Good Q1’20 results (in line with Exx at the operating level, above at the bottom line): Greek core operations retain their positive trends, while the Romanian business provides further support; Q1’20 adj. FCF at €133m, up €97m y-o-y; Limited Covid-19 Impact in Q1; OTE Reiterates 2020e Guidance.
OTE’s Q1’20 results were overall good, with adj. group EBITDA After Lease up 4.5% y-o-y driven by improved margin in both Greece and Romania. Adj. FCF AL at €132.9m (up €97m y-o-y), primarily reflecting the PBT increase as well as significantly improved WC. Adj. Net Debt at €930m, down 19.0% y-o-y (0.7x EBITDA). OTE will host a conference call today at 17:00 (local time, phone no 00800 4413 1378).
In terms of outlook for 2020e, OTE stated that while the Covid-19 outbreak could negatively impact group revenues in Greece and Romania in Q2’20e, the group intends to implement stringent cost-reduction measures across all areas, to maintain its profitability and cash flow generation in 2020e. Overall, OTE’s management reiterates its 2020e adj. CapEx (€600m), adj. FCF (€610m), and reported FCF (€350m) objectives. Taking also into account -ponement of 2019 spectrum payment, 2020 shareholder remuneration should total €400m, a substantial increase compared to last year, despite absorbing record levels of estimated spectrum payments and restructuring charges. Regarding Covid-19, OTE said that the extent to which it will affect OTE’s operations in coming quarters will largely depend on future developments and policy responses to the crisis. Potential reintroduction of restrictions recently relaxed could negatively impact OTE’s business performance, reducing revenues from telecommunications services, temporarily affecting its ability to collect receivables, and disrupting its supply chain. In particular, trends in such areas as B2B, ICT, mobile services, sales of handsets, and roaming are expected to be affected, or have already started feeling the impact of the Covid-19 crisis.
In more detail, Q1’20 group revenues rose by 3.6% y-o-y to €941m (vs. Exx forecast of €933m), implying a deceleration from the +7.0% y-o-y in Q4’19. Greek sales growth was slightly lower q-o-q at 1.4% y-o-y to €707m, driven mostly by mobile service revenues (+3.3% y-o-y fueled by further increases in post-paid and pre-paid as well as by OTE’s more-for-more strategy aimed at boosting usage and data monetization) and to a lesser extend retail fixed revenues, which were up 1.3% y-o-y, supported by the ongoing growth in VDSL. On a positive note, Romanian sales continued on an upward path, posting an increase of 9.5% y-o-y to €237m (albeit down sequentially from the +19% y-o-y recorded in Q4’19), driven by the completion of major ICT-related projects and higher wholesale revs, as retail fixed services posted declines y-o-y.
Turning to profitability, adj. group EBITDA After Lease (AL) –excl. one-offs of €17.1m in Q1’20 (mostly owing to a €15.2m one-off litigation cost in Romania) and €1.7m in Q1’19– rose by 4.5% y-o-y to €322.1m (0.7% above Exx). This y-o-y growth was largely due to Romania, where adj. EBITDA AL rose 31.5% y-o-y to €33.8m (Exx at €30.9m) implying a margin of 14.3% from 11.9% in Q1’19, primarily reflecting improved top-line performance, higher core business margins and cost-cutting efficiencies. Moreover, the company’s recurring efforts to improve cash conversion through tighter monitoring of receivables and inventories has led to a substantial improvement in Adj. FCF AL, up c€65m in Q1’20. Turning to Greece, adj. EBITDA AL were up 2.0% y-o-y to €288.3m (vs. +1.3% y-o-y in Q4’19; spot on Exx), with the margin up 30bps to 40.8%, reflecting the combined effect of improved retail/mobile service revenue and lower personnel expenses.
Finally, adj. group net income from continuing ops (i.e. excluding the Albanian ops and other one-offs) soared by 79% y-o-y to €112.5m (Exx at €103.3m; the beat was mainly due to lower-than-expected taxes), benefiting by lower y-o-y depreciation (as a result of the impairment on the Romanian assets in 2019), net financials and effective tax rate.
Q1’20 adj. CapEx (excluding spectrum costs) fell 5% y-o-y to €166m, with adj. NOCF AL up 41% y-o-y to €299m (primarily reflecting the PBT increase as well as significantly improved WC), hence leading to adj. FCF AL of €133m from €36m in Q1’19 (c3.5x up y-o-y). As a result, adj. Net Debt incl. leases fell sequentially by €116m to €930m (-19% y-o-y) or 0.7x 12-month adj. EBITDA AL (at €541m excl. leases). Finally, note that as of 31March’20 OTE held 1.13m own shares (0.23% of total), purchased under the share buy-back programme of 2020 launched in March’20