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Edited Transcript of HTO.AT earnings conference call or presentation 8-Aug-19 2:00pm GMT

Q2 2019 Hellenic Telecommunications Organization SA Earnings Call

Athens Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Hellenic Telecommunications Organization SA earnings conference call or presentation Thursday, August 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charalampos G. Mazarakis

Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director

* Michael Tsamaz

Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD

* Panayiotis Gabrielides

Hellenic Telecommunications Organization S.A. - Group CMO of Consumer Segment

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Conference Call Participants

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* Georgios Ierodiaconou

Citigroup Inc, Research Division - Director

* Giuseppe Di Mino

Amber Capital UK LLP - MD

* Maurice Graham Patrick

Barclays Bank PLC, Research Division - MD

* Roman Arbuzov

JP Morgan Chase & Co, Research Division - Analyst

* Stamatios Draziotis

Eurobank Equities Investment Firm S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by, ladies and gentlemen, and welcome to the OTE Conference Call on the Second Quarter 2019 Financial Results under IFRS. With us today, we have 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 M&A. (Operator Instructions) I'd like to advise you that the conference will be recorded today.

I would now like to hand the floor over to Mr. Michael Tsamaz. Please go ahead, sir.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [2]

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Good morning, and good afternoon to all of you. Welcome to our second quarter earnings call. We had another good quarter where there was a lot of continuity on the trends we saw and discussed with you in the first quarter.

In Greece, these trends even improved sequentially in many areas as retail revenues were higher in fixed as well as in mobile. Broadband in fixed and prepaid in mobile delivered the best performances but there, our KPIs and revenues were positive and encouraging across the board. We hit a record number of fiber broadband additions this quarter, a clear indication that customers recognize value and they are ready to move to upgrade to solutions if they have it in their budgets.

Romania, I would say that the situation is now under control. Of course, headline numbers are not yet where we would want them to be, but the progress we were expecting is steadily materializing and should become more visible in the coming quarters. In the meantime, we get to figure ourselves. We plan to implement an important transformation plan of the Romania operations that will take full advantage of this digitalization to significantly reduce our cost base.

We're continuing to invest to maintain our technological superiority in our markets. In the second quarter, our CapEx exceeded EUR 178 million, proving once again our commitment to technological advancement in the areas that would contribute to the most of our sustainable growth.

We have upgraded our fiber connections and are now able to offer speeds of 100 Mbps or more to majority of our network, an option that our customers are increasingly adopting.

Thanks to our strong financial and operating performances, we're achieving significant free cash flow generation that solidifies our guidance, supported by our continued investments in the following network and content but also in the comprehensive digital transformation of our entire organization.

As the environment becomes more conducive to change and innovation, we are taking advantage of this to step up the pace of our transformation rebuilding ourselves around our clients' expectations. We developed many new services in new ways of doing things to simplify the work and leisure time with our customers. We also believe that the improving business environment will enable us to strengthen our lead when it comes to ICT services.

We are and going to remain the partner of choice for public as well as private organizations. We need to evolve and take advantage of new technologies, such as artificial intelligence, cloud services and connectivity. Our work on behalf of Coca-Cola Hellenic Bottling Company around the globe is a perfect blueprint in this area.

At the same time, we know that we cannot succeed in this new environment with a legacy cost structure. Even though we have evolved significantly in the past years, we constantly strive to become more agile and leaner to be prepared to face any new type of condition. During the quarter, we completed another voluntary exit scheme in Greece, which was well received by more than 300 people. We need to do more to reform radically in many of our ways of working where logical revolution enables new methods. We're pleased with our performance improvements since the beginning of the year and intend to continue working hard to create value and enhance shareholder return.

Thank you. And now I will turn the call over to Babis to review our results in the quarter.

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [3]

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Thank you, Michael. Good day to all of you, and thank you for joining us in our call today.

