Hellenic Telecommuns Org

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call Operator. Welcome and thank you for joining the Tech Conference Call and Live Webcast to present and discuss the third quarter and nine months 2024 financial results. All participants will be in a 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. Kortas Nebis, CEO, OTEC Group, Mr. Babis Mazarakis, Chief Financial Officer, Mr. Panagiotis Gavrilidis, Chief Marketing Officer, Consumer Segment, OTEC Group, and Mr. Evriko Sarsendis, Head of IR and M&A. Mr. Nebis, you may now proceed.

Thank you, Nina. So greetings to all of you and welcome to our results call for the third quarter of 2024. Starting with Greece, we reported this morning a solid quarter of operations pretty much across the board, with revenues upping the most relevant activities and higher BDA, all achieved without benefit from the various initiatives and revenue drivers we discussed during our last quorum. The sports content selling agreement we signed with NOVA is boosting total subscriptions for the whole industry. We registered a sharp rise in subscriber numbers in the third quarter, with record net additions in September. And as we move into 2025, this will start contributing to our growth. We also expect stricter government measures against piracy to be adopted by the end of the year, facilitating a transition to legitimate TV offerings, and resulting in a higher market penetration. The too-much-talked-about gigabit voucher schemes, aiming at subsidizing take-up of high-speed connections and in building fiber cabling, were approved by the Greek government last week and will be implemented most probably before the end of this month. The two coupons will further boost FTTH take-up and at the same time cover part of FTTH's cabling costs. In conjunction with the government's decision to move the 5% broadband tax on FTTH connections of 100 Mbps and above, starting January 2025, as well as the fiber wholesale agreements recently signed with Vodafone and Nova, they will all contribute to the stronger monetization of our extended fiber infrastructure, and of course, to advancing the country's digitization. Speaking about the wholesale agreements, they have already started to speed up the pace of wholesale monetization of our infrastructure, a development that will become more evident in the coming periods. The developments, along with the ongoing mobile service revenue growth, pays fuel by more for more data tariff upselling and pre to post migration, as well as a rich pipeline of profitable system solution projects set the foundation for accelerating growth momentum moving into next year. In the meantime, we have started pushing harder at reducing non-sales physical volumes throughout our channels, accelerating the digitization of our sales and care transactions, and transforming our operating and production model. Our goal is to increase productivity and efficiency levels while we keep investing in our fixed and mobile networks to make sure they reach all potential customers and provide them with the very best customer experience available. Babis will go over some of our achievements of the last period. Since July, when I assumed this role at OTE, we conducted, along with the rest of the management team, a thorough review of our strategy, reflected on our current position, existing and upcoming challenges. We formulated a refreshed vision, restating our ambition and strategic priorities for OTE, looking towards 2030. We clearly want to transform OTE from the undisputed leader in the Greek telecommunications market into one of the top European digital telcos. putting Greece among the most digital developed countries in Europe and providing the best available infrastructure to all. And we aim to pursue our goals by focusing on our customers and on our people, creating an inspiring work environment for our teams to grow. It would be premature to present a strategic framework at this stage, but we are determined to do so in due time. Our plans are ambitious and deal with every aspect of our business. with every customer category, with the careers and well-being of our workforce and with the sustainability of our operations. They intend to leverage our membership within the larger Deutsche Telekom family and create even more value for our stakeholders. We are confident that our strategic plans represent the most effective means to leverage our strengths for the benefit of all. Before passing the mic to Babis for an overview of the third quarter, I want to say a few words about our operations in Romania. As you know, they have been facing challenges for a few years now. This is why we are satisfied to have reached a preliminary agreement with the two established market participants. This agreement should assure the future of the operations while allowing us to focus on our key strengths in Greece, where we enjoy a strong competitive advantage. Mavis, the floor is yours.

Thank you, Kostas. Our momentum continued in the third quarter as well. The pace of growth was slightly more moderate than in the first half of the year, reflecting lower wholesale revenues as well as the continued challenges in Romania.

Excuse me, there's no sign coming from the management line.

