Hellenic Telecommunications Organization S.A. (HTO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Gaily, your Chorus Call operator. Welcome, and thank you for joining the OTE Conference Call and Live Webcast to present and discuss the second quarter and 6 months 2026 financial results. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to Mr. Kostas Nebis, CEO of OTE Group; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Panayiotis Gabrielides, Chief Marketing Officer, Consumer Segment of OTE Group; and Mr. Evrikos Sarsentis, Head of IR and M&A. Mr. Nebis, you may proceed.

Thank you, operator, and welcome, everyone. Thank you for joining us today for our quarter 2 results review of this financial year. Our first half performance demonstrates continued progress towards our strategic priorities and bring us closer to our 2026 growth ambition. Adjusting for the 0 margin impact of the gradual wind down of the international wholesale business, our revenues continue to grow strongly. Our EBITDA increased once again and accelerated slightly, supported by solid execution across core business and the ongoing transformation of our business model. This positive momentum is underpinned by the strength of our financial profile and market position. OTE's recent upgrade to A- by Standard & Poor's Global Ratings, making us the only company in Greece rated in the A category. It is a clear recognition of our resilience and further strength, confidence in our long-term prospects. Let me now turn to the operational drivers behind this performance. Starting with the fixed segment, where despite intense competitive dynamics, we remain in a positive territory with sustained momentum across our FTTH, fixed wireless access, Pay TV and enhanced data communication services offered to our B2B customers. FTTH adoption remains strong. We registered another quarter of record-high customer additions, both in retail and wholesale, demonstrating the growing utilization of our infrastructure. At the same time, we are making good progress with the advanced in-home connectivity solutions adoption, optimizing our customers' WiFi experience at home and in the office, while further differentiating our offering against our competitors. We continue to expand our network and lead the market in fiber availability, both in urban areas and in semi-urban and rural regions through our UFBB deployment. This progress reinforces our broader vision of advancing Greece's digital transformation, with measurements showing continued improvement in the country's fixed broadband speeds. Next to our FTTH, we are also particularly pleased with the ongoing momentum of our fixed wireless product lineup. Our 5G WiFi fixed wireless access base has just crossed the 100 million -- 100,000 customers mark, addressing customer needs for higher speeds where FTTH is not yet available, allowing us to defend our broadband base against alternative technologies. In Pay TV, we once again delivered robust revenue growth while also achieving positive customer additions in the quarter that typically makes a small contribution to the annual performance. Turning now to our mobile business. We sustained a positive trajectory driven by continuing strong customer migration from prepaid to postpaid plans and increasing adoption of higher-value data services. As a result, overall base ARPU continues to increase. Once again, postpaid customer growth reached record levels, with quarterly net additions at the highest in more than 17 years, while still relatively high share of prepaid customers compared to the broader European market, highlights further potential for future growth. Our long-standing commitment to network excellence continues to differentiate us in the market. Ookla's recognition for our mobile network for the 10th consecutive year is a historic achievement and a testament to our sustained investment in network excellence. Importantly, according to Ookla, we are the only operator worldwide to have outperformed the competition for 10 consecutive years, consistently delivering superior experience to our customers. This distinction adds to 8 major recognition received during this year by leading industry benchmark, including both Ookla and Opensignal. Let me now say a few words about our ICT and system solutions business. We have once again achieved strong double-digit growth in this quarter. As we move into the second half of the year, results will reflect the gradual termination of the RRF deployment cycle and a more demanding comparison base following last year's peak implementation phase. Nevertheless, we remain confident in delivering solid growth for the full year while building up a very solid pipeline for 2027, including both national and international projects, where we are expanding our presence in new organizations like NATO, like the UN and the European Food Safety Authority, among others, allowing us to diversify a big part of our revenues. We are in parallel expanding our presence in high-growth areas such as cloud, cybersecurity and AI, having already introduced a new advanced cloud proposition, including GPU-as-a-Service and implementing the first set of AI agents for procurement, finance, HR processes, supporting our B2B customers in their AI transformation journey, setting another growth foundation for the future. Data and AI are becoming an increasingly important part of our agenda and a key enabler of our internal transformation, driving greater efficiency. We are doubling down on the software development life cycle, our network management, our customer service introducing conversational agents, the productivity of our front liners with a number of AI agents while progressively shifting our internal processes towards AI augmented solutions, with the ambition to evolve into a digital first and over time, an AI-native company. While at the same time, we are embedding AI into our commercial offerings to deliver richer and more personalized customer experiences, strengthening our value proposition to support future growth and further differentiate us in the market. One of these initiatives is around our core network communication services like voice, bringing the AI deep into our core network. With initial trials and deployments of services like AI calling expected in the next few months, we are laying the foundations for the reinvention, I would say, of the voice calling experience in an AI world. This broader transformation is also reflected in how we position ourselves in the market, and how we bring the full strength of our group to Greece. This year, we are taking our brand transformation one step further, evolving from Cosmote Telekom to telekom. By leveraging the strength of the world's #1 telco brand, we are strengthening our market presence and further differentiating ourselves versus the competition. Taken together, these results reflect the strength of our strategic direction and the quality of our execution. Our solid core performance, network excellence, digital and value-added services portfolio and continued transformation of our operating model to unlock further cost efficiencies are the strengths that will continue to support our growth and our market leadership. Looking ahead, we remain firmly focused on our vision and committed to delivering superior value to our customers and shareholders while achieving our 2026 targets. Our priorities are clear to keep investing in the networks and platforms and digital capabilities that will define the next phase of growth for OTE, for our customers and for Greece's AI-ready economy. I will hand over to Babis now to provide more details on this last quarter.