Let me start with a couple of accounting reminders. First of all, our former Albania business is treated as discontinued operations under IFRS 5 until May 7. And that was a date when we completed the transaction. And secondly, throughout this year and to provide meaningful comparisons, the EBITDA numbers we are discussing are before IFRS 16 effect. In our press release, you will also find EBITDA after leases, AL, which will form the basis for our discussions and comparisons starting as of beginning of 2020.

Now let's have a look at our quarter results. Group revenues totaled EUR 947 million, up EUR 4 million or 0.5% compared to the second quarter of last year. We continue to post steady revenue growth in Greece, up more than 1% or an additional EUR 8 million to EUR 720 million. In Romania, on the other hand, revenues slipped by EUR 7 million or nearly 3% to EUR 231 million, reflecting the 2018 readjustments. Sequentially, Romania is also positive, driven by improved service revenues in mobile, but more importantly by Retail Fixed service revenues, with a return to sequential growth following several quarters of declines.

Adjusted EBITDA posted a solid growth this quarter. Group EBITDA was up EUR 6 million or nearly 2% to EUR 322 million. This was achieved thanks to an increase of nearly 5% in Greece, where adjusted EBITDA was at EUR 292 million and was up EUR 13 million versus the respective period of last year. Romania adjusted EBITDA for its part posted another 20% drop to EUR 30 million, still impacted by the operating issues we discussed last quarter. We expect the underperformance in Romania to narrow as we move into the second half of this year. Already, our operations in the country are posting sequential improvements, establishing sustainable trends in both mobile and fixed segments, and this is for the first time in almost 3 years. The group's EBITDA margin was robust at 34.0%, up 50 basis points, driven by 140 basis points increase in Greece to 40.6%.

Let's now take a closer look at our performance in Greece which was quite satisfactory overall. Revenues from Greek Retail Fixed services were up 2.8%, the same rate of growth as in Q1, while the growth in Mobile Service revenues accelerated in the quarter to 2%. So our core customer business is clearly doing well.

Focusing on Retail Fixed services, growth was again driven by broadband, with revenues up more than 8% in the quarter. Voice revenues were up slightly, confirming the ongoing stabilization of this segment of the business, while TV posted a revenue growth of 5%. The total Greek market lost 2,000 lines, access lines, this quarter, while were up by few hundred underscoring the stability of the overall market and of our share in it.

We added more than 30,000 new broadband connections in the quarter as we developed our customer base. Even more impressive, in fiber, we beat the record we had set in Q1 of this year with more than 60,000 additional connections, once again accounting for more than double our total broadband growth. Our 646,000 fiber customers represent 1/3 of our total broadband base, with broadband penetration of our fixed base at just 74%. And with customers with high appetite for faster speeds and better service, we have plenty of room to continue growing. The proportion of customers receiving speeds of 50 mega bps or more, now at 75% of our fiber customer base, has also grown rapidly in the second quarter alone, and this proportion gained 10 percentage points.

In TV, while sequential growth is more moderate, the total number of subscribers as of the end of June was up by more than 3% compared to a year earlier. To preserve our market lead in a market that is constantly changing, we are improving programming and we are scheduling the launch of a new personalized OTT service.

ICT revenues were virtually unchanged compared to last year's quarter. We are well positioned to seize opportunities, notably in the government, but also in the private sector as the environment continues to become more favorable. We expect demand for ICT projects to pick up in the latter part of the year.

Greek Mobile Service revenues were up 2% in the quarter, with nice increases in a number of key areas and solid KPIs generally. As we discussed last quarter, a key area of focus for us was strengthening our prepaid offering, and I am pleased that these efforts are paying off. Our prepaid ARPU uplift measures were a key driver of growth in the quarter and resulted in double-digit growth in prepaid revenues. At the same time, change in total validity in value are triggering consolidation of multiple low-ARPU sims. The situation is a little tougher in postpaid, at least especially, as we are comparing against quarters that preceded regulatory restrictions at both the Greek and greater EU levels, such as the cap in international coal tariffs, et cetera. Comparisons should become more favorable towards the fourth quarter.

