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Edited Transcript of HTO.AT earnings conference call or presentation 14-May-20 2:00pm GMT

Q1 2020 Hellenic Telecommunications Organization SA Earnings Call

Athens Jun 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Hellenic Telecommunications Organization SA earnings conference call or presentation Thursday, May 14, 2020 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

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Conference Call Participants

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* Georgios Ierodiaconou

Citigroup Inc, Research Division - Director

* Ioannis Kalogeropoulos

Beta Securities S.A., Research Division - Equity Analyst

* 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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Ladies and gentlemen, thank you for standing by. I am Gael, your Chorus Call operator. Welcome. And thank you for joining the OTE conference call on the first quarter 2020 financial results under IFRS. we have with us today, 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.

At this time, I would like to turn the conference over to Mr. Michael Tsamaz. Mr. Tsamaz, you may now proceed.

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

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Good morning, or good afternoon to all of you. I'm pleased to welcome you to our first quarter of 2020 earnings call. I hope you and your families are safe and healthy. Our thoughts are with everyone who is faced with COVID-19.

As you can imagine, even if our operating and financial performance has been quite resilient, this first quarter is not what we had been expecting when we talked to you last time. Our first priority shifted to preserving the well-being of our employees, customers and partners. The first COVID-19 case in Greece was diagnosed just 1 week after our full year results, and local authorities as well as the government took swift actions to limit the spread of the disease. In fact, the measures adopted in Greece have been some of the strictest in the world and have kept the number of fatalities per capita amongst the lowest in Europe.

All retail shops were closed starting in the second week of March, and of course, that included many of our Cosmote stores. While this measure impacted sales, it had, to some extent, collection of receivables, our performance in the quarter has otherwise been rather resistant. I'll let Babis take you through the quarter, and I'll focus on the next few minutes on what we view as our mission in the current situation.

We consider it our responsibility to contribute to the mitigation of the sanitary and economic consequences of the outbreak by making sure telecommunications remain a vital asset for everyone, for the government and local authorities, for all communities, including the most vulnerable, for businesses and individuals and for society at large. We want to be there to ensure Greece bounces back as soon as possible.

COVID-19 has not only created a huge surge in demand for our services, it has also tested them by radically shifting this demand from offices to homes, from businesses -- from business districts to residential areas, et cetera. I'm proud to say that the large network infrastructure we have built over the past years has not only resisted to this shift, it has performed flawlessly, handling an expected explosion of traffic in both voice and data. In fixed, daily data traffic increased by around 50% in March compared to the prior months, and voice traffic was up 45%. Speed and quality of service were not impacted despite a particularly large increase in streaming. On the mobile side, daily data traffic nearly doubled at 800 terabytes per day, it was up 90%. Our apps and websites also faced significant increases in demand. With many shops closed, online contract renewals doubled in March compared to February.

I want to express my gratitude and congratulations to all the OTE people who made these achievements possible. Having the right infrastructure is one thing, but it also needs to be continuously adapted. From day 1, we adopted strict safety measures to make sure that all our employees who cannot work from home, particularly field technicians, were guaranteed the best protection possible.

Going forward, it is evident that the pandemic will more severely impact our top line performance. While Greece started moving last week from a strict lockdown to a more open regime, the process will be gradual. It might take a long time to get over some of the most severe impacts of the pandemic. We're extending payment facilities to businesses that were shut down for nearly 2 months. ICT projects will be delayed. And it is very hard, at this time, to assess the full impact of the crisis on the Greek tourist industry at the time where the season would normally be getting started. For us, this will directly impact roaming, but more importantly, it might challenge the very likelihood of many of our customers in the hospitality industry.

So while we expect revenues to be lower in the second quarter and to remain affected for the balance of the year, our priority has shifted to maintaining our profitability and cash flow generation. We have scrutinized all lines of our P&L and cash flow statements to meet our full year objectives. We're also keeping our investment plans in place. Clearly, there will be some delays in the implementation, but all our objectives remain unchanged in 5G, in Fiber-to-the-Home and in our new ventures, such as gaming and payments.

