Hellenic Telecommuns Org

Ladies and gentlemen, thank you for standing by. I am Gahid, your course call operator. Welcome and thank you for joining the OTEC conference call and live webcast to present and discuss the second quarter and six months 2024 financial results. At this time, I would like to turn the conference over to Mr. Costas Nebis, CEO of OTEC Group, Mr. Babis Masarakis, Chief Financial Officer, Mr. Panagiotis Gavrilidis, Chief Marketing Officer, Consumer Segment of OTEC Group, and Mr. Evriko Serbis, Head of IR at NetMoney. Mr. NetMis, you may proceed.

Good morning and a warm welcome to our 2024 second quarter results call. As you might know, I have rejoined the OTE group effectively as of the 1st of July. Having said that, I'm very familiar with OTE having spent a decade in various roles, ending my tenure as Chief Commercial Officer for the consumer segment, a position held from 2016 to 2019. For the past slightly more than five years, I was the CEO of Croatian Telecom, a leading publicly traded Croatian operator, and a sister company of OTE within the Deutsche Telekom Group. As I took all my responsibilities in OTE after the end of the second quarter, I would let Babis, our CFO, go over the operating and financial highlights of the period. Instead, today, I would like to spend the next few minutes to provide you with a very early outline of how I conceived my new role in the group. First and foremost, I'm extremely honored and proud to have the opportunity to oversee the next chapter in our test history. Together with my team, our task is to build on the existing competitive edge and brand power to nurture and develop long-term sustainable growth. On this road, our first three growth levers are factors that we are very well familiar with. We will pursue the significant investments OPEC has been making in the past years in fiber, mobile networks, and pay TV. But our priority will be to accelerate the monetization of these investments. The initiatives we have announced in the past few weeks, including the fiber wholesale volume discount and pay TV content setting, are representative of the directions we want to take. In fiber to the home, the upcoming gigabit voucher should accelerate FTTH take-up and penetration in Greece. while the wholesale agreement on volume discounts should enable us to significantly improve the utilization of our infrastructure on a wholesale basis. In the pay TV market, our cross-supply agreement with NOVA will be instrumental in combating piracy and growing the whole market, as well as increasing tax revenues for the Greek state. This initiative share common characteristics. They are key neighbors for the development of the market in its entirety, not just follow-up, while also supporting the digitization of the country, which is critical for the society as a whole. And room for growth in these areas remains significant, as Greece still lacks behind many of its European peers in terms of fiber and pay TV as a percentage of broadband customers penetration. As for mobile, our third growth lever, the numbers we are reporting today clearly show that we remain on the right track and that our more for more strategy is paying off. We will continue to lead the market in service quality and in customer experience excellence. Recent awards attest to the superiority of our mobile network in the Greek market. Growth lever is the significant ICT pipeline we enjoy as a premier system integrator and digitization pioneer in the Greek market, driving the digitization while building long-term relationships with key public and private actors and sectors. Fifth, we will accelerate the transformation of our operating and production model, leveraging on simplification, automation, and digitization of the way we interact with our customers as well as the way we build, run, and operate our business internally. Physical channels load reductions, digitization of sales and service, NT and IT cloud transformation automation, as well as legacy retirement will be critical enablers of a far more efficient operating model. When all is said and done, Our vision for the next stage in OTEZ journey is to make it one of the best performing digital players in Europe, elevating Greece to the forefront of digitization in Europe, empowering and connecting our customers to enjoy better lives while fostering an inspiring workplace for our people to thrive. We have built and continue building incredibly solid foundations and the market still provides us with lots of headroom to grow. As in most metrics, great penetration of advanced digital technologies remain below the level prevailing in comparable economies. We intend to take advantage of these opportunities and believe that a far more competitive and regulatory playing field will make it possible for all parties to benefit. I'm looking forward to elaborating on our vision with you in the coming months as we find human strategic priorities and as we identify the right initiatives to deliver on our ambitions, full of optimism about what lies ahead of us. I have no doubt that OTE is today ideally positioned to continue creating value for its customers, for its shareholders, and for the Greek economy and society as a whole in the coming years. And with that, I will pass on the mic to Babis for an overview of the second quarter financial performance.