Thank you, Costas. Our momentum continued in the third quarter. The pace of growth was slightly more moderate than in the first half of the year, reflecting lower wholesale revenues as well as the continued challenges in Romania. In Greece, revenues were roughly stable in fixed retail and growth in mobile kept pace with a strong performance over the first half. We delivered a steady 1.5% improvement in Greek EBITDA, exactly similar to the increase in the two prior quarters. Romania's top line deteriorated and its profitability was squeezed as a result of provisions related to the tax settlements we announced a few weeks ago, without which it would have been slightly positive. All in all, group revenues rose 2% and group adjusted DBDA after leases was down a notch, yielding a solid 39% margin. In Greece, Revenues from retail fixed services were down marginally due to pressures on legacy services. TV operations, however, continue to grow at a record positive growth while they do not yet take into account the output benefit from the sports content cross-supply agreement and efforts against piracy. Certain customer retention activities that should enable us to optimize the recent content agreement and drive the future growth took place in the quarter. In broadband, growth was entirely organic as no subsidy was available to potential FTTH, Fiber to the Home subscribers, during the quarter. As in previous quarters, legacy voice remains under pressure. Despite the lack of incentives, we signed up 31,000 additional customers to our FTTH service in a traditionally low contribution quarter. At 355,000, the total number of FTTH subscribers is up 65% from September last year. FTTH retail customers account for 15% now of our total broadband base. Ongoing demand should continue fueling our growth in fixed service over time. As we noted in the release, penetration among our customers in areas we have already passed with FTTH now exceeds 44%. During the quarter, we continue to add to our FTTH infrastructure, coming close to 1.5 million homes passed and expecting to exceed 1.7 million by year end. OTER still accounts for over 70% of the country's installed FTTH base. The FTTH utilization rate has reached 26% of September up nearly 7 percentage points year on year. Following the agreement with other operators earlier in the summer, we also see increasing wholesale demand. So numbers are all moving in the right direction and we expect these to gradually accelerate as the upcoming vouchers become available. Our total pay TV customer base saw its steepest increase in a few years during the quarter, up 24,000 to 710,000 subscribers. This is clearly due to the sports sharing deal with NOVA. It should be reflected in the revenue starting as of November, after the end of the NOVA extra charge period granted to subscribers in adoption of the new sharing content. Other fixed revenues were up another 20% this quarter, with revenues from system solutions up 34%. though impressive in their own right, these growth rates are somewhat more subdued compared to the rapid pace of the first half. This deceleration should carry on in coming quarters. The reason is, as you may remember, in 2023, many public sector projects were pushed back or frozen from Q2 and Q3 towards the later part of last year or beyond, due to the Greek elections, as well as a series of natural disasters. As a result, Q4 2023 represents a particularly high comparison base. In total, over the first nine months of 2024, other fixed revenues were up 32%. After two quarters of double-digit growth, wholesale revenues now were down 5% in Q3. In majority part, the drop is due to lower international transit. The decrease in higher margin domestic wholesale revenues did not materially heighten compared to the performance in prior quarters, thanks to the support provided by the recent national wholesale agreement and the FCTH volume discounts. Looking now at Greek Mobile, where the significant growth in service revenues, up nearly 3%, extended the strong strike of the past few quarters. Considering that we replaced last year's unlimited data summer offer with a less