Blended ARPU was up significantly as the increase in prepaid has more than offset the lower postpaid. Data continues to fuel revenue growth, and this trend should continue in the third quarter, boosted by our offering of summer add-ons. Year-on-year, data traffic grew 60% this quarter. The number of active data users increased 14%. Smartphone penetration was up again to 41%. Generally, all KPIs pointing to the right direction. This led to a 22% increase in mobile data revenues in the quarter, a clear acceleration of cost trends.

Now looking ahead, we foresee a solid tourist season this year though we don't expect to the level of growth that we have experienced in the past 2 summers. And while we are looking forward to easier comparisons on postpaid by the end of year, we're also focusing on the upcoming changes in the competitive landscape.

Then to our other big operations, revenues from wholesale were up sharply this quarter due to international traffic on transit, resulting to an increase of EUR 4 million, while other revenues were down 6%, primarily due to reduced handset sales. In Greece, total operating expenses before IFRS 16 and excluding depreciation, amortization and one-offs, stood at EUR 429 million in the quarter, down over 1% from the same quarter last year. The decrease was mainly driven by efficiencies in direct expenses, notably, personnel, maintenance and marketing.

Personnel expenses were down more than 5%, roughly in line with the decline in the first quarter on an underlying basis. As a result, total adjusted EBITDA in Greece before IFRS 16, exceeded EUR 292 million in the quarter, up 4.7%. And the Greek adjusted EBITDA margin stood at 40.6%, and that was 140 basis points higher than in the same quarter of last year.

Turning now to Romania. Our operations had another challenging quarter but we are making further headway in terms of getting back on track. Total revenues in the country at EUR 231 million were down less than 3%, which represents a far more moderate drop compared to the previous 3 quarters in a sequential recovery. Revenue from Retail Fixed services exceeded EUR 59 million, a drop of 5%, also a notable inflection versus recent periods, while Mobile Service revenues stood at EUR 79 million, reducing the decline to 4%. Wholesale revenues increased by about 28%, mainly due to international traffic on transit.

Within Retail Fixed services, voice revenues continued to decline, but broadband, in particular, the TV revenues returned to black as a result of commercial actions taken. In Mobile Service revenues, as we pointed out last quarter, we expect to see comparisons improving in the second half of the year. In Mobile as well as fixed, we are seeing a general improvement in the current pricing environment, which partly explains the attenuation of the trend in Q2 and our expectations for the second half of the year.

While we've seen some increase in share and have been actively cleaned up the prepaid customer base, we have also started to record higher ARPU in May and June, and this should positively impact the next quarter. Apart from a more favorable environment, we are also witnessing an improvement in users of both voice and data, which has been driving revenue. The FMC convergence service added 32,000 in the quarter, while corresponding service revenues rose by more than 30%, proving once more the competitive advantage of the group.

Total Romanian operating expenses, excluding one-offs and before IFRS 16, were down by about 3% in the quarter as we continue to rationalize the cost base. Bad debt provisions were nearly half following the significant decreases last year.

Total adjusted EBITDA in Romania was down 20% to approximately EUR 30 million, and the EBITDA margins declined by 280 basis points to almost 13%. However, the sequential quarterly improvement of 13.7%, together with the return to a normal base in half 2 of the year and especially Q4, support a bit more optimistic outlook going forward.

Following digitalization initiatives implemented in the country, we will produce the transformation plan covering the majority of our operations and the organizational structure. We expect savings from these programs to boost our performances in the coming quarters. Combined with a more rational market environment, we are confident that our reorganizational efforts will put us in a solid position in the market.

Let's now have a look at the rest of our financials. Consolidated group adjusted EBITDA was EUR 322 million in the second quarter, up 1.7%, driven by the strong performance in Greece. The group operating expenses before IFRS 16 and excluding depreciation, amortization and one-offs, amounted to EUR 632 million down over EUR 10 million from the second quarter last year, reflecting our ongoing transformation and the sustainable efficiencies we have achieved in direct expenses.

