Telekom Austria Ag

Good morning, everybody, and thank you for joining our Q4 and full-day results 2023 call. I am here with our management, our CEO, Alessandro Plaza, our deputy CEO, Thomas Arnoldner, and our group CFO, Sonja Wallner. As usual, they will need you for the presentation now, and we're happy to take your questions afterwards. Thank you.

Thank you. Good morning to everyone, and thank you very much for joining us today. I hope you can hear us well. It's flues and colds all over Austria, so sorry for the quality of our voice. I hope we will get soon fast. A summary, if we move to a slide. First slide, please. As a summary of the quarter, you see that our revenues went up 2.3%, 5% if you adjust by currency effects, especially Belarus. We saw in Q4 basically the same trends as during the full year, which are good service revenue development in mobile, very good traction in ICT or B2B solutions. EBITDA went up before restructuring one-offs and FX effects 7.3%. What we reported was 11.4%. We had some special effects. Sonia will talk about it a little bit later in detail. We bought a spectrum in Bulgaria. It was a renewal of the 7 and 800 spectrum for a 15-year period for 22 million euros. Finally, in December, we got upgraded as well by Moody's from BAA1 to A3. Now all major rating agencies are rating A1 in the A category that we are very proud of. We are also very proud of having reached the sixth best performing telco worldwide in the CDP list, which has been a focus area the last couple of years. And as you well know, we have managed to spin off our tower company, Euro Telecites, basically with some impacts in A1 revenues, almost no impact, minus 0.1, but we managed to spin off 1 billion euro of financial debt. And, of course, there is impact on precautionary due to higher leases moving forward. For 2024, we expect revenues to grow between 3% to 4%. CAPEX, around 800 million euros. So we are backloading CAPEX basically based on what we presented in the last capital market days. We are putting some projects under review in 2024, especially these special projects that we have all the time that we don't know exactly how much value They are bringing to the company, so we are having an extra look at that. And the management board is recommending the board and the AGM afterwards a dividend increase to 36 cents per share. Having said that, I will move to Sonia, who will drive us into the details of the financials in the quarter and the full year.

