Hellenic Telecommunications Organization S.A. ($HTO)

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 first quarter 2026 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Kostas Nebis, CEO, OTE Group; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Panayiotis Gabrielides, Chief Marketing Officer, Consumer Segment, OTE Group; and Mr. Evrikos Sarsentis, Head of IR and M&A. Mr. Nebis, you may now proceed. [Technical Difficulty] Hello, this is the operator. Sorry to interrupt, we cannot hear you.

Sorry. I'm repeating myself. So warm welcome to everyone, and thank you for joining us today in our first quarterly call for the year. The results that came out today mark a strong start in the year and reflect the solid momentum that we have built alongside our continued focus on disciplined execution and growth acceleration. Starting with the fixed segment. Our performance continues to deliver positive results. FTTH, TV and fixed wireless access all contributed to growth. We continue to accelerate the transition to the FTTH infrastructure. We achieved another record level of FTTH customer additions despite the absence of coupon support in the market, driven by the ongoing infrastructure expansion, the regulatory framework supporting the stop selling of FTTC services and our continuous effort to differentiate in the market. As part of this, we enriched our portfolio with value-added services, including advanced in-home connectivity solutions like Fiber-to-the-Room. We delivered another record level of FTTH customer additions on the wholesale front as well. This momentum is evident in the increasing utilization of our infrastructure and highlights the strategic value of our agreements with key telecom operators. At the same time, the first ultra-fast broadband networks in rural and semi-rural areas are now commercially available, enabling us to accelerate fiber migration, supporting our strong presence in these regions. This progress reinforces our broader vision of advancing Greece's digital transformation, as reflected in the country's continued improvement in fixed broadband rankings by Ookla. Let me now turn briefly to our fixed wireless access and TV performance, where we are particularly pleased. Our 5G Wi-Fi fixed wireless access product launched about a year ago continues to gain traction, allowing us to defend our fixed retail base against alternative technologies. In TV, we delivered robust revenue growth, demonstrating the resilience of our TV business despite the absence of pricing tailwinds since last year. This is proof that our conviction for a significant room to grow starting 2 years ago has been proven right. Customer additions were more than double compared to Q1 last year, driven by our strategic partnerships, effective anti-piracy measures and the removal of the special tax as of this year. Turning now to our mobile segment. We sustained our strong performance with service revenues growing at a solid pace, led predominantly by the postpaid segment. Robust growth was driven by ongoing migration from prepaid and increased adoption of high-value plans, supporting both ARPU and overall customer value. Postpaid customer growth reached record levels, reflecting the continued success of our commercial strategy. At the same time, prepaid churn remains above the average European levels, which highlights further potential for value uplift. In prepaid, we recently introduced enhanced value propositions in digital channels to support our outlook and facilitate further the transition to postpaid plans. Our mobile performance continues to be underpinned by network leadership and a significant differentiation in network advantage, as all independent measures show consistently over the years. In ICT, we enhanced our leadership in digital transformation across both public and private sectors, driven by accelerating demand, particularly in light of the completion of the RRF, the recovery and resilience fund program in 2026. During the quarter, we launched a comprehensive portfolio of advanced cloud services including AI workload capabilities such as GPU-as-a-Service, enabling organizations to efficiently develop and scale AI applications while supporting innovation and their digital sovereignty. Our momentum remains underpinned by our network excellence, our solid commercial strategy and our ability to offer a full spectrum of services, including mobile, fixed and TV services, complemented by a growing portfolio of digital and value-added solutions. We continue to invest in our core strengths, safeguarding our leading position in the market. In parallel, we are advancing our transformation agenda by leveraging data and AI to drive structural efficiencies with tangible progress reflected in the continued improvement of our indirect cost ratio. We're implementing AI applications already in our IT production that are accelerating the time to market in network management that improve maintenance and manage energy costs, in customer operations that facilitate a quicker response to customer requests and a series of other functions that will soon come onstream. Looking ahead in the year, we remain focused on leveraging our technological leadership and our core strengths, ongoing operating model transformation and the power of the Telekom Group to drive further growth, accelerate this transformation and enhance Greece's position in the European digitalization scene. We remain confident in delivering our 2026 guidance and generating sustainable growth and long-term value for our shareholders and all stakeholders. I will hand over now to Babis to provide more details of the quarter.

