Hellenic Telecommunications Organization SA

ATHEX:HTO

Earnings Call Analysis

Greek Mobile Growth amidst Cost Management

The company experienced a robust quarter, particularly in Greek mobile services, with service revenues climbing over 4%. This growth was fueled by both prepaid and postpaid segments, with 43,000 new postpaid users, lifting the subscriber base to 3.1 million. Operating expenses in Greece rose 8%, but structural costs remained in check and personnel expenses are expected to decline going forward. Adjusted EBITDA margin increased by 10 basis points to 41.6%. For the coming year, while free cash flow is expected to be EUR 470 million, down from 2023, this is attributed to normalized income tax levels. Capital expenditure is projected to compare with 2023 levels, lying between EUR 610 million and EUR 620 million.

Strong Foundation and Positive Results Amid Increased Competition

Despite a challenging year of intensified competition, the company delivered solid results, sticking to its key competitive advantages of quality infrastructure and a passion for customer service. In Greece, both revenues and EBITDA marginally increased, signaling commendable resilience as the company navigated through the crowded market landscape.

Broadband and Fiber Expansion as a Priority

The company saw a significant rise in broadband subscribers, with a sharp increase in fiber subscribers, reflecting the success of its strategy to focus on fiber to the home rollout. With a footprint of over 1.3 million homes passed, this move not only enhanced coverage but also improved utilization rates impressively.

TV Market and Mobile Services Show Progress

In the TV market, the company successfully attracted new customers and continued converting prepaid mobile users to postpaid, driven by the quality of its network. It also introduced revenue-enhancing measures, bolstering its competitive position.

Optimism in Greek Operations and EBITDA Growth

With a steady EBITDA margin of 41.6% for the full year, the company is confident in its ability to grow in 2024 despite potential headwinds like wholesale revenue and energy costs.

Strategic Decisions and Leadership Changes in Romania

The future of operations in Romania is under strategic consideration, with potential options including disposal. Additionally, an executive leadership change is on the horizon, with current CEO not seeking another mandate.

Strong Financials and Shareholder Remuneration Plans

The company boasts excellent key performance indicators, with plans to sustain high levels of investment and reward shareholders. It anticipates a 23% dividend increase as part of a total shareholder remuneration of EUR 450 million.

Robust Revenue Growth in the Fourth Quarter

For the closing quarter, group revenues increased by more than 5%, with positive contributions from both Greece and Romania. There was a marked improvement in retail fixed services and mobile service revenues.

Strong Finish for Retail Fixed Services and Mobile Growth

The retail fixed services sector showed improvement, particularly in broadband and TV, with broadband revenues increasing by over 2% and TV by more than 5%. The company continues to push the rollout of fiber to monetize its technological investments.

Expense Management and Earnings

Although operating expenses in Greece saw an 8% uptick, it was driven by direct costs; structural costs remained well managed. The company expects a steady decline in costs in future quarters, and a similar discipline was observed in Romania.

Financial Stability and Future Investment Plans

The company is poised for ongoing stability, with financial expenses decreasing thanks to lower debt and higher deposits interest income. Capital expenditure remained aligned with guidance, with plans for continued investment in infrastructure, particularly in the fiber rollout, at slightly below 2023 levels.

Looking Ahead with Confidence

Entering 2024, the company is optimistic about its performance and outlook, ready to face upcoming challenges and opportunities with a robust strategy and strong leadership in place.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. I am Gaily, your Chorus Call operator. Welcome, and thank you for joining the OTE conference call and live webcast to present and discuss the fourth quarter 2023 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]At this time, I would like to turn the conference over to Mr. Michael Tsamaz, Chairman and CEO; Mr. Babis Mazarakis, Chief Financial Officer; and Mr. Evrikos Sarsentis, Head of IR and M&A. Mr. Tsamaz, you may now proceed.

[Michael Tsamaz, executive]