On the next page, in the mobile business, our subscriber base increased by 5% to 6% in the new year comparison. This was driven by the growth of M2M major latency. Excluding M2M subscriber, the customer base remained stable. We saw growth in post-paid subscribers, especially in Croatia and Belarus, and in M3, especially in Bulgaria. This was the process in prepaid subscribers in Belarus. The increase in RGUs was above all driven by growth in Belarus and Bulgaria. Good demand for TB in the international market offset the legacy of white losses in Austria. Reported RQ in Q4 increased in the whole market except Belarus. Also, operative RQ excluding M2M business subscribers and negative prices increased by 4.1% in Fort Porter. In the full year, it exhibited growth of 1.9 percentage points, of 1.9 percent. Operative ARPL is constant currency increased by 2.1 percent in Q4 2023, and slightly above full year increase of ARPL of 1.5 percent. Moving to the next page, please. Those revenues were the main driver for the revenue increase, both in Q4 and the full year of 2023. And looking at the chart of the bottom left, we posted growth in all areas except for fixed voice and the regulation-driven declining interconnection. The main growth drivers were retail mobile, so mobile core and cubes. We also saw an encouraging traction in the solution business. On the retail fixed line side, broadband and TV, especially in CE, supports the growth. As mentioned before, sales revenues also profited to a large extent from indexation measures, a strong mobile core business, successful upsetting to higher speeds, and across selling measures, especially in the CE countries. Equipment revenues declined slightly to Austria and Serbia. Overall, we were able to overcompensate 77 million negative foreign exchange effects resulting from only Belarus. The currency depreciated by 15% on a period average in the full year 2023 and by 26% in Q4. So the last quarter was especially heavily hit by the currency with a negative impact of 33 million in total revenues. Excluding foreign exchange effects, all markets posted revenue and service revenue growth. 80 percent of the group revenue growth was stemming from international markets. There was more than 50 percent from Bulgarian operations. Next page. In Austria, most of the previous trends remained unchanged amidst the rather rational Christmas seasons on the mobile market, while the fixed-line markets stayed competitive. Service revenues were the world's driver on the top line and benefited from taxation measures that we implemented already in May 2023. A strong mobile core business and good traction and solution business that overcompensated the loss of interconnection as well as the regular fixed voice revenue decline as we already showed in the previous years. Mobile service revenues increased by 3.3% in Q4 2023 with growth both in mobile and core in the Q business. Recent fixed line service revenues increased slightly on the factor of indexation measures. At the same time, on the subscriber side, we saw the general trend of losing voice and basic broadband HUs, while advanced broadband HU numbers increased and mitigated some of the former losses. Equipment revenues were lower after larger ICT customer projects in the previous year. Also, we are seeing a general calm hardware tariff market, a certain shift to seem only to offerings. In this context, we also keep our subsidies low because, as mentioned in the previous calls, we see subsidies as a distraction of the tactical measures and clearly decrease them wherever possible. Looking at the OPEC side, we want to flex several non-operational effects in Q4 2023. In total, OPEX included positive 1 knots in the amount of €41 million. Thereof, 35.5 were related to the activation of the stampede, which was booked in the OPEX in Q3 2023. So a positive effect in Q4, while it has no effect in full year results. The remainder was related to 10 million related to a release of provision in workforce costs, and 55 million were related to a provision in other office related to a legal case. So excluding these effects, more effects was mainly due to high electricity and workforce costs. Operationally, workforce costs rose related to increased inflation, while the number of FDs decreased. Overall, this result is a stable performance of the underlying EBITDA, excluding restructuring one-offs. Please move to the next page. The international markets exhibited another strong quarter, with 4 percent service revenue growth in double-digit EBITDA growth in all markets except Belarus. For constant currency basis, service revenues in EBITDA grew by 10 and 16 percent respectively. The clear growth drivers were Croatia and Bulgaria, the two markets beside Austria, where we implemented indexation measures in June, July, and March respectively. In Bulgaria, Iran continued to perform very convincingly in all business areas, besides a very strong retail mobile performance on the back of upsetting indexation results. The results profited from the strong demand for security services and IT solutions in Q4, particularly from two big ICT projects. Growth was fueled by strong demand for high-speed services and TV products also lifting RCUs up by 5.2%. Croatia exhibited an extraordinarily high growth of 44% in EBITDA, also supported by some small non-recurring effects. Operationally, the result was already strong in the back of 11% service revenue increase. OPEX was lower despite rising workforce and electricity costs. Despite macro regulatory headwinds, Belarus delivered a solid operational performance in Q4 on the back of successful upsetting and charity migration. Besides that, the higher RGU subscriber base benefited service revenue growth. Roman will present more details on Belarus afterwards in the focus points. Also, the smaller markets exhibited strong results. Let's move on to the next page of P&L. To sum it up at the end, in the full year, we delivered a 5% revenue increase, thereby exactly meeting our guidance. 75% of the growth was driven by service revenues. We managed to offset the OPEX increase, mainly stemming from high electricity, workforce, and product-related costs, and translated 5% revenue growth into 5% EBITDA growth. Operationally, EBITDA also increased by 5%, as positive one-off effects and negative foreign exchange effects offset each of the full year 2023. The margin remains stable. The operational improvement also led to the increase of EBIT of 4.5% despite the higher depreciation amortization. The latter increased now into Q4 related to the rights of use asset after the spin-off of the tower business in Q3 2023. The financial result of negative $90 million versus $55 million last year was mainly due to higher interest expenses on leases and financial debt. The increase in interest expense on lease liabilities is mainly due to interest rate levels as well as the spin-off of the euro-telecent. The increase related to the financial liabilities and interest Income from the financial asset related to the issue bond and the long-term debt bank, as well as the invest of these funds in the previous subsidiary pay-one-to-outholding, and was generated in the period between the issuance, respectively the investment in July, until the spin of the Eurotel asset at the end of September 2023. Altogether, with the stable income tax, we resulted in a slightly increase of net results to 646 million euros. Then moving to the next page, to the free cash flow, and in the full year of 2023, we delivered a free cash flow of 355 million euros compared to 603 million last year. Despite the solid operational performance and the EBITDA increase of 86 million, the difference to last year amounts to 250 million euros. The biggest part of the difference, 120 million, was attributed to a spectrum payment of 103 million in 2023. These payments were also higher by 74 million euros, mainly as a result of the tower spin-off last year. Income taxes increased by 43 million euros due to a better operational result. And the vendors can be explained by the swing in change of working capital from a positive $90 million last year to a negative $14 million this year. We saw positive timing effects in accounts receivables and received some parts, roughly $40 million of the subsidy related to the broadband subsidy program in Austria as a prepayment. The only partly compensated, the lower increase of the accounts payable and the increase in installments is . The low increase in accounts payable was mainly reflected in the timing effect, especially on the CAPEX side, but the negative effect from installment sales was reflected almost to Belarus. In 2022, we temporarily reduced the period for installment sales in Belarus to six months, positively affecting the free cash flow in 2022. After we increased the contract periods again in the second half of 2022, we have a more normal development now again in the 2020. Now handing over to Thomas with the focus on the presentation.