Finally, you've heard me say many times that our goal was to transform OTE into a fully digital organization. And the current situation illustrates how much progress we have made and where we can still improve. We have handled well the large increase in digital interactions with our customers. We have functioned effectively with 80% of our 13,000 Greek employees working remotely. This crisis has enabled us to accelerate the transformation that was already in the making, and we will not return to normal, but instead, we'll apply the lessons of this event. And we will also share them with our clients in the public and private sectors, businesses and residential to help and accelerate their own digital transformation.

This concludes what I wanted to tell you today. I thank you for your support and (inaudible). I turn the call over to Babis to review our results for 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, and thank you all for being on the call with us today. Like Michael, I hope all of you are keeping safe in these challenging times.

I'm going to go relatively fast through the performance of the quarter to leave more time for your questions, but also because, for the most part of the quarter, it was right in line with the trends at the end of last year that we discussed in our last earnings call.

So group revenues in the first quarter totaled EUR 941 million, and we are up nearly 4% compared to the first quarter of 2019. Roughly 1/3 of the EUR 32 million increase in revenues this quarter came from Greece and 2/3 from Romania. Adjusted EBITDA, which we report at AL, after leases, starting this quarter was EUR 322 million. This compares to EUR 308 million in the first quarter of last year based on the same calculation. EBITDA and EBITDA margin were up in both Greece and Romania.

Let's start now by reading the performance in Greece, where total revenues grew by 1.4% or EUR 10 million to EUR 707 million. Revenues improved in both fixed and mobile. We started feeling an impact from COVID-19 around mid-March, notably in sales of handsets as we had to close retail stores. Revenues from Greek Retail Fixed Services were up more than 1%, in line with the increase in the fourth quarter. Once again, the performance in broadband was very strong, posting more than 8% growth in the quarter. Our broadband access share was stable. We added another 45,000 customers to our fiber base, bringing the total to 787,000, of which nearly 90% use speeds of at least 50 megabits versus 65% a year ago. TV revenues were somewhat weak, impacted towards the end of the quarter on the B2B side by the closing of hotels, cafés and betting stores. We are leveraging our new over top media service in a product in order to accelerate the take up of higher speed offerings.

ICT revenues were up sharply in the quarter. In the current circumstances, we don't see any decrease in interest for our system solution offerings, quite the opposite, but we expect projects to be delayed or even pushed in the next year.

Mobile service revenues at EUR 222 million were up a little over 3% as both prepaid and postpaid turned in strong advances. Data was far and away the main engine of growth. Prepaid revenues were up 7%, impact in March by stay-at-home orders. We have launched a number of successful promotions, offering additional voice and data to encourage recharging. This being said, we expect prepaid to remain affected in the very short term.

After turning positive in late 2019, growth in postpaid accelerated in the first quarter, up 2.5%. Continuing at this pace would be challenging as much of the conversion from pre to postpaid takes place in the store, and there might be pressure from business users to control costs.

The promotions we ran last year provided a real-time dry run for the peaks in data and voice demand we experienced since the beginning of the health crisis. As Michael noted, our networks performed splendidly. Data traffic virtually doubled compared to the first quarter last year, the highest growth rate we ever experienced.

One last thing I would like to note is the strength of our online offerings as our apps and websites have to rapidly substitute for closing stores and call centers. Here, too, our preparedness for the past -- of the previous years paid off.

As we have noted in the news release, the Greek top line performance in Q1 is not indicative of what we expect in the full year as COVID-19 dented only the final weeks of the quarter. On the one hand, the slowdown in prepaid top-ups and collection of receivables should be only temporary, and both are already picking up. But it is hard to assess the impact on roaming of tourists, especially this summer, and it's even harder to assess the direct impact on our business of tougher economic conditions. We should have better visibility at the time of our second quarter reporting.

