, for their part, were down nearly 19%, impacted by the MTRs and subsidies in prior periods. The Romania business was further impacted by another 50% mobile termination rate cut imposed at the new year. As a result, Romania generated EBITDA of €3 million in the quarter. In the rest of the group P&L, trends were widely consistent with prior periods. Net financial expenses continued to drop by 27% compared to the first quarter last year, as interest income more than doubled on higher interest rates, but does not represent a material item. I remind you once again that our financial debt is low and that we have no refinancing deadline scheduled for over the next two years. Moving now to cash flow, adjusted capex was up 47% in the first quarter at 118 million euros. In 2023, as I'm sure you remember, the timing of our capital expenditure had been pushed towards the back part of the year. We're confirming our 610 to 620 million full-year capex forecasts. overwhelmingly dedicated to the pursuit of the fiber-to-the-home rollout increase. Free cash flow after leases was €127 million, down from €226 million in the first quarter last year. The year-on-year drop reflects higher 2024 tax payments, as we have already communicated, as well as the seasonal capex acceleration. We are confirming our €470 million full-year free cash flow target. We also confirmed our 2024 shareholder remuneration guidance with a total envelope of €450 million. The €297 million cash dividend is subject to shareholder approval in June, and the €153 million share-buy-back programme is already undergoing. To conclude, the solid start to the year confirms to us in our confidence that we are on track, following the right strategy, offering the solutions that our customers desire, and we will deliver on our targets for the full year. And on this note, Michael, myself, and the other colleagues around the table are ready to take your questions. Operator?

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of with your bank equities. Please go ahead.

Yeah, hello there and thank you for taking my questions and good luck to Kostas in the new role and to Michael with his future plans. Yeah, just a question on the outlook. You echo quite a confident message for mobile, which I think is well understood given what you've been delivering in the last few quarters. Just wondering about the message for fixed, which seems a bit more cautious. You referred to an overall contraction of the market. We did see fixed retail being flat this quarter, as you said, from a plus one into four after several quarters of decline. So I'm just wondering, how does this outlook relate to the competitive landscape, pricing, or even adoption of fiber. So are you seeing or do you expect ongoing output dilution? Do you feel that fiber adoption is progressive relatively slowly? So that's my question. Thank you.

Hello. In fixed, we are experiencing this, I would say, controlled now losses coming mainly from voice. But we expect a lot of growth from the market, mainly coming from the high speeds and the fiber. You have seen the results that we have an impressive, I would say, growth, both in lines and in rollout and in connected lines as well. And we are expecting, yes, as you mentioned before, the state subsidy. We expect this around Q4, I would say, in the last quarter of the year. It's under consultation, as we speak, yes, under public consultation. So we expect a very nice boost to the demand with the coupon, and obviously we believe there is a turnaround in the fixed revenue side, although the market is contracting, mainly due to the lower prices in the market, in the mobile market. But as we have seen, we're going to have this turnaround within this year and the coupon will severely boost the revenue side.

Okay, that's great. If I could follow up regarding the competitive intensity, would you say that there has been any you know, any notable change in the last, I don't know, in the last quarter maybe? Or are things pretty much, you know, as they were last year?

Stavaris, it seems that over the years the same story is being repeated. So competitors intensify their competition in terms of pricing without really improving customer experience they offer. So they realize that if they don't improve the customer experience, the benefits that they gain out of, you know, by having intensified competitive actions does not really help them. So after they make these kind of moves, they become smarter and they become more rational. We've seen this in the last 14 years at least, or even 17 since I was the CEO of the mobile unit. that this thing is repeatedly being done all the time. Compared to intensified competition, they go into very aggressive moves, and then they realize that they have to change the strategy. Because what we know very well is that even if you have lower prices, it's more important to offer the overall customer experience. So in our case, we focus more in driving or improving the customer experience and instead of going to irrational, let's say, other promotional moves or whatever. So I would say, if I were to take a guess for the future, that again, the lesson has been learned and they have become smarter.

Got it. That's clear. Thank you. And just the last question, if I may, regarding the tower spin-off, which you basically announced that you're taking steps towards the separation of your tower assets into a separate subsidiary. I'm just wondering what this means effectively, exactly, because I remember... This had come up a few times in the past and you have basically said that you are not really thinking of selling effectively this asset. Now separating it, what does it mean exactly? So what is your line of thinking behind this move? Thank you.

Okay, we cannot say very much now. As we discussed in the past, we always examine opportunities that there might be in the market. So the same way we examine the opportunities in entering into new markets, the same way we study or examine opportunities, you know, regarding the towers separation, what the what this means, but it's very premature to have any, let's say, any discussion in depth on this because we, practically, okay, it's the team of people that are examining new opportunities. Nothing has been, has come to my desk as a proposal or whatever. But it's, you know, viewing opportunities, or examining the markets, reviewing the situation and the structure of the company and what would be best for the future is a constant task that our team of colleagues has in the organization. So we're not ready to give you any more information on this, because we don't have it.