Thank you, Sonja. As always, we will give some more details on some areas of focus. First of all, as a reminder, because we cannot talk about the year 2023 without talking about the span of our tower business, a reminder on this transaction for your convenience. As you know, end of September, with one of our tower businesses, we listed it as Eurotelersite AG on the Vienna Stock Exchange on a pro-rater basis and with an unchanged shareholder structure at the time of the speed-off direction. For us, it was very clear, allowing us to focus more on our core telecoms business, more efficient budget allocation. We could substantially reduce our financial debt by around 1 billion of euros. And of course, we could unlock value for our shareholders through the higher trading multiples of those tower assets. Sonja already briefly mentioned some of the financial impacts of the transaction on our P&L. I'm not going to go through all the details here. You'll see it on the slide. On the P&L, the main impact is visible in the EBITs due to higher depreciation. The net income is additionally impacted by higher interest rates related to the rights of use asset, where the interest on financing is obviously lower. Carpe is lower by 40 to 50 million euros. At the same time, our free cash flow is expected to be lower by 60 million euros per year on average driven by this transaction. And as Alejandro pointed out already at the very beginning, no change on dividend policy. We again increased our dividend, at least proposed to increase the dividend on an undoubtedly very sustainable level. On the next page, as always in February, we want to provide you with a little bit of update fiber expansion and investments in Austria, fiber and including also 5G. As you might remember, we increased our speed of the fiber rollout in 2022 already, where we basically doubled the CapEx dedicated to the fiber deployment on a new level, which is now pretty similar every year, so also similar level in 2023. We currently have 73,000 kilometers of fiber network covering all of Austria. We were quite successful in the broadband subsidy program called EVA 2030, aiming at the fiber rollout in the more rural areas of Austria, where we received 234 million euros in subsidies last year, and as a result, in 24 fiber rollout will, of course, focus a little bit more on those rural areas. Following the full deregulation, which we achieved in 2022, we have established now a significant number of partnerships with alternative operators, roughly 50 partnerships which we currently have, focusing on the new fiber network expansions, which we do, allowing us to feed the network better and to enhance the capabilities and also to increase the utilization of the final network. Also on 5G, we keep investing. We have currently achieved around 85% of pop coverage in Austria. And looking ahead, as I just indicated, we remain steadfast on our commitment to the fiber investments, even though, as Alejandro pointed out, we have some different phasing in the CapEx in 2024. The fiber rollout here will not be impacted. Next slide, Belarus. Here again, we want to give you a little bit of details and kind of the current challenges. which we have. On the GDP side, we see improved development in 23 versus 22. In 22, we had a contraction of 3.7 percent. In GDP, we had growth in 23 of 1.6 percent again, and expectation is our current forecast is 1.3 percent GDP growth for this year. Inflation was close to 6% at the end of December 23, which is slightly higher than in previous years, but still very much controlled by the government. We were also impacted because as to counteract inflation, a general ban on price increases is taking place in the country. Also looking ahead concerning inflation, the National Bank of Belarus projects a CPI increase in 2024 that does not exceed 6 percent year-over-year. As it was mentioned previously, we have also seen a substantial depreciation of the Belarusian ruble, 15 percent in 23 with the biggest hit in the last quarter with 26 percent decrease on period average. As a result, the revenues and EBITDA in Euro terms were affected by negative 37 million and 15 million euros, respectively. While the business managed to grow revenues in EBITDA in local currency terms, it was noticeable that the absence of price indexation, basically from the beginning of last year, caused these growth rates to soften in the last year. Supply chain challenges remain. have been interrupted with some of the key vendors, but I think it's doing a great job in mitigating these in line, of course, with the sanction framework, but also with the CELCO exception rule. In this context, we, of course, continue to follow a diligent approach regarding investments. And last focus area, as it has been let's say, getting lots of attention all over the place, especially in the past year. We wanted to talk a little bit of what we do with respect to artificial intelligence in Avon Group. We have been using AI or related technologies for quite some while in the company already. We started using machine learning around about 15 years ago in the areas such as share prediction, customer segmentation, shopping basket analysis, et cetera. But around five years ago, we started a transformational project where we moved the way we deal with data to a new level by adding a data lake to our conventional data warehouse, allowing us to work with much larger data volumes between time data in order to achieve professionalization. In this area, we are giving on the left-hand side, you see some of the areas where we use it. For example, in marketing and sales, customer experience management, financial forecasting, planning of fiber requirements, etc. We've also started using chat GPT with an internal instance in the companies so employees can use it in the daily work. We have experiments going on using generative AI, for example, in software development, in document intelligence, in customer interaction, and again, of course, in customer feedback and marketing. We are in a learning journey here. We are very excited about it, but of course, much of that is in its state at the moment. Along with that, we have also introduced a robust framework of guidelines, processes, and tools to ensure a responsible treatment of AI in the company and, of course, ensure data privacy. We have a fair AI policy in place and we also introduced methods to test our AI models against biases. With that, I'm handing over again to Alejandro for the outlook and for tuning.

Thank you very much, Thomas, for the focus points and we would like to close the presentation with the guidance 2024. As you can see, In the slide, we expect total revenues to grow between 3 to 4 percent, capex around 800 million euro. As was mentioned before, we are reviewing certain projects to see if they are strategically fit for our purpose or not. That's why it's a little bit lower than expected capex for 2024. Actually, we will accelerate a little bit investments in the fiber rollout in 2024. And Thomas and me, as management board, we will propose to the supervisory board a dividend of 36 euro cents for the full year 2023. Previously, it was 0.32. And with that, I'll hand over to Susanne and thank you for listening to our presentation.