Iordanis Aivazis CFO, OTE Group Citigroup Smith Barney Telecommunications Conference September 18, 2003

Transcription

1 Achieving growth in a slow-growth environment Iordanis Aivazis CFO, OTE Group Citigroup Smith Barney Telecommunications Conference September 18,

2 Agenda OTE Group profile Well-prepared for today s environment Our priorities Driving future growth 2

3 OTE Group profile: who we are Fixed-Line Greece Strong incumbent in mature, recently deregulated market High penetration and top-quality network, but low productivity Market share at 91% (Q2 03) High EBITDA margin Mobile Europe s most successful third entrant, #1 within 3 years of operation Management of Group s international mobile operations International Fixed-Line: 54% ownership and management of Romanian incumbent (RomTelecom) Focus on mobile in neighboring countries Rationalization of international portfolio Unique positions in Southeast Europe 3

4 OTE Group profile: H1 03 Sales & EBITDA TOTAL SALES: 2,341 million 82,5% 37 EBITDA: 924 million 82,5% ,1% 380 1,446 87,5% OTE Cosmote million International million Other 88,1% ,5% *Cosmote s AMC, subsidiary is included in International for the purposes of these graphs Well-balanced portfolio, maturity and profitability mix 4

5 Well-prepared for today s environment Ahead of the opening of its home market to fixedline entrants, OTE developed and acquired businesses to maintain growth in a deregulated, competitive world 5

6 Top-line growth 6 5 billion OTE Cosmote International Other E Built new engines of growth since mid-90 s 6

7 Building new engines of growth In preparation for deregulation of its core domestic telephony market, OTE: Fixed-Line Greece Completed its network modernization, technological capex Reorganized its pricing structure (tariff rebalancing) Mobile Built on its solid domestic franchise to launch a leading mobile network Exploited international growth opportunities International Acquired major positions in neighboring countries and further afield Focusing on markets with cultural affinities and compelling demographics 7

8 Impact of expansion on profitability 1,708 1,720 1,219 1,450 1,359 EBITDA million EBITDA Margin 44% 45% 38% 42% 40% '98 '99 '00 '01 '02 Buying external growth with minimal impact on performance 8

9 Impact of expansion on financial structure 2,650 2,463 1,129 1,362 Net debt million 804 Net debt to equity 26% 33% 39% 75% 70% '98 '99 '00 '01 '02 Buying external growth while maintaining balance sheet strength 9

10 Offering strong return to shareholders Dividend payout million Dividend payout ratio 47% 54% 55% 87% 99% '98 '99 '00 '01 '02 Among highest return to shareholders in peer group 10

11 Challenges to growth Fixed-Line Greece Mobile A robust incumbent, but: Competition began in earnest (2002/early 2003) Regulatory scrutiny continues Payroll / OPEX structure remain too high Corporate culture not fully aligned with competitive practices The leading mobile operator in Greece, but: Greek market competitive and mature Tariffs under pressure Need to duplicate success outside Greece International Solid positions, but: Portfolio in need of rationalization RomTelecom revenue base under attack 11

12 Our priorities Accelerate adaptation of core Greek fixed-line business and maximize profitability of growth engines 12

13 Restructuring for new growth era Innovate and focus on customer service Adapt cost base to new slow-growth environment Radically adjust corporate culture Maximize growth opportunities in key international markets Make all capital allocation decisions based on strict return criteria Focus on Maximizing Free Cash Flow 13

14 OTE Anticipated Impact of Deregulation Deregulation began 2001 Slow start Real competitive take-off, late 2002 Highly fragmented competition (voice and data) Entrance of well funded player, Feb 2003 Competition concentrating on traffic access share c100% Market share estimates (total fixed originating traffic minutes) Current fixed-line environment End of, Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Share(%)

15 Fixed-line: driving usage Challenges Intense competition Mobile substitution Regulatory Environment Utilizing our infrastructure Growth drivers Competitive pricing Tailor made packages Integrated Marketing and Sales Improving quality of service When at home use the fixed phone Price perception VAS fixed functionality Mobility at home handsets Pilot SMS on Fixed Continuous dialogue with NRA Input to New regulatory framework Readiness with commercial responses ADSL launch IP-VPN launch Integrated solutions for big corporates Special dedicated team established to develop innovative applications Established CRM program 15

16 Improving efficiency: reducing fixed-line personnel Number of employees (x000) Overview Average annual rate of headcount reduction in the past 5 years: 5.2% Natural attrition and early retirement schemes Labor agreement signed. Contribution to weighted salary increase for 2003: 4.2% Cost savings expected from pension funds unification to be reinvested in accelerated early retirement scheme Collective agreement reducing cost of early retirement packages (H1 2003) H Moving towards peer productivity 16

17 Improving efficiency: reducing capex 1, , : End of frame agreements with small number of suppliers All procurement now passes through fully competitive tender, electronic auctions and other competitive processes E Mobile OTE & Other * Not including consolidation of Romtelecom Entrance of new suppliers and increased competition between suppliers Horizontal expansion of procurement coverage gained by centralization EUR 25 million of savings achieved in H Significant reduction in investments in 2002 and

18 Mobile strategy Strengthen leadership in Greece Foster usage to preserve ARPU Accelerate developments in Bulgaria & FYROM using Cosmote experience Maintain strong fundamentals 18

19 Key growth drivers Increase usage and revenues from VAS & data services Manage all cost items efficiently Drive organic growth Sustain high EBITDA margin ( internal growth) Mature 2/2.5G network in place Proceed to financially sound international investments Underleveraged Balance Sheet Lower CAPEX needs, enhanced investing ability Acquire external growth Raise more capital to expand Increased FCF yield will drive dividend yield higher 19

20 International strategy Leverage management control to accelerate RomTelecom restructuring, including CosmoRom solution Rationalize rest of portfolio Review growth opportunities along stringent return criteria Focus on maximizing return from existing investments 20

21 RomTelecom restructuring Challenges Move from government monopoly to competitive enterprise Strategy Change culture: Introduce performance metrics and new business practice Move from 1960 s telco to 21st century telecoms company Modernize: Introduce new processes, new systems Customer retention against strong & growing competition Become customer-centric: Introduce new price plans, improve service and new product offerings Managing regulatory threats & government bureaucracy Introduce new strategy Contending with low economic development Introduce new decision process Resolve CosmoRom situation Negotiations underway 21

22 Rationalize international portfolio Focus on mobile Serbia: Control over pure mobile or exit Armenia: Exit Other minor stakes: Exit 22

23 Financial strategy and management Focus on: Reducing Capex Cutting costs, particularly in Greek fixed-line Improving working capital throughout the Group Maintaining the optimal balance sheet structure In order to: Boost free cash flow generating capacity Sustain a high dividend 23

24 Driving future growth Fixed-Line Greece Competitiveness Vigorously defend domestic market share by rolling out new services Accelerate cost reductions Mobile Growth Shift attention from customer acquisition to retention Innovative VAS and competitive pricing plans Leverage COSMOTE expertise in international footprint International Restructuring Deliver on RomTelecom Transformation Plan Resolve CosmoRom situation Seek exit from Armenia, resolution in Serbia Group Focus on results Contain costs and Capex Generate free cash flow and maintain high dividend policy Retain strong balance sheet 24