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Thank you for standing by, ladies and gentlemen, and welcome to the OTE conference call on the first quarter 2018 financial results under IFRS. We have with us Mr. Michael Tsamaz, Chairman and CEO; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Kostas Nebis, Chief Commercial Officer, Consumer Segment; and Mr. Evrikos Sarsentis, Head of IR and M&A. [Operator Instructions] I must advise you that this conference is being recorded today.
And we now pass the floor to Mr. Michael Tsamaz. Please go ahead, sir.
Good morning or afternoon to all of you, and welcome to OTE's conference call to review our results in the first quarter 2018. I will make brief comments on the period, and Babis will go over the performance and financials in more detail. Then we'll answer to your questions.
The early months of 2018 were very similar to the final months of last year. In Greece, our performance in the quarter was solid. We continue to make progress in monetizing superior infrastructure we have built, and we reached important milestones. In Romania, we are seeing early signs of stabilization following the introduction of attractive mobile offers. And as we had anticipated, Albania is benefiting from the return to more normal market conditions.
The group's top line was down less than 1% or EUR 8 million from first quarter last year. If you consider that our all other segment was down EUR 12 million in revenues, with no associated profitability, you will see that our core business did pretty well. If you remember, we had a similar impact in Q4 but we have even better retail trends in this quarter. The improvement mainly comes from mobile, but of course, the distinction between fixed and mobile in terms of revenue and profitability is becoming increasingly blurred.
In Greece, retail operations had a very good performance across the board. Revenues from Retail Fixed services were up once again, as voice experienced the smallest decline in years, less than 1%. The real winner was broadband, where we saw revenues jump 8%, and we are particularly proud of this as this is the area where we have concentrated our -- the bulk of our investments. Not only our subscriber base growing, but demand for our fastest speed solutions as the sale of the total basis increasingly rapidly.
On the Greek Mobile side, on a like-for-like basis, service revenues were up more than 2%. We owe this to a number of factors linked to the implementation of our strategy and to the superiority of our network. We are successfully migrating customers from prepaid to postpaid, and at the same time, encouraging growth in prepaid ARPU. And we are definitely monetizing our investments in mobile data. Data traffic nearly doubled this year -- this quarter. Compared to last year, data users represent more than half of our base, and revenues are up nicely.
I would also like to mention the growing penetration of our app digitalization, which is great -- which is a great tool for our customers and has clear cost savings potential for us. Finally, you should note that we are continuing to benefit from growth in visitor roaming revenue, though obviously the boost we will get from tourists this year will not match last year's considerable growth rate. So we are seeing the benefits of our strategy in Greece, making good progress in all areas in which we have decided to focus and invest in. We should continue to see growth in these areas in coming quarters, even though we are running against tougher comps as the year progresses. And profitability should also continue to be strong.
Adjusted EBITDA in Greece was up more than 5% in the first quarter. Part of this was due to one-off factors and changes in accounting standards, but the underlying growth was also robust. In Romania, we are starting to see early signs of stabilization, driven by mobile. Combined Mobile Service revenues were up more than 5% and nearly offsetting the drop in Retail Fixed services. So overall retail service revenues were virtually unchanged. As for the EBITDA decline in the country, it was entirely due to the fixed, while mobile was up slightly.
In Albania, as we had expected, the rationalization of the market structure following the exit of the fourth mobile operator have the anticipated impact. We recorded a pickup in Mobile Service revenues and subscriber numbers, and adjusted EBITDA more than doubled.
As Babis will discuss in more detail, group CapEx was down nearly 10% in the first quarter compared to last year, and we achieved a positive swing of nearly EUR 20 million in our free cash flow. Consequently, we are well on track to meet our full year 2018 objectives, notably, the reported free cash flow target of EUR 260 million in which our shareholder remuneration policy is based, pursuant to this policy in early April. After the end of the quarter, we also launched our share buyback program, which has been active since then.
Finally, I am happy to report that during the quarter, we have reached a new Collective Labor Agreement with OTE fixed-line employees in Greece. This was achieved at the conclusion of a very constructive process, and I firmly believe that this new framework provides a win-win solution for all parties in the negotiation.
With this, let me now turn the call to Babis for a review of the quarter.
Thank you, Michael, and good day to all of you. As Michael noted, the first quarter was very much an extension of what we did last year, with favorable trends in Greek Retail Fixed and Mobile Service is continuing and further pressure on Romanian fixed.