Thank you, Kostas, and welcome to everyone from me as well. As Kostas pointed out, the first quarter results confirm our positive trajectory. Total revenues increased by 4.9%, mainly reflecting continued growth in mobile, positive performance in fixed retail and strong momentum in System Solutions. In fixed, retail service revenues grew by 1.1%, a trend similar to 2025, driven by strong FTTH adoption, the contribution to fixed wireless access and sustained strength in our TV business. Looking in more detail. FTTH net additions exceeded 58,000, marking another record quarter despite the absence of state subsidies in the market. Our network expansion, now covering over 2.1 million homes, continues to broaden the addressable market, supporting both higher penetration and network utilization. A key contributor going forward will be our UFBB network in rural and semi-rural areas where we have recently made commercially available. We remain on track to reach around 2.4 million by end of this year. As a result, our FTTH connect customers reached 625,000, representing 26% of broadband base, up from 18% a year ago. This strong momentum, combined with solid wholesale takeup, translated into higher network utilization, which increased by more than 10 percentage points, reaching a bit over 39%. Fixed wireless access continued to build momentum with the total base reaching 100,000, reflecting strong uptake following the launch of our 5G Wi-Fi offering and is becoming an important contributor to broadband performance and customer retention. Importantly, the shift towards higher speed offerings, both FTTH and 5G Wi-Fi, supports ARPU and enables us to capture incremental value. As a result, across broadband, we maintained our market leadership despite continued competitive intensity. In parallel, we continue to enhance the in-home experience with solutions such as Fiber-to-the-Room and mesh Wi-Fi repeaters, reinforcing differentiation and creating additional value. Our TV business remained a key contributor to fixed performance with revenues up almost 10%, although we are now running without the benefit of price increases. Subscriber base increased by over 8% year-on-year and net additions reached 15,000, double those of the first quarter last year, supported by strong content, anti-piracy measures and the removal of the 10% pay TV tax. Turning to our mobile business. Revenue maintained the momentum, recording an increase of 5.5%. The robust performance reflects the impact of two key pricing initiatives: the CPI adjustments implemented back in September now fully reflected in the numbers, while prepaid continues to benefit from the adjustments introduced in March last year, which are now fully annualized. We recently implement certain initiatives again in the prepaid, albeit to a lesser extent, with the introduction of a higher denomination in the digital channels as well. The postpaid segment continued to expand with strong net additions of 51,000, up 7.6% year-on-year, a new record. Growth was primarily driven by ongoing prepaid to postpaid migrations, supporting incremental value for customers. Our network leadership remains our key advantage with 5G coverage above 99% and 5G+ at over 79%, while data usage continued rising with average monthly consumption per user reaching 19.3 gigabytes, up 22% year-on-year. Turning to wholesale. The revenue decline in the quarter primarily reflects the planned phaseout of low-margin international travel traffic, as we have repeatedly communicated. The impact in the quarter was a bit over EUR 50 million and will continue to weigh on revenues over the next couple of years. On the national side, trends remain broadly consistent with the recent quarters. We continue to see pressure from fiber rollouts by other operators where we used to have copper, partly offset by increased utilization of our FTTH infrastructure by others. This is reflected in another record quarter for FTTH wholesale net additions, which reached 47,000 compared to 28,000 a year ago. Total other revenues rose by 40% in the quarter, driven by System Solutions, which recorded a 76% year-on-year increase. This reflects the accelerated execution of digitalization projects as we progress through the final phase of recovery and resilience fund. Moving ahead, particularly in the second half, we expect this cycle to normalize. However, our strategic focus is increasingly shifting towards the private sector, supported by the expansion of our cloud, data center and cybersecurity offerings while we gradually strengthen our EU presence. Total operating expenses excluding depreciation, amortization, impairment and restructuring-related costs increased by EUR 32.5 million year-on-year, entirely in line with revenue growth, driven mainly by higher ICT-related expenses. We also incurred higher costs related to the expansion of fiber connectivity, meaning the cost of connecting customers to FTTH, and the seasonal increase in marketing activity. At the same time, we continue to actively manage our cost base with efficiency gains, most evident in personnel, supported by ongoing voluntary exit programs. Our transformation program is delivering structural improvements with the ratio of indirect cost to service revenues declining to 28% compared to 31% a year ago. In parallel, we continue to leverage our app and web channels, shifting customer interactions to digital with e-sales over 36%, digital payments over 42% and e-top-ups at 53%. Adjusted EBITDA after leases further accelerated in the quarter, increasing by 2.8%. The small drop in margin to 39.4% compared to 40.2% a year ago reflects the higher contribution from low-margin revenue streams, particularly System Solutions. At the same time, ongoing cost efficiencies helped to partly offset cost increases during the period. This keeps us firmly on track to deliver EBITDA growth of around 3% in 2026. Before moving to cash flow, a quick comment on net profit. Adjusted net profit amounted to EUR 154 million compared to EUR 162 million last year. The decline is primarily attributed to higher income tax, reflecting a EUR 10 million one-off benefit, which was reported last year from a foreign tax refund. Now let's take a look at our CapEx and the free cash flow. On CapEx, while we see different allocation within the quarter, we reiterate our full year guidance of approximately EUR 600 million. Spending in the first quarter was reduced by 7.6%, mainly reflecting lower spending seasonal on TV content. Free cash flow after leases amounted to EUR 60 million in the quarter. This decline from EUR 106 million last year was primarily driven by the timing of income tax payments made at the beginning of 2026, in line with our scheduled plan and relating to prior year installments. We expect the trend to reverse in the second half, and we remain on track to deliver our full year free cash flow guidance. Excluding one-off tax items mainly related to the Romanian disposal tax benefit, underlying free cash flow is expected to be in the range of EUR 570 million to EUR 580 million. And this assumes that the spectrum auction will take place next year, and we expect to provide further updates as more information becomes available. Operator, we are now available to provide for any further clarifications or questions.