Turning now to operating expenses. Excluding depreciation, amortization and one-offs increased, they totaled EUR 403 million in the quarter, up less than [11%]. Personnel expenses were down 1.5%, while third-party fees were up on higher ICT services in the quarter.

Altogether, adjusted EBITDA asset leases in Greece, totaled EUR 288 million in the quarter, an increase of 2%, and the margin was 40.8%, up 30 basis points.

Turning now to Romania. In Romania, completion of ICT projects and strong wholesale were the main drivers of the nearly 10% increase in revenues this quarter to a total of EUR 237 million. Broadband revenues was also posted growth, resulting in a decline of just 2% in retail -- in total retail fixed services, the smallest drop in many years. With the higher speeds and smart pricing initiatives boosting broadband, we expect this trajectory to continue and retail fixed services to return to growth. Mobile service revenues were down nearly 4% at EUR 43 million, but it's important to note that the majority of this drop was due to roaming interconnection, the latter due to reduced SMS traffic and the drop in the mobile termination rates. Conversely, bid revenues from our own customers were resilient, boosted by an increase in data revenues of more than 15%. ARPU was up double digits. And once again, we had nice double-digit growth in both the FMC customer base and related service earnings.

On the cost side, as you know, even before COVID-19, Telekom Romania was taking a number of steps to streamline its cost base. These initiatives are being further intensified to cope with the current situation. The first quarter adjusted EBITDA asset leases in Romania was EUR 34 million, reflecting both the higher revenues and the cost actions I just mentioned. The margin was 14.3%. As in Greece, our Romanian operations successfully accommodated substantial surges in the redirections of traffic, which were induced by the COVID-19 outbreak. We expect to be impacted in Romania, more or less along the same lines, as we describe in Greece.

Turning to the rest of our financial now. The 4.5% increase in consolidated group adjusted EBITDA after leases, I mentioned, to EUR 322 million and the 30 basis points improvement in margin to 34.2%, reflect improvements across the board, apart from Romania fixed. Total group operating expenses, excluding depreciation, amortization and one-offs, amounted to EUR 605 million, up nearly 4%. Personnel costs were down 4%. Device costs and third-party fees account for most of the increase, and are largely related to the higher ICT revenues, both in Greece and Romania during the quarter. Group depreciation amortization was EUR 173 million this quarter, returning to a normal run rate after the exceptional write-downs in Q4.

Reflecting lower debt and refinancing of older higher coupon bonds, interest expense was down 32%. Including lease obligations, adjusted net debt totaled to EUR 930 million at year-end, down about 19% from a year ago. Adjusted net debt to trailing 12 months EBITDA after leases was 0.7x at the end of the period. If we exclude leases, net debt to EBITDA was 0.4x, a further improvement compared to year-end. High profitability, along with the lower depreciation and lower interest payments, led to a sub 37% increase in earnings before taxes, EUR 141 million. Nonetheless, income taxes were down 14% on lower corporate income tax rates increase. Adjusted net income of EUR 113 million was up 79% from the first quarter of 2019. CapEx, excluding Spectrum, was EUR 166 million this quarter, down about EUR 10 million versus the first quarter of 2019. We are confirming our 2020 full year CapEx guidance of roughly about EUR 600 million, though the guidance by quarter might not be exactly what we had initially forecasted due to the COVID situation.

Adjusted free cash flow was EUR 133 million as compared to EUR 36 million in the first quarter of 2019. Reported free cash flow was EUR 130 million versus EUR 29 million last year. We do not expect any further delays in Spectrum payments and stand by our initial guidance of EUR 350 million in reported cash flow in the full year.

Before we close, just a few words about guidance. The COVID-19 situation did not materially impact our top line in Q1. In fact, we had a very solid performance for the first 2.5 months. In the last 2 weeks of the quarter, we saw some weaknesses from B2B as closed businesses asked for credits on their monthly fees and from prepaid due to stay-at-home rules. These trends continued in April but already started reversing in early May as restrictions are being lifted. We don't believe this will materially impact our full year revenues, considering the scale of the group. As I noted, the one-off impact on roaming will largely depend on when the tourist season is allowed to begin and on whether visitors actually turn out.

