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Σοφοκλέους 10 Τοις Μετρητοίς

COSMOTE:Resilient Q3’20 EBITDA, with Minor Greek Covid-19 Impact Fully Offset by Romanian Advance;/EUROXX

Resilient Q3’20 EBITDA (up 0.9% to €376.1m, 2.3% above Exx) despite a marginal group top-line decline mostly due to lower roaming in Greece and weak mobile in Romania; minor Covid-19 profitability impact on Greek core ops, fully offset by solid Romanian business y-o-y EBITDA advance, owing to cost cutting, one-off adjustments and real estate disposals; Q3’20 adj. FCF AL at €129.5m, up 7% y-o-y; OTE reiterates 2020e guidance and progresses operational transformation.

OTE’s Q3’20 results were overall good, with adj. group EBITDA After Lease up 0.9% y-o-y driven by Romania, which fully offset the 3.3% EBITDA decline in Greece. Adj. FCF AL at €129.5m (up 7% y-o-y), primarily reflecting lower CapEx spending and a decrease in interest payments following bond repayment in July’20, partly offset by higher income tax payments due to a different seasonality in outflow compared to 2019. Adj. Net Debt at €1,032m, down 12.7% y-o-y (0.8x EBITDA) but up 22% (or by €184m) sequentially. OTE will host a conference call today at 17:00 (local time, phone no GR +30 210 9460 800, UK + 44 (0) 203 059 5872, USA + 1 516 447 5632).

In terms of outlook for 2020e, OTE stated that while Covid-19 continues negatively impacting group revenues in Q4’20e and beyond, its impact is expected to be more subdued, principally due to the lower exposure to tourism in the winter months. Overall, OTE’s management reiterates its 2020e adj. CapEx (€600m), adj. FCF (c€610m), and reported FCF (€350m) objectives. The current spectrum auction in Greece, expected to be concluded before year end, and the additional steps in OTE’s transformation (which is progressing as planned and will reach full swing early next year) should result in outflows of c€260m within 2020. Moreover, 2020 shareholder remuneration should total €400m (€259m/€141m or 65%/35% split between dividends/share buybacks), a substantial increase compared to last year, despite absorbing record levels of estimated spectrum payments and restructuring charges. Regarding Covid-19 and the 2nd wave of the pandemic, OTE said that the new mobility restrictions might negatively affect its business performance, reduce revenues from telco services, temporarily affect its ability to collect receivables, and disrupt its supply chain, but they are expected to be implemented more gradually and selectively than in the spring. In addition, the pandemic should have a significant impact on global growth, and on Greece’s economy.

In more detail, mirroring the previous quarter’s trend (-3.0% y-o-y in Q2’20), Q3’20 group revenues posted a decline of 0.8% y-o-y to €1.004m (vs. Exx forecast of €989m), underpinned by a 1.1% y-o-y drop in Greece to €763m (albeit much improved sequentially from the -3.8% recorded in Q2’20), entirely attributed to mobile, mainly on lower roaming revs due to the weak tourism activity, while sales of handsets, wholesale and ICT revs recorded improving trends. That said, Romanian top-line posted a marginal increase of 0.2% y-o-y to €244m (4% beat) mirroring previous trends with positive wholesale and other revs and despite the lower y-o-y retail fixed services (due to pressures on the voice and TV segment, offsetting the strong BB performance) and mobile service revenues (primarily due to roaming and lower termination rates).

Turning to profitability, adj. group EBITDA After Lease (AL, i.e. after deducting depreciation of RoU and Interest expense of leases) – excl. one-offs of €21.6m in Q3’20 and €2.6m in Q3’19 largely owing to provisions for voluntary leave schemes in Greece – rose marginally by 0.8% y-o-y to €376.1m (2.3% above Exx). This good performance was due to Romania, where, continuing on an upward path, adj. EBITDA AL rose 40.5% y-o-y to €50.3m (Exx at €40.0m) implying a margin of 20.6% from 14.7% in Q3’19, primarily reflecting cost-cutting efficiencies, mainly personnel (in the quarter the IT services were also outsourced), and real estate disposals. Moreover, Romania generated positive Adj. FCF AL for the 6th consecutive quarter. Turning to Greece, adj. EBITDA AL fell 3.3% y-o-y to €325.7m (vs. -1.7% y-o-y in Q2’20; 0.5% below Exx), with the margin down 100bps to 42.7%, reflecting improvements in several fixed cost categories, which absorbed the negative impact from the pandemic other than the biggest part of roaming.

Finally, adj. group net income rose by 18.9% y-o-y to €148.8m (Exx at €153.2m; the slight miss was mainly due to higher-than-expected minorities), positively affected by lower y-o-y financial expenses. Note that Q3’20 reported net profits of €135.7m were positively affected by €107m deferred taxation related to the Telekom Romania sale agreement and a €7.4m reversal of provision related to Assets Sales and negatively affected by €16.3m provisions for voluntary leave schemes & other restructuring and non-recurring litigations and €111.3m Net Impairments & Write offs in Romanian ops. Similarly, Q3’19 reported net profits of €142.5m were positively affected by €18.9m tax gains from deductible investment losses/Intercompany dividends.

Q3’20 adj. CapEx (excluding spectrum costs) fell 12% y-o-y to €117m, with adj. NOCF AL also down 3% y-o-y to €247m, primarily reflecting higher income tax payments due to a different seasonality in outflow compared to 2019; as a result, adj. FCF AL rose 7% y-o-y to €129.5m, leading to a reduction in adj. Net Debt incl. leases by €150m or 13% y-o-y to €1,032m (up by €184m sequentially) i.e. implying a 0.8x 12-month adj. EBITDA AL (at €649m excl. leases).

In terms of 9M’20, group sales were effectively flat y-o-y to €2.86bn driven mostly by Romania, with adj. EBITDA AL of €1,019.5m, up 2.0% y-o-y, underpinned again by the solid Romanian ops, which offset the slight drop in domestic operating profitability. Further down the P&L, OTE’s adj. group net profit rose 32.5% y-o-y to €379.7m (reported net profits were €316.7m). OTE’s 9M’20 adj. NOCF AL rose by 8% y-o-y, while accounting for the 11% y-o-y drop in adj. CapEx (excl. spectrum costs) to €435m, adj. FCF AL soared 36% y-o-y to €447m (from €329m in 9M’19), hence comforting OTE’s FY’20e guidance.

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