Hellenic Telecommunications Organization SA ADR (OTCPK:HLTOY) Q4 2013 Results Earnings Conference Call March 6, 2014 10:00 AM ET
Dimitris Tzelepis -Head of Investor Relations
Michael Tsamaz - Chairman and Managing Director
Babis Mazarakis - Chief Financial Officer
Zacharias Piperidis - Chief Operating Officer
Stamatis Draziotis - Eurobank
Luis Prota – Morgan Stanley
Jeffrey Li – Canyon Partners
Thank you for standing by, ladies and gentlemen, and welcome to the OTE Conference Call on the Fourth Quarter and Full Year 2013 Financial Results under IFRS. We have with us Mr. Michael Tsamaz, Chairman and CEO; Mr. Zacharias Piperidis, OTE Group's Chief Operating Officer; Mr. Babis Mazarakis, OTE Group Chief Financial Officer; and Mr. Dimitris Tzelepis, Head of Investor Relations. At this time, all participants are in a listen-only mode. There’ll be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you the conference is being recorded today, Thursday, March 6, 2014.
We now pass the floor to Mr. Dimitris Tzelepis. Please go ahead, sir.
Thank you. Good afternoon, ladies and gentlemen, and good morning to the U.S. participants. I would like to welcome you to the OTE fourth quarter of 2013 results conference call. During the conference we will review the quarterly performance and we’ll also leave enough time to discuss any issues you may wish to cover.
I remind you that any forward-looking statements we might make during this presentation or our answers to your questions are subject to the usual risks and uncertainties inherent in such situations.
Let me hand over the call now to our CEO, Michael Tsamaz.
Good morning or good afternoon to you all. Thank you, Dimitris, and thank you all for joining this call where we will discuss our activities in 2013 and our prospects for this year. Babis will guide through the highlights of our business and outlook for the quarter and full year.
Before handling him the phone I would like to share with you a few key takeaways. 2013 was another year of challenges for OTE. But it was also a year of considerable progress and transformation. We are in far stronger state today than we were a year ago. Let me get through some of the factors and explain why we are facing the coming year with a higher level of confidence.
First of all our revenue performance improved quarter-after-quarter throughout 2013 from minus 12% in the first three months of the year to a small positive in the fourth quarter. This resulted in an overall drop in revenues of 6.4% for the full year, a slight improvement compared to 2012. We expect the rate of revenue erosion to improve again from that level in 2014. The one year anniversary of the Greek mobile termination rate cuts is now behind us, making comparisons less severe. We are seeing early signs of improvement in the economic environment with Greek GDP expected to grow in 2014 for the first time in six years. And as we will discuss we are defending our revenue base.
Turning to our cost base, we completed another successful voluntary retirement scheme in our Greek fixed line operations. In the last two months of the year over 1,800 OTE employees accepted the incentives we offered them to leave the company. This exceeded the expectations we had when we launched the plan. This will result in net annual cost savings of EUR 94 million starting this year. I want to make absolutely clear that OTE is covering 100% of this cost of this plan and they will add no burden to whatsoever to the Greek state pension funds. Babis will guide you through the P&L and cash flow impact of this program.
But let me just say with the bulk of the net loss we are reporting this quarter is due to our voluntary retirement plan and will yield future benefits. Excluding one-offs net profits in the quarter would have been up by 53%.
Let me also remind you that in the past four years we have reduced our combined workforce in Romanian and in Greek fixed line operations by almost 8,000 people or about 14%. We have also continued to reduce our other operating costs. Excluding non-recurring items group operating expenses in the full year were down more than 5% to 7% ahead of the rate of revenue growth. As a result we improved our full year EBITDA margin by a full nine basis points to 35.9%. This is a full year level we have not known since 2009.
Throughout the year we have considerably strengthened our financial structure reducing our net debt by nearly half to just under EUR1.5 billion. Our net debt ratio of one time EBITDA puts us amongst the best European telecommunications operator. We achieved this partly through the sale of Globul as well as through successful financing transactions but I also want to insist on the sharp growth in operating cash flow the Group has generated despite the drop of the sales. This is largely due to significant initiatives laid out over the past few years to bring our working capital needs to satisfactory level an exercise that is now largely completed.