Finally, these -- there are indirect impacts of an economic contraction, but these are hard to quantify, and we have proven to be relatively resilient, both during the Great Recession of 2008, 2009 and the Greek crisis.

As Michael pointed out, we are working across all cost items to mitigate the impact of any revenues contraction. In addition to lower variable costs, notably in ICT, and to the natural cost item that comes with reduced activities in areas such as churn, commissions, traveling, seminars, et cetera, we are cutting down on advertising and promotion, outside consulting and generally, every line that can be postponed or being down. So all in all, we expect to meet our profitability and cash flow objectives.

As I mentioned, we have no plans to revise our CapEx plans for the year. Consequently, our EUR 610 million adjusted free cash flow and EUR 350 million reported free cash flow targets remain firmly on the table and hence, our shareholder remuneration policy commitments.

Now this concludes my remarks. Michael, myself and Panayiotis and our other colleagues are on the 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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The first question comes from the line of Draziotis, Stamatios with Eurobank Equities. .

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [2]

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Yes. I'm glad you are all safe and healthy. Just a few from my side. Firstly, could you please talk to us about what you've been seeing in terms of service revenue trends after the lockdown was imposed in Greece, namely since mid-March, focusing on pressures you may have been seeing on the prepaid side and B2B postpaid? So that's the first question.

Secondly, could you elaborate a bit on the opportunity for upselling in the aftermath of the epidemic, and in general, ways you think you can benefit from the work-at-home dynamic?

And lastly, you mentioned in your presentation that you will work on various aspects of your cost base so as to meet your profitability and cash flow targets. Just wondering, what are these targets on the profit side? Because on the cash flow side, these are well communicated. And if you could give us a rough idea about the size of cost cuts that you are aiming for? Thank you.

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [3]

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Okay. First of all, thank you for the question. First of all, on the service revenue trends, I think throughout the presentation, we highlighted the area where we were seeing some impacts. For example, the B2B segment that coming from the stores that are closed. We had some delays on the collection of receivables, which was normal since the lockdown was a sudden one. And also because people have to be locked down, the prepaid consumption was slowed down. That was observed throughout Q1. And as we said, now that the measures are -- the lockdown measures are gradually being relaxed, we see a steady improvement back to normality and recovery. So as we said, the -- to the extent that the pandemic is getting now towards a normalization gradually, we experienced the slowdown effects in the previous weeks, but now what we see a gradual return to the normality, which means that reading out the outer year, we view this as a normal come back. As we've clearly set out, the unknown is the business roaming, which depends on the touristic wave, which we cannot, of course, forecast, and we cannot comment more specifically because we are waiting to see what actually will happen with the touristic season. And again, as we said in the presentation, we constantly monitor the developments in order to be able to assess. And hopefully, when we talk again in the Q2 results, we'll have a more clear view to guide.

The cost base comes naturally. I mean, there's also a natural decline of the cost because of the slowdown of the economic activity. For example, if ICT projects are being delayed, then the associated costs are not happening. So this reduces the cost. The economic activity also reduced other variable costs, like the trend-related cost, the commissions and also the other actions, like I mentioned traveling, training and other big tranche of expenses, along with a more rational and sizable commercial activity in terms of marketing and promotions, also help bring the cost down. So that comes to add up to the -- and the offset, to some extent, to big extent, the slowdown that we have experienced. So that's why we are very careful to say that Q1 was not impacted other than 2 weeks. In Q2, we started with all the impact that I mentioned. But we are in the beginning of -- in the middle of next month, of the second month of the quarter, and we see a gradual recovery back to normality. So other than that, the crystal ball for what we'll have in the future stops there.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [4]

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Okay. On the targets, on the profit side, I mean, do you have anything specific that you want to share with us? For example, are you aiming for, let's say, defending the profitability reached last year, for example?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [5]