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

Three, if I may, please. Firstly, just on ICT, which, as you said, was very strong in Q1. System Solutions, up almost 80%. Just wondering how we should think about the quarterly phasing of ICT revenues as RRF-related projects move closer to completion. So that's the first question. Secondly, on fixed retail, which rose 1% this quarter. Just wondering because the KPIs are indeed quite healthy and a much stronger than the revenue growth, what needs to happen for this operational momentum to translate into a clear acceleration in fixed retail revenue growth, please? And lastly, I'm not sure if you want to comment on PPC's participation in the consultation process regarding spectrum because it seems to raise the possibility of a broader telecom strategy beyond fiber for PPC. So just wondering how you assess the strategic significance of this move for the Greek market, please.

Thank you, Stamati, for the question. This is Kostas speaking. Let me start with the last one. I'm afraid it is too early for us to be in a position to comment on anything. The public consultation was over last night. The good news is that the starting prices are reasonable. Now, of course, the whole process will come down to the final list of participants and the spectrum bidding dynamics. I think that we will be smarter in the next few months once we know the final structure of the auction issued by the regulator. So nothing more to add at this point in time. Now moving into the first question around ICT. For sure, this year the ICT revenues are front-loaded. I think that we commented, both myself and Babis, that there is an ongoing momentum around the RRF-funded projects, which will have to be completed in time. So we would expect progressively this growth to normalize as we move towards the remaining quarters of this year. Having said that, we are not standing still. We are preparing ourselves for the next year. We would expect to see the digitalization of the public sector continuing, possibly some new funding initiatives to support this one. In parallel, we are increasing our focus when it comes to our Brussels office, competing for more European projects, including NATO. And as we have communicated in our previous interactions, we are doubling down on the private sector, including focusing on cloud, including AI-driven solutions and cybersecurity. Indicatively, probably you have picked it up that we have introduced the first kind of AI workload capabilities through our GPU-as-a-Service product launched recently. So a good enough, I would say, set of tools that would allow us to continue this momentum. And your last question with regards to fixed retail. First of all, we are pleased with our quarter 1 performance, which is in line more or less with what we have already communicated as part of our outlook. The drivers are the usual ones like FTTH, fixed wireless access and pay TV. As we said when we provided the outlook, we believe that we are going to stay on the positive territory for this year even marginally, which is more or less what we see in Q1. So nothing more to add at this point in time.

The next question is from the line of Harry Soni with JPMorgan.

I hope you can hear me. I've got a couple of questions. The first...

I'm sorry. Can you please speak a little closer to your microphone because we cannot hear you very well.

Sure. So my first question is around the mobile growth, which was mid-single digits for Q1. So you've obviously got the full effect of your price rises now come through. So would you be able to break down this 5% to 6% growth in terms of what came through from CPI price rises, what came through from the upselling and what came through from the prepaid to postpaid migrations? And do you think this mid-single-digit growth could continue for 2026? And my second question is just around the ARPU. So mobile ARPUs again were pretty strong, 5% to 6% growth in Q1. Fixed ARPUs, I think, took a bit of a deceleration from Q4 at around 2% to 3% down to maybe flat in Q1. So is there anything you can do on the fixed side of things, maybe you could do price rises as you've done within mobile?