Our significant cash flow generation has enabled us to continue investing in our future. Capital expenditures for the full year were up more than 5%. Our investments are of two types. On one hand some investments are aimed at ongoing improvements over telecommunications infrastructure in the countries in which we operate. In Greece we want to continue providing state-of-the-art infrastructure that will support the recovery of the economy.
On the other hand we also invest in improving our customers experience, to support our current and future revenue streams. This means richer television content, better mobile voice quality, faster Internet speed in both fixed and mobile and other solutions that improve quality and customer satisfaction.
Obviously many of our investments score on both fronts. In Romania for example we have built a fiber optic network now connecting over 600,000 households, with another 500,000 planned for this year. In Greece we will launch later in 2014 a five year program to [laminate] our switches and build an all IP network with no planned increase in CapEx.
Finally we have also made important progress in adapting and streamlining our organization. In Greece we have updated our original set up to make it more responsive to client needs. We are hiring young, dynamic employees with the right mix of technical and customer facing skills and provide them with on the job training. We are seeing the culture changing before our eyes. We are also seeing our customers responding well to the new emerged OTE.
With all of these factors in mind we are cautiously optimistic. We will do all we can to minimize the impact on our performance or developments beyond our control. And we will continue to work hard on all the elements that we do control, both to strengthen our revenue potential and to contain our costs.
I would now ask Babis to review the quarter before we take your questions. Babis?
Thank you, Michael and let me add my welcome to all of you. Once again just so we are all on the same page I remind you that our reported numbers exclude the Bulgarian activities in both 2012 and 2013 we can [also adjust] that in 2012 reported numbers for the disposal of Hellas Sat since it did a material impact on the comparison.
Now Group revenues were up one-tenth of 1% in the fourth quarter of the year. This first positive movement after five years of [negative] quarterly change is partly due to the seasonality of some revenue recognition in the Romania which are related to largely for major technology contracts. However even if we exclude this factor we clearly show a continuation of the improvement trends quarter-over-quarter that we have recorded throughout 2013 in all our operations. The biggest drop in Group revenues of the quarter was in our direct mobile business and largely results from comparison with the last quarter of 2012 before the latest round of mobile termination rate cuts too effect.
Excluding the mobile termination rate cuts and last year's revenue from Hellas Sat revenues, total Group revenues would have been up by a little less than 2% in the fourth quarter. As you know from this quarter we'll be less penalized by unfavorable comparisons. In the Greek fixed-line OTE revenues were down 5.9% in the quarter. This is a sound improvement from the first nine months when cumulative revenues were down more than 9.5% from the comparable 2013 period. In both voice and broadband we managed a far more moderate revenue drop compared to the levels experienced in earlier quarters.
In Pay TV the growth in revenues accelerated to nearly 150% in the quarter as our expanded programming attracts a growing number of subscribers with a higher ARPU. In the fourth quarter we lost 49,000 prepaid lines the lowest quarterly disconnection level in several years. However it is important to note that this covers two trends. On the one hand net disconnections did experience a decline as the environment improves and fewer customers feel the need to give up service altogether.
On the other hand however we saw some deterioration portability. Alternative carriers added over 40,000 lines this quarter so essentially higher than in the previous quarter. Part of this is due to attractive fixed mobile offers we couldn't match, notably from competitors who are attempting to build share -- to build market share at any cost. The increase in portability related lines connections also impacted our broadband numbers.
Net additions in the Greek broadband market in the quarter totaled 63,000, nearly double the level of the previous quarter and in-line with the growth range the market posted in the previous four quarters of the year. However our sales from net additions of below 26%, was lower than in previous quarter as our price differential versus the competition widened once again in the previous quarter.
Partly compensating for this we are pleased that the VDSL subscribers account for a growing portion of our new broadband additions. In the quarter we signed up 9,000 new VDSL users or 55% of our broadband net additions, thereby supporting our broadband ARPU. We tend to continuously developing our VDSL customer base both by significantly increasing the number of [cabinets] to reach more households and by encouraging migration of eligible subscribers. We should see subscriber numbers continue to increase throughout 2014.