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If I -- I mean, it was a very clear statement that we believe that with all this, and that's the assumption that we have left the worst behind us, is that we have reiterated our targets, the guidance for the year, along with our remuneration policy. So this is the kind of statement that comes out of a normalized profitability that will continuously improve as we go ahead, coming back from the weeks of the lockdown. So it's -- we reiterate our guidance, so that, I think, says a lot.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [6]

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Okay. Final, just on the selling opportunity, do you feel that we are -- that this is going to be something structural? So this work-at-home dynamic will be something from which you can benefit in the next few quarters?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [7]

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I think that we have been always advocate that the society digitalized in many forms. One evidence, and the very evident outcome of this crisis was that digitalization is not a theory, but it's actually a practical support to improve and sustain the quality of life for our society. And we are preachers of digitalization. That's why the network we have designed, both fixed and mobile, not only was resilient, but also we stood increasing traffic in the area of some days like double the traffic, and everything went fine. So we have the infrastructure to support digitalization, along with the continuous expansion of our fiber network. So inevitably, as the society realizes the benefits of broadband and fast internet and digitalization, there is a natural outcome that this will attract demand for our services, and we are ready to satisfy and to meet this demand.

Now putting numbers next to that one, as you know, digitalization is not -- it doesn't happen from Friday to Monday, but it takes time. And we think and we hope it will be accelerated because of the experience and learnings that everybody drew out of this lockdown.

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Operator [8]

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

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Maurice Graham Patrick, Barclays Bank PLC, Research Division - MD [9]

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Yes, Maurice from Barclays. Just a couple of quick questions from me, please. Could you just remind us how much of your Greece revenues are actually B2B and SME? That will be very helpful. And then just in terms of the guidance, you obviously reiterated and talked about the cost-cutting potential offsetting. Did you assume there will be a material summer roaming season in -- for Greece? I mean, I think you make EUR 40 million of roaming revenues every year. I mean, do you assume that you'll recapture much of that in Q2 and Q3? Or should we -- what should we assume for that?

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [10]

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Let me start from your second question on the roaming. And in general, on the recovery of the revenues, all the comments we made, I think, we are very clear that business roaming is a lever on its own. And it's -- we should treat it differently from -- versus the recovery of the other line of business, that we -- I think we very clearly explained how we see it. After the slow initial slowdown, there's a gradual recovery, and we are sure that this will continue.

On the roaming, the roaming revenues are concentrated in the summer months. And as you know, the touristic season in Greece lasts up until November, of course, with the various attributions in each month. So at this point of time, we cannot foresee how this -- what will be the final impact of the roaming because we don't really know how and when and if the touristic season will be out. So whatever the impact on the roaming is, this is something that we view it as one-off for this year, because looking positively in the future, whatever happens this year, especially for roaming, is a V-shaped recovery. So we may have a one-off hit this year, but in the next year, this will be recovered, assuming a normal course of business.

So we are not planning -- I mean -- and we don't envisage if there is a big drop in the business of roaming, we don't think that this will be recovered in the months that will be remaining, because the concentration is in the summer months.

Regarding B2B, B2B has 2 components. One is the normal fixed and mobile business for business customers; and the other one is the ICT revenues, let's call it that way, which comes from the big projects. Combined together, divided by the total revenues of Greece, this is in the area of 20%, but it's both. It's both B2B business and ICT. And what we see on the ICT, as we said, there might be a postponement of the realization of some projects. But definitely, this will be -- it's not a cancellation, but it's pushed out towards probably the end of this year or beginning of the year. So we are confident that either this year or next year, we will capture this revenue.

On the B2B, it was clear from the presentation that the segment that has been hit was the small businesses first, which had to be locked down, and they are dependent like cafés, restaurants, et cetera. And they are still locked down and expect to open in the coming few weeks. And this -- we face some requests for credits, et cetera. But also, we see this as an event of April and May.

