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Thank you for standing by, ladies and gentlemen, and welcome to the OTE Conference Call on the Fourth Quarter 2018 Financial Results under IFRS. We have with us Mr. Michael Tsamaz, Chairman and CEO; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Panayiotis Gabrielides, Chief Marketing Officer, Consumer Segment; and Mr. Evrikos Sarsentis, Head of IR and MA (sic) [ M&A ]. [Operator Instructions] I must advise you the conference is being recorded today.
We will now pass the floor to Mr. Michael Tsamaz. Please go ahead, sir.
Good morning, and good afternoon to all of you. Welcome to our fourth quarter and full year results call. We finished the year very much in line with our performance at the end of the third quarter of 2018. Our revenues were stable, and our profitability improved. OTE continued to deliver solid results in Greece with fixed retail particularly strong and continued momentum in Mobile Service revenues.
In Romania, performance was impacted by the measures and charges we took to be able to return to our operations results in the current year. And as you know, we announced the sale of our Albanian mobile business in January, and it is not yet included in our operating numbers.
We delivered on our targets for the year maintaining a high level of investments to retain our competitive advantage with our customers, and we generated considerable cash flow that is used to reward our shareholders pursuant to the remuneration policy we put in place a year ago. On top of the regular dividend, our shareholders will also receive the net proceeds from the sale of our Albanian operation.
Before Babis gives you more details on OTE's performance and financials, I will share with you my views on where we stand and what we expect for 2019. Then my colleagues and I will be ready to answer to your questions.
In Greece, looking at the full year, we added nearly EUR 42 million in revenues. This translated into a EUR 45 million improvement in adjusted EBITDA compared to the level of 2017. Our full year EBITDA margin in Greece was at 4.9%, a full 100 basis points higher than in 2017, reflecting our focus on keeping our cost base under control.
Let's look at the drivers of our 2018 performance. Revenues from Greek Retail Fixed Services rose 1.4% for the year. In 2018, the stabilization of the voice market continued, as we had expected us a year's of erosion with total asset lines and our market sales virtually unchanged and a very marginal decline in revenues.
During the year, we added 107,000 new broadband subscribers with a very strong take-up in the last 3 months of the year, 39,000 new subscriptions. Penetration in our access base is growing steadily, now at 71.5%, but this still leaves us with plenty of space to do even better.
As competition in Pay-TV intensifies, Cosmote added another 17,000 subscribers to its revenue, to its service or 3% on year, holding to its top position in terms of market share with 542,000 customers. The higher top line was fueled by the ongoing increase in broadband revenues, which rose by more than EUR 20 million or just short of 10% from one year to the next. This reflects our strategy that we have been working and investing towards. It as a consequence of increasing demand for high bandwidth, which we're offering to even expanding part of the population. It is, therefore, a strong achievement that we are particularly satisfied with.
Another cause of satisfaction is that our investments in faster speeds are paying off, supporting high ARPUs. At the end of December, 52% of our fiber subscribers were getting speeds of 50 mega bps or more. This compares to just 30% of a smaller base 1 year earlier. We're also starting to see more interest in our 100 and 200 mega bps offers, which represent 3% of the eligible base at year-end. During the year, we increased the commercial availability of fiber cabinets by 2,300 or 20% to a total 131,800 -- 13,800. And we met our target of 14,500 cabinets installed at the end of the year.
In Fiber-to-the-Home, we're still in the early roll out phase and working on finalizing the optical technical -- the optimal technical and commercial solutions. We're committed to an extensive FTTH plan with 1 million homes passed by 2022. 2019 will be the first year of scaled up Fiber-to-the-Home deployment, covering nearly 150,000 homes. We should also say a word about our ICT business as we had quite a good year in system solutions, despite delays in certain public sector projects. We don't expect these to pick up significantly in 2019, but the pipeline of smaller projects mainly in the private sector as well as the opportunities coming from smart city initiatives should support this business again this year.
