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

Thank you very much. Good morning, everybody. Thanks for joining our Q1 results call. Here on the line is our Management Board. I'm here with our CEO, Alejandro Plater; our Deputy CEO, Thomas Arnoldner; and our CFO, Sonja Wallner. And as usual, they will lead you through the presentation now, and we are happy to take your questions afterwards. Thank you. Please, Alejandro.

Thank you very much, everyone, to join our call. I would like to start giving you the highlights for the Q1 2024. As you can see in the slides where total revenues grew 0.7%, driven primarily by service revenue which grew 3.1%. And we also saw a decline of equipment revenues of close to 10% in all markets. When you see the quality of the service revenue growth, was basically driven by Mobile revenues and Solution & Connectivity. And as always, negatively impacted by 2 business that we have been seeing a decline. One is the Fixed Voice where we lose revenues every quarter, primarily in Austria, and also by the Interconnections revenue which also is a declining business every quarter. In euros, our EBITDA went up 4.2% versus last quarter 2023. In constant currency, EBITDA grew 5.7%. EBITDA is driven primarily by service revenue growth and compensated negatively by OpEx increases. When you look at our OpEx increases, are primarily a consequence of total workforce cost increases due to salary increases. Usually, we have a timing issue between when the salaries are increased and when we index our base. Usually, we index our base 1 quarter later than when we start increasing salaries on our employees. In Q1, we acquired a spectrum in Austria, the 26 gigahertz spectrum and some remaining parts of the 3.5 gigahertz spectrum. We would like to confirm our outlook of 3% to 4% revenue growth, with an approximate CapEx of EUR 800 million excluding M&A and spectrum acquisitions. So that's the highlights for the Q1 of this year. If I move to the next slide, you can see our customer-related information where we see increases in both our fixed RGUs, especially broadband RGUs growing 1.8%, out of which advanced RGUs, which we call any customer connected with more than 75 megabits, grew by 15.7%. As we have been sharing in the calls, we continue with our strategy to upsell our base with more speeds, and that has been working quite successfully. Also, our mobile subscriber base grew, this time 5.5%. Bear in mind that without M&A -- machine-to-machine, our customer base decreased slightly. Both ARPL and ARPU grew in constant currency, close 2% the fixed business, and close to 3% the mobile business. If I move to the next slide, you can see our Group revenues. As I said before, service revenues up 3.1%. Equipment revenues close to 10% down. In all markets, you can see it, basically a similar trend, where customers are choosing more SIM-only tariffs instead of hardware tariffs. We see that across the whole footprint. And also a negative development in other operating income. In the chart below on your left, you can see that all business lines, as I mentioned before, are growing: Mobile; our Cubes or fixed-wireless substitution business is growing; Broadband and TV; all our B2B businesses are also growing. And you have 2 reds that I mentioned in the highlights. One is the Fixed Voice where we see the decline in Austria, both in customers and in minutes of use. And also Interconnection, which had a big impact in this quarter. This is regulated and unregulated transit business. If I move to the next slide, you can see a little bit more color on the segment Austria. Service revenues grew 1.7% in Austria, 2.6% if we remove this transit business that is reported in Austria, service revenue growth would have been 2.6%. They are part of a transit business that is not related actually to the Austrian business that is reported in Austria. We will give you more transparency moving forward on that so you can see how much of these revenues are not related to Austria but reported in Austria, like we do transit minutes between, I don't know, Germany and Turkey, for example. So we will give you more transparency so you can see how much the actual Austrian business is growing. We have acquired in the quarter another IT -- ICT company called NTT Austria. We see a great opportunity to cross- and upsell that customer base. This acquisition was announced a couple of weeks ago. We are planning, and we are in the middle of the execution, of our indexation policy for Austria. We call this value-protecting measurement. So we're planning to increase our prices by 7.8% as actually at the beginning of this month. So all customers affected has been informed already, and we are in the process of sending the first invoices with the new prices with a 7.8% increase. This is not affecting the whole base, just a part of the customer base. We are working in trying to optimize certain market segments where we are not yet happy with our performance. These are more subsegments of the market. For example, I think we have a good opportunity to increase the penetration in our fixed network when we have more than 300 megabits available in the network. I mean we still have a low utilization of that network. So we are putting a lot of focus to increase the penetration on that segment. And of course, a lot of focus in efficiencies and OpEx due to primarily a higher workforce. We need to keep on optimizing our workforce. EBITDA in Austria in the quarter grew close to 2%, 1.8%. Keep in mind, as I said in the highlights, that we have a -- usually salary increases start at the beginning of the year where indexation starts in April. So we have 1 quarter where we have higher costs with lower revenues. If I move to the next slide, in our international segments. The performance remains very solid in all markets. You see a very good performance in Croatia, for example, with 7% revenue growth and 22% EBITDA growth. We will index again the base this year. So we are quite happy with the performance in primarily all the CEE markets. Challenging market is Slovenia where it is the most competitive market where we operate. You can see that our revenues and EBITDA has been declining in Q1, driven primarily by competition. We have to keep aggressive pricing in the market in order to keep our base stable. Having said that, I would like to hand over now to Sonja, who is going to drive us a little bit more in details and give us more color on the performance on Q1. Thank you, Sonja.