And the other area which is impacted, of course, is the hospitality sector. And we talked about that one. But again, this also is for as long as the touristic season doesn't start. So we're having all those, and we are trying to be close to our customers, trying to be -- to offer any kind of support we can. So that's for the B2B.

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Operator [11]

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The next question comes from the line of Arbuzov, Roman with JPMorgan.

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Roman Arbuzov, JP Morgan Chase & Co, Research Division - Analyst [12]

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I just wanted to dig deeper and follow-up on the previous 2 questions and answers. From what you've said, Babis, to me, it sounds like there are some things that's negative from COVID, and most of these things are under your control and will be mitigated, but the visitor roaming specifically is an unknown, and it's outside of your control. And it almost sounded like it's beyond the scope of the mitigation measures as well. That was just the impression that I got from your previous answer. If it's a one-off hit, you lose some revenues and EBITDA this year, and then it will jump back to normality, let's say, next year or whenever that may be. So I just wanted to check, right? So let's say we hit a bad scenario, which, I guess, is not so unreasonable if you listen to what the airlines are talking about and international travel agencies are talking about in terms of normalization of travel in 2023 only. So let's say, there is a material hit and you lose the majority of your EUR 45 million visitor roaming, do you expect to mitigate most of it? All of it? Or is this beyond the scope of mitigation and you would just hope it recover -- bounces back next year and you've had to deal with the situation that way? That's the first one.

The second one is, again, a follow-up on Maurice's previous question. Can you please quantify for us your revenue exposure to the tourist and hospitality sector, in particular, if possible at all, maybe just roughly?

And then the third one is just on CapEx. I understand that you're keeping your CapEx guidance flat or unchanged, rather. I just want to check how much flexibility is there. So let's say, the situation turns out to be somewhat worse than everybody is currently thinking, let's say, you get a bigger hit from your visitor roaming, for example, how much flexibility do you see in your CapEx to safeguard the cash flows?

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [13]

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Okay. Start with the visitor roaming, your first question. It's fair to say that the things that come from the revenues from our customers, just to close the first part of your question, is something that we are working on commercially as the economy recovers in order to be able to bring it back to normality and to the trajectory that we have seen in the previous quarters. So we expect this one, to the biggest extent, to be offset throughout the year, always with a caution that we have a gradual return to the normality.

The -- indeed, the visitor roaming, for us, it's kind of, obviously, beyond the control. And to the extent that this is -- will happen to any extent that any number you're going to put there, is not exactly as a one-off because it's not a one-off, but it's a hit that because of the V-shape of the specific revenues, assuming 2021 will be a normal year, it's something that it happens, it goes, and then next year, we're back to the normal case. So if the hit is big, obviously, to be able to recover it, it's not that easy. And it's more or less a kind of footprint of the crisis in our numbers this year. We will be able to say more, as I said, when we talk about our Q2 results. This is the way it's been designed.

Regarding the hospitality sector. In order to make it clear, what we are trying to do, this -- the big hotel business are integrated customers, meaning that they have most of the infrastructure is our customers, including also the ICT and their, for example, alarms and automization that they have and the Internet feed. So on these ones, it's not like canceling the revenues, but it's also being able to accommodate temporary delays in payments, by offering some installments that fall within the year, always waiting to see how the season will start because also the hospitality industry, they don't want to be totally cut off, but they want to be ready if the touristic season starts to be able to turn the key on and start writing revenues. So that provides the proper customer service.

The smaller businesses, not -- mostly on the cafés, as I said, cafés restaurants and betting stores, et cetera, these are the ones that are smaller business, of course. And there, to some cases, we may provide some additional discounts, but also installments in their payments, always in the effort to make it as friendly as possible on network.

I think I mentioned in my presentation that on TV, one of the reasons why we had a little bit of lower revenue this quarter was because we granted some discounts on cafés, trying to support their cases and their existence because let's not forget that they are our customers and we do care about the proper customer experience.