Now turning to mobile. Comparable sales revenues, i.e. before IFRS 15, increased more than 1% in Greece in the full year. They were down in the fourth quarter, but this largely reflects the timing of visitor revenues as Babis will explain.
On a full year basis, the increase in Mobile Service revenues was largely driven by digital revenues, up nearly 9% from 2017 by prepaid retail revenue and, of course, by data across all segments.
During the year, data revenues rose steadily, adding up to EUR 287 million in total and accounting for over 30% of our total Mobile Service revenue. Data traffic was up 59% for the full year and all other KPIs pointed in the right direction from smartphone penetration, particularly 4G devices to active users of the Cosmote. The app has been adopted by nearly 2/3 of our active users as the primary means to communicate with us and with the introduction of Q4, it will be easier to -- in Q4, it will be easier to rebuild design. Very transparently, we expect this trend to continue.
As we have flagged, Q4 comparisons were tougher partly because of the digital roaming timing difference, partly because of regulatory changes. Comparisons will remain demanding this year, but we're doing all we can to mitigate this through commercial actions. We are taking on both the prepaid and postpaid side of the business and, of course, leveraging the quality of our network and services. And we are continuing to look at other services we can develop to leverage our platforms and create new revenue streams in Greece. So overall, we are confident that as we continue to deliver the best services at the right price and if the recovery in this goes on, we should have another satisfactory year.
As usual, we remain cautious. 2019 is an election year in Greece, where it sometimes creates uncertainty and discontinuities, particularly in the public sector.
Growth in tourism, which has been a driving factor for Greece and for us in the past 2, 3 years, it also started to slow down. Having met our targets for 2018, what do we see for this year? As we told you, CapEx is on steady downturn trend from the peak rates in 2017 of around EUR 800 million. We reduced this by nearly EUR 100 million in 2018 and should achieve another EUR 60 million cash back this year. So we're guiding to about EUR 650 million for full year 2019. This will be primarily dedicated to advancing FTTH since factoring our mobile data networks.
As a result of lower CapEx and continuing to bring the improvements, we expect to see adjustment free cash flow -- adjusted free cash flow up by EUR 100 million this year to hit EUR 450 million. Reported free cash flow, which as you know, is the cornerstone of our dividend policy, should total EUR 350 million as compared to EUR 267 million in 2018.
So our dividend should go up accordingly to about EUR 221 million or EUR 0.46 per share and that does not include the return to shareholders of net proceeds from the sale of the Albanian operation.
Please note that in 2018, we bought back about EUR 94 million of our own shares and that this number should climb to EUR 129 million this year in line with our -- with the increase in our guidance.
From a financial as well as from an operational standpoint, we're in solid position in Greece and working rigorously to return Romania the health. We will do our best on behalf of our customers, employees and shareholders again this year.
Thank you, and now I will turn the call over to Babis, who will review the quarter more specifically.
Thank you, Michael, and good day to all of you on the call today. I remind you that all the numbers I would be discussing as well as those Michael just mentioned are restated to exclude our Albanian business, treat them as discontinued operations in line with IFRS 5. On that basis, group revenues in the fourth quarter of 2018 were EUR 973 million, down EUR 10.5 million from the fourth quarter of 2017.
As in this third quarter, revenues in Greece were up nearly 2% or about EUR 14 million to EUR 736 million. Revenues in Romania, however, were down 9% or EUR 24 million to EUR 242 million. I will get back to this later. The same contrast occurred in the adjusted EBITDA, which was down 2.6% at the Group level, its only quarter decline this year, to EUR 325 million. Adjusted EBITDA in Greece was over EUR 300 million or 2.6% higher than in the fourth quarter of last year. In Romania, adjusted EBITDA fell by nearly 40% compared to the fourth quarter of 2017. Despite this disappointing performance, full year group EBITDA was up, as Michael pointed out. This also impacted group fourth quarter EBITDA margin, which dropped from its record level in the third quarter to 33.4% in Q4. The margin was strong in Greece at 40.8%, up 30 basis points year-on-year, but collapsed in Romania by 510 basis points to 10.2%.