Thank you, Kostas, and welcome to everyone from me as well. Let me now take you through our financial performance of the quarter. Total revenues adjusting for the anticipated phase-out of the international wholesale business, however, with 0 margin effect, increased by 8% year-on-year, driven by strong system solutions, solid growth in mobile and resilient fixed retail business. Fixed retail service revenues, including data communications, increased by 1.4% year-on-year, driven by continued customer migration to FTTH, alongside the solid performance of our TV and fixed wireless access businesses. Data communications continue to support the segment, benefiting from the growing adoption of next-generation productivity solutions. In FTTH, net additions reached a new high record of 62,000, bringing our customer base to 687,000. This now represents 29% of our broadband base, while continued customer migration and solid wholesale demand further increased the utilization of our network to 42%. We remain on track with our rollout, reaching now 2.2 million homes passed and targeting around 2.4 million by year-end. And these numbers are based on the view of home passed with an active line and include the continued expansion of our UFBB network, reaching now a footprint of a bit over 150,000 homes passed and around 58,000 commercially available that should support FTTH adoption, particularly in rural and semi-rural areas. Fixed wireless access maintained strong momentum, with 19,000 net additions in the quarter, bringing the total subscriber base to almost 120,000. As Kostas mentioned, the key element here is our advanced 5G WiFi proposition that is based on our expanded 5G+ network, exceeding as we speak, 100,000 customers. Covering underserved areas, FWA continues to strengthen our broadband proposition, supporting growth and customer retention. Our Pay TV businesses continued its solid momentum, delivering another quarter of strong revenue growth in the high single-digit range. Customer performance also remained encouraging, with net additions once again positive, plus 1,000 despite the seasonally softer quarter as key sporting events concluded during the period. Stricter anti-piracy measures, the removal of the Pay TV tax and high-quality content continue to drive growth in this segment. Turning now to our mobile business. Service revenues continued to grow, increasing by 2.3% on the back of strong postpaid momentum and the growing adoption of higher value propositions. As expected, the year-on-year growth rate reflects the normalization of last year's minimum prepaid recharge adjustment. Postpaid performance remains solid, delivering record net additions of 62,000 and a record 8% year-on-year subscriber growth. Continued prepaid to postpaid migration, together with improving customer mix led to 3% increase in blended ARPU. Mobile average data usage remained strong, reaching 21 gigabytes per user per month, up 20% year-on-year. At the same time, 5G device penetration increased by 10 percentage points now to 50% of our active customer base, providing a solid foundation for the demand for higher value data services. A critical enabler of our mobile growth continues to be our network leadership, which remains a key differentiator factor. Our 5G coverage now exceeds 99% and 5G+ coverage has reached approximately 84%. As Kostas pointed out, 2 days ago, we achieved a historical recognition for 10 years in a row for our network excellence. Other revenues, excluding data coms, increased by 31.2%, driven by another strong quarter in system solutions, increasing by 52.1% year-on-year as demand remained robust across both public and private sector. I believe Kostas provided a comprehensive review of this business performance and gave us strong confidence in the ability to deliver solid growth for the full year, while building a robust pipeline for 2027 across both national and international projects. Turning now to wholesale. The revenue decline primarily reflects the planned and announced phase-out of 0 margin international transit activities as we communicated also in our previous calls. The impact in the quarter was EUR 60 million, and will continue to weigh on revenues through 2026 and beginning of 2027. On the national side, wholesale revenues maintained the expected trends, primarily reflecting the continued expansion of competition FTTH networks. On the other hand, we continue to see growing demand for our wholesale FTTH services as quarterly net additions reached a new record of 48,000, further increasing the utilization of our fiber infrastructure. Adjusted EBITDA after leases increased by 3% in the quarter, with margin improving above 40%, namely at 40.1%. This reflects continued service revenue growth, higher other operating income, mainly reflecting approximately EUR 3 million from copper sales and ongoing cost efficiencies. Personnel expenses continued to decline, mainly supported by voluntary exit schemes programs. Marketing expenses were also down in the quarter by almost 7%, normalizing as expected the seasonal increase we saw in the previous quarters. Our transformation program continues to deliver structural improvements as reflected in the declining ratio of indirect costs to service revenues down to 28% from 31% a year ago. At the same time, we continue to expand the use of our digital channels with e-sales, digital payments and top-ups reaching 36%, 43% and 53%, respectively. As a result, we remain firmly on track to deliver the 3% EBITDA growth of what we have guided so far for this year. Finally, let me touch on CapEx and free cash flow. CapEx spending amounted to about EUR 157 million, down 7.7% year-over-year, mainly reflecting lower TV content outflows in the quarter. We continue to expect full-year capital expenditure of approximately EUR 600 million as we invest in our key strategic priorities, notably the expansion of our FTTH footprint and the rollout of our 5G stand-alone network. These investments will support both our FTTH and FWA propositions. Free cash flow after leases amounted to EUR 150 million in the quarter compared to EUR 161 million a year ago. This year-on-year difference primarily reflects certain timing difference of income tax payments of the previous 2 quarters. The prior year quarter benefited from a one-off tax refund following the absorption of Cosmote into OTE, which was subsequently offset through higher tax payments in the following period. We reiterate our free cash flow guidance as we expect trends to unwind during the second half of the year. Reported free cash flow as derived from our financial statements is expected to be around EUR 750 million and adjusting for one-off items at between EUR 570 million to EUR 580 million. At this point, operator, we are now available to take any further clarification questions. Thank you.