generous package, We are very pleased with this good performance. We continue to attribute this to our market leadership in both quality of network and quality of service, as well as ongoing migrations from prepaid to postpaid. We remain positive on mobile revenues despite the fact that, as you may recall, higher prepaid top-ups and the e-bill discounts removal will be universalized in the last quarter of the year, somewhat affecting year-on-year comparisons. data users continue to increase at a rapid pace, reaching 16 gigabytes per user per month, a 13% decrease year-on-year. This once again demonstrates the popularity of our more-for-more offers and the strength and scalability of our mobile network. Our 5G Plus network has already exceeded 50% population coverage and is aiming for 60% by year-end, and we are continuing to be recognized as the undisputed quality leader in the market. Total operating expenses, excluding depreciation and amortization and one-offs in Greece, grew just over 3% in the quarter, a sharp deceleration compared to the first half of the year. Reflecting the drop in wholesale interconnection costs were down, as were ICT-related equipment costs. This quarter, once again, personal expenses were down about 5 million euros or 5% as we continue to enhance productivity. In line with forecasts, energy costs were up approximately 6 million euros in the quarter. In 2024, we moved to spot tariffs versus lower cost contracts in the previous year. This trend is going to be reversed in 2025. As I mentioned earlier, adjusted EBDA after leases in Greece were up 1.5% to €353 million, yielding a significant EBDA margin of 42.4%. In Romania, as you have seen following the tax audit, we have been hit with past tax charges of over €33 million. While we have paid the back taxes to avoid further penalties, we are challenging in courts the findings of the Romanian tax authorities. Operationally, the performance of TKRM, our mobile arm in Romania, was once again affected by the extremely competitive nature of that market and mobile termination rate cuts. Total revenues were down 7% in Romania, on a 16% decline in mobile service revenues, while Romania's negative EBITDA in the quarter reflects certain provisions. Excluding these provisions, Pro Form ABDA Romania would have been about €1 million positive. Let's now take a look at the rest of the group's profit and loss. Depreciation was down €16 million in the quarter, about half of which stems from TV-related content, partly as a result of the three-year agreement related to the broadcast rights of the Champions League. Mainly due to the reversal of provisions related to asset sales we recorded a net financial income of 20 million euros versus a charge of 6 million euros in the comparable quarter last year. Moving to cash flow, adjusted capex of 159 million euros was down 13% in the quarter, largely reflecting lower TV sports content payments. Mainly due to tax capex items for the balance of 2024, we now expect full-year capex in the range between 600 and 610 million euros. On the free cash flow, our guidance of the organic performance of 470 million euros is unchanged. Accounting for the recent extraordinary payment of 33.5 million euros in Romania, 2024 reported free cash flow should total about 435 million euros. Of course, excluding this ad hoc payment, free cash flow remains at the initial guidance of 470 million euros. Frequent flow after leases was 95 million euros in the quarter, up sharply compared to the Q3 last year. And finally, I'm not making much prediction by confirming our 2024 shareholder remuneration guidance of 450 million euros, considering that the cash dividend portion has already been paid out and a little bit over 80% of our 153 million share buyback program has already been implemented. Before Kostas and I and our other colleagues take your questions, I just want to state that we are well positioned in Greece and confident that with the additional support from FTTA subsidies, typical agreements and other developments, we expect a solid momentum to continue and intensify in the coming quarters. Operators, for questions?