International mobile operations for the impact are on a more positive track. As a result, we will pursue the implementation of an unchanged strategy, investing in our infrastructure to give our customers the best experience and to strengthen our positioning as a technology leader.
I will turn in a minute to our performance in the quarter, but before, I would like to point out that we are applying IFRS 15 as of 2018, including the cumulative impact of the new revenue recognition rules on contracts that were not completed before the beginning of the year. As a result, in the following discussion, I will sometimes refer to numbers before the application of IFRS 15 to provide you with a better comparison between last year and this year.
Total group revenues in the first quarter were EUR 921 million, down less than 1 point. More than 100% of the drop can be attributed to lower sales from low or no margin revenue streams, namely the end of Rural Broadband construction in Greece and lower international transit traffic. Group adjusted EBITDA was EUR 315 million, up 3.6 points. Part of the EBITDA improvement reflects the adjustment to our future liability related to the new labor agreement that Michael just mentioned. But the adjusted EBITDA growth would have been distinctly positive even without this impact. Group EBITDA margin was strong at 34.2%, up 150 basis points.
Let's look now at our performance country by country. In Greece, revenues were down by 0.5 points to EUR 686 million. Again as in Q4, all of the decline was due to wholesale and other revenues, particularly if you look at it before IFRS 15. In comparable terms, revenues from Retail Fixed services were up 1 point, while Mobile Service revenues grew 2.4 points. The growth in revenues from Retail Fixed services was driven by broadband revenues, which were up a sharp 8 points in the quarter while the erosion in voice revenues, at less than 1%, was the lowest we have seen in a long time.
Net additions of access lines in the Greek market, as a whole, were positive with 9,000 new lines. Of this total, we secured 6,000 lines, our second consecutive quarter of net additions growth. As in Q4, we managed to defend our customer base against competitive pressures.
We had another very strong period of broadband net additions at 43,000 or almost 85% of the market net adds, just a little below the multiyear record level we posted in Q4 of last year. Over 68% of our fixed customer base now enjoys a broadband connection. This also means that we continue to have a substantial customer pool to continue growing our broadband subscriber base.
Broadband speed, as Michael noted, is definitely an important growth driver. The number of fiber to the cabinet subscribers rose by more than 51,000 in the quarter, a record number, bringing year-over-year growth to over 60 points. And of our total fiber subscriber base, now more than 1/3 take advantage of speeds of 50 million bps or higher. One year ago, the number of portion was just 1/5.
As we have told you in past quarters, the Greek TV market is maturing. We ended the quarter with 528,000 subscribers, an increase of about 3,000 households. The market, for its part, lost a few thousand subscribers. A few days ago, Cosmote TV had announced that it had renewed its exclusive broadcasting rights for Spain's LaLiga championship games. This follows the renewal of Champions League, Bundesliga games, a few months ago and underscores our intent to provide comprehensive attractive content to our subscribers.
Mobile Service revenues in Greece were down slightly on a reported basis. However, excluding the impact of IFRS 15, they were up by more than 2 points, the fourth quarter of growth in a row. We expect conditions to remain favorable for the balance of the year, but keep in mind that we'll be working against tougher comps as the boost from business roaming will -- while still positive, should also be more moderate than last year.
Once again, mobile data was responsible for the large portion of the increase in service revenues, though at that level, the growth rate is naturally slowing down a little bit. The smartphone penetration has now passed 2/3 of Cosmote's active base, with the number of active data users up 22% year-on-year and now accounting for more than half of the base.
Mobile Service in Greece remains squarely focused on driving value from the market, leveraging our investments in 4G and 4G+ networks, our customer service and the strength of our brand. We are confident that this is the right approach. Wholesale revenues were down more than 5% in the quarter. This is mainly due to the international transit and the LLU tariff and pricing.
In business-to-business activities, we had another decent year -- decent quarter. ICT revenues were up about 4% to EUR 39 million. Total Greek operating expenses, excluding depreciation and amortization and one-offs, were down 4.6% at EUR 409 million. Total EBITDA in Greece was up by more than 5% to over EUR 280 million. Half of this improvement is due to the net impact of the SRI and other provisions, while the rest is driven by the improved underlying profitability in fixed and mobile service revenues. The SRI reversal relates to the new Collective Labor Agreement, which aligned employee retirement payments with common market practices. Partly offsetting these and reducing the net benefit to EUR 80 million, we took a number of other operational provisions arising from existing employee claims, regulatory disputes and other matters.