The first question is from the line of Stamatios Draziotis with Eurobank Equities.

Yes. Just a couple actually, if I may, please. Firstly, just wondering how you assess the strategic read-through for the Greek fixed market from the news around a potential JV between PPC and Vodafone and the extent to which you think this could lead to even higher competitive intensity in fiber wholesale or retail pricing over the coming quarters? And the second question has to do with the spectrum renewal process. Is there an update on this timing structure? Any indication that the process could involve new entrants?

Thank you, Stamatios. Let me start with the first question with regards to this cooperation. I mean, to our knowledge, what has happened is that the 2 players have signed a non-binding term sheet, applying the key principles of the creation of a potential 50-50 JV with the merger of the respective fiber companies. I mean, this is a transaction that, for sure, it is still subject to final agreement and the necessary regulatory approvals. Now, commenting about the potential implications of it, even if we have not yet seen any slowdown in the pace of Vodafone migrating their customers to our FTTH infrastructure, to the contrary, we have had another record high net adds in our wholesale base. I mean, for sure, looking forward into the outer years, we could expect some additional pressure on our wholesale revenues from Vodafone. Now the magnitude of which, for sure, will come down to the extent of their overbuild of our infrastructure. This is how far we can go at this point in time. When it comes to the mobile spectrum, it is still, I would say, too soon. We would have to wait for the final assessment verdict from the regulator. I think that we will be smarter around October, November this year once the final list of participants as well as the structure of the spectrum auction will be finally decided.