We are pleased with our continued strong performance in Greece, obtained against the margin comparables in Mobile, in particular. In Romania, market conditions remain challenging, more so following the new tax on revenues announced in December, though we are positive that we have addressed the operating issues we faced in the past 12 months. We are optimistic that our efforts to turnaround our Romanian activities will pay off through 2019, although it will be another challenging year.
Let's now look at the performance in both countries. In Greece, if we take out the impact of IFRS 15, revenues from Retail Fixed Services increased 1.6%, while Mobile Service revenues dropped 2.9%. In Retail Fixed Services, though the rate of growth was down sequentially from an exceptional third quarter, when even voice revenues were a positive, it's very much in line with the full year trend. Once again, broadband revenues were up double digits, voice revenues were down slightly confirming the stabilization trend that we have discussed, and we saw a marginal dip in TV revenues.
In terms of access, as the total Greek market grew by 20,000 lines sequentially, we added 9,000 lines in the fourth quarter and our market share is unchanged. In broadband, we added 39,000 new connections in the fourth quarter with fiber up 49,000 or more than 100% of our growth. As Michael noted, broadband penetration of our fixed customer base stands now at 71.5% in fiber with 531,000 subscribers, now reaches 28% of our total broadband base.
In TV, we added another 8,000 new subscribers, the same increase as in Q3. In a challenging market, this was a very strong achievement, resulting from new products and offers. Despite that, TV revenues were marginally down as the trade off continues between growth and customer base and ARPU offerings. We expect this performance to improve, as our focus on sustaining growth in the customer base may entail more promotional offers and fair contribution from lower price bundles. There is always a seasonal element in our ICT revenues as they peaked in the fourth quarter, but was particularly strong this year with double-digit growth in Q4.
Greek Mobile Service revenues were down nearly 3% in the quarter, excluding the impact of IFRS 15 after a number of positive quarters. However, nearly 2/3 of the drop in service revenues reflects a change in timing of business revenues, while the balance is largely attributable to pricing rebalancing, which has now anniversarized.
Mobile data remains the same engine of revenue growth in the quarter, data service revenues were up nearly 18%. And as Michael indicated, Mobile Service revenues are up for the year as a whole. We remain confident that despite changes in regulation, we should be able to maintain a positive trajectory in retail service revenues this year.
Total Greek operating expenses, excluding depreciation, amortization and one-offs were EUR 445 million in the quarter, up 3% from the same quarter last year, mainly driven by higher and direct expenses related to the connection and asset sales.
More importantly, they were virtually unchanged on a full year basis despite significant increases in direct expenses like the connection, driven by increased international transit traffic. Personnel costs were quite flat in the quarter and down more than 6% for the year, thanks to the voluntary retirement plans carried out in our Greek operations. As a result, total adjusted EBITDA in Greece was EUR 301 million in the quarter and EUR 1,181,000,000 in the full year, up 2.6% and 4%, respectively. The Greek EBITDA margin for its part was up 30 basis points in the quarter and 100 basis points in the full year to 40.8% and 40.9%, respectively. These are very satisfactory performances.
Now situation in Romania is more complex. At EUR 242 million, total revenues in the country fell by 9%. Excluding IFRS 15 in the quarter, revenue from Retail Fixed Services were down 14% and Mobile Service revenues were down more than 15%. Wholesale Revenues were up by 42%, partly offset the sharp declines, but, of course, they are less profitable. On this year -- on a full year basis, Retail Fixed Service revenues are down more than 12%, Mobile Service revenues down 1.5% and total revenues down 4%.
The decline in Retail Fixed Services is a continuation of the trends of prior quarters. The subdeterioration in Mobile Service revenues on the other hand partly reflects past systems issues as well as ongoing challenging comparative conditions. As we'll see, we are confident that we have now gotten to the bottom of the situation and confirm from a clean base.