The EBITDA margin in Greece was 40.9%, up 230 basis points from the first quarter of last year. Even excluding the one-offs I mentioned before, Greek EBITDA margin would have been substantially up.
Romania. Combined revenues were down nearly 2% at EUR 227 million. However, retail service revenues were virtually flat, as the increase in mobile, including the fixed mobile convergence solution nearly offset the decline in fixed retail. Revenues from Retail Fixed services were down nearly 12% or 9% before IFRS 15. This clearly represents a further deterioration compared to last year, with negative performances in broadband and TV as well as in voice. The company's working hard to contain the erosion in fixed in a price-driven market, but its best defense comes from mobile.
So mobile service revenues were up more than 5% or nearly 8% on a comparable basis, excluding the IFRS 15 impact. This reflects strong double-digit growth in revenues from the fixed mobile convergence solution, which added approximately 46,000 users during the quarter to reach a total of 550,000 households. This primarily due to higher postpaid revenues energized by the Netliberare offering, which also boosted data revenues up more than [35%] this quarter. We will continue to focus on postpaid high ARPU segments of the market.
Wholesale revenues in Romania were down on international transit, while data and Internet traffic were positive. Total operating expenses, excluding depreciation and amortization and one-offs in Romania were up slightly due to the increased acquisition expenses in mobile, while personnel costs were down by more than 15% in the quarter.
Total EBITDA in Romania was down 11% in the quarter or down 17%, excluding IFRS 15. This was due to the negative performance of fixed retail services and particularly to dropping voice revenues flowing directly through to EBITDA. The EBITDA margin in Romania fell 150 basis points and stood at 14.6%.
Lastly, Albania. The situation is improving as the market has gone from 4 to 3 operators. Our service revenues in the quarter were up more than 1% like-for-like, extending the gradual improvement we have recorded in the latter part of last year. Data revenues for the impart, were up 55%. We are optimistic that the rationalization and stabilization of the Albanian mobile market will continue to move forward in the balance of the year and that our operations will further recover.
EBITDA in Albania more than doubled in the quarter, reflecting improved retail margins. The EBITDA margin in Albania returned to double-digit territory, 10.8%, with sub 570 basis points versus last year.
Following this country review, let me take a look now at our other financials. As I mentioned before, total group EBITDA in the quarter was up 3.6%, amounting to EUR 315.1 million. Total group operating expenses, excluding depreciation and amortization and one-offs, amounted to EUR 618 million, down 3% in the quarter. Total depreciation and amortization in Q1 was EUR 204 million, up about 4%, reflecting mainly an account investment impairment for Germanos brand name in Romania.
Net financial expenses totaled EUR 31 million in the quarter, an increase of nearly 6%, reflecting, however, foreign exchange differences while actual interest expenses were significantly reduced. Our recent bond redemption should keep financial expenses low as we move forward.
Income taxes totaled EUR 46 million, up nearly 7% from Q1 last year on higher profit before taxes. Group net income in the quarter was EUR 39 million, up over 7%. CapEx, excluding spectrum, amounted to EUR 167 million, down 10% from the first quarter of 2017 last year, in line with our expectation that CapEx levels will gradually return to normalized levels. We have confirmed our 2018 CapEx guidance of about EUR 700 million in CapEx.
Adjusted free cash flow was EUR 9 million in the quarter, a positive swing of EUR 20 million compared to Q1 last year. We also confirmed our adjusted free cash flow target of EUR 350 million for the full year of 2018.
With this, we are now ready, Michael, Kostas and myself, to take your questions. So operator?
Your first question from Eurobank Equities comes from the line of Stam Draziotis.
First question would be on Romania. At the previous conference call, you had referred to encouraging operational progress there and a stable outlook. I can see that today's press release refers to an uncertain outlook. Does this mean that you have signs that have made you a bit more cautious? And if that is the case, what are these signs? And what does this mean exactly in terms of the potential turning point for the particular market? That was first question. And secondly, second question would be on Greece. We've completed a year of positive growth in service revenues if we exclude the IFRS 15 impact from this quarter. Given that the comparative will get a bit tougher in the rest of the year, just wondering whether you basically anticipate this good and positive momentum to continue.