Good morning or good afternoon. I'm pleased to be here with all of you again, and to welcome you to OTE's fourth quarter and full year 2023 results call.2023 has been an interesting and somewhat surprising year for many, but not for us. When it started, we were prepared for the impact of the reshuffling of our competitive environment, and our readiness paid off quarter after quarter. We remain convinced that our most powerful competitive advantage is the quality of the infrastructure we have built over the past decade and more together with the passion for customer service that runs through our organization. We did not deviate from these principles last year as competition became more intense. We have good ground, and I believe that the whole market benefited from our discipline and determination.Quarter-after-quarter revenues from our Greek Retail Fixed Services improved, ending on a positive fourth quarter with solid performances in broadband and TV. Mobile service revenues delivered strong performances over the year. And even more so, if you strip our visitor revenues, which were impacted by tariff negotiations. In the meantime, ICT revenues, which have been an important driver of growth in the first half, bounced back in the fourth quarter, as we had expected, after a temporary slowdown caused by the change in public administration following the country's elections.All told, we ended the year of intensifying competition in Greece with revenues and EBITDA up a little over 1%, the commendable performance as we faced increased competition in fixed and mobile. Delays in ICT projects, lower visitor roaming tariffs, regulatory refusal of inflation-based adjustments and deferred state subsidies to fixed line upgrades. The progress we have made in all relevant KPIs highlights the success of our efforts and supports our top line growth. Set in a positive 2024 framework, now most of these headwinds have been eliminated.Starting with broadband, where we had together a significant rise in the number of -- who had another significant rise in the number of subscribers during the year and nearly 9 out of 10 of our access customers are now broadband users. Our high-speed base has also grown sharply, as is the number of our fiber subscribers.As you know, fiber to the home rollout has been a key priority for us in the recent past, and we have invested significantly to build the fiber to the home access. As of end of the year, OTE alone accounted for over 80% of the country's active fiber to the home infrastructure with more than 1.3 million homes passed and where we lay fiber demand follows even rises. We are closing in on 20% utilization rate, up sharply from the level 1 year ago, despite the huge increase in our footprint over the same time frame.Capturing a majority of fiber customers early on will support our future performance as the return is traditionally much lower. In the TV market, another key strategic area for us, we've also been adding customers attracted by the breadth and quality of our offering. In mobile, leveraging the top quality of our high-speed data networks. We are continuing to successfully convert customers from prepaid to postpaid. We enjoy a long-lasting competitive advantage in customer experience and network performance surveys. We have also taken revenue-enhancing measures such as raising the minimum prepaid top-up amounts are eliminated to the [ e-bill ] discount. This last move supports the fixed as well as the mobile revenue base.In Greece, we achieved higher EBITDA, both in the quarter and in 2023 as a whole, with a solid full year margin level of 41.6%. While a somewhat less favorable revenue mix impacted our margins, our costs remain well under control. So we have entered 2024 in good shape. Our competitive advantages, advanced infrastructure and [ ARPU ] initiatives will enable us to extend our momentum. This should absorb the headwinds wholesale revenues and energy costs might represent. We expect our Greek operations to achieve further growth in 2024.In Romania, as we told you, we are considering all options regarding the future of this operation, including disposal. The discussions we disclosed in late November are ongoing. We will keep you apprised of new -- further new developments as it occurs. We have also announced a change in executive leadership of OTE. As you know, after 13 years as a CEO, I have decided to not solicit another mandate. We will talk more about this next quarter. But let me just state here that I couldn't be prouder of the work we have done together during this tenure.We have transformed OTE into a modern competitive telecommunications player, the country and its economy [ reserves]. Our financial KPIs are amongst the best, amongst European telecoms. I'm confident that Kostas Nebis, who has been designated will take my place will bring OTE to new highs. I know he will be -- I will be leaving this organization in July of '24 in very good hands. It is because we are convinced our prospects are particularly bright that we have decided to maintain our investments in the future at a high level, and to raise the remuneration of our shareholders.In 2024, CapEx should remain at or close to its 2023 level as we pursue a rollout of fiber infrastructure in particular. Free cash flow will also remain solid at EUR 470 million. And despite the small drop there, we are proud to be able to increase our remuneration to our shareholders. We will be asking the next AGM to approve a total shareholder remuneration of EUR 450 million, comprising of a 23% increase in the dividend.On that note, I will ask Babis to review our performance in the fourth quarter.

[Charalampos Mazarakis, executive]