Thank you. 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 Draziotis Tamatis with Eurobank Equities. Please go ahead. Mr. Dragiotis, you have the floor. There is no sound from Mr. Dragiotis. We will move on to the next question. The next question is from the line of Patrick Maurice with Barclays. Please go ahead.

Oh, hi there. Can you hear me okay?

Yes, we can.

Great. We'll make sure it wasn't me. Thank you for taking the question and the conference call today. Just a couple of questions from my side, please. The first one, you make the point in your prepared remarks about the new sort of volume discount wholesale tariffs and how you expect that to drive growth in the coming quarters. I noticed on your slide you talk about the 26% penetration rate of the fiber. I was curious to understand, given you launched it in the summer, are you already seeing an uptake from other providers because of the lower wholesale? Maybe some order of magnitude would be very helpful there. And also just linked to it, I noticed in the quarter that your fixed line trajectory seemed quite sort of soft. I mean, you lost 15,000 voice lines, 7,000 broadband lines. Just understanding if that's just a temporary slowdown ahead of maybe the or whether it's more structural. Thank you.

Okay. Let me try to address the question. So first of all, just a couple of clarification with regards to the KPIs we have already shared out of our presentation. So we commented on the 15%, 1.5, which is the presentation of the FTPA base in the total broadband base. This is 1% that we share with you. And the second one is 44%, which is the portion of our retail customers out of the areas where we have rolled out FTTH, which we have already converted to FTTH, just for clarification purposes. Now, going to your question with regards to wholesale discounts and the effect of it on the demand, it is clear that we see a step up Just to give you some rough numbers, we started with less than 10,000 net ads on the wholesale level at the beginning of the year, and we are more than 50-60% up this number in Q3. So this is a clear demonstration that these volume discounts are making our infrastructure more attractive to our retail providers in Greece. And needless to mention that we are talking about a quarter three, which is traditionally one of the lighter quarters in terms of broadband demand as most of the Greeks spend their time next to their summer houses. Now, with regards to the fixed revenues, you are right. The fixed service revenues have been flat throughout the year, I would say, plus or minus some decimal points, but have been flat. Coming out of the year, which was even more challenging, I'm referring to last year, What we have recommended, both myself, Kostas, but also Babis, is that we have a number of regions to be more optimistic looking into the future. And these regions are connected, first of all, to the subsidy coupons, which were at last announced last week from the Greek government. These coupons are sizable, both in terms of the support they offer per customer, but also the total number of customers. And they address both demand which means goes straight to the customer pocket and allow us to move customers more easily to FTTH tariffs, which are of higher ARPU, but also is going against the FTTH in-building installation costs. So both of them will help us move customers stronger and in bigger numbers and with higher ARPU towards FTTH. This is one piece. And the second piece is, of course, the TV content sharing deal, which has already been seen, translated, evident in momentum. Bob has commented on the record high quarter that we had on Netats. So we expect more of that to come. It's not only what we have already seen. We see that the government is also moving towards the direction of bringing in tighter measures against piracy. We have not yet seen the effect of these tighter measures. So all in all, coupons, plus the broadband tax that the government has decided to remove out of the FTTH 100 Mbps plus prices that I shared with you before, in addition to the TV, are strong levers that are making us feel optimistic about 2025. That's great.

Thank you. The next question is from John with Deutsche Neumis. Please go ahead.

Hi there, good morning. Thanks very much for taking my questions. A few numbers questions first, if I may. Firstly, and sorry if you've answered this, my line dropped in the middle of the call. So the energy cost headwind this year, is it still around 30 million euros? So, the headwind this year versus 2023. So, that's question one. Question two, you kept your free cash flow guidance of 740, but that's based on 10 million less capex guidance. Where are you sort of using up the capex cost saving? If you can be a little bit specific about that, please. And then the third number question is, I'm trying to understand how much pay TV revenue you went without because of the offer you made for those taking both yours and Nova packages during the period. And when does that period end? And then one, sorry, fourth question, but that's not a number question. The FTTH rollout in the summer was very slow, even if you compare it to the summer of 2023. What happened there and why are you comfortable that suddenly this number is going to increase by an order of magnitude this quarter? and what should we expect for future quarters. Thank you.

Okay, let me take the last two questions. This is Costas again. So as far as the FTTH rollout, I mean, it is normal that during summer months, construction capacity kind of becomes a bit weaker. This is something that we have seen in the past. We are running according to our plan, so we do not expect to have any surprises. And we will have more or less what we have projected at the beginning of the year. Now, when it comes to your question about pay TV, what we have given away for a few months After the introduction of this partnership, so effectively giving our customers the opportunity to have access to both our sports content as well as Nova Sports content, we offer them the possibility to upgrade to this bundle package without having to pay the €3 surcharge that is going to kick in after the promotional period is over. this promotional period is expiring end of November, and then progressively starting from December, these three euros will be translating into extra revenues that will become visible at the full effect in January 2025.