In Pay TV we had another fantastic quarter. We added 38,000 new subscribers and reached 256,000 at the end of the year. Both total subscriber numbers and ARPU are ahead of our business plans. The subscriber base has continued growing at a nice clip in the first two months of the year. All told our revenues from retail fixed service in Greece were down by less 4% in the quarter, a sharp improvement from the previous nine months. We also saw improvements though less in our wholesale and other fixed revenues.
Turning to RomTelecom, revenue in the quarter were up nearly 9% compared to the fourth quarter of last year. The drop in retail revenues saw a slight improvement from the first nine months of 2015, as stronger broadband and stable TV revenues partly offset the drop in points. In the full year the contribution of TV and broadband to total retained revenues rose sharply from 38% to 44% highlighting RomTelecom's success in defending its revenue base through innovative alternatives to its traditional voice offering.
The increase in revenues in the quarter is largely due to strong 70% growth in other revenue primarily earnings related to large IT projects for public administration and corporate clients that were recognized in the latter part of the year. While this project carry lower short-term margins from our retail services they are key in securing long-term revenue streams with large customers and supporting RomTelecom's market positioning. In addition RomTelecom's consolidated revenues rose by over 70% in the quarter compared to relatively low level in the fourth quarter of 2012. This primarily reflects growth in the national transit.
Total revenue from mobile operations declined by 3.3% in the fourth quarter of the year. This is another sharp improvement from the trends of earlier quarters and is partly due to the diminishing impact from mobile termination rate cut comparisons. In addition revenues were boosted by an increase in product sales in the quarter, partly due to the growth in new postpaid contracts at Cosmotel Romania.
In Greece Cosmotel's total revenues were down 7.6% and service revenues dropped by less than 15% with about 40% of the drop due to mobile termination rate cuts. We estimate that the decline in service revenues for the market as a whole was steeper than what Cosmote experienced.
In line with the trends we have recorded since the beginning of the year the drop in ARPU continued to narrow in both postpaid and prepaid. In a market that remains challenging we are continuing to invest in enhancing quality and customer experience. Our LTE customer numbers are increasing and there is a huge potential for further growth due to the increased penetration of 4G devices.
We were the first in the market to offer higher definition voice quality on in network calls. Service revenues of Cosmote Romania were up an impressive 4.4% accelerating the rebound we first recorded in the third quarter. ARPU was up sharply in the quarter thus due to the increase in prepaid ARPU. Total revenues were also up significantly reflecting Cosmote Romania switch to prepaid subscribers more than in postpaid. Cosmote Romania pursued its efforts to develop its business customer base which grew significantly in the period.
In Albania we also recorded a further increase in revenues along the lines of the previous quarter with both the service and total revenues up. This reflects continuous subscriber growth in both postpaid and prepaid as well as shrinking decline in ARPU compared to the first quarter of the year notably in prepaid. Cosmote Albania posted another sharp increase in data revenues.
Finally, other revenues were up nearly 18% despite the consolidation of Hellas Sat since the end of March, 2013. This strong increase is entirely due to growth in traffic at OTE Group.
Now let’s turn our attention to the rest of the P&L. In the fourth quarter the group reported pro forma EBITDA of EUR 381 million, up EUR 29 million or 8.2% from the fourth quarter of 2012. This led to a jump in EBITDA margin of 280 basis points to 36.5%. As a result of the fourth quarter gain the drop in full year pro forma EBITDA was contained to 3.9% using a 90 basis points margin increase to 35.9%. It is also important to note that excluding the impact of the Hellas Sat disposable in the MTR cuts group EBITDA would have been up by more than 11% in the quarter and more than 1% in the full year.
Positive reduction in operating expenses is accounted for by increased capitalization of TV content cost. As we mentioned in last quarter, both increases in Romania were capitalized in cost related to non-cancelable multi-year contracts and amortizing them over the duration life. While the respective cost were previously expensed over the same period.