A bright spot was revenue from the Fixed Mobile Conversion Services offered by the fixed-line operations, which added nearly 71,000 subscribers in the quarter, a sharp acceleration to a total of more than 726,000 subscribers. Associated revenues were up almost 21%. As we had indicated last quarter, the resolution of the situation in Romania required a considerable increase in bad debt provisions. In the quarter, bad debt provisions were up to EUR 31 million, resulting to nearly EUR 71 million in total year.
So in 2018, we booked EUR 32 million in one-offs for bad debt, necessary to clean out the situation. Thanks to subreduction in personnel expenses and despite the increase in bad debt, total operating expenses excluding D&A and one-offs in Romania were down 1.5%. Other operating income was up 32% on sales of real estate assets. Nevertheless, total adjusted EBITDA in Romania was down 40% to nearly EUR 25 million and the adjusted EBITDA margins were down 510 basis points at 10.2%. So we are confident that this marks the low point from which the Romanian operations will rebound. With an outside consultant, we have conducted the comprehensive audit and have been assured that no problem areas appeared. In the meantime, underlying mobile revenues were satisfactory in the final weeks of the year as were FMC developments. Uncertainties clearly remain, which we are addressing them competitively.
Now turning to rest of our financials. In the fourth quarter, consolidated group adjusted EBITDA was EUR 325 million, down 2.6%, weighed down by the decline in Romania. For the full year, group adjusted EBITDA was EUR 1,317,000,000, up 1.5 -- 1.7%. Total group operating expenses, excluding D&A and one-offs were EUR 675 million, up 1.4%, largely from higher the connection expenses and the bad debt provisions in Romania. Across the group, personnel expenses were down 12% in the quarter. Total depreciation and amortization amounted to EUR 189 million in the fourth quarter, exactly in line with previous -- with the quarterly average of the previous months. It was down sharply from Q4 last year, when we had recorded significant write-downs on our international operations.
On a full year basis, net interest expenses were down 38% from 2017 and down 32% in the quarter, as a result of lower outstanding debt and improved interest rates.
Income taxes were up sharply in the quarter, due primarily to the impact on our tax assets of lower corporate tax rates in Greece as from 2019. So for the full year, income taxes were up about 12%.
Net [ results ] for the quarter stood at EUR 72.3 million, reflecting the calculation of tax assets I just mentioned and the impact from the sale of Albanian asset. For the full year, net income stood at EUR 175 million, up by 160% over 2017. CapEx, excluding spectrum, totaled EUR 226 million in the fourth quarter, up 8% compared to the fourth quarter of 2017.
In the full year, adjusted CapEx was EUR 706 million, very close to our guidance. We had adjusted free cash flow of EUR 111 million in the quarter, up 16% compared to the fourth quarter of last year. We ended the year with EUR 345 million in adjusted free cash flow in line with our guidance. Also, reported free cash flow is also in line with our guidance at approximately EUR 267 million in the full year supporting our dividend policy. All in all, we had a retrospective quarter in Greece, building our confidence for the year. In Romania, circumstance were even tougher and -- but we are confident that we've taken the right measures to get things back on track.
Now that concludes my remarks. Michael, myself and our colleagues around the table are now ready to take your questions. Operator?
[Operator Instructions] We'll now take our first question.
This is Roman Arbuzov from JPMorgan. I actually had 3 questions, if I may. And the first one is on CapEx. So you've been talking about your CapEx profile coming down over the medium term. And you've been talking about it for a while and delivering on this. You may not be in a position to give us some more detailed guidance on the medium term, but I was wondering is EUR 650 million the flow or is there more to go? And then maybe you can give us just a rough indication at this stage in terms of how much further down we can go on CapEx? That would be helpful. And the second question is on Romania, so this one is a little bit more tricky. And clearly, the performance in the country has been challenging for you. I think your -- the overall -- your overall tone on the call sounds sort of cautiously optimistic about potential improvements in the market ends that we've hit kind of the bottom of performance, but equally right even if things stabilize from here, one could argue that you're still burning cash in Romania and even with performance stabilizing is basically still not in a great place. And then you've got all the things that the government is throwing at you, which are a little bit uncertain and we have to wait and see how it all pans out. But basically you've got the new taxes and potential spectrum spend in that country. So my question to you is, is it really worth holding onto Romania even if things stabilize and improve from here, it's probably still not good enough in terms of returns on capital? And can you take more aggressive and proactive measures on this front to address this problem more urgently? That's the second one. And the third one, just a very quick one on fiber. So you've come out with a target for FTTH of 150,000 households passed 2019. Can you just tell us roughly is this the sort of pace that you plan to keep going with over the medium term as well?