Thank you, Alejandro. As Alejandro elaborated a little bit more on the P&L above the EBITDA, I will focus on the P&L below EBITDA where we see the major effects on tower spinoff compared to last year. One of the biggest effects that we see is the increase of depreciation and amortization that's affected by the rights of use of assets increased due the spinoff last year in September. Therefore, the EBITDA -- the EBIT is lower compared to the previous year by EUR 17 million, resulting in EUR 178 million for the first quarter. On a pro forma basis, that's important, we increased the depreciation and amortization by EUR 8 million, mainly driven by the effects in Bulgaria in the depreciation and amortization. Coming to the financial results, we show a negative effect of EUR 26 million this quarter, compared to EUR 21 million last quarter -- last year's quarter. That effect -- 2 major effects we show here. One is the higher interest expense due to the leases also related to this tower spinoff. And secondly, a positive effect due to our lower financial debt, we show lower interest rate expenses -- interest expenses. Another effect that's positively impacting the net income is the lower taxes due to a lower taxable income that we show on the first quarter. Therefore, we show on a reported basis a reduction of the net income -- of net results of EUR 117 million, whereas on a pro forma basis we would show a higher net result due to the effects of the tower, that increases by nearly 11% on a quarter-on-quarter comparison. Going to the next page, on the cash flow. We show for the first quarter a lower Q1 cash flow at the amount of EUR 52 million. There are primarily 2 major effects. One effect is directly related to a higher payment of leases for the tower -- due to the tower spinoff. And the second effect coming from the working capital. There are 2 major effects: one, resulting from an unfavorable time shift in accounts receivables as the Good Friday is a banking holiday and, therefore, an increase in the receivables. And last year, we received fiber subsidies in Q1, that we didn't receive this year. But we are building the fiber rollout, and therefore, showing a negative impact on the free cash flow that is at a level of EUR 52 million in comparison to last year quarter, EUR 93 million. And therefore, thank you, and I will hand over to Thomas for the focus points.