Thank you, Michael, and to everyone out there, hello, and welcome to our call. We had a solid fourth quarter, providing a satisfactory ending to this complex year. Total group revenues in the quarter were up more than 5% with both Greece and Romania contributing to the growth.In Greece, revenues were up precisely 5%, though the largest increases this quarter came from lower [ margin ] revenue categories. Retail service revenues were up nicely in fixed as well as in mobile. In Romania, the top line increased more than 6%, boosted by one of revenues linked to an ICT project. The nearly 3% increase in group adjusted EBITDA after leases, lower on the top line increase reflects the mix of revenues in the quarter. In Greece, EBITDA was up by 1.6%. In Romania, was over EUR 4 million as compared to breakeven in the same quarter last year.Let's start with Greece. Revenues from retail fixed services continued along the improving trends, they had shown since the beginning of the year and actually turned positive in the quarter, thanks to solid increases in broadband, in particular TV. Even considering the favorable comparison base, underlying trends improved significantly. Once again, quality and customer recognition paid off even at a highly complex -- competitive [ context ].Broadband revenues were up over 2% and TV was up more than 5%. We added 13,000 broadband customers in the fourth quarter, raising broadband penetration over total base to nearly 88%. We are also signed up a record 35,000 additional fiber to the home subscribers during the period, bringing the total fiber to the home base to 251,000. This represents an 83% increase from the year earlier level achieved with no support from state subsidies, which have not been available for well over a year now. We are still anticipating that some form of incentive will be offered in the coming months to further boost the market.Regardless, we are pursuing our fiber to the home rollout across the country and actively marketing fiber take up to monetize our substantial technological investments. We exceeded 1.3 million homes passed by the end of 2023, and we are shooting for another 0.5 million homes in 2024. At year-end, fiber to the home penetration had passed 19.5% of homes passed, a satisfactory increase in relative and absolute terms. Our focus on network quality, sales availability and customer confidence is a winning strategy. In particular, fiber is driving very high customer satisfaction scores, which itself translate into generates that are about half of those of the traditional copper-based subscribers.When it comes to TV, we ended 2023 with 678,000 customers, up 13,000 in the quarter and 36,000 or more than 5% during the year, driving the revenue uplift I mentioned before. We are continuing to invest in the programming of our customers' demand, particularly with regard to sports content. Last quarter, we mentioned that the blip in other fixed revenues after a steady run of quarterly increases would be temporary, and we attributed it to [ this upshot ] of the Greek elections a few months earlier.We are now pleased to report that in the last quarter of the year, other revenues bounced back as we had expected, and we are up more than 11%. We have a solid pipeline of ICT projects for public and private entities ahead of us. Wholesale revenues were up more than 4% in the quarter, largely from international transit. On the other hand, higher margin domestic wholesale are and should continue to be impacted by the buildup of our competitors own infrastructure.We had a very positive quarter in Greek mobile, with a sharp acceleration in service revenues, up more than 4% in the quarter, despite the drop in visitors roaming. Momentum remained intense in prepaid as well as postpaid revenues with revenues in both channels up materially. We are encouraged by the reaction of the prepaid base to our more-for-more packages and the removal of lower value market recharges. In addition, our ongoing strategy to migrate customers from prepaid to postpaid continues to pay off and really highlights the tangible benefits we are getting out of our network leadership.In Q4, through conversion and customer acquisition, we added 43,000 users to our postpaid services for a total now of over 3.1 million subscribers. The considerable appeal of our offering is visible in both our data KPIs and customer satisfaction surveys. We are also ahead of our 5G population coverage targets, and we are consistent in improving the quality and the reliability of our technological solutions. So all in all, we are pleased with the development of our Greek fixed and mobile operations in 2023, and we are quite confident in delivering another resilient performance in the current year.Total operating expenses, excluding depreciation and amortization and one-offs in Greece were up nearly 8% in the quarter. However, most of this increase in OpEx comes from direct cost, primarily interconnection and devices with structural costs were kept under control. We recorded a temporary increase in personnel costs in the quarter, but the underlying benefit from recent retirement programs are still there, and we expect a steady decline in cost to resume in the coming quarters.The full year numbers are more representative with operating expenses, excluding depreciation, amortization and one-offs, up just over 1% despite persistent inflationary pressure. Full year personnel expenses were down 5% and budget provisions declined 30%. Energy costs were also down sharply, but we expect that item to bounce back in 2024 based on the forward contracts we negotiated. Adjusted EBITDA after leases increased totaled EUR 337 million and was up 1.6%, yielding an EBITDA margin of 39.4%. In the full year, EBITDA margin goes up 10 basis points to a healthy 41.6%.Now a few words about Romania. Total revenues rose 6% at Romania -- at our Romania Mobile operations, totaling EUR 78 million. However, this includes a EUR 5 million [ one-off ] revenue linked to the completion of an ICT project recognized in the quarter. Revenues are still impacted by MTR cuts, mobile termination rate cuts in the highly competitive environment in which we operate. In the full year, total TKRM revenues were down about 6%.Romania's total operating expenses, excluding depreciation, amortization and one-offs, were down marginally in the quarter, reflecting cost discipline across the board despite higher energy cost. Similarly, full year OpEx rose less than 1%. Finally, Telekom Romania Mobile's adjusted EBITDA after leases was a little over EUR 4 million in this quarter and EUR 17 million in the full year.Now we'll go rapidly over the rest of the group P&L, and it's really business as usual. Financial income and expenses are continuing to come down, reflecting the drop in our outstanding debt and higher interest income on deposits. And this trajectory should continue as we are not facing any refinancing deadline for another 2.5 years. As for the cash flow statement, adjusted CapEx was down 4% in the fourth quarter to reach EUR 621 million in the full year. This is right in line with the revised guidance we gave you at the end of Q3.Free cash flow after leases was EUR 104 million in the fourth quarter and for the full year, it came up to EUR 501 million, spot-on with our guidance. In addition to our 2024 shareholder remuneration policy that Michael discussed, we have also communicated our cash flow and CapEx guidance for the full year. We expect the free cash flow in the neighborhood of -- sorry, we expect free cash flow in the neighborhood of EUR 470 million, roughly EUR 30 million lower than in 2023. This difference has nothing to do with operational performance, but it is entirely due to income tax returning to a more normative level following a onetime tax credit last year.We'll also continue investing in our infrastructure, mainly the additional 0.5 million houses we intend to pass this year, as we mentioned before. As a result, we are expecting CapEx to be at or slightly below the 2023 level in a range between EUR 610 million and EUR 620 million. So to conclude, we are quite pleased with our performance last year and quite positive and optimistic about our outlook as we enter 2024.On that note, Michael, myself and our other colleagues around the table are ready to respond to your questions. Operator?