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

First question is around your retail fixed and mobile revenue growth. So it feels like net adds have been relatively stable. And obviously, the growth has slowed. It feels like maybe the pressure is coming on the ARPU side of things. So, can you confirm that? And then also, where do you expect the growth of these 2 segments to fall within H2? And the second one was really around the EBITDA trajectory. Q2 had this one-off benefit from copper sales of EUR 3 million. So, are there more of these to come? And then I think if we exclude this, your EBITDA growth is maybe close to 2%. And then if I look forward into H2, you've got RRF revenue dropping off. Maybe mobile and fixed growth is stabilizing. So, what makes you confident on achieving that 3% EBITDA growth for the full year?

Thank you, Ajay. Let me start with the first one. As far as mobile revenue development is concerned, first of all, we are very pleased that the postpaid base is growing very strongly. It is up 8% year-over-year with another very strong quarter of net adds. I mean, we have indicated a number of times, the big lever is, of course, the pre to post migration. For every prepaid customers we are migrating towards postpaid tariffs, we are increasing our ARPU by EUR 5 to EUR 6 these days. And still, we have less than 50% of our base on postpaid. So, a lot of room to grow further. Now when it comes to this slowdown, we have already indicated that in the previous call that with last year's prepaid minimum top-up effect fading away in Q2, we should expect to see some rationalization in the growth trends. Still, we are very much confident that we are going to close this year along the same levels of last year's growth. Now regarding the EBITDA, copper sales that you mentioned is not entirely a one-off item because it happens from quarter-to-quarter, depending on the extraction of copper that we have from the net -- from the ground. But apart from that one, we have to remind that it will bear the positive developments on our cost-cutting element that happened in the first quarter, where a sizable amount of our voluntary exit schemes has been implemented, not fully reflected in quarter 2 because it happened through the quarter. And it will have a full carryover in the coming quarters. So the confidence for 3% comes, a, from the continuous performance of the top line, along the lines of this quarter, plus the additional cost savings that we will enjoy in half 2 because of the carryover of the optimization in the first quarter and the gradual enjoyment of the first wave of AI and digitalization benefits that is happening throughout the whole company. So if we blend all this together, then the confidence for the 3% is quite robust. And additional -- another point is that the -- as I said, the copper sales is I'm repeating that it's not totally one-off item, but it is recurring not every quarter, but every other quarter, maybe whenever the right stock of copper exists.

Yes. If I could add, Ajay, a bit on this one, and we have had a lot of questions in the past with regards to our ICT and system solutions business performance. Even if we have indicated that we should expect a far more reasonable trajectory in the second half of the year as a result of a lot of RRF-funded projects being materialized in the first half and part of last year. What I would like to highlight here is that we feel extremely confident looking ahead into 2027 in delivering another solid year based on this year's project pipeline that we have built. A combination of different things. One is the great public sector ongoing digitization project. The other thing that I don't want to go unnoticed is that we are expanding our international footprint with organizations like NATO. I mentioned that in my script before. Just to highlight something, we won the first -- we won a fixed data center contract for NATO at the level of EUR 45 million. This is the total ticket of this project. This is just an indication of how strongly we are building our presence in the international environment, including, I mentioned before, the United Nations, European Food Safety. So, another strong pillar is us expanding our international footprint. While at the same time, we are expanding our presence in high-growth areas, including cloud, cybersecurity, AI. I mentioned before that we have enriched our business cloud proposition, including traditional, but not only traditional but also GPU-based workloads. We have implemented the first AI agents for some of our B2B customers. So, we strongly believe that this is going to be a third pillar that will feed our growth in our B2B segment into the years to come. Just to highlight this one vis-a-vis or complementary to what Babis stressed on the cost side for the second half of the year.