Group depreciation and amortization totaled EUR 273 million in the quarter. The increase of nearly 50% reflects impairment of goodwill related to our Romanian mobile operations for about EUR 70 million and the implementation of IFRS 16. Net interest expenses were up 28%, primarily related to IFRS application. If we strip out the IFRS 16 effect, net interest expenses were 1.6% lower. Adjusted net debt before IFRS 16 totaled EUR 602 million at the end of June, down more than 13% from the level of June 30 last year, and down nearly 19% from the 2019 -- 2018 year-end level.

Adjusted net debt to trailing 12 months EBITDA was 0.5x. Primarily reflecting the Romania goodwill impairment, earnings before taxes were down in the quarter at EUR 42 million. Consequently, our income tax provision was lower than usual at EUR 18 million. Adjusted net income amounted to EUR 99 million in the quarter, up 54%, while the increase for the first half of the year reached 34%.

CapEx, excluding spectrum, amounted to EUR 178 million in the second quarter and was up nearly 7%, in line with the increase recorded in the first quarter. We stand by our full year adjusted CapEx guidance at EUR 650 million.

We generated an adjusted free cash flow of EUR 173 million in the quarter compared to EUR 92 million in the second quarter last year. Reported free cash flow, of which our dividend calculation is based on, increased from EUR 84 million to EUR 129 million in the quarter. The increase in free cash flow primarily reflects the higher operating free cash flow. As a result, we reiterate our confidence to deliver EUR 350 million guidance regarding the reported free cash flow for the year 2019.

As conclusion, I would say that we are pleased that -- with our results in this quarter, with Greece pursuing its steady performance of the first quarter, and in Romania, a strong sense that the second half will be much better than the first half. Michael and I and our other colleagues on table are now ready to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question.

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Roman Arbuzov, JP Morgan Chase & Co, Research Division - Analyst [2]

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It's Roman Arbuzov from JPMorgan. I had 3 questions actually, please. The first one is just on the reduction of the Greek corporate tax rates and what does it mean for OTE's cash tax. So I was hoping that you could give us some sense of what is a reasonable level for OTE's cash tax to be in 2020 and 2021 if we assume that the proposed reduction to the Greek corporate tax rate to 20% actually takes place. Just some rough numbers, that would be very helpful. And if I look at the last 4 years on my estimates, the cash tax that you pay is around EUR 160 million to EUR 170 million. So is it reasonable to assume that this goes down to, let's say, EUR 110 million to EUR 120 million? That's the first one.

The second one is on the postpaid trends in mobile. I was just hoping if you could provide a little bit more color on what's going on within that segment. And if you could please specify what is the current revenue decline in postpaid that you saw this quarter. And what was the regulatory impacts within that? And what I'm really trying to get at is what is the underlying performance in postpaid, that would be very helpful.

And then thirdly, just in transformation, it sounds like you are executing on a more ambitious transformation program compared to your previous agility programs. And I was hoping if you could give us some sense of phasing of the impact of this transformation program. I know you highlight in your release that it's an ongoing thing, and you -- we see the impact typically every quarter that your costs are being reduced. But I was wondering if you could give us a little bit more phasing for the medium term. For example, would you expect that you take out more cost in 2020 compared to 2019? And also perhaps if you could comment on 2021 just to give us some sense of how it evolves over time, that would be very helpful.

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Panayiotis Gabrielides, Hellenic Telecommunications Organization S.A. - Group CMO of Consumer Segment [3]

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Okay. This is Panayiotis Gabrielides, the Chief Marketing Officer. Let me tell you about the postpaid trends. This quarter, the trend was negative about something more than 2%. The main reason for that is the regulation measures that we have applied since the beginning of the year, both local and international. It's around the hit of EUR 10 million for postpaid for 2019. And the year-on-year comparisons are not favorable at this stage of the year but is something that we expect that would revert by Q4 this year.

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Roman Arbuzov, JP Morgan Chase & Co, Research Division - Analyst [4]

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And can you just add maybe, what is the overall postpaid revenue then? So we can put the EUR 10 million into context of the overall number?