CapEx. CapEx, I think we have said before that the big components of the CapEx, other than the maintenance and the necessary, are expansionary CapEx, are revenue-generated CapEx. So Fiber-to-the-Home, 4G+ expansion and capacity and the upgrades in order to reach further areas with our fast broadband are long-term -- mid- to long-term strategy, and is not going to be stopped from an event that hopefully will last a couple of months, maybe some months. So our selection is to -- our choice is to continue now that the economic activity is bounding to continue our rollout of the CapEx, especially the Fiber-to-the-Home, and especially the 4G-related network, and get prepared also for the next generation on the networks.

In order to accommodate and sustain, first of all, sustain the customer experience that we have been providing our customers, especially in this case, in the case of COVID, and also to attract and accommodate the demand that we expect to be coming from the understanding of the society and the customers that the digitalization is a tangible benefit for them. So therefore, that's why we reiterated more or less our CapEx spending on the back of this strategy.

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Operator [14]

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Your next question comes from the line of Ierodiaconou, George with Citi.

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Georgios Ierodiaconou, Citigroup Inc, Research Division - Director [15]

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I've got a couple of questions, mainly for follow-ups on some of the things you mentioned just now, Babis. When you look at long-term impact of what we've seen over the last couple of months, you already mentioned you expect some more demand on digitalization. I wanted to understand a bit how you are thinking about perhaps your own distribution and how that could evolve over the years, your content delivery perhaps and whether there is the time now to evaluate how you make it a bit more available across more platforms? And I know you're already making some steps on that. And when it comes to the broadband net adds, I consider you're probably stable at I think almost all of the net adds of the market. I was curious, now that the others are offering FTTC, whether you think there is perhaps room to push up ARPU maybe a bit faster than net adds. So I was just curious to understand all these moving parts if possible and how you're thinking perhaps differently now than you did before the crisis.

And my second question is on Romania, where financials look to have recovered, but the KPIs were very weak again this quarter. And it's notable that now almost all of your subscribers are on fixed mobile convergent offers. Is it -- should we be optimistic that, that will stabilize the situation? Or is there a risk that you are still seeing very high churn even within that base? And therefore, all we're just going to start seeing now is even the FMC customer base in decline from the next couple of quarters.

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [16]

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Thank you for the questions. Going back to the first question about the demand and how we are going to translate the demand into revenues. Well, that's not anything different from what we have been doing. The strategy is the same, as I think we have explained is, a, to convert our broadband customers to fiber customers, which is the -- now -- and now there might be an opportunity to accelerate maybe a bit or to boost this conversion. Note that currently, 40%, 4-0, of our total broadband base, more or less, is in fiber Internet. And this one is something that is progressing according to plan. And the more we roll out our Fiber-to-the-Home, the more this will be able to be converted.

Obviously, the strategy right now is to -- this conversion, first of all, to happen. So it is also a combined with commercial offers, promotions and seasonal offers in order to give the opportunity to our customers to try the fiber Internet and convinced about the benefits and the reality of the higher speeds and then convert as a regular user to fiber Internet.

And this one -- the question is it going to be accelerated. Well, we hope that now it will be a little bit easier for customers to be convinced that in broadband, the size of the -- and the speed matters.

On TV, we have launched our over-the-top platform, which is, I think, a breakthrough for the Greek market. Admittedly, the launch came a little bit before the COVID broke down, but we already see an increase in our TV connections. And although the -- as we -- as I think we mentioned a lot in this call, there is a headwind from the smaller businesses that are struggling to get on their feet after the 2 months of lockdown. There's a definite trend for positive net additions also on TV. And we hope that once we get a little bit more clear out of the COVID-19 lockdown, we will see an acceleration at this front. And obviously, all these propositions are coming with -- also on our mobile segment, where the data consumption has been almost doubled in terms of average utilization of each customer. I have to say here that we are continuously dropping the prices on a per gigabyte basis, making the -- this service very, very affordable to the Greek consumers. Constant reduction in prices there, which facilitates the more-for-more idea, and this is evident by the numbers. More and more customers of our postpaid are subscribing to these big buckets of data because they become cheaper and cheaper.