Pro forma EBITDA margin Greek fixed line operations rose by 13.5 percentage points to 40.7%. Total operating expenses excluding depreciation on voluntary retirement in Greek fixed line were down nearly EUR 69 million to EUR 234 million in the quarter. In addition to TV content this drop reflects a decline of over 19% in personnel cost and consistent savings in most other lines. The drop in personnel expenses didn't reflect our latest voluntary [exit] was considerably ended at the end of the quarter and with benefiting our performance during this current quarter. I remind you that we took the entire EUR 250.9 million in charge in quarter four of 2015.
Now at group level personnel cost were down nearly 10% leading to a drop of more than 10% or EUR 93 million for the full year. Device cost rose in the quarter, setting higher sales of handsets as we explained before and other equipment and interconnection cost were boosted by increase wholesale traffic increase in Romania. All other major expense categories were lower reflecting our ongoing cost cutting efforts. Depreciation and amortization was up in the quarter primarily reflecting amortization of the capitalized TV content cost that I just mentioned.
Interest expenses was only EUR 44 million in the fourth quarter, down by more than 25% from the fourth quarter of 2012, primarily reflecting the significant drop in total debt during the quarter. For the full year, interest expenses were up marginally despite the fall indebtedness. Let me remind you although that in 2012 amount was reduced by nearly EUR23 million as a result of our bold buybacks below par in the market at the time.
Our Group tax expenses in the quarter was EUR15.8 million for the full year income tax was EUR20.9 million, a sharp drop from 2012 partially reflecting lower profit before taxes and partly due to the activation of deferred tax credits during the year.
As you know from our previous communications our effective tax rate over the long-term is in the mid to high 20 percentage range. In the quarter we posted a net loss of EUR189 million as compared to a loss of EUR58 million in the fourth quarter of 2012. Excluding exceptional one-off items of EUR243 million mainly the voluntary retirement scheme in Greek we would be posting an increase in adjusted net income of about 33% in the quarter.
The Group's underlying net debt was reduced by another EUR169 million in the fourth quarter bringing the full year drop in net debt to nearly EUR1.4 billion. In the space of year we have reduced our net debt ratio by more than 1.7 times EBITDA to just about one time. As we have forecasted despite the drop in revenues we improved operating cash flow in the full year.
Excluding exceptional items net operating cash flow was up 3% to EUR1.2 billion. This largely reflects our full year reduction of working capital needs by more than EUR125 million during the year. If you put out a note that seems in the middle of 2012 we have done considerable work on our working capital structure and we have improved working capital by EUR277 million and now we are approaching a level where we think we have reached highly efficiency crossing speed at the Group level for the working capital.
A word on Group free-cash flow it amounted to EUR734 million in the fully year excluding exceptional items. Are you will remember we have provided guidance of EUR 500 to EUR600 million most of the over achievements versus guidance results from the significant improvement in working capital as I described before.
CapEx excluding spectrum payment was EUR150 million bringing the total for the year to EUR471 million up more than 5% from 2012 full year. As both Michael and I have mentioned we have not reduced the scale of our infrastructure investment across all our operations.
Finally once again this year the Board of Directors will report to the shareholders of OTE that no dividend will be paid for 2013. As we told you last quarter our priority to use of cash was to carry out the voluntary exiting that we secured Group's long-term share. And with that Michael Zac and myself are now ready to answer any questions you may have. Operator?
Thank you very much. (Operator Instructions) From Eurobank your first question comes from the line of Stam Draziotis. Your line is now open.
Stamatis Draziotis - Eurobank
Hi, thanks for taking the questions. My first one relates to the Greek mobile operations and the outlook for next year. I saw in your statement that you referred to a resilient ARPU in mobile could you may be elaborate a little bit on that and how this relates to the competition in the domestic mobile market? I mean we saw ARPU fall to EUR11 in Q4, I think minus 8% in the full year, what have you been seeing lately have competitive moves become more rational in the last few weeks and should we be assuming that ARPU has reached the bottom?
2013 was a tough year for mobile we estimate based on the announcement of Vodafone and our results that the market shrunk by 17% to 18%, we shrunk by 16% which was a combination of certain things like the macro and also the regulatory developments related mainly with MTR's and of course with a competitive dynamics of this period. So out of this 17 to 18 points, seven points were attributed to MTR's -- seven to eight points, something which would not happen let's say to 2014.