Let me take your number of questions. So, let's start with free cash flow. You're right, we reported 10 million less capex, and we clearly flagged that this is not I would say a structural decrease of the capex, but it's a timing issue because certain TV contracts, not sports, so that they were supposed to be concluded and paid this year, they are now moved to next year. So it's not, it's just a shift between the two years. At the same time, there was also another timing issue, which is, as we alluded to the comments, that our ICT business has been extraordinarily growing this year. therefore creating higher receivables that also will be collected next year. So these two items more or less offset each other this year, as they will also offset next year, because next year we'll pay this 10 million euros for the capital, but also we'll collect the higher ICT revenue that we have been creating all these months. And of course, it's known that the ICT project, they have a longer payment terms than our core business. So in the energy cost, I think we have also communicated in the past that our total bill will be around 20 to 25 million euros. We are saying this because at the end of the year, there's also some clearing with our providers. So far at the end of 2020, Q3, we had, our total bill was a little bit over 15 to 16 million euros, and therefore the range is, and the trajectory is to, that would be within our initial estimates. And this increase, for one more time, I would like to make it clear, this increase versus last year, it's not consumption, but it's the different contract deal that we have been doing in the sequential of moving from a long contract that we had before to spot price this year before we move to our more favorable pricing through PPAs and other agreements for the years ahead.

Thank you. Can I just double check? You said the year-on-year increase for the full year is likely to be 20 to 25 million. Is that right?

20 to 25, yes.

Okay, thanks. And then, Kosta, I'm sorry about this, but you extended the numbers of hogs passed this summer by 30,000. Last summer, 2023, the number was 97,000. So it was summer then, it was in 23 as it was in 2024. Is there really nothing going on other than people were taking extra holidays during the summer of 2024?

It has to do with the nature of the networks that you're rolling out every year. So different networks carry different challenges and difficulties when it comes to rollout. Nothing to worry about at all.

Okay, thank you.

The next question is from the line of Kolias Vasilis with Pantelakis Securities. Please go ahead.

Thank you for taking my questions. From my side, I have two questions. The first question is associated with the decision made by OTE's BOD about the initiation of infrastructure spinoff. Have you ever thought a potential sale of mobile towers, given that transactions in this field have been executed on multiples of 20 to 25 in terms of EBITDA, which may lead to a re-rating for OTE stock. And my second question is the estimate gains in OTE Sharpe specifically in 2025 from the deal with Nova, from the Giga Voucher which is to commence tomorrow, coupled with the discount in the wholesale prices. Thank you very much.

Okay, thank you for the questions. On the infrastructure spin-off, it is what we announced. It's an effort to spin off the passive infrastructure and try to make the most efficiency out of it. No other plan for the time being. Then for the gigabit voucher, I think what was presented throughout the call so far is that this would be one of the enablers in order to drive further the fixed service revenues for next year, but it's not the only one. There are other more. So, now let's wait for this to be enacted, and then obviously, as we move on in the next quarters, we will specify more about the benefits of that one.

And just to build on Babis's point, because you also brought up the TV piece, I mean, The TV penetration in Greece, the legitimate pay TV penetration in Greece today is around 30%. When you compare Greece to the rest of Europe, we are lagging at least 20 to 30 percentage points in pay TV penetration. This gives you a possible maximum upside. So we just started the journey. We recorded one of the strongest quarters in a touch, but still, we have some way to go in order to converge with the European leaders on this one.

Thank you very much.

The next question comes from the line of Shawnee AJ with J.B. Morgan. Please go ahead.

Hi, guys. Thank you for taking my question. My first one was around wholesale. Press release, you mentioned that you're seeing pressure from other builders. So can you just go into more detail what exactly you're seeing in the market and more specifically on PPC, whether they've been rolling out in your regions and whether they're impacting your wholesale revenues there? And then the second one was just around the Fibre coupon that's due to come in at the end of this month. So obviously, you've seen pretty flat fixed revenue growth this year. Do you think this actually inflects that into more positive territory? Or do you expect pretty flat growth again in 2025 on the fixed side? Thank you.

Okay, let me start with the second one. I think that I have already addressed this one. So yes, there is an expectation that once that coupon kicks in, this will allow us to move our customers in bigger numbers and in better output development from corporate infrastructure to FTC-H infrastructure. That's clear. Now, when it comes to the overbuilders, yes, we see PPC overbuilding part of our networks. Now, with regards to our wholesale revenues, having set up and signed recently this wholesale agreement with the two retailers, up to today at least, in the market, we have more or less secured the monetization of our infrastructure, even in territories where we are overbuilt by PPC. That's the only thing that I could comment at this point in time.