Okay. Thank you for the questions. Let me take the first one. On the CapEx side, you can consider that this level at around EUR 650 million is the buying rate. It may go some years a bit low, depending on the intensity we put in several -- in certain areas. But if operation is about modern purposes, then about this level is right to have. Romania. Romania, as you very well said, it's a situation we didn't do any attempt to beautify things. It's challenging. It stays there. We are happy to see that we did all the cleaning in 2018 with all the bad debt that was required. It is true that right after this one, there was this ordinary tax that is in place. I must say that this one has been addressed already by many segments in the industry there by announcing price increases, and we are considering about same actions in order to pass over those taxes to the consumers, because this is the only way to recover in the very short term. So operationally, we are starting to gain the effort to recover the performance and with spearhead being the FMC propositions, that's very clear. It is true that at this point of time, our free cash flow is negative. So without being able to elaborate further at this point of time, I must say that as prudent we are, we are considering all options on the table about what is the right actions to take on this front. On the Fiber-to-the-Home, we have already announced that by 2022, we plan to pass 1 million homes. And what you see now in our announcement is the first, let's say, wave in 2019 of trying to pass 150,000 homes, and we are still at the beginning of the year. But the early signs are that we are on track to deliver those targets. And so it's already announced target that we are after.
[Operator Instructions] We'll now take our next question.
This is George Grigoriou from Pantelakis. One quick question, please. On the changes, on the impact from the IFRS 16 leases -- operating leases, if you can comment what should we expect the impact on debt and EBITDA?
Okay. Although, as you know very well, the IFRS 16 concerns the 2019 numbers. I must say that, first of all, the impact we expect to see on the debt is in the area of EUR 450 million for the whole group, and the upside that this means what our EBITDA is about EUR 60 million. And of course, this is a forecast for 2019. But as you know, when we announce our Q1 results, would guide exactly all the metrics as they should be since the number for the debt that they just said will be on the books.
We will now take our next question.
It's Georgios from Citi. Babis, just on IFRS 16, if you don't mind a follow-up. Your current company came up with 2 ways of showing it. One, which is the way you will report and the other one with the definition of EBITDA and, therefore, having some more, let's say, comparable numbers to the historical ones. I was wondering if you do have an indication of whether that will affect your EBITDA, in the case of Deutsche was a EUR 300 million, reduction of which EUR 100 million in Europe, I don't know if that relates at all to either Romania or Greece. But if you give us any indications on that, that will be great? My second question is around free cash flows. There is EUR 100 million difference between adjusted and full year cash flow for the dividend. And I just wanted to understand if it's because of uncertainties around spectrum auctions or if it's something else driving this, let's say, bigger than normal gap between the 2 numbers? And then the final one around Albania sale and any future sales you may do in the future whether you have any indications you can give us around how you plan to return the cash between options you have dividends or buybacks?
Okay. On the first metric, the IFRS 16, right. I just don't want to throw many numbers right now, but we are following also the EBITDA asset leases presentation. If we do the math, if we adjust for the way that it was communicated by Turk Telekom, then, for us, it's very, very immaterial number the difference. It's only a couple of million euros that it would go down, and this has to do with the front loading of the interest part of IFRS 16. I don't want to get too technical on the call. We'll be pleased to explain to you in more details through our IR channels. The -- on the Albanian part, this is something that we need to consider. If it -- certainly, it will be distributed through dividends. The timing of this will be determined based on whether we're expecting to close the deal, of course, will be further announcements, releases when this time comes. On the EUR 100 million difference, there are 2 things there. One is the restructuring cost that we put in place, which is the voluntary retirement scheme that we do every year, both in Greece and the Romania to drive the efficiencies of the 2 companies. And also a forecast for the spectrum that may be auctioned in Greece, and this reflects mainly the new frequencies or the additional frequencies that may be auctioned. So it's a kind of forecast, and we'll see how the year goes. And of course, as the year progresses, we'll inform the market accordingly.