No problem. Thank you and good luck with your future plans, Michael.

Thank you so much.

Thank you very much. Next question. The next question is from the line of Patrick Morris with Barclays. Please go ahead.

Yeah, morning, guys. It's actually Morris Patrick this time. But if I could ask a bit about the ICT side. I mean, clearly you saw very strong ICT revenues in the quarter this It was unclear to me the EBITDA contribution from that, so maybe if you could talk a bit about the margin profile of the ICT business. And also, I think you talked about double-digit revenues, I think, still for ICT for the year. I'm curious as to whether these revenues are more installation-based, so they're kind of one-off projects versus more sort of ongoing. Are we helpful? Thank you.

Yes, thank you for the question. The average margin that is attached to these ICT projects is around 20%. This is more or less the guideline. Some of them are higher, but consider it a safe 20%. And the double digit that we alluded to for the remaining quarters of the year comes from two points. One is the tails of this, let's say, timing that we had from the carryover of last year. which are basically implementations, and streamlined implementations that come through the pipeline. So the majority is implementation, but also, as you also implied, there is sustainable maintenance revenues which comes afterwards. But all this spike is implementation.

That's helpful, thank you. If I could just ask one very small question, just related, actually not related, actually. But your data growth was up 39% year on year. Quite a few countries are seeing mobile data growth slowing now. I wondered whether you had any views in terms of why that growth still remains so strong. It's not as if your usage per SIM card is dramatically lower. So curious as to why you're still seeing such strong data growth. Thank you.

I'm sorry, but for some reason, probably the sound is something we could not... I don't understand the question.

Oh, okay. Sorry. Can you hear me?

Can you hear me now? Probably it comes out, you know, distorted. So if you could just be a bit... Yes.

Can you hear me now? Yes, that's better. Yes, sorry. It's the UK mobile telecom networks. I don't recommend it. It was a question about the mobile... data growth that you're seeing in Greece? Yeah, which is not really slowing and it's still strong and I guess why is it so strong?

Why is it strong?

Why is it still so strong? Other countries are slowing.

Okay, we see this growth because our market has lately I would say liberated the unlimited data plans, mainly in postpaid, partially in prepaid. We are still monetizing data a lot. The penetration of unlimited plans is still low, I would say, in the market. So there is room for growth there. There is potential. And this is the reason we are still seeing this data growth. And we will keep on seeing, I guess, for the next couple of years.

Last, I would say that probably our market is in a different maturity level in terms of app usage or services usage over the phone, over the mobile phone. So as the services that you can use, for which you can use your phone are increasing, and as the market becomes more mature, I mean the customers. in using various apps, either for entertainment or for, let's say, servicing the needs, whatever needs, this helps.

Okay. Thank you.

The next question is from the line of George with Citigroup. Please go ahead.

Yes, hi, and thank you for taking my questions. I just wanted to clarify the comment you made earlier about the coupons contributing to some revenue acceleration this year. Can you maybe update us on the timing of when you expect the launch to be possible and also how quickly that could translate into top-line support My second question is on Romania and just any update on whether the sales process is progressing, whether there's been any issues that are maybe delaying or stalling the sale itself. And then final question is around EBITDA run rate. Given the strength of your revenue, and I appreciate some of it is lower margin, but as Bob has mentioned earlier, there are some margins within ICT, EBITDA growth was slightly lower than one would have expected given the revenue performance. So curious if you can give us any indications, particularly on indirect cost phasing during the year. Thank you.

Okay. Regarding the coupon question, as we said before, As we speak, it's under public consultation. We expect that it will take a few months, you know, to reach there an official approval and implementation. So we are expecting to see customers getting the coupon in Q4. I would say September, October, I would say. So the first revenue upside would be in Q4, and then the main flow is going to be in 2025. This is about the coupon question.

On the EBITDA, I think if we look where we are versus where we were maybe in the past three, four quarters, I'm sure we all realize that there's a step up in the run rate from the low ones to the mid ones. And this is how we look at it in terms of... The commercial metrics are there, and as we described, the cost-cutting is also there. And so the trajectory of the EBITDA growth comes not linearly, of course, because of the seasonality, et cetera, but through the steps. Note here also the fact that the energy cost is taking a nice toll of about 5 million euros, as we discussed. which is a particular event for this year. After enjoying better conducts in 2022, 23, 24 comes back, and then as of 25 we aspire also to have some better deals if the market allows. So we are positive about the, first of all, sustaining the current levels of EBITDA, which as we say is a step up versus the previous quarters, and obviously we are looking to better rate growths if all what we are saying is crystallizing. So, as we said, I think we are positive about the trends. And to the fact that this trajectory continues, also on the cost side, we don't see why we shouldn't step up even more. But this has to come in the next quarters, of course. George, I don't know if you had another leg in your question.

The other question was on the sale process in Romania.

Yeah. I mean, we don't have anything new to say. That's why there's nothing on the press or the speech. As you know, we are working on the disposal, and once we have news, obviously we will relay to relay this news to the market. But for the time being, nothing to mention.