Okay, thank you.

The next question comes from Delenno Draziotis Tamatis with EuroBank Equities. Please go ahead.

Yeah. Hello there. I hope you can hear me now well. Well, two questions on my side, please. Firstly, on TV, you've echoed quite a positive message following the recent wholesale agreement with Nova. And I guess the read-through that this might have in terms of the legal market moving onshore I'm just wondering, do you see a risk from these initiatives having a counter effect, namely resulting in the commoditization of the pay TV market since effectively consumers will be able to access pretty much the same sports content irrespective of their provider they subscribe to uh and secondly for romania i got cut off before maybe you've already addressed this uh so i'm just worrying uh after you know several twists uh and turns you seem to have changed strategy seeking to uh sell this in pieces do you think this might eventually facilitate the approval of the relevant authorities and what is the plan b the latest agreement does not go through thank you thank you for the question let me take the first one i mean

Obviously, sports content is not the only thing that comes with COSMOTE TV, so we have a far more extensive lineup. We have also included recently an agreement, a deal that Deutsche Telekom has struck with Netflix, so for sure our proposition from a content perspective is differentiated, which of course made us feel extremely confident ahead with this cooperation. Also the product experience that each one of the operators are providing, I mean, coming out of different platforms is another element which differentiates us. So we felt very, very confident with going ahead because of the fact that we had other things differentiate and keep the customers happy with us. When it comes to Romania, Babis, do you want to comment?

For Romania, it is true that this time the structure of the sale is different than previously, so it's a mixture of selling the company and selling the assets to two different existing players. That gives much more high credibility on the possibility to complete the transaction, and this is what we are focusing on. And you have seen in the past that we have We have attempted to sell with different schemes. At that time, the next plan was to try to modify the selling structure in order to be successful. Now, this time, we believe we are on the very right track. And depending on how this is going, we will also calibrate our next steps.

Great. Thank you.

As a reminder, if you wish to ask a question, please press star and one on your telephone. Ladies and gentlemen, there are no further audio questions at this time. We will now move on to questions from our webcast participants. The first question comes from Andreas Demirdakis with NTUA, and I quote, firstly, congratulations, Mr. Nebis, and wish you the best for a successful term. Based on the presented data, there is limited growth for the fixed services segment. How do you plan to reverse the trend? Over than the 3-gigabyte service, do you want to roll out the 10-gigabit service? This is currently in testing, and if yes, Are there premium services able to drive revenue besides acting as technology demonstrators?

Yeah, I mean, I think I have covered most of the question. We talked a lot about the fixed service revenue growth course and opportunities that we see ahead. Now, when it comes to the 3 gigabit service or the 10 gigabit service that will come, I mean, it is still quite early. At this point in time, the speed that we offer are, you know, the right ones based on the customer's needs and the application's expectations. So yes, progressively we will move up the speed ladder, but at this point in time, customers would care more about 300 megabits or 500 megabits or up one gigs in the consumer segment. And of course, yes, we could see some higher speeds in more demanding B2B customers.

Thank you. The next question is from Anna Oshinchukova with JS, and I quote, one, please could you talk about the competition you are now seeing now in fixed and mobile, and two, what exactly drove the weaker broadband net edge this quarter, minus 7K versus plus 1K last quarter?

Yeah, I think I have also addressed this one. I commented on the challenges that in addition to traditionally summer months being low key months in terms of broadband momentum, broadband net adds, we also had some challenges in the poor copper areas, result of satellite effects, satellite pressure and FMS pressure, which are predominantly seasonal, as I commented.

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.

Thank you all for your attention, questions, and for your interest in OTE. I'm looking forward to pursuing our dialogue and meeting some of you in the coming quarters. Building on the evident strengths of the group, I'm absolutely committed to the development and success of OTE. We will talk again for our full year results next February. In the meantime, take care and have a nice day.

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