On the macro side we have a seen a slight improvement on the [TTP] however this is not aligned with the consumer power however we're not expecting a deterioration of the current levels.
In terms of competitive dynamics nobody can know what will happen. Definitely we are not expecting the same trends in 2014 in terms of revenue decline. The level of decline cannot be predicted in the early months of 2014 but definitely it will be a smoother market this is what we predict from 2013.
Stamatis Draziotis - Eurobank
Okay. I see. Can I also ask another question with regard to regulation. Do you have any update regarding the process for the approval of your bundles which has been pending a while now and related to that a question regarding the offer that you recently announced, I am referring to the discount for Cosmotel subscribers who already have OTE double play. How is this going and how this actually received the final approval by the regulators?
It's a bit weird that we are discussing something which happens in the market for the last five years. As you know our competitors are offering the same products from 2009 onwards. We recently launched this proposition from the mobile part which as you correctly mentioned it gives an extra discount to our mobile base in case that our customers are having -- are using double play from OTE. Currently we are in the process let's say of the regulation let's say approval although this is related with the consensus of competitors because on the first stage where it was the first effort let's say from their side to cancel the whole initiative, this was not successful. But definitely this will be judged in the next committee of heads, which for the time being is not scheduled yet.
Stamatis Draziotis - Eurobank
Also if I may say so, first of all this an offering, this is Michael Tsamaz speaking. This is an offering offered by the mobile unit. The mobile unit is not regulated. Secondly it is an offering which has been offered in the market in the past five years as Zac said. So as far as we are concerned it's not matter of being or having it approved by the regulator. It's not a regulators matter. However the competitors, all of them jointly fixed a mobile went against us and asked for an injunction in order for us to be ordered stopped. This is something it's a discussion that needs to -- it will take place. However it will be observed if we have a decision to stop this offering which other competitors, others competition in the market have been offering for the last five years.
Stamatis Draziotis - Eurobank
That's a fair point. And with regard to the other tariffs because as you have said you are still at a high premium for a few months. Is there any update any sort of a time line, any news on this front?
We have submitted tariffs to be updated based on the new cost model. We are expecting let's say some of them to be approved. So it's something that -- it's a business as usual case. Of course you know that due to the changes in the MRA we've had some delays. We hope that now with a new management in the MRA things will speed up because certain things have been accumulated from the past.
Let me answer this. What do we expect -- what do we expect from the regulators committee is the transparency which we did not have in the past and definite times as to the approval of our bundles. In the past we did not have transparency, we didn't know how and what criteria bundles were approved. And we never knew when a product or an offering that we have submitted to the regulators committee for the approval will be approved, or if it's approved you never knew the time sometimes was one month, some other times was two months, sometimes other products for three months or even seven months.
And this we hope would change. And we have been told that this will change and the regulator will be fair and very objective to everyone in this market. And this one we expect, we don't expect not to be regulated. But we expect our regulation to be investment friendly in this and to be fair to everyone. And we hope that this will happen.
Stamatis Draziotis - Eurobank
That's very useful thank you and a last question I guess this will be coming more often as the year progresses but I was wondering whether you want to comment on the policy for shareholder returns I mean basically seeing your net debt-to-EBITDA fall to one time and with a free-cash flow that you generate every year just wondering what should we expect in terms of dividend and are you potentially thinking of alternatives such as more active buyback for example out of the context of the share option plan?
Regarding dividends as we said before for 2013 the option was to invest cash for the voluntary scheme and that drove the distributable profits in the negative territory sequentially. In 2014 if the trajectory we have discussed continues to be there it's very possible that a dividend will be able to distribute in 2015 out of the profit of 2014, the level of which of course is too premature to comment.
Now regarding buybacks as you know currently we are in a plan for -- we are executing a buyback plan in order to satisfy our stock option plan needs according to the plan that has been put in place some years ago. And of course any other similar activity is very likely to see something more for the time being. Of course in the medium to longer term again it’s a bit premature to discuss whether there would be such program or not.
Stamatis Draziotis - Eurobank
That's very clear, thank you.
Thank you very much indeed sir. Now from Morgan Stanley your next question comes from Luis Prota. Your line is now open sir.