Thank you, Postas. The key characteristic of this second quarter is that it was much a replication of the first. In Greece, revenues were once again up, high single digit on strong mobile, TV, ICT, and wholesale, and EBITDA was up 1.5% in line with the Q1 increase. In Romania, top line and profitability were once again impacted by cuts in mobile termination rates and a generally challenging competitive landscape. All told, group revenues were up several percent due to the solid performance in Greece. Group adjusted EBITDA after leases was unchanged year on year as the resilient showing in Greece was offset by a negative contribution from Romania. As in the first quarter, Greek revenues from retail fixed services were stable compared to the year earlier level. Also, in line with earlier periods, the continuing good performance in TV and broadband was offset by the anticipated downturn in legacy voice. The TV uptrend should gain further momentum with the recent support content prosupply agreement that Costa discussed. Similarly, broadband should also accelerate next year supported by the coupon-subsidizing connections of at least 250 Mbps at up to €200 over two years. In Q2, we added 38,000 subscribers to our FETA service, a new record bringing the total base to 324,000. This represents a sharp increase, 68%. from a half-year level in 2023. OT accounts for over 75% of the FETH infrastructure in Greece. Our lead in rollout was maintained as we passed another 86,000 homes during the quarter, reaching nearly 1.5 million and well inside of our year-end 1.8 million targets. FTTH utilization rate reached 24% of homes passed, up 5 points in a year. We are pleased with this performance, which we view as a testament to our superiority of our solutions in terms of technology and customer services, but also as one of our spearheads driving growth in coming periods. Our total pay TV customer base was stable in the quarter, but up more than 6% year-on-year, with revenue up 7%. In addition to the cross-employee agreement, which should benefit the whole market, we expect the start of the UEFA Champions League, as well as other major Greek and international sports events, to support subscriptions in the second half of this year. Other fixed revenues rose nearly 30% in the quarter. ICT revenues continue to progress at a fast speed, up 33%, thanks to sustained demand for public and private actors for our network, IT, and cloud computing services. The backlog for the second half of the year is solid, and we expect double-digit growth in this area to continue throughout the year. Wholesale revenues were up by over 10%. As in earlier periods, the increase largely reflects higher international transit. Higher margin domestic wholesale revenues were lower, as competitors increasingly rely on their own infrastructure. Recent approval of volume discounts in the FTTH should enable OTE to defend this revenue stream going forward. Turning now to Greek Mobile, where we achieved a third consecutive quarter of significant in service revenues up nearly 4% entirely due to ARPU revenues while visitor revenues were flat. Our strategy relying on our support network is continuing to drive revenue growth, driving migration from prepaid to postpaid. But prepaid ARPU and revenues were also higher, propelled once again by the higher top-up values passed earlier this year that offer incremental value to subscribers. we expect service revenues to continue growing at about 3% for the balance of the year. The success of our MoFoMore offers and the reliability of our 5G network are also evidenced by the sharp increase in data usage, which reached 13.2 gigabytes per user per month, a year-on-year increase of nearly 28%. I can no longer state that our 5G population coverage continues to improve, since now we are very close to 100%. But what I can still say is that we continue to climb in customer satisfaction and recognition by outside organizations, and that this should further improve as we roll out the next generation 5G standalone technology. So all in all, our brick-fixed mobile operations continue to deliver a very robust top line, and we expect this performance to be upheld in the coming quarters. Total operating expenses, excluding depreciation and amortization, and one loss increase, were up nearly 12%, growing faster than the top line, once again due to the make-up of our revenue mix in the quarter. Interconnection and ICT-related costs were up sharply. Conversely, structural costs remained under control, with personnel expenses down 5% in the quarter, reflecting our continuing efficiency programs. Adjusted EBITDA after leases increase amounted to 327 million euros, up 1.5% in line with the Q1 increase. As a result, EBITDA margins stood at 38.6% and remained elevated. Conditions in Romania were once again tense and revenues from our mobile operations were down 4%. Mobile service revenues declined 17% on further cuts in mobile termination rate and harsh competitive conditions. Operations in Romania were also impacted by the state tax on revenues of approximately 1.3 million euros introduced in 2024. As a result, Romania's EBITDA was basically flat, zero in the quarter. Turning to the rest of the group EML, net financial expenses were down 16% year-on-year. As you know, our financial debt is particularly low, with no significant refinancing required in the next two years. Moving now to cash flow, adjusted capex at 156 million euros was down 6% in the quarter, mainly reflecting dynamic differences versus last year. We are confirming our 610 to 620 million full-year CAPEX forecasts, primarily related to the ongoing rollout of OTE's FDTH infrastructure in Greece. Fricas flow after leases was 121 million euros, down 60% from the second quarter of last year, as key parameters related to voluntary retirement schemes, which took place in the first half of 2024 versus the second half of last year. In addition, world capital needs were affected timely by the strong increase in ICT revenues. Nevertheless, we are confirming our 470 million euro free cash flow target for the full year. And finally, we are also confirming our 2024 shareholder remuneration guidance with a total envelope of 450 million euros or 95% of the generated free cash flow. The cash dividend portion of this has already been paid out while we are about halfway into our 153 million share buyback program for the year. To conclude, the quarter and first half have been largely in line with our expectations and forecast and provide us with a solid platform to deliver on our full year targets and commitments. Now with and our other colleagues on the table, we are ready to take your questions. Operator?