Thank you for the question. On the first -- on your first point about Romania, we -- I think the message we have given in the tone that we are remaining very cautiously optimistic that our mix of strategy we have in place should work. We have seen that the mobile part is responding very well to our commercial initiatives, and the numbers are there. You know that the take-up of our new services is well received by the market. The counterbalancing factor is the performance of the fixed-line, which is improving in terms of the fixed-mobile convergence. However, the one does not offset the other for the time being. That's why we are always very cautious before we celebrating the permanent recovery. And you will hear us always denoting that Romania is a very tough market. We have a mix of strategies that seems to work, so let's look in the next quarters how this develops. And Kostas will comment on Greece.
Yes. As far as Greece is concerned, and already mentioned by Babis, it is true that this is the third quarter -- fourth quarter in a row that we have a positive development, especially on the Mobile Service revenue, and we are pleased with this performance. This performance is mainly driven on mobile data demand growth across both segments, pre- and postpaid, supported by our more-for-more data monetization designs and growing 4G handset penetration to the base as well as balance between pre and post customer base reflected in the growing contract customer base. We expect this to continue.
Having said that, as Babis already mentioned, we expect slightly moderate trends looking forward as we will start comparing against 2Q last year, which was the milestone since the turnaround has started. Plus the roaming revenues, which this year are going to be definitely at a slower pace roaming numbers than last year.
Okay. So if I understand correctly, you are basically alluding to positive growth but obviously more moderate compared with the previous quarters?
Exactly.
Okay. And sorry, just a very quick follow-up. You mentioned that your mobile subs in Greece were 4% higher year-on-year. Could you tell us what the year-on-year change was for business customers, please?
Slightly positive.
Now your next question from Morgan Stanley comes from the line of Luis Prota.
First question is on Greece. And the profitability in both fixed and mobile, you were mentioning some one-offs and reversals. I would like to understand what is nonrecurrent and what is recurrent this quarter to try to extrapolate and see what could we expect in the next few quarters. So if you could give us some details on which were those one-offs, what's the nature, the amount and which ones were in fixed and mobile would be very useful.
And the second question is on the TV market slowdown. Your TV customers currently account to less than 1/3 of retail broadband base, which is good but is definitely suggesting that there's some room to grow. What can you do to increase the liquidity in the market or the take-up here? Is this more a satellite to IPTV migration? Or what are the dynamics here to see the TV subscribers growing again?
Okay. Let me start with the second question around TV. It is true that TV -- TV's growth has been slowed down since last year, I would say, as a result of a number of things, including taxation as well. Having said that, we still report a positive quarter in terms of net adds, 3,000 for the quarter, roughly [ 530,000 ] Subscribers at the moment or 5% roughly year-on-year growth. We expect more growth to come in pay-TV but moderate as we have already observed over the last years. But we are also looking into bringing in a new proposition, capitalizing on over-the-top type of services, addressing new audiences like the [millennials] for example, with customized bundles and flexible pricing options to carry on the momentum looking forward.
And on your first question, Luis, is the net effect of all these reversals and one-offs that came out of the negotiations and the rest of the items was that this positive profitability was supported by roughly EUR 8 billion. This is not something that would have happened hadn't we had these kind of reversals. However, even if we strip this out, the profitability of Greece is positive. Instead of 5.3% points, it would be about 2.5% growth, which is positive. And it's a trend that, regardless of the timing of provisions, et cetera, it's a trend that we continue to -- we expect to continue to see in the coming quarters as well. So because it's fueled by the underlying performance of the profitability-generated revenues like the Retail Fixed and the retail mobile, which is in the positive trajectory as I think it was clear from the presentation.
Can I follow up on this mix? Did you said EUR 8 billion is the net from reversals and one-offs? Should -- there's definitely a much higher than anyone expected margins in fixed but lower in mobile. Should we assume that the fixed margins are higher than they will be the rest of the year and the other way around in mobile? So one-offs, negative one-offs, more concentrated in mobile and then reversal in fixed?