Thank you, Harry, for the questions. So let me start with the mobile part. First of all, we are really happy. We also commented on the record high year-over-year postpaid base growth, which, of course, is to a great extent on back of the pre to post momentum. I mean, we have shared with you that out of every pre to post migration, we are generating roughly EUR 4 to EUR 5 incremental ARPU, which is a big contributor to the overall mobile service revenue growth. This, of course, in combination with the full effect that we had in this quarter of the CPI implemented in Q4, but also the last quarter of the effect of a minimum top-up with more for more adjustments that we did in prepaid back into last year, are delivering an exceptionally strong Q1. Now with the minimum prepaid top-up effect fading away in Q2 '26, we expect some rationalization of the growth trend. But we are confident that we are going to be in line with our full year outlook and have a similar growth level in mobile service revenue as we had in last year. Now when it comes to CPI, I mean, as I already commented, we implemented the CPI back in December 2026 (sic) [ 2025 ]. Any pricing decision is always closely aligned with the market dynamics. The competitive landscape in Greece continues to evolve, so we are actively monitoring the development to ensure that we have the right balance between value for the customers and sustainable growth. The only thing that I can add here is that our outlook that we are confirming for this year does not assume any additional price-related measures beyond what has been implemented in December 2025.

The next question is from the line of John Karidis with Deutsche Bank.

I had three questions, please. Firstly, regarding ICT or System Solutions in Brussels, what is the incidence or not of OTE competing with Deutsche Telekom for business? Secondly, coming back to Greece. Stop selling ADSL, to what extent would permission to do that be another meaningful positive for the company? And if the regulator is deliberating this, could you give us some sort of update on potential timing? And then a numbers question. Miscellaneous revenues were up 50% year-on-year. Can we have some visibility on what the drivers there were, please?

Thank you, John. Let me start with the first question around T-Systems. First of all, for sure, we are not competing. We are complementing each other, and that's the idea in order to increase the likelihood of us again as many projects as possible. So there is nothing to worry. To the contrary, we are trying to make the most out of each other strengths, and there are a lot, I have to say, based on how we have managed to grow our presence in the last 2, 3 years. Now when it comes to your second question, I mean, today, we are not selling any more FTTC-based connections in areas that have been covered with FTTH. And this is what the regulator has prescribed as of September last year, also reflected in the momentum of FTTH that has picked up. This is what we currently have. Anything beyond that going into the future, it has not yet been specified. We will be monitoring because, for sure, I mean, this is going to be another possible lever to accelerate the fiberization of the country and catch up with the rest of the European leaders. Now on the miscellaneous, Babis, if you could help us.

Yes. Out of the total number which, as we reported, grew 40%, System Solutions contributed the most of it. And so from the remaining part, what accounts for the biggest part of the increase is the accounting recognition of the UFBB execution via our build-out of the subsidized program in the semi-rural, urban areas. And these ones are booked both due to the complexity of accounting for subsidized implementation, accounting both in revenues, other revenues and other costs. And they cross out at the margin, EBITDA level. So it's a technical situation, and this accounts for the increasing rollout of the UFBB programs.

Can I just go back on the first question in Brussels? Is there other reasons to think that being part of Deutsche Telekom and part of T-Systems is actually increasing your success prospects outside Greece?

As I said before, John, I mean, whenever we are missing some specific capabilities that T-Systems can complement, we are making the most of it and vice versa. So we work collaboratively in order to increase our footprint, I would say.

[Operator Instructions] The next question is from the line of Ioannis Noikokyrakis with Alpha Finance.

I had two questions, but I will limit this to one. The question goes like that. I mean we are in May this year, and we have run almost half of the year now. Do you see any change in market dynamics following PPC's proposition in the market? Do you see any pressure in the market, any change in trends?

Thank you, Yani, for the question. I mean, the Greek market has been competitive and remains competitive. There are a number of players in the market against which we are competing, trying to make the most out of our strengths including our networks, our comprehensive portfolio of services, reflecting into the numbers that we shared with you today, especially when it comes to fixed broadband that you see that we managed to keep are very stable despite a heated competitive environment. So nothing new or materially different. Just a lot of competition against which we managed so far to keep our relative position in the market.

[Operator Instructions] 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.

Thank you all for your attention, questions and, of course, for your interest in OTE. We will be meeting again in late July to discuss the first half year results. Until then, have a nice day, and enjoy a wonderful weekend.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant day.