Luis Prota – Morgan Stanley
Yes, thank you two questions please. First on the revenue side, you were growing revenues in the fourth quarter at the Group level and you are highlighting different parts in your press release the positive implications from the ICT revenues and the special allocation of those in the fourth quarter. I wonder whether you could help us to understand what's going to happen in 2014 and to what extent the fourth quarter was really extraordinary or not and whether we should expect something similar in 2014 in the next few quarters?
And secondly related to this especially for RomTelecom but also for OTE you were mentioning this ICT revenues being low margin but what we have seen in both OTE and RomTelecom is that margins have been widening a lot, both sequentially and year-on-year basis and you are mentioning this capitalization of personnel costs and especially content. So I wonder whether you could give us the total amount of costs capitalized in OTE and RomTelecom for the fourth quarter, for the full year and what should we expect for full year 2014. Thank you.
Let me try to follow the sequence of the questions. Regarding revenues of course we're all happy that we have this pleasant circumstance that revenues were [better] in quarter four for the first time after some years and yes every time there is a chain of rebound plus and minuses. Here we have a series of events.
You mentioned ICT. ICT of course is an integral part of our business and our guess is that as the economy increase recovers and also in Romania the progress of the conversion with the European union ascension is progressing we will see inevitably there will be much more in demand for the market for ICT solutions and what we simply do is that we position on the right position in order to be able to capture this opportunity.
Admittedly ICT business is not up 75% margin, it’s much below but it does do other things. One is of course it adds revenues and top line support and secondly you have the opportunity to get bonding with your customer and that may lead to more business in the future. So it’s not opportunistic. This is what I am trying to say. ICT is not opportunistic. It’s integral part of our business and we believe we are in a very good position to get hold of it.
The wholesale business which also supported the revenue growth in Q4, this is again is not the mainstream process for a telecom operator but it's inevitable to have wholesale revenues because it’s the nature of the business. Margin are not all great there but again it reflects the [inaudible] i.e. top line support and of course profitability and bonding with our customers that we share.
Our margins of course are supported not only by the mix of the revenues but they are supported mostly by cost cutting exercises that we have done and I think it’s evident in the numbers that this has -- this is like the main reason that supported the margin improvements in both in quarterly basis and yearly annual basis. The TV capitalization is something that has been in place since the earlier quarters of this year. Obviously in that time, reasonably now we have a critical mass on this business and we are entering contracts with duration more than one year, two years or three years and we satisfy the certain parameters.
We do not expect everything will support that but it should follow the kind of intangible asset or rates acquisition and to be amortized across its life. The figure that supports in the numbers of our EBITDA for the year is -- it’s about between close of 3% of the total EBITDA of the year and this is something that will continue to be there for the coming years depending of course on how much aggressive we are in acquiring additional content in order to promote our TV business.
Let me just say that in the Greek case even if we strip off the TV content part, EBITDA would have been up by 18% in Q4, 1-8, 18% and about 7% on an annual basis so still even if we strip off these numbers for OTE say it’s clearly that the trajectory in the profitability is there. Perhaps Zac would like to complete on the [inaudible] on the revenue side I just mentioned.
Yeah what I would say is that we have seen in the last 4Qs an improving trend on our revenue streams an improving declining trend on the operational side and this is supported in the fixed side mainly by two factors, by the BDSL penetration and the TV update together with the stabilization of the ARPU and the additional double play business.
On the mobile part as I mentioned before we had a tough year, the outgoing revenue was at the range of 10% to 12% for the market, a bit lower for us. We are expecting that we're going to have something negative for the next year but not at the same extent. So still the operating trends for the mobile are expected to be improving and at least for the next 1Q or 2Q's.
Luis Prota – Morgan Stanley
Sorry, that last comment on the 10% to 12% decline for the year, it's for Cosmotel Romania?
No, no, I was referring to the Greek mobile market on the outgoing -- the outgoing declining rate.
Luis Prota – Morgan Stanley
Okay, sorry just for outgoing because I heard before it was 17% to 18% compression, now you are saying…?
This is a total number which reflects also the incoming.