That's correct, that's the correct. There are some timing -- as always at the beginning of the year. Our friends in commercial are more aggressive than -- in order to build up the base. So they are moving ahead in commercial expenses, which is the right thing to do. That's way the mobile standalone P&L is a bit affected with that one. It will cover, as we go ahead in the year. And increasingly, as you saw, we are reporting the total Greek number for Greece, which is agnostic of all of these convergence story that goes on. And the reported profitability at the country level, which is understandable that it's the right thing -- the correct number to look at. But in a nutshell, mobile profitability is going to improve in the quarter. So the commercial pressure at the beginning will not be present every quarter. And the fixed one is fueled by the good performance of the Greek fixed retail revenues.
[Operator Instructions] Your next question from Citi comes from the line of Georgios Ierodiaconou.
I've got a couple of questions, the first one on Romania. Today, we have the announcement of the Liberty-Vodafone deal, and I was wondering if you have any thoughts as to how it could affect the market, and whether there's any remedies you expect to see, whether you expect the market to become less or more competitive on the back of that?
And a question more on general for the group but maybe more specifically around Greece. I mean, you mentioned the reversal this quarter, the tougher roaming comps and mobile comps in general as you go through the rest of the year but also the potential perhaps for some lower commercial expenses in mobile. Overall, how should we think about the outlook of EBITDA during the rest of the year? Is this probably the best you can get? Or do you think with all the moving parts we end up more or less in the same situation as before?
And perhaps the third question will be a bit linked to the second. Your fixed KPIs are very strong. Are you having any thoughts of perhaps commercially being a bit less aggressive given that you seem to be taking the lion's share of the market growth?
Thank you for the questions. Let me start with the Romanian case. It is true that potential consolidation between Vodafone and Liberty will create another integrated player. That means that not only us but also the other local players will feel the pressure, so it will be a combined situation there. We feel confident that by the time that happens, our mix of mobile fixed -- fixed and mobile convergence plus the mobile stand-alone will further advance the benefits we see. And when the new competitor actually is -- will be operationable, we'll have a right mix in the market to compete.
So regarding whether that goes ahead or not, we cannot comment on that one. It's a matter of the regulatory approvals and competition authorities in regards to Romania. But we are getting prepared to face the new dynamics in the market.
On the Greek side in the accounting of the profitability and EBITDA. I think regarding the performance of the quarter, if we strip out this reversal, then as I mentioned before in another question, the underlying EBITDA growth was about 2.5 points of increase, which is a trend that more or less we expected to see going forward more or less around there for the coming quarters in the Greek environment. And Kostas?
And as far as the fixed performance is concerned, looking into the access base, we are more or less flat year-on-year, and this is a result of at least the last 2, 3 quarters. This a result of our defending against competitive pressure on the access base. And as we have already explained, the fact that we are generating most of the net adds, global net adds is because we still have a base, which is on the voice-only [currently], which we are progressively upgrading to broadband at the range of 5 percentage points year-on-year. So the result of us upgrading our existing access-only base to access plus broadband base is delivering 85% of the growth of net adds of the market. This compares to the others, who are already more or less fully penetrated on broadband.
You now have a question from VTB Capital from the line of Anna Kazaryan.
I have 2 questions. The first one is about Greek mobile business. Could you clarify the trends, year-on-year trends in ARPU, both in postpaid and prepaid and blended ARPU? And also my second question is about Romanian operations. Could you please clarify how you allocate FMC revenue between mobile revenue and fixed revenue in the region?
Yes. With regard to your first questions around mobile ARPU, directionally, contract is more or less flattish, I would say, while prepaid is growing year-on-year. So overall, we see another weighted average ARPU growing year-over-year if you look into Q1.
Regarding the total mobile service revenue in Romania, in our releases you can see in Page 4 of the press release that we fully disclose the total amount of mobile service revenues that we generate in the country regardless whether this is booked in the fixed entity or the mobile entity.
And I would -- my opinion is that we should focus on that number, which actually delivers the message of what is the result of our commercial activities from the mobile front. And by the way, that was up 5.4% for the quarter, also influenced by the IFRS 15. Okay? Thank you.
Thank you. And there are no further questions at this time, sir, so I shall pass back to you for closing remarks.
Thank you very much for your attention and your interest to OTE. We look forward to talking to you in the summer for our second quarter results. In the meantime, Evrikos Sarsentis is available to answer your questions. Have a nice day.
Thank you very much indeed, sir. And with many thanks to all our speakers today, that does conclude the conference. Thank you, all, for participating, and you may all now disconnect. Thank you, everyone.