[Operator Instructions] We will now take our next question.
Yes. Hello, from me. Can you hear me?
Yes, we can.
One quick question, please. I was wondering whether you're in a position to share with us what amount of working capital is embedded in the free cash flow guidance for the current year?
You mean for 2019, right?
Yes, yes.
There's not much there. We have some already mild single-digit number that is in there because the improvement, let's say, in the positive free cash flow comes from the lower CapEx as we discussed before. The additional profitability that is expected to come and also some reduction in the interest expenses as we are managing to refinance at better rates, part of our debt.
There are no further questions at this time, sir. Please continue. Excuse me, sir, we do have another...
Well, thank you, everyone. Well, there is one more question.
Yes, we have a follow-up question for you.
This is Stamatios Draziotis from Eurobank Equities. Just 3 questions, if I may, please. First one is -- refers to Greek mobile. You made reference to all those -- several factors affecting the performance in Q4. Maybe if you could comment a bit on the competitive landscape, have you actually seen any uptick in competitive activity recently? Or is the environment still relatively tame when it comes to competition? Secondly, if you could just quickly update us on how the regulatory framework has shaped with regard to the provision of MVNO Services in Greece after the recent regulatory decisions? And whether you feel that the wholesale prices will ensure sustainable competition by the prospective MVNO? And last question, just wondering about your IP transformation, which is currently underway. If you could remind us when this will be completed? And what sort of savings you are hoping to achieve, please?
Okay. Let me take the first one which is about the mobile. I think it was clear that although Q4 was a bit for technical reasons negative, we are increasing our Mobile Service revenues. And I must say that the competitive activities, as always in Greece, we have a competitive landscape with competitors. And from time-to-time, this has peaks and valleys. But overall, there happen to be a kind of paradise for the competitive landscape in mobile in Greece. So competing exactly in this same landscape, although we are managing to drive the business ahead. Secondly, for the IP, yes, we are going ahead with our rollout and this is going to be completed for our entire network towards the end of this year. Savings will go there, primarily will be in energy, since the new network saves energy. So it's quite green there. And also there are much better efficiencies in maintaining the network. Now on the regulatory MVNO, that was a photographic decision for Forthnet and apart from raising questions why the company that is already close to, I don't want to say close to bankruptcy, but in difficult financial -- very strange financially. There is a -- this tailor-made decision, which raised questions about the viability and sustainability of that one. And we have very recent -- in the past year, we have recent examples. Other MVNOs basically went bankrupt and this appeared from the states like SITA or late in the years in Q4. So it's not something new. So we have seen this in the past, it comes and goes, problem here is that Forthnet is in -- is trying to pay their suppliers. So how come now could other take on this investment plan for this one, and we're worrying whether we're getting into a potential agreement that may create substantial bad debt.
That's very clear. Could you just follow-up very quickly on Romania and this tax issue? Just wondering are there any chances of the government may make a U-turn on this? Or is the issue like closed?
I mean, we don't know whether they will do a U-turn or no. There are certain elements of this decision, which needs to be further elaborated like, for example, the validity, the calculation base and all those things. But as I said before, it has been applied not only to telecoms, but to other segments as well like energy, banks, et cetera. And to the extent that each industry can pass trouble to the consumer, this has been the decision, at least for our industry, since almost all the players have announced price increases to cover this cost. So at the end of the day, it will be something that if it goes through, it will be put burden on the inflationary part of the economy and on the consumers.
There are no further questions.
So thank you, everyone. See you next time for Q1 results. Thank you.
Thank you, ladies and gentlemen. This does conclude our conference call for today. Thank you all for participating. You may now disconnect.