Luis Prota – Morgan Stanley
Okay. Now I understand. Can I just make a very question. I think that I understood at the beginning of your speech that you are planning to move to an all IP network and that is going to free up property spaces in Greece. First to confirm that I understood that well. And secondly whether you are expecting any proceeds from potential disposals of those real estate assets?
When IP is completed, less space is needed but the when is not tomorrow, the when is going to be in the coming years. And yes, you are right as we will progressively free up space and assuming that the marketable decision will be favorable and receptive of course our property can be leveraged and can be exploited and can be adding to our financial performance. But it's not something that will happen more dramatically, and certainly it's not something that we should expect to see in the coming months. It takes lot of time to replace such a complex network as ours with IP.
Luis Prota – Morgan Stanley
Okay. Thank you.
Thank you very much indeed, sir. Now from [Modern Co], your next question comes from the line of [Tivo Broco]. Please ask your question.
Hi, good afternoon. I would like to ask about CapEx guidance and which items are under your segment for the CapEx breakdown, do you see under risk and specifically if you could update us on VDSL penetration in Greece and FTTX sort of household costs in Romania and whether you see any risks for acceleration of the investments in these two areas?
First of all on the total CapEx bill. I think we have been consistent with our discussions not only in the quarterly results but also when we meet you guys in our trips. The CapEx build that we foresee for the coming periods is around a EUR0.5 billion. This is for total OTE group and its composition. And that includes what we call the expansionary items which is VDSL roll-out as you mentioned in Greece, the fiber-to-the-home is not, well it's in the Romania of course not in Greece and the roll-out in the urban areas with fiber-to-the-home or fiber-to-the-building is something that is in the CapEx plan for Romania because it's in integral part of our offering.
So in a nutshell EUR0.5 billion with all the goodies in there for the coming periods and to this I mean also to us is the 4G network not only in Greece but also Cosmotel Romania in Romania.
So 4G would be on top of that EUR500 million is that right?
No, the EUR0.5 billion the EUR500 million include what we said VDSL and the fiber to the home in Romania and 3G or LTE in the two countries.
Just to add that currently the level of 4G coverage in the Greek market from our network is exceeding 60% population coverage.
Can I have two follow-up questions on impact of MTR quotes in Romania and potential fixed tariff re-balancing in Greece. So what should we expect out of these two initiatives in terms of impact on revenues and EBITDA, please?
Let me say just in Romania the decision that is upcoming is as of April MTR will go down to grow close to $0.01. And this is something that $0.0096 per minute. And this is of course valid for the whole market.
Now while the revenue is going to take a toll on EBITDA is not that worrying because there is an offset between in turn with outgoing traffic for [inaudible] money and there is a saving for RomTelecom because they will pay less per minute calls for fixed to mobile. And so we don't worry that much about EBITDA.
Now the balancing is starting in Greece and Zac can complement that of course the MTR cuts happened a year in Greece there was some advertisement, marketing and tariff activity from competition offering all net directions and things like that but this has been I would say evaporated through the -- in the previous months. That's this is how we view it.
Actually I meant if we understand correctly you are currently 45% above alternative operators on the fixed line in Greece and you would like to reduce it may be to more historic level of 20% and I was just wondering whether that should have -- what kind of impact that would have on EBITDA?
As we mentioned before we have applied certain -- we have submitted certain proposals to the NRA regarding new tariff schemes related to certain segments and for some of them we have got the approvals, from some other we are expecting the approval but this will not be let's say a blanket application of the tariff. It will be directed to the specific segments where we have the need to apply this kind of tariff.
Understood but is there any possibility to hint whether this will still mean further sort of change in dynamics in terms of the EBITDA improvement on the fixed line Greece or the dynamics that we are seeing right now should not be under threat?
As Babis mentioned before in our last Q the revenue evolution was minus 4, so this is a range where we're planning let's say to build it in Greece. This is the range we're planning let's say to set up our tariff portfolio in order to deliver low digit numbers or even some in certain cases slightly positive. So we're not expecting a major shakeup on the tariff and the impact of this shake up will not be applied in our P&L in the forthcoming queues.
Let me make something clear. It's not that we want to match the tariffs of our competitors, we want to be more very expensive and we should be more expensive because we have a much better service than them and consumers are recognizing this. What we want is to have a more rational let's say difference compared to our competitors.