The first question is from the line of Patrick Morris with Barclays. Please go ahead.

Yeah, hi there, guys. Hopefully you can hear me well. Thanks for the presentation and taking the questions. If I could pick up a couple of questions, please, more on the strategic side. The first one on the wholesale to the home. The second one on the NOVA deal. So the first question on the hub of the home, you talk about the volume discounts being applied and getting EC permission for that. If you could provide some more clarity on that. I'm assuming the point is that to accelerate uptake from your key partners, Vodafone and Wind, on your network and your and their networks, it requires... some discount for them to generate that, but I'd be curious to understand a bit more color in terms of how you got the EC to approve that. I always thought FIBA would be on a non-discriminatory basis, so how you managed to do that and if you can quantify the impact of the growth, that'd be helpful. The second question on the NOVA deal, just for the benefit really of myself and those who are not living in Greece, you've obviously announced the cooperation deal. You talked about it combating piracy. Maybe just help us understand a bit more about what it is about this deal that should reduce competition and impact private piracy. Thank you.

Thank you, Patrick. This is Costa speaking. Let me start with the first one around the FTA for sale agreement. This is an agreement that, as you mentioned, has been already approved by the European Commission as well as the local regulator recently, and we are in the final stages of formalizing the agreement with the two interested parties, namely Vodafone and United Group Cernova. What we have provided is discounted wholesale prices up to almost 28% at the maximum versus the nominal regulated price subject of course to certain volume commitments. We believe that this agreement will have multiple effects. First of all, it will ensure that all three operators will maximize the utilization of the FTTH infrastructure. but also that means that the operators will have the incentive to migrate customers to FTTH, accelerating effectively the FTTH take-up. I would like to add that in addition to this agreement and in combination with the government-provided FTTH coupons, both for in-building installation as well as the €200 per customer demand, expected to kick in sometime in Q4 this year. We believe we will benefit the subscriber moving faster from copper to the gigabit infrastructure and of course at the same time contributing into the realization of the national digitization targets. Needless to say that also this secures the monetization of infrastructure going forward. This is from the wholesale deal. Moving on to the content selling agreement. This pattern I would call is a major breakthrough in the Greek market that will unlock growth in the pay TV market after years of stagnation or I would call it anemic growth. For me it is a paradigm shift and an indication of my focus on how to grow the market with everybody benefiting out of it, operators, consumers, the society, even the governmental budget. as we will be shifting effectively piratic users to legitimate solutions and contributing to VAT and TV taxes. In effect, what is going to happen, we will be showing NOVA's four channels and NOVA will be broadcasting our four channels. So effectively subscribers for a few extra euro, 2 to 3 euro per month on top of what they currently pay for our pay-to-visit subscription will be able to watch all the full sports menu. Just to give you a bit of an idea, before that, Greeks would have to pay 50 to 60 euros per month, so it's a huge step down, I would say, far more affordable from a pricing perspective for them. Hence, we believe that they will have less incentive to stay on the piratic solutions, and we will be moving progressively these customers into the legitimate pay-per-view solutions. This is one lever of growth, I would say the most important one. And the second one, for sure, is the slightly higher Apple by topping up the current monthly access fee by 2-3 euros per month. That will help us boost our revenue.

