Telekom Austria AG (TA1.F) Earnings Call Transcript & Summary

Ladies and gentlemen, this is the Chorus Call conference operator. Welcome to the Results for the Second Quarter of 2022 Conference Call of A1 Telekom Austria Group. Presentation is available on the company website at www.a1group, in the Investor Relations section. [Operator Instructions]. Presentation contains forward-looking statements. Please be aware of the disclaimer on Page 1. At this time, I would like to turn the conference over to [ Boyan Yurikavich ], Investor Relations of A1 Telekom Austria Group. Please go ahead.

Ladies and gentlemen, good afternoon, and welcome to the Quarterly Q2 Call of A1 Telekom Austria Group. Today, we have with our CEO, Thomas Arnoldner; our CFO, Siegfried Mayrhofer; and our COO, Alejandro Plater; will guide you through the slides of the presentation, and we are very happy to answer all your questions at the end of the presentation. Thank you.

Hello. Good afternoon and or good morning, wherever you are. Again, Q2 proved to be another solid quarter despite the challenging circumstances we are in. We grew total revenue by 3.7%. We achieved service revenue growth in all the markets, service revenue growing by 5%. And despite the pressure on the cost side, mainly coming from the energy market disruptions, group EBITDA before restructuring went up by 6.3% year-over-year. Equipment revenues this time slightly lower, mainly driven by the high comparable in Bulgaria versus the previous year quarter and a certain lag of high-value handsets in the Belarusian segment. On the top line growth, we saw solid performance in the mobile core business improved roaming results, helping us, especially in Austria and Croatia as well as positive impact on the early implemented inflation linked price adjustment we also explained in the last earnings call. And again, this quarter also the solution connectivity business continued its growth momentum. Also on the subscriber side, growth, both on the mobile and the fixed-line business, mobile subscribers growing by 4.3%. Internet@home customer base grew by almost 5%, mainly driven by mobile WiFi routers, but also by the high-bandwidth broadband RGUs. As I just mentioned, on the OpEx side, energy costs were high on our agenda in the quarter. However, we continue to concentrate on the cost discipline in order to mitigate certain part of these cost increases, which will also rise in the course of the year. This quarter, now the Belarusian ruble gives us a certain tailwind as it has somewhat recovered against the euro. Nevertheless, as you know, the predictability of the ruble remains very limited. On our outlook for 2020, we remain unchanged. Total revenue growth close to 3% and a CapEx increase of approximately 15% year-over-year. We see a certain risk on the equipment side due to the availability of the high-value handsets and as well, as I just mentioned on the currency development. On the regulatory side, worthwhile to mention at this stage, we are in the middle of the market analysis on the fixed broadband market in Austria. We don't have a decision yet. We do expect a decision to happen by the end of the year. If you move to the next slide, again, the breakdown, you will see growth on [ 3 main ] KPIs here, both in the Austrian as well as in the international markets, all going up. EBITDA margin expanded from 36.7% last year to 37.8% this year, this quarter. With that, I'm handing over for a more detailed view on the markets to Siegi.

Thank you, Thomas. Yes, the picture very similar like in the last quarter, we see quarters, we see a solid EBITDA growth in the service revenues, in the [ EBITDA ], in the cost inflation, energy cost is almost in all sectors and in all countries, and increased product-related costs as well as advertising expenses. We see a certain -- Thomas has mentioned it, a certain upside in the second quarter from roaming. However, by coincidence, the roaming upside and the downside from electricity and gasoline are exactly matching each other in Austria in the second quarter and also on the group level, this roaming plus and the electricity and gasoline minus are matching each other down to the first [ comma ]. So overall, these 2 effects are neutral on the reported EBITDA. In the year also a pretty similar picture like during the last quarter, solid trends, both in service revenues and EBITDA. As you can see in this slide, except for Slovenia, all segments posted EBITDA growth. In Bulgaria, both the mobile and the fixed-line business were contributing. In Croatia, we saw decent performance in the mobile core business with a return -- returning trend of roaming [indiscernible]. Belarus, our operational trends remained unchanged compared to previous quarters. The operation demonstrated solid performance despite the difficult circumstances. Macroeconomic still challenging EBITDA increased by 16% or 6.6% in local currency. So we had a small a positive tailwind in our quarterly results from the currency in Belarus. On the smaller markets, the trends remain pretty similar, solid development, especially in Serbia, intense competition in Slovenia, and growth of EBITDA in Macedonia despite they took the, by far, biggest hit on energy and the lowest recovery share of roaming. If we move on the next slide to our free cash flow went up by 23.6% in the first half, and this is driven by improved operational results and by lower capital expenditures. As you might remember, last year, we acquired frequencies in the first half 2021. In Slovenia and Bulgaria [indiscernible] comparable CapEx, a little bit higher regarding free cash flow, the same picture in the second quarter, better operational performance and lower CapEx, which both are contributing almost equally to the increase of 38% free cash flow in the second quarter. Coming to the focus points, we summarized on Page 10. I'll give a short snapshot on the development of the international market. If you look at our operations portfolio, the international markets have consistently been delivering solid results in the last several years in first quarter and second quarter this year. This trend was confirmed both in service revenues and in EBITDA. International operations showed double-digit growth in the first 6 months this year. We have also seen healthy subscriber growth in the international footprint. All our markets, except Serbia, have convergent offers in place. And with our successful strategy execution, we will, for sure, continue to unleash potential in these geographies. On the right side, you see a little bit what happened in the last 5, 6, 7 years. The group is now much more integrated also with international operations. We have developed common platforms like for the TV or ERP systems or network planning and many more. So we think, with this more integrated approach, which was delivered over the last years, we are well positioned for the future, and we believe that the international footprint will remain a source of growth for the group.