So big -- kind of one sentence answer to your question, apologies for the long, but we have many business segments to cover, is that the certainty is that driven by the tangible benefits of digitalization to our customers and data-driven consumption, we are expanding our bases and our ARPUs. Now the speed of this ARPU increase, of course, has to come first after acquiring those customers. So -- and since we are expanding this base, it comes in the beginning with promotions and the commercial offers. And later on, I'm sure we will also see this increase in the ARPUs.

Romania. Romania, I think we have been positioned to say that we are coming from a period where our business was declining. And I think it's evident in the numbers that we are stabilizing it, at least in terms of achieving also modest EBITDA recovery, especially in this quarter, it was not just modest, but coming back to normality. Are we there yet? No, because if you see our EBITDA margins, we are still low. So we have a long way to go, but we are happy to see, a, that the FMC story works; also there, more than 35% of our Fiber-to-the-Home footprint is now in FMC, which is a big number. And when we say FMC, we mean basically for play. And this fuels the stabilization. The other thing that is evident in our numbers in Romania is that because we had the difficult previous quarters, we have launched a sizable and ambitious restructuring plans, which were concluded at the end of the previous year or at least the beginning of this year. And as you can see in the EBITDA analysis that we did, it's contributing to the EBITDA growth that we had this year. Still, our service revenues in both fixed and mobile are a little bit behind the relative quarters of the previous year. But a, this decline has been significantly decelerated. And also, we have the spearhead, which is the FMC customers, which subscribe to this stabilization through the growth in the base. However, we are still at low levels of EBITDA margin, and this is something that says that we have some work to do in front of us.

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Operator [17]

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The next question is from the line of Kalogeropoulos, Ioannis with Beta Securities.

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Ioannis Kalogeropoulos, Beta Securities S.A., Research Division - Equity Analyst [18]

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I have a question regarding your subsidiary in Romania and considering the improvement that was recorded after the implementation of the restructuring measures last year and during the first quarter and the upper end improvement in top line and on the EBITDA profitability line. Would you still consider this investing from Romania, either in -- either later on towards the end of 2020 or 2021?

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [19]

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Thank you for the question. I will use the words we used in the previous conference that we had about the financial release of previous quarters. Our strategy in Romania is that we are exploring all the strategic considerations, including the disposal. That's one stream of action. But at the same time, with equal intensity, we are suiting -- because the strategic consideration may or may not happen. At the same time, with equal intensity, we are seeing the improvement of the performance. So these things, they go together. And throughout -- through the previous question we had, it's clear, I think that we are pleased with the stabilization that happens coming from the areas that we mentioned before. And yet, it's at quite low EBITDA margins. So the strategic work stream is currently ongoing as well as the continuous improvement, which we're all happy to see that at least the restructuring effect is clearly now evident in our numbers as well as the commercial rebound that has reduced the rate of decline of the key service revenue areas.

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Ioannis Kalogeropoulos, Beta Securities S.A., Research Division - Equity Analyst [20]

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Okay. And the follow-up question, if I may, regarding your dividend policy. And given all the efforts you are making in order to meet your targets on your free cash flow targets for 2020, how would you see your dividend policy evolving during -- for 2020?

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Charalampos G. Mazarakis, Hellenic Telecommunications Organization S.A. - Group CFO & Executive Director [21]

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As we said in the main part of the presentation today, it's being reiterated. At whatever we have guided is announced, it's there.

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Operator [22]

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

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Michael Tsamaz, Hellenic Telecommunications Organization S.A. - Chairman, CEO & MD [23]

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Thank you all for your attention, questions and interest in OTE. While our revenue base will not be immune to the consequences of the pandemic, we are working with the tenacity on preserving our profitability and cash flow and on supporting all our customers as they handle the current difficult situation. We wish you a nice day, and above all, please stay safe and keep healthy. Goodbye.