[Operator]

[Operator Instructions] The first question is from the line of Draziotis Stamatios with Eurobank Equities.

[Stamatios Draziotis, analyst]

Yes. My first one is on the remuneration policy. Could you maybe share some further thoughts as to why you're not proceeding with full distribution. We've seen your cash returns being reduced from EUR 500 million 2 years ago to EUR 425 million last year and EUR 450 in 2024. So that's about EUR 125 million lower on a cumulative basis in the last 2 years. And I'm just wondering because this has happened at a time when net debt has actually fallen by the same amount, so EUR 130 million. So my question is basically why you think this level of prudence is the best approach towards rewarding shareholders. So that's my first question.Secondly, on the operations. You mentioned mobile, which has had quite a strong finish. Just wondering whether you think you can build further on that and you can continue growing service revenues in the low single digits? And maybe if you could comment on the notable reduction in prepaid subs that we saw -- sorry. My mobile. Sorry about that. So yes, because we saw a notable reduction in prepaid subs, does that have to do with -- with this migration from prepaid to postpaid, which you talked about during your introduction.And lastly, on competitive dynamics in Greece, there have been several press reports recently referring to Nova and its shareholder modeling a potential exit towards sales. What do you think might be the read-through for the market in general from a competition perspective is the question.

[Michael Tsamaz, executive]

Okay. Regarding the -- your first question, which is related to the reduction of the total remuneration in the previous 2 years. There's no point in going back into the stories of why you reduced the dividend overall -- the total remuneration in the previous years. What is important is to see what will be happening as from now on. We had explained to you that one of the reasons was the fact that we had increased the investments for fiber to the home.Now as you see this year, we have changed this policy, we have improved the total remuneration, and we have also improved the dividend payout by plus 23%. And we are very optimistic that things or situation will develop in a very positive way for the coming years.Now regarding your third point -- or your third question for Nova and the competitors, we cannot start commenting on speculation of what will happen to the market. But Mr. Draziotis and to the rest, what I can tell you is look at our history, look at the history of this company and look at the history of our management team, since 2010, since 2010, it's 14 years -- 13 years, or it would be 14 [indiscernible] became the head of this company. We've had many, many challenges. We had the crisis, we had the situation of the very negative customer experiences at the beginning of the decade.So -- and we had price wars, we had -- I can go on and name the challenges we've had over the years. And we have proven repeatedly that we are quite capable and competent in managing all these challenges and not just managing the challenges, but also maintaining our leadership, even increase the gap compared to our competitors. This has to do with the competencies that this team has and the fact that we are very clear with our strategy and the fact that customer is our key priority in everything we do. So whoever comes or whatever -- regardless of what will happen, in terms of the competitive environment, we are very well equipped. The company will be very well equipped in the future to be able to face any competitive developments in the market.And I gathered you know the Greek situation quite well. This year, 2023 started very, very negative in terms of what was happening in the market with a major price war by a competitor. And as you see our results, we have managed to overcome this and get over it in a very positive way of having achieved these results. So what else can I say? The third point regarding your question on the prepaid, our Chief Commercial [ Mr. Gabrielides ] can respond to you.

[Unknown Executive]

Yes, the numbers you see in the prepaid, as you mentioned, at least half of the subscriber reduction is migration from prepaid to postpaid. And this is actually more for more growth for us. It's not something negative. The rest of it is a cleanup of the base. We had -- by the end of this year, it was inactive SIMs, so not contributing to the overall revenue, which is, of course, positive. And there is a very nice trend coming up during Q4, which we expect to follow in the coming quarters as well.

[Stamatios Draziotis, analyst]

That's great. Just -- could I just follow up on the question regarding shareholder remuneration. Let me rephrase the question, and that's twofold, actually. So I mean, you have talked about in the past about at some point, distributing surpluses that have not been distributed in past years. I'm not sure if I'm framing it the best way, but this is the rationale effectively. So is this something that is close to materializing maybe next year? And effectively, the question effectively is, whether with this low leverage, it makes sense to expect at some point in the coming years, net debt to actually increase after many years of decline.

[Michael Tsamaz, executive]

Okay. We cannot respond to any of these 2 questions whether we increase the net debt or whether we will distribute the surpluses. You're referring to probably a comment. I'm not sure when we stated this, but probably it was at the beginning of when we started distributing dividends many, many years ago. Anyway, that was more than 5 years ago probably that was said, but I'm not sure how it was said. I don't doubt it, since you say. But anyway, regarding the future, I cannot respond -- we cannot respond whether we distribute surpluses or we increase net debt. Increasing the debt, I find it quite -- I find it less probable.

[Operator]

The next question is from the line of Patrick Maurice with Barclays.

[Maurice Patrick, analyst]

Just a few reasonably small ones from my side, please. The first question on the fiber penetration. You're running at about, I think it was 19.5% penetration of the rollout. If I'm not wrong on the call, you just now you talked about government subsidies, meaning that, that rate should improve in the future quarters. Maybe you can give some more detail in terms of these sort of subsidies and how that could drive growth?And just linked to that, you mentioned on a previous call that you were running at around 50% penetration for some of the older cohorts. I think it was more than 3 years. It would be great to get an update just in terms of what sort of that cohort of penetration is looking like? And so we can get a view in terms of where we're going for the next few years. So that's a question on the fiber side.And then if I could just be very boring and ask about cash tax. In the press release, there was talk about higher cash tax in 2024 was one of the reasons and drivers for the free cash flow for the year being lower. It just be great to get a sense from your side in terms of what's the magnitude of that extra headwind and maybe how should we think about cash tax reverting in 2025 would be helpful.

[Michael Tsamaz, executive]

Okay. I will respond to the government subsidies coming from the state. We're expecting -- okay, the fiber to the building [ readiness ] has been launched. At the same time, now we're expecting also the coupon -- the gigabit voucher, which is going to be a benefit for the customer to upgrade fiber to the home. We rather -- currently, it's a consultation that's been taking place between the government and the companies. And we will see it being launched very soon.So, we are making also some -- the government is referring to -- is going to make some amendments into the policy of how a building will be eligible for the coupon for the gigabit readiness, which this is going to make it much easier in order to get the building application. It has to do with bureaucracy. So these 2, the -- let's say, the improvement of the policy for accessing the building, along with the launch of the gigabit voucher, which is a benefit of the monthly access for the customers. This definitely will give a boost to the fiber to the home connection.[indiscernible], do you want to respond to that?

[Unknown Executive]

Regarding the penetration rate?

[Michael Tsamaz, executive]

Yes.

[Unknown Executive]

Yes, I remember, we mentioned in a previous call that the initial rollout had penetration rates of up to 50%. As we speak, this has increased to close to 75%. But what is more important is that the penetration rate of the latest rollout of 1 or 2 years is close to 35% or 40%. So this is the most important part, I would say. So yes, we have an increase in penetration steadily.

[Michael Tsamaz, executive]

And the third question...

[Charalampos Mazarakis, executive]

So regarding the cash tax, yes, as we mentioned, there is -- and as we mentioned actually in the press release, there is a normalization of the tax outflow in 2024 after a couple of years of benefiting from the tax breaks that we achieved. So this data versus between '24 and '23 is about [ EUR 60 million ]. And it mostly comes from this normalization. So that's why we said that how did we have this one lease normalization impact, then the operating free cash flow would have grown actually. And that's what we mentioned. And obviously, this will be evident in the next year in 2025, when this effect will have been normalized.

[Maurice Patrick, analyst]

Okay. Great. So in conclusion, we should normally for 2025, assume sort of [ P&L ] rate goes to cash flow.

[Charalampos Mazarakis, executive]

Yes.

[Operator]

The next question is from the line of Memisoglu Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

A couple on my side, please. Coming back to the revenues. You've had quite a swing to the positive side, in Q4, in mobile, 4% in fixed, you move to positive after quite a while. So net-net, 5%, which -- are there any one-offs here that -- if you can give us some color, I would imagine if no one-offs the first half at least, should we see a similar trend in '24. That's the first one.Then in the free cash flow, I'm assuming, given the focus on personnel costs, there is a VES, I'm guessing, it's planned as well. I was wondering if it would be similar amounts to the previous couple of years, that's included in the FCF guidance. And then related to that, you've increased the share of remuneration to FCF to 95%. Is that something now we can look forward to that, that should stay at this level in the next few years?And final one related to FCF, obviously, CapEx, after '24, how does it trend? Does it come -- does it start to come down? I'm just trying to understand the evolution of CapEx.

[Michael Tsamaz, executive]

Let me take the first one about the possible one-offs in revenues. I think also from the press release and speech, we alluded that the growth on mobile is mostly organic. So it's coming from the activities that we are taking. In fixed, as you may recall, in Q4 of 2022, we had some provisions for the public project. If these were taken into account, then [ 3 ] would be a little positive, yet it's a one-off of about EUR 3 million to EUR 4 million there.And the other one, which we also said in the other revenues in the ICT last quarter, in quarter 3, we're discussing in this forum that we had a slowdown in ICT revenues because of the delay of acceptance of projects. Now this came back in Q4, partially will also come back in Q1 of 2024. And therefore, this one also is -- has a one-off effect. So all in all, the revenue generation is quite organic. And even in fixed with this collection, still there is a sizable improvement versus the rate of the previous quarters. So that's for the treatment.Also before we give the floor for the free cash flow guidance and the remuneration, the CapEx for 2023 and '24, as we said they're almost equal because we intensively continue the CapEx rollout for fiber to the home and the rest. And also in 2025, the projection is that it would be in the neighborhood of EUR 600 million, yet the exact number, of course, will be defined later on this year when we're preparing our plans for 2025.

[Unknown Executive]

I'm not sure [ you have the question ].

[Michael Tsamaz, executive]

So that's for the free cash flow guidance. On the remuneration, the 95% is basically what we have now and how we look at the remuneration from this point of view and this year. And obviously, this is where we also start from the years after in terms of...

[Charalampos Mazarakis, executive]

This is the aim [ for next year ] -- for coming years.

[Michael Tsamaz, executive]

[indiscernible] Yeah.

[Osman Memisoglu, analyst]

And VES, it's going to be similar levels.

[Michael Tsamaz, executive]

Sorry, can you please repeat, because the line was not clear?

[Osman Memisoglu, analyst]

Sure. So for VES program, I'm guessing, given the focus on personnel expenses, the free cash flow guidance includes the VES program, right? Is that a similar level to previous years?

[Michael Tsamaz, executive]

Yes. Well, there are this efficiency program runs across the year. So, it's something that will also be present this year. However, the amount and the exact figures will be decided after it is done, because every year there is -- it is applicable to a lower population. And it is driven also by the choice of the people, because it's voluntary.

[Charalampos Mazarakis, executive]

So the [ amounts will be ] lower.

[Michael Tsamaz, executive]

Yes. The amount should be lower, and it will be definitely decided in the coming quarters.

[Osman Memisoglu, analyst]

Understood. If I can just follow up on the previous question. The tax delta was [ 50 ], right?

[Michael Tsamaz, executive]

50, yes.

[Osman Memisoglu, analyst]

50. Okay.

[Operator]

The next question is from the line of Baheti Ankur with JPMorgan.

[Ankur Baheti, analyst]

My question is regarding the fixed service revenues. So in the last couple of quarters, it has been declining, but it has now turned positive. Partially you say it is due to [ forms ] easing. So going ahead in 2024, first few quarters of 2024, how do you see it evolving? Do you see the positive trend to continue?And then my second question is regarding the government broadband vouchers. So has the similar thing been announced for 2024? If yes, what's the time line and quantum of this?

[Michael Tsamaz, executive]

Sorry, did you ask -- for the second question, did you ask if the vouchers will continue in 2024?

[Ankur Baheti, analyst]

Right.

[Michael Tsamaz, executive]

Yes, I said earlier that, yes, the fiber to the building readiness, which is an amount of EUR 110 million has been launched by the government. And when it was launched a couple of months ago, we were expecting now is a relaxation or an improvement on the application procedure, in order to make it much easier for the buildings to apply for the connection. And we're expecting also on top of this, another approximately EUR 80 million, which will be the gigabit voucher for -- in order to subsidy for the connection of the individual customer. So altogether, the whole amount, which will be state aid from the IRF funds, or whatever will be EUR 180 million.Okay. Does this answer to your -- answer your question?

[Ankur Baheti, analyst]

Yes, right. And then my first question was regarding the fixed service revenues in Greece. So, it has turned positive this quarter. Do you see the trend to remain as it is for the next couple of quarters?

[Michael Tsamaz, executive]

Okay. We've not seen an improvement even starting the year, but [ Panayiotis ] will give you more.

[Unknown Executive]

Yes. As we said before, we saw -- last year, we saw some quarters in the row with declining revenues there, because remember we have this initiative to increase the value of what our base is getting with the free upgrades of the fiber speeds. So this effect is over. We saw that in Q4, we have a turnaround. We had these losses from mobile telephony, but we have a significant growth from broadband and from fiber to the home. So this nice growth we see together with the ICT projects. This nice growth we see in Q4, we are expecting for the following quarters as well.

[Operator]

The next question is from the line of Ierodiaconou George with Citi.

[Georgios Ierodiaconou, analyst]

Maybe a couple of follow-ups. The first one on the point you just made around revenue outlook. My understanding is you took certain actions, including an e-billing adjustment in the fourth quarter. So I'm curious if we've seen already most of the benefit in the fourth quarter or whether that should have a bigger effect as we go into the start of 2024.My second question is around the personnel expenses. You mentioned some one-offs in the fourth quarter. Just curious about the size of this one-off, just to understand what the organic performance, we should anticipate in the coming quarters?And then the follow-up question is around the CapEx guidance. If you could give us a bit of an update on the programming costs that you have and any renewals and whether that is already baked into the guidance you are providing, or whether that could risk it being slightly higher or lower? Just to get an idea of what's included in the CapEx guidance there?

[Michael Tsamaz, executive]

So on the revenue outlook, I think we talked about -- as of today, what we see in Q4, partially is cured also by the billing adjustment that went through in the last weeks of [ 2023 ]. And for '24, it plays a role. And actually, that's why our tone of optimism for the service revenue is there because of this element. But that's not the only one. The other one is the good performance also on the customer base and the more-for-more programs, both in postpaid and prepaid, they work towards this direction.Personnel expenses, yes, there were some, I would say, settlements and wrap-ups at quarter 4 in -- for various programs for the bonus and some inflationary adjustments to the employees. And that one is going to -- it does not alter the whole picture of the year, because it was a timing issue to happen in Q4. So the personnel reduction we see in -- for the whole year in 2023 versus '22 first quarter, and also some of it is carried over into 2024, which coupled with the continuing efficiency from the digitalization and the voluntary retirement schemes, will make further reduction visible in the coming quarters.On the CapEx guidance, the numbers we have mentioned are excluding the spectrum as always. So they are the, let's say, the adjusted CapEx. Spectrum is coming in 2027, mainly with renewals and a small portion in 2025, but the main part is for 2027. Did I miss anything of your questions or...

[Georgios Ierodiaconou, analyst]

On the CapEx side, I was also curious about the Champions League renewal and the effect that, that could have whether all the programming expenses have been assumed to continue, or whether there could be some reduction in the event you don't renew the Champions League?

[Michael Tsamaz, executive]

Okay. We're expecting some reduction, but now we're in the process. Apparently the organizers have decided to relaunch their tender. And I think it's a week of the decision. So we're expecting their decision.

[Operator]

The next question is from the line of Patrick Maurice with Barclays.

[Maurice Patrick, analyst]

Sorry, just to come back for one question. Just a question on the mobile data growth and densification. I noticed in the presentation, I think you talked about having -- I think it was [ 32% ] growth in the mobile data traffic in Greece. So continuing to grow. Are you seeing much site densification -- are you doing much site densification in the market in terms of the need to roll out more radio sites for capacity? Or actually, have you got plenty of spectrum and plenty of 5G, there's no need. I'm curious as to how much CapEx is being spent on mobile network densification.

[Michael Tsamaz, executive]

I'm not sure I understand one of the words that you're using -- and probably this is the key word to your question, densification. Densification.

[Maurice Patrick, analyst]

Yeah, exactly.

[Michael Tsamaz, executive]

Yes. I mean, what we see here is the result of the work of the previous years, actually, that allow us to accommodate an ever-continuing increase in the average usage in gigabytes. And I can say that in Q4, we reached the peak of Q4 -- of all Q4s ever. [ We have invested more ] this year because the preparatory work has been happening throughout the year. So we don't wait for the traffic to come. We anticipate the traffic to come. And therefore, in the CapEx, there is no any needed spike in spending, which is needed to -- in order to cover the expected traffic over the next year.Note that our -- because of the national roaming -- sorry, because of the business roaming, we are -- our network is designed to accommodate even more higher peak of traffic in the summer. So what we experienced in Q4, it's less than in summer. So we don't foresee any CapEx needs particularly because of the traffic increase. It's already been designed. The densification you mentioned has been happening on a continuous basis. Yes. The CapEx, which is allocated on an annual basis for the maintenance and improvement of the network, it takes into consideration any increased capacity. So we don't expect -- you should not expect any surprises.

[Operator]

The next question is a follow-up question with Memisoglu Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

I just wanted to get your thoughts, if you could give us any color on the PayTV performance after some flat performance as you've shown 2 very solid quarters. I was just wondering what are the drivers there?

[Michael Tsamaz, executive]

Okay. The TV performance, as you saw there was an improvement. We're expecting an improvement. The drivers for this are the sports rights, particularly the football rights, and the overall content that we have besides sports, plus the user interface and the overall customer experience that we give to our customers. So we expect the same -- the positive trends to continue.At the same time, the government is going to pass a law very soon against piracy, which is going to be another driver of helping, let's say, or in boosting the TV connections, because piracy of PayTV business increase is probably amongst the highest in Europe. There's an estimation will work approximately more than 500,000 pirate customers -- customers who use pirate boxes.

[Operator]

Ladies and gentlemen, there are no further audio questions at this time. I will now pass the floor over to management for any webcast participant written questions.

[Michael Tsamaz, executive]

Okay, operator. Can you see on the screen here, the written questions that we have from... Yes, okay. Okay. [indiscernible] is asking for guidance on EBITDA margin in Romania. And that's one question.The second question is [ about the home infrastructure ] and it's growing with increasing utilization of those facilities, subscribers are also growing. Yet the fixed line revenues are not growing, but we respond to this question. So Babis, can you -- you can say a few things about Romania.

[Charalampos Mazarakis, executive]

Yes. For Romania, obviously, the current margin is not -- it reflect there. Actually, the stabilization that has been happening after the spin off from the fixed business in 2021. And this one we start from. And hopefully with the activities we are taking, excluding of course, and strategic activities. We will -- we expect this to improve in the coming quarters.

[Michael Tsamaz, executive]

Okay. Let me add something to Romanian developments if we, let's say, upon the sale or after, if we manage to finalize the sale of the Romanian operation, then this means that we will have -- we will stop any bleeding that we have from the Greek cash flow towards the Romanian business. At the same time, following the sale -- the following year of the sale, we will have a tax break of more than [ EUR100 million ]. If that makes any sense to you.Next question. That is in Greek, [indiscernible]. [Foreign Language] Will you continue the share buyback program and [ reconciliation ]?Yes, we announced that we will continue this share buyback program and reconciliation. This year, we distribute 95% of the free cash flow, and 67% is dividend, [ 33% ] is, if I remember, proportions correctly, [ 33% ] is share buyback, and this will continue. And this will start this Monday coming.Okay. Next question is by [indiscernible], considering there is a large pool of ICT projects in Greece. Are you taking any steps to increase the revenue from taking part in these projects, development of personnel, or even acquisition, if needed?Acquiring an ICT company, we don't see it. As we've said -- as we've described in the past, we are -- we have a very competent team, and then we have more than 200 people dealing with the ICT projects internally. We are quite well positioned in the ICT -- in this market. We are amongst the leaders in ICT revenues. And we are probably one of the most trusted partners, not only for the public sector but also for the private sector for ICT projects. So we are quite optimistic for the future of this.Okay. This one is, again, [indiscernible] again. Relating to the first question, have you considered other revenue sources in case the over-the-ground fiber to the home deployed they will reduce the cost, subsequently the prices and revenues from both sales?Okay. As I said earlier, regarding competition, we have had to face over the -- during the last 13, 14 years, we have faced competitors with different actions. So we had quite challenging times. And then, we -- history has proven we have managed quite well. And we have also launched services in adjacent markets, which are partially offsetting any loss in core revenue. So we are well prepared for the future and the future does not intimidate us. We respect our competitors and the competitors moves, but we are very, very well equipped in terms of resources and know how to manage any situation.Next question by [indiscernible]. Good afternoon, and thank you for the presentation here. Could you please quantify the energy headwind you expect in 2024, and should it reverse in 2025?

[Charalampos Mazarakis, executive]

Yes. Good one. [indiscernible] I think that -- just to clarify here, that there's not any particular headwind in [ 2024, which we don't expect ]. What really happened is that the price we had in 2023, they were negotiating and were validating them in 2021 before the crisis. So they were lower. But obviously, this contract expired at the end of last year. And therefore, in 2024, we come back to the, let's say, to the prices that are prevailing around the market. Now the delta is about EUR 30 million. But as we guided in the previous call, this one will be covered by the other operational savings.In 2025, [ this is a question, which is ] about 2025, obviously, the -- any hit will be depending on the price, since also in 2025, we are now following more or less the terms of the market, set aside some specific activities we are taking to -- for more longer-term agreements that may secure lower prices.

[Michael Tsamaz, executive]

Thank you, Babis. Okay. Next question is in Greek. I'll try to give a translation here to interpret it, okay, by [indiscernible]. Okay. Regarding the vouchers, there's a question regarding the vouchers and how -- how much -- how the vouchers will boost the connections for 2024.Okay. We discussed when I described how the vouchers and what would be the subsidy comes from vouchers this year. Keep in mind that most of the last year, almost half year, more than half year, we did not have any vouchers and we managed to have this performance. So definitely, the vouchers and building readiness and the voucher to the customer will boost collections.Now regarding -- there's another question of how we're going to respond to any price moves of our competitors. What I can say to you is that, we are looking at our own, let's say, strategy and marketing tactics. And as the leaders, please don't move the panel, because I need to see the questions. Okay. As a leaders in this market, we have our own short-term and long-term pricing strategies, and we don't -- we don't -- we observe what the competitors are doing, but we don't copy what the competitors are doing.Regarding the ad hoc, any ad hoc dividend distribution or remuneration with -- because of the -- if we [ match ] Romania, this is something that we will decide if this happens when this happens.And regarding the fourth question, for the inflationary increases that were not allowed by the government or by the regulator. We don't expect any changes on this front. Okay. What we can tell you, however, is that as we get -- when we change the contracts of our customers, in the new customers, we have a provision for this.And the last question regarding the net profits. Okay. So we discussed about EBITDA and the projections of the free cash flow.So next question. No, no, you jumped operator. Yes, wait. We answered the rest. We don't have any. I think we have responded to all written questions.

[Operator]

Thank you, Mr. Tsamaz. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments.

[Michael Tsamaz, executive]

Okay. Thank you. We thank you for your attention, questions and interest in OTE. 2024 should be another exciting year, and we are looking forward to delivering on our commitments. We're also looking forward to our next meeting and to updating you on our progress in the first months of the year. Thank you very much again, and have a nice day. Thank you, operator.

[Operator]

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