Very clear. And I wanted to congratulate Mr. Tamas for his leadership the last few years. It's fair to say it hasn't been an easy period to be in charge of a Greek company and hope all the best in the future. Thank you.

Thank you very much, Mr. Raziotis. I appreciate very much your... Sorry, I confused you with Tamatis. George, it's you, right? Yes, it's me. All these years, it has been a very good, very positive experience for me as well, having to communicate with you and share with you our So thank you for your support as well.

Thank you.

Our next question is from the line of . Please go ahead. Hello.

Many thanks for your time and the presentation. Just a few remaining topics that haven't been asked about from me. Any change in the wholesale, the high margin wholesale revenue decline? This is obviously a topical item with other parties investing or planning to invest. So I was wondering if you're seeing any changes in this part of the business on a quarterly basis. And then you mentioned in the press release and also in the call regarding personnel costs, I'm wondering if We should expect a pickup in VES activity. Any color there would be helpful. Thank you very much.

Thank you for the questions. On the wholesale, I think we mentioned that for the national wholesale, which is the high margin, the trajectory, because of structural changes, is that every quarter there is a small loss. In this quarter it was about €2.5 million. And this one is a combination of many things. gradual reduction of the total access market, competition building their own infrastructure and some of the lines going there. On the other side, with the upgrade of the fiber to the home and because of the rates, we rebound some of these losses. So, overall, €2.5 million lower. This is a little bit lower versus previous quarter, because we had mentioned numbers around €3, €3.5 million. But it's in this area. On the personnel cost, what we see here is what we have been seeing in many quarters in the past, i.e., the reflection of the optimization and the rationalization that we are doing in the company, also assisted by the digitalization spree. And it's a result of the voluntary retirement scheme that we implement every year. So we see no reason why this shouldn't continue the next at least foreseeable quarters.

Thank you.

As a reminder for our audio participants, if you would like to ask a question, please press star and 1 on your telephone. No further audio questions. We will now move on to our written questions from our webcast participants. The first question is from John Kaloyeropoulos with Beta Securities, and I quote, should we expect any extra shareholders remuneration should the sale of mobile telephony towers materialize?

Thanks. Okay, this is a hypothetical question. As I said earlier, we don't have any substantial... Thank you.

We will move on to the next webcast participant question from Mr. with Erickson. OT has initiated a pilot 10 gigabit fixed consumer service. Do you plan to launch it commercially within 2024? If yes, do you see such premium services driving fixed revenue, or is it mainly a technology demonstrator and or a service differentiation factor to the competitors?

Yes, as we speak, the specific service is a demo, is a demo of the capabilities of the fiber network. but it's not only the speed of the network. There are many limitations within the customer premises, even in the Wi-Fi speed or the customer equipment or the CPUs. So, as we speak, it's a pilot, it's a demo, but obviously, for the near future, it's going to be a premium service, and we are working on a proper holistic solution for high-speed services. within the premises, but I cannot answer if we're going to launch it this year or next. Thank you.

Thank you. The next question is from Angelina Karava. Management will proceed with announcing the question. Thank you.

Yes, thank you. So there's two legs to the question. First is when do you expect to the completion of Telecom Romania mobile sale? I think we have responded to that already. So move on to a second. Other operators have applied price increases. Will OTE keep the same price policy in 24?

Thank you. The next question is from our webcast participant, Adrian Ceciliano, and I apologize if I'm not pronouncing this correctly, from Zerual Financiere. Andrea Ceciliano, journalist for Zerual Financiere daily newspaper in Romania. What's new about the sale of the Romanian operations? We haven't heard any news since November 2023. If the group of investors fails to obtain the necessary green light from Romanian authorities, will the sales process be relaunched? What are your thoughts about the value of the company given the EBITDA trend? Thank you, and best of luck for Mr. Tamas and his new plans.

I think regarding the comment about the sale, we already answered that whenever we have something new, it will be announced. Regarding the trends, this one comes with the already stated strategy of ours in the company to stabilize the performance and do the best in order to increase the value. And for me, it's a must.

Thank you very much for your wishes and good words. And, you know, Romaria has always been... I was very fond of Romania and the investments we had there over the years. Unfortunately, the market became very, very difficult and very challenging, and we had to exit. Anyway, thank you for your support.

Thank you. And our last written question from Mr. Adrian Siciliano. Update on the previous question. If current discussion fails with the Romanian group of investors, no matter which the reason is, will the sale process of TKRM be automatically relaunched or is there a chance to stay on the market?

I think also this has been directly and indirectly answered. So just to repeat that whenever we have some news about the sale process, it will be announced properly to inform the investors. Thank you.

Thank you. One last reminder for our audio participants. If you would like to ask a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Well, thank you once again for your attention, questions, and interest in OTEA. I'm confident that our good momentum will once again be in evidence on our next call in early August. Personally, I will not be here to discuss it with you, but I have no doubt that Costas Nebis and the whole team will carry the flame. I wish you all farewell and have a good summer. Thank you.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.