Thank you, Sonja. We have chosen 3 focus points this time. First one being our ICT business, which has been quite a success in the past and which we also consider quite a significant source of future growth. As you can see on the left part of the slide, our ICT business is based on quite a broad portfolio, and this has recorded significant growth over the past years. And last year, our Solution & Connectivity segment grew by a strong 10%. And within this segment, the ICT solutions posted an above-average 26% growth rate in 2023. And this is in line with the quite nice [ CAGR ] development over the time period of 2019 to '23, as you can see here on the slide, of 16%. Now when we look at the ICT business, it really makes sense to zoom in into Bulgaria, which is we're calling that our best practice example within the Group on the ICT side because the performance has been here particularly strong. We have become the biggest ICT provider in the country by now, both based on very strong organic growth, but additionally, profiting from the acquisition of an ICT company called STEMO in 2022, and I think also driven by a number of large ICT deals which especially affected our Q4 results. You can see the growth rates here, plus 73% in ICT revenues CAGR over the past years, excluding STEMO which ought to come on top. We think what we could do in Bulgaria, why shouldn't we be able to do this in other markets in our international footprint? And this is one of the growth trajectories in the ICT segment. The other one is the SME business. Our ICT business as of today is primarily driven by larger companies. But more than 99% of the companies in Austria are SMEs. And the picture is quite similar in the other international markets. Hence, we don't see why we shouldn't be able to replicate this success in large enterprises only -- also to SMEs where we have high market shares on the connectivity, but we have potential for growth on the ICT services side. Now moving to the next slide, we wanted to give you a little bit an update on where we stand on 5G, specifically where we stand on spectrum investments as we have just had another auction in Austria, as Alejandro explained a little earlier. On the right-hand side, you see that we currently offer 5G to our customers in 5 out of our core markets. You can see that we have achieved a 5G population coverage of more than 80% in all of those markets, in some of those significantly more, and of course, it's still growing. On the left-hand side on the table, you can see that we have had already the majority of the spectrum investments. You see the relevant spectrum bands and investments taken in the various countries and in the various bands here. Overall, this was an investment of less than EUR 200 million. And all in all, I think we can be quite happy with those results. Of course, in the past also [ what came on top were ] extensions of existing spectrums for 2G to 4G. And again, just recently, we closed the latest spectrum auction in Austria in March where we acquired frequencies in 26 gigahertz and the remaining frequencies in 3.5 gigahertz for around EUR 7 million. And now that the majority of the investments have been completed on the spectrum acquisition side, we are gradually shifting from extending coverage to increasing capacity in the network. And last not least, third focus point, ESG update. As you know, we have significantly increased our efforts in the area of sustainability over the past years. And we see that these efforts are starting to pay off. On the left part of the slide, you see some of the key ambition areas and KPIs. Looking at them, I am not going to go to all of them one by one, but you see the entire area of ESG being covered. Significant reduction in our Scope 1 and 2 emissions, for example; significant increase of efforts in digital education, which is very important to take care of, being a telco provider; or the topic of diversity, equity and inclusion also being reflected in these KPIs, where we are on track or even exceeding quite a few of our KPIs and ambitions here. And this is also being recognized externally. We have just been reconfirmed as being part of the A List in CDP, which is the gold standard in climate ratings. There's only 184 companies in Europe who are on this list and only 4 in Austria, and so we're quite proud of that achievement. We are teaming up with industry peers to take care more about our supply chain in check, and we have been given the fifth rank out of more than 200 telcos globally. For this year and beyond, we are focusing on becoming more concrete and get into more detail on the remaining pockets of where we still have emissions and where we still need to decarbonize our operations. We are taking a special focus of Scope 3 emissions. We have new reporting requirements under CSRD, and so on and so forth. We are in the middle of a journey here, still quite some challenges and setbacks here and there. But we really want to show here we remain committed to the topic of ESG and we'll continue driving that forward. And with that, I hand over to Sonja for the outlook for the rest of the year.

Thank you, Thomas. For the guidance 2024, we want to reconfirm our outlook for the financial year of 2024. On the revenue side, we want to achieve a revenue growth of 3% to 4%, which is in line with our ambitious targets for 2024 to 2026, and which is composed of growth in international markets and in Austria. And the drivers are these value-obtaining measures, so indexation, cross- and upselling, and the very strong ICT development that we expect. On the CapEx side, we also confirm the guidance around EUR 800 million investments in this year, with a continued focus on the network rollout, especially focused on the fiber rollouts in Austria with -- at the same pace that we like to, and with a small reduction of non-correlated projects that we reevaluate to give them a more structured process afterwards. With that, I want to hand back to Susanne to open the questions afterwards.