That's very clear. Just for one very small follow-up, please. Just on the wholesale deal, you talked about a 28% discount. What is a nominal rate public? I mean, can you share what that is and how that compares to the current EUR rate? Thank you.

As I said, this discount is a volume-based discount, a tiered discount based on some specific volumes. And as I said, the maximum discount that someone would get by hitting the maximum volume is up to 28% versus the regulated prices.

So what is the regulated price for SDP? Sorry for my ignorance.

It's around 12 to 13 euros subject to the particular product, fiber product that you are buying.

Great. Thank you.

The next question is from the line of John with Deutsche Bank. Please go ahead.

Thanks very much. Good afternoon. Good luck, Mr. Nabi. I'd like to ask two questions, please. One, just going back to the FTCH wholesale agreement, how would you describe the level of interest from Vodafone in this? and separately from NOVA? Are they sort of equally interested do you reckon? And then secondly, sort of elephant in the room a little bit I guess, have you heard anything from the Romanian authorities about your latest attempt to try and dispose of that asset there? And how could you sort of describe your level of confidence of finally being able to put this issue to bed sooner rather than later. Thank you.

Thanks for the question, John. As far as the first one is concerned, the appetite has been strong on both sides, both Vodafone and NOVA. As far as Vodafone is concerned, I believe that probably this week or later next week we will be signing the agreement. NOVA would expect a few more weeks, but I would expect both to come on board. As far as the Romanian question, I would ask Pavlis to take it.

Regarding the phase process, it continues. It's in the hands of the Romanian authorities for approval. Obviously, the approval hasn't come yet, but we expect that in the next couple of months we'll have developments. So, yeah, and also I can confirm that our interest to, as you said, to put it in the bed is going to be very strong, and this is what we are fighting for.

So may I ask, are the signals that you're getting back from the authorities positive? Are you getting any feedback on this issue?

Well, this process is a convenient process that mainly the buyers are handling in terms of getting the questions and answering the questions. The fact that it's actively communicating with the authorities means that the process is running and it's going, as I said, to keep some sequence in the next couple of months.

That's great. Thank you both.

The next question comes from the line of Sonia J. with JPMorgan. Please go ahead.

Hi there. Thank you, Sonia, from JPMorgan. I just wanted to understand the benefit from either Google and FGCH wholesale discount for next year. Your retail fixed services have been flat on H1. you know, how should we expect that to continue for 2024? And then, you know, with the coupon and the wholesale discount coming through, should we expect to see if we can step up into 2025? And then my second question is just around the new or the potentially new PPC network. I understand there were some tests that have been ongoing within our network. So do you have an update on those tests and How would you view their impact to your wholesale revenues? Thank you.

My first name is Sonia. I didn't get your first name? If I got you right, the first question is around the coupons, correct? That's right, yes. The expectation coming from the coupons? So we are talking about two different coupons. One is the in-building cabling coupon and the second one which I would say is the most important one is the demand coupon which is coming in towards the end of this year. It's 200 euro to subsidize customers, combination of connecting the customer but also monthly access fee which for sure will allow us to go more aggressively after migrating customers and also increasing ARPU by each migration, moving into the fiber to the home speech. So these are offered beyond the certain speed threshold, so we expect that the majority of the customer will be moving to 300 mega BPS plus. So this is the whole story about the . The second question with regards to PPC, if I got you right, I mean, they are rolling out the network. We don't have much to comment. They have not yet commercially launched We understand that they're preparing themselves for that sometime towards the end of the year. At the same time, I have to say that we have been focusing more on securing the wholesale agreements with the other two providers, which are more or less there. We'll be using our infrastructure for their customers vis-a-vis the volume discounts, and we'll be using their infrastructure, meaning Waterfront and United.