Thank you, Siegi. On the next slide, this time, we would like to talk a little bit about what we do on the social aspects of our ESG strategy. And here, especially on the topic of people sustainability, our employees are obviously our core assets. We want to make A1 a better place to work for them. We want and we need to attract new [ talent ] and this is why this is a very important part of our ESG strategy. Our focus in the past was very much on diversity. We have extended this to people sustainability in 4 core elements, also covering topics such as learning and development, fair compensation, health and well-being on the workplace, human rights, et cetera, et cetera. And we have made a lot of progress, especially with introducing, for example, new policies on the topics of diversity, equity and inclusion. You can better way find this all on our dedicated website on ESG A1. So updated policy, new policy on diversity, equity and inclusion, new human rights policy. Our code of conduct has been updated to consider more topics of ESG, but also digital education, which is very important to us. We have launched a series of e-learnings addressing people sustainability topics. What I really would like to point out is what we're doing on addressing unconscious biases in order to address these big obstacles to diversity, equity and inclusion in the way we do decisions within the company. We have a lot of activities ongoing, especially with the objective to increase the share of women in the company. Our objective is to have the share of women in management positions increased to 40% by 2023, but also by raising and keeping the overall share of women in the company to at least 40%. Our special focus here is on women in STEM positions as we see that in those areas where, especially in the technology areas, the share of women in the company and in leadership positions needs to be improved here. Hence, a lot of activities on STEM in the company and on female senior leadership overall. With that, I would move on to -- the outlook for the full year 2022. As I said in the beginning, we confirm the outlook for the financial year 2022, with a total revenue growth of close to 3%. This outlook was based on the 5% to 10% period average depreciation of the BYN, of the Belarusian ruble versus the euro. Our current BYN development gives a certain headroom here, as I have mentioned in the very beginning, also is the Belarusian Ruble has depreciated, especially this quarter and after the initial depreciation when the Ukraine crisis started. We did some simulations and to give you an idea potential period and depreciation of the ruble of 27% in the year-end 2020 versus the rate at the end of the quarter, which is the rate of June 30 this year would result in a 0 effect -- 0 average -- period average effect of the BYN and would have no effect on total revenues in 2020. So this would be the case as I just said if from the end of the Q2 the ruble would depreciate by 27% until end of the year. However, and always the predictability of the ruble development is very limited. As I also said at the very beginning, the equipment revenues might further be stressed by the supply chain challenges, which we have already seen, especially on the high-value hardware. The EBITDA margin, we still expect to slightly expand on CapEx before spectrum investments and acquisitions, it is expected to increase by the approximately 15% I mentioned also. In the beginning, this increase is mainly stemming from the high investments in Austria on fiber build and to a small extent on the 5G rollouts and increased IT CapEx. With that, thanks for listening, and we're open to take your questions.

[Operator Instructions]. First question is from the line of Nora Nagy from Erste Group.

I have 2 questions from my side, please. Firstly, is the fiber rollout on track in Austria? Could you also please share some operational figures? For example, how many fiber premises you added during the quarter? And secondly, an update on potential [ tower cell ] project would be appreciated. Are there any ongoing discussions right now?

Yes, I can take the second question on [ towers ]. There are no news to share. Otherwise, we would have obviously shared them with you. We are in ongoing preparations. We're looking at different scenarios, they are very complex. We are in discussions with the 2 main shareholders, but at this point in time, nothing to share on [ towers ].

On the fiber rollout, maybe, there is a little bit less of it in the second quarter as we are -- as precontracting is taking place and taking a little bit longer, as you see also in the slightly lower CapEx in the first half, but we would say this is a seasonality, and the precontracting base will catch up and then also the build-out. So no major changes to previous quarters.

Ms. Nagy, are you finished with your questions?

Yes.

[Operator Instructions]. There are no further questions at this time, and I would like to hand back to [ Mr. Yurikavich ] for closing comments. Please go ahead.

Ladies and gentlemen, thank you very much for being with us on the call. As always, we wish you a nice day, and thank you for listening to the call. Goodbye.

Ladies and gentlemen, this concludes the conference call of A1 Telekom Austria Group. Thank you for joining, and have a pleasant day. Goodbye.