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Panayiotis Gabrielides, Hellenic Telecommunications Organization S.A. - Group CMO of Consumer Segment [5]

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Yes. Overall, around 1%.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [6]

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Let me entertain the question about the corporate tax rates. So first of all, the -- as you can understand, it's quite difficult to comment on articles that talk about potential tax savings. We need to see the final law, and we need to see the exact way that this will be implemented. And most importantly, the timing. The rates, you mentioned, the 20%, whatever, they may be applied for income generated in 2020. So there will be -- doubling the cash position in 2021. And the calculations, as you said, it can be done based on our normalized tax payments every year. But we should be careful to not rush concluding numbers before we see the exact phrasing of the new tax law. And most importantly, the timing and the positions on which this tax reduction will be implemented.

For -- and given this opportunity, let me also note here that whenever there is a reduction in the tax rates, on the P&L, the tax expense are increasing because we calculate the deferred tax assets at a lower level because of the reduced tax rates, and this has always a hit in the P&L. This is on the P&L side. However on the cash side, as you said, whenever there is a reduction, that will be translated ceteris paribus on the tax payments.

On the on the transformation program. As you said, you put it very correctly, this is an ongoing kind of exercise, a continuous effort. Where we sit in our P&L? Usually, we sit on the, what we call, operational leverage, meaning that whenever we -- these efforts are being translated into actual events, we see an increase in EBITDA, which is beyond the increase in the -- to the top line in the gross margin. The timing of this information is dominantly based on the digitalization of various work streams, both towards the customer but also on an internal basis. And they are implemented gradually. I mean, it's not a big bang that goes one-off. It's a continuous effort that flows, as you said, quarter-by-quarter. And we should see this mounting in the years 2021 onwards. As you rightly said, it's very difficult to put an exact number on the timing of this effort. But what we can reiterate is that it is flowing into the P&L and you see it quarter-by-quarter in our numbers.

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Operator [7]

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We will now take our next question.

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Georgios Ierodiaconou, Citigroup Inc, Research Division - Director [8]

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It's Georgios from Citi. I have 2 questions, please. And apologies for the noise in the background. The first question is around the tower increase. If you could give us an idea of the number of towers that you have under your control right now. And your parent company is progressing with an initiative to look at options to monetize its towers over the medium term. Is it something you are considering also? Even if's you're not actively looking to do it now, is it something you will rule out completely? I'd be interested to hear your thoughts on that.

And my second question is on Romania. The KPIs this quarter were particularly weak. And during your introduction, you mentioned that you are seeing signs of recovery. Is it possible to give us an idea of what is driving this change? And whether we should expect any material improvement in the coming quarters? Or it is more of a lower decline rather than stabilization of the trends?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [9]

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Thank you for the questions. First of all, the towers. I can say that we have no plans to do any kind of transaction there since towers are part of our network and the customer offering. Now the -- under this principle, the amount of tower we have is not that important, but it's in the range of 4,500. That includes all types of towers.

Romania. Romania, I mean, we were very careful on the way we present it. We mainly focused on the sequential improvements, meaning quarter-on-quarter and not year-on-year because year-over-year, we are still suffering from 2 things. One is the comparison to half 1 -- the comparison versus the half 1 2018. As you can recall, last year, we had to book additional budget provisions in the second year -- in the second half of the year, which normally would have been attributed to the whole 2018. So inevitably the comparison with half 1 2018 is a bit punishing. This will not happen in the second half of the year. And by definition, that improves the comparisons a bit. That's on the technical side.

On the actual side, the sequential improvement on the service revenues in both -- and when I say sequential, this is Q2 versus Q1 of this year. The increase, we had increases in both service revenue in retail and fixed and mobile, and that was driven mainly because of commercial actions and focused efforts to increase ARPU through sometimes repricing or smart offerings.