Okay, thanks. And then just a quick follow-up on that first one. So your retail fixed has been kind of like that in H1. So you've got this fiber coupon coming through. So would you expect the growth to kind of step up in 2025? Yes.

The answer is clearly yes. This is our expectation. I mean, our fixed revenues have been stagnant throughout 2024, coming out of an even more challenging 2023. There are a number of reasons behind this performance. To a certain extent, 2023 was also affected by the previous COVID-inflated years, which normalized during 2023. 2024 is fairly stable. We are optimistic that looking forward as a combination of both the coupons, first of all, but also the wholesale agreements, which will shift a lot of focus towards FTPAs, We help us ramp up the numbers. I don't expect something material in the next one or two quarters, but as we move into 2025 and we build up the customer base, this is what we believe will translate into a better fixed service revenue performance outlook. This also adding up the TV content sharing, which will allow the legal pay TV market growth will consist, will bring together, I would say, a good momentum into our fixed service revenues, including voice, broadband, and TV altogether.

That's great. Thank you.

The next question is from the line of Osin Chukova. Anna with Goldman Sachs. Please go ahead.

Hi. Thanks for the presentation and taking my questions. I have two. The first one will be on computation. It's Could you give us an update, your call on competitive intensity, you're seeing now on mobile and fixed, and given the recent news that one of your key competitors might be sold, has these developments impacted the competitive intensity of the market already? And the second one will be on CapEx. What's your basic expectation for CapEx for the next year? I guess you previously expected around $16 million. And in the longer term, just sort of how do you see group Catholics evolving over the next couple of years and what are the key parts there? Thank you.

Thank you Anna for the questions. So as far as the competitive environment is concerned, We have not seen the competitive environment intensifying further. The market is a competitive market like most of the European markets but nothing which is deepening which will make us worry. Now with regards to the sales process, nothing to comment. We don't have any inside information so let's see what is going to happen in the process. As far as the CAPEX is concerned, I think that my predecessor as well as Babis have been clear on this one. We are in a heavy from a CAPEX investment period, focusing on rolling out our FTTH, which for us is of strategic importance, and it is critical that we complete it as soon as possible. So the next three years, I don't expect that we will deviate from what we have been spending in this year, so slightly less than 600 million euro. which will allow us to complete the bulk of RFPTH by the end of 2027, I would say.

The next question is from the line of Remy Sogros, Martin with Eprosia Capital. Please go ahead.

Hi, many thanks for your time and presentation. Just on the clarification on the wholesale agreement, so if I heard Bobby's right, with these agreements, we should see an end to the decline in the high margin BIT, In the third quarter and fourth quarter, that's my first question. Then on the cost side, you had another VES program. Just trying to see strategically how you're thinking about VES going forward for the rest of the year and the next couple of years, if you could give us any color there. Thank you.

Let me take the first one on the wholesale revenue. This is Costa speaking. What we said is that what we have been already projecting is that our wholesale revenues will be impacted over time. We're projecting a specific trajectory. What we see now following the new wholesale agreement is a new momentum with all operators, including our wholesalers, being incentivized to use our infrastructure. So this is what I wanted to say. As far as the costs are concerned, I will hand over to Babis to take this one.

Regarding the which is the main for realizing the path of our is something that we expect to continue also in the next couple of years with this visibility. Since also, there is a continuation of the process of the company. So therefore, this tool will be there also in the next years to support the implementation.

Perfect. Thank you. Thank you.

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.

So thank you, and together with my colleagues, I would like to thank you all for your attention, questions, and for your interest in DOTER. I'm looking forward to pursuing our dialogue and meeting some of you, even in person, in the coming quarters. I will close by saying that, building on the evident strengths of the group, I'm absolutely committed to the development and success of DOTER. In the meantime, we will get together again for our third quarter results in early November. Take care, and have a nice day.