Okay, thank you.
Thank you very much indeed sir. Now from [Hermes] your next question comes from [Mitch Reznick]. Your line is now open sir.
Thanks, got a couple of questions on the capital structure. So 2014 is maturing soon and '15 has become current so wonder if you can -- there is no -- remind us so for '14, we paid with cash off the balance sheet or do you plan to refinance those and '15 have gone current what are your plans redemption of '15? Thanks.
Our financial strategy is always to have maturities that can be fully met through a combination of existing cash and the generation of the free cash flow over here. That's this is widely known to the market and it's been clear since a few years ago. Now whether we do liability moderation exercise or our other techniques in order to re-profiling our maturity profile is something that is not currently we are not talking on it currently. Of course we are monitoring the market and we are seeing the trends and the yields in the markets and if we see that there is a very good reason or it's necessary to do it we always believe that the markets are open for debt.
However currently we are happy to see that both maturities that you mentioned can be fully met with the combination of our cash flow this year and the generation of the free-cash flow for the coming periods.
But assume the markets open would you just pay the '14 with cash off the balance sheet still leave you with a sizeable cash balance or do you want sort of that flexibility for I don't know whether it's M&A or CapEx or just to keep liquidity itself on the balance sheet?
No our liquidity is adequate what we are that it's a bit of the higher range of adequacy and that's good to have. So the '14 will be paid in cash because they are coming due in a couple of months.
Then we have the whole time to act. This does not constrain the business from delivering CapEx plan and everything else because as I think it's evident what's important on our results the business produces -- generates enough cash to fund itself and leave quite a few bucks in the cashier, so it's consistent.
Okay, that's great. Thank you very much.
Thank you very much indeed sir. Now you have a question from [VT Capital] from the line of [Ivan Kim]. Your line is now open sir.
Good afternoon, two questions please. Is there any progress or plans for divestiture on RomTelecom [inaudible] that you can talk about? And then secondly is there medium term or longer term possibility that the double taxation on dividends will be abolished and you will be able to upstream the cash from Cosmote? Thank you.
Regarding RomTelecom this is and initially that has been triggered by the Romanian government and in the current period we have appointed as you know UBS as the advisor and in the coming periods we're waiting to hear what their thoughts are. For us clearly that Romania is a critical market and as explained before we are developing our business there and we are happy to see that Q4 was a good Q. And we will be willing to discuss with the Romanian government advisors their ideas. So far there is nothing there to report there.
Now regarding the dividend policy which we've explained before the double taxation has ceased to exist as of 2014. It was in placed of course in 2013 and the previous years. And as I said before depending on how the years will -- the profitability of the year in 2014 will evolve we will make up our mind on whether we'll do with dividends and the rights later in the year at the beginning of 2015.
Okay, thank you.
Thank you very much indeed. (Operator Instructions) From Canyon Capital you now have a question from Jeffrey Li. Please go head sir.
Jeffrey Li – Canyon Partners
Hi there we noticed in your Greek mobile business you saw a fairly significant contraction in the EBITDA margin. I think it's down somewhere like 32% at the moment, could you may be comment on was there any sort of significant change you saw on the cost base in this quarter particular be it sort of through some kind of marketing cost or subscriber acquisition cost that drove this margin erosion or is it more sort of operating leverage coming from the decline in top line?
In Q4 there was a combination of more push of our marketing activities in order to defend our market share and our business and those of course to try to reverse a bit the declining trends of the market. So there is nothing structural in Q4, it's just additional spending behind our commercial use and some the usual seasonal provision that we take.
So in order to judge the profitability for the mobile segment you should re-profile the Q4 numbers in order to match the average rather than Q4 standalone.
Jeffrey Li – Canyon Partners
Got it, thank you.
Thank you very much indeed sir. And there are no further questions at this point. So I shall pass the floor back for closing remarks.
Thank you everyone.
Thank you sir.
Thank you. Have a good night.
Thank you very much indeed. Many thanks to our speakers today. That does conclude our conference. Thank you for participating you may all disconnect. Thank you, gentlemen.
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