Of course, we see improved registration. However, we are not there yet to improve the year-over-year trends. For the reasons I mentioned, in terms of those, we are still covering that in our commercial offerings. So with the combination of these 2, a, the technical correction; and b, the continuous effort, we expect to continue to see in the second part of this year to continue to see sequential improvement, but also to level down the drop or the shortage of the performance versus last year. And I think this is start to be evidenced in the service revenues. And later on in the next quarters, it will become evident also on the EBITDA.

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Operator [10]

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(Operator Instructions) We will now take our next question.

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Maurice Graham Patrick, Barclays Bank PLC, Research Division - MD [11]

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It's Maurice from Barclays. Just building on the points on Romania, so you've highlighted in the slides you've got sequential growth, even though year-on-year it's still declining. Did I hear you correctly that you expect the sequential growth to continue in Q3, Q4 in both mobile and fixed in Romania? And did I hear correctly that the EBITDA growth sequential will only come later? Or is that sequential growth in EBITDA are in the second half as well?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [12]

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Yes. Let me clarify very transparently what I said, is that the -- on the top line of the service revenue for fixed and mobile, we expect to see -- to continue to see sequential improvements quarter-by-quarter because actually, we're coming from a low base. And as we said in the script, we haven't seen the sequential improvements for some -- several quarters now, so this is the first encouraging thing.

The second thing, in EBITDA, this sequential also will -- inevitably will flow down to the EBITDA, but also half 2 has a better comparison base that favors the -- specifically Q4 favors this year, because as you -- I'm sure you recall, last year in Q4, we took exceptional bad debt provisions that punished the EBITDA on quarter 4. So therefore, by definition, we have to get this benefit this year. So this is what we should expect it to see in the coming 2 quarters.

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Maurice Graham Patrick, Barclays Bank PLC, Research Division - MD [13]

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Right. And if I could also follow up on -- now we're talking about easy comps, in that case I'll just follow-up on Greece, please. And again, you pointed postpaid trends improving there throughout the year. Obviously, 4Q '18 was very -- was weak. I think this is sort of -- that's that roaming impact there. Can you talk us through the drags in the next few quarters in the Greek business? So I believe the international calling -- you called out a number last quarter, but you had some impact this quarter. Was it in line with what you thought? And thoughts on the trajectory of roaming revenues would be helpful.

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Panayiotis Gabrielides, Hellenic Telecommunications Organization S.A. - Group CMO of Consumer Segment [14]

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We are not expecting any negative surprises or trends for the following quarters. We expect, as I said before, the regulatory impact to improve the year-on-year trends. And we only expect positive growth coming from mainly 2 areas. Number one is the prepaid to postpaid conversions that are giving extra output to -- and revenue to the postpaid segment. And the second one is more for more data promotion. We are developing the existing postpaid base offering, actually data packs with rates -- or revenue coming from data growing more than 20%. And traffic, actually, this quarter was more than 50% up versus last year.

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Operator [15]

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(Operator Instructions) We will take our next question.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [16]

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This is Stam Draziotis from Eurobank Equities. As typical, 3 questions from my side, please. Firstly on the Greek stake. Retail revenues have been posting 5 solid run rates in the last year, especially in H1 this year. I'm just wondering whether you anticipate the pace of growth to moderate in H2. Other than that, we are seeing that the relatively high speed adoption will help underpin similar strong run rates as in H1. So that was the first question.

Secondly, just wondering about the gains booked in the P&L, the EUR 26 million, would be related to, please?

And lastly, on the cash flow front. H1 was particularly strong (inaudible) Generating EUR 200 million adjusted free cash flow . Just you mentioned given that H2 has normally tended to be seasonally stronger, especially as it seems the CapEx this year is more skewed to H1, do you guys actually see that there might be upside risk to the adjusted free cash flow guidance that you have provided, mainly the EUR 400 million.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [17]

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Sorry, I was trying to interrupt you before because we were not able to hear a word from what you said. We could not hear your words. So I am sorry to say that we have to ask you to repeat the questions.

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Operator [18]

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(Operator Instructions)

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [19]

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Sorry, can you hear me well now?

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Operator [20]

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That's much better. Thank you.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [21]

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Sorry, again, can you hear me well now? Sorry.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [22]

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Yes, we can hear you. And please repeat your question from the beginning please because we couldn't hear you before.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [23]

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So first question on Greek stake, (inaudible) because just wondering retail revenues have been posting 5 solid run rates in the last year, especially in H1 this year. I'm just wondering whether you anticipate the pace of growth to moderate in H2 as comps get tougher. Or you think that the rising high-speed adoption will help underpin similar strong run rates as in H1? So that was the first question.

Secondly, just wondering about the gains booked in the P&L, the EUR 26 million, what do this relate to, please?

And lastly, on the cash flow front, my question would be, because H1 was particularly strong, more than EUR 200 million of adjusted free cash flow. Just wondering, given that H2 normally tends to be seasonally stronger, especially as it seems the CapEx this year is more skewed to H1, do you actually think that there might be upside risk to the free cash flow guidance that you have provided?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [24]

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Okay. Let me talk more about from the first question, which is about the rate of revenue growth increase. Well, we have -- we have the reflection of all the efforts that we are doing in all fronts in the commercial side evolving us for the -- in the first 2 quarters. And the mix of commercial offerings in the market remains the same also for the next half year. So we don't see any different reason why we shouldn't enjoy the same, at least for the next couple of quarters.

Let me also point out that, especially for Q3, the Q3 of last 2 years were attenuated by the increase in visitor roaming, which we have enjoyed the new regulation that liberated the users from the visitors. So we had 2 great years and so the comparison, especially for the visitor roaming, should be looked at carefully. So the Q3 numbers, of course, we will elaborate on them when the time comes, may need a bit of more explanation to carve out these effects from the visitor roaming.

The -- on the EUR 26 million -- if I can go -- if get correctly, yes, the extra gains is coming -- the EUR 26 million, predominantly, they are coming from a release of a non-provision that stayed there from when we had the previous disposal of assets. And according to the words and indemnities, which expire this year, we had to release the last remaining part of the provisions. It is one-off and it's not repeated.

Regarding the free cash flow, you mentioned the adjusted free cash flow. Let me just remind for -- let me just note for the -- as far as our shareholder remuneration is based on the reported free cash flow, which stood at EUR 158 million for the half 1, which points to the direction that our promise to the market for a EUR 350 million free cash flow, which is also being returned through the dividend and the share buyback, will be there. There are some movements in and out in every quarter. So for the time being, we can't say that our performance in half 1 confirms the -- our guidance. And we should expect in the next 2 quarters to fill in the missing -- the distance between the EUR 158 million and EUR 350 million.

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Operator [25]

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(Operator Instructions) We have just one further question coming through.

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Giuseppe Di Mino, Amber Capital UK LLP - MD [26]

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This is Giuseppe Di Mino from Amber Capital. Congratulations on a very solid quarter. Just have one question about your gross debt outstanding. I see that you still have EUR 1.7 billion of debt outstanding between bonds and loans. I'd like to know what is the weighted average cost of the outstanding debt. And given that you have 2 large maturities coming up, 1 in '19 and 1 in 2020, I would like to know what is your expectation in terms of refinancing those bonds.

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [27]

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Yes. First of all in the maturities, we have 2 upcoming, 1 in December of this year and 1 in June next year. The 1 in December will be serviced through our cash available. And the other 1, which is in July of 2020 will be refinanced with new issuances, which are going to happen in the coming -- the 3 months. And we are noting the favorable developments in the margins and in the returns and yields of the market and we are planning accordingly. So we expect to refinance them. Currently, these 2 -- the 1 that expires in July 2020 has a coupon of 3.5%. And if you're looking at the rates today, we feel that has a very high probability that we'll be able to refinance it at a much lower rate. How much? We will see where we decide to move on in the market, but it's very high in the agenda of our planning for the next months.

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Operator [28]

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There are no further questions at this stage. Please continue.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [29]

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Thank you very much, everyone, and enjoy the rest of the summer. Have a good day.

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Operator [30]

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Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect.