Ote Ads Regulatory News (OTES)

OTE GROUP REPORTS 2015 SECOND QUARTER RESULTS

UNDER IFRS

· Group Revenues up 0.3%, best performance since 2008

o Greek Revenue growth supported by Broadband, VDSL, TV, 4G

o Resilient Service Revenues in Greek Mobile

· New Voluntary Exit Scheme completed, more than €30mn of annual cost savings

· Strong Free Cash Flow generation continuing: €159mn in 6M'15 (+82.7% vs. 6M'14)

· Net Debt below €1.1bn or 0.8x EBITDA, despite heavy investments for future growth: CapEx outflow of €368mn in 6M'15, including spectrum

ATHENS, Greece - August 6, 2015 - Hellenic Telecommunications Organization SA (ASE: HTO; OTC MARKET: HLTOY), the Greek full-service telecommunications provider, today announced consolidated results (prepared under IFRS and reviewed by auditors) for the second quarter and six months ended June 30, 2015.

* Excluding the impact of Voluntary Retirement Programs and Restructuring Plans

** Excluding one-off items - See Reconciliation table, Page 3.

*** Cash Flow includes interest received but excludes Voluntary Exit Programs, Restructuring and/or Spectrum payments

Commenting on OTE's results for the second quarter of 2015, Michael Tsamaz, Chairman & CEO, noted: "The solid performance we have achieved in Greece since the final quarter of last year continued in the past three months, leading to a very resilient first half. Greek fixed-line operations recorded another revenue increase and a sharp boost in EBITDA, which should further benefit from the voluntary retirement plan we recently completed. In Greek mobile, our service revenue decline narrowed, owing to the quality of our data network in particular. The situation was tougher in our international operations, where competitive pressures are exacerbated."

Mr. Tsamaz added: "Our path toward stabilization in the coming months will be largely dependent on the evolution of the environment in our home country. Higher taxes are likely to have an impact on consumer spending. Our continuing investment for growth should further fortify us and enable us to weather well any adverse external influences on our profitability and cash flow generation."

Outlook

For full year 2015 assuming positive macroeconomic developments, OTE expects the stabilization of its Greek fixed and mobile operations to continue, while international operations will remain under intense competitive pressure. OTE will continue to benefit from cost-containment efforts, notably the recently completed voluntary retirement plans, defending its profitability throughout its operations. OTE's CapEx should total approximately €0.5bn, excluding spectrum. Assuming a return to normal liquidity conditions in the Greek economy, OTE expects to end the year close to its previously stated free cash flow target of €0.5bn.

BREAKDOWN OF GROUP REVENUES

BREAKDOWN OF GROUP PRO FORMA EBITDA

OTE GROUP HIGHLIGHTS

OTE Group revenues grew by 0.3% in Q2'15 vs. Q2'14, the best year-over-year quarterly performance since 2008. Greek operations were the main driver of this strong revenue performance. Greek fixed-line revenues were up by 0.6%, posting a third consecutive quarter of year-over-year increase. Greek mobile operations were resilient, as Cosmote service revenues were down by 4.6%, a slightly improved trend compared to the previous quarter (Q1'15: -4.9%), despite the country's tough economic conditions. 

In Romania, revenues in mobile rose by 3.3%, a significant improvement compared to prior quarters (Q1'15: -12.7%, Q4'14: -8.4%), as a result of the anniversary of mobile termination rate cuts in April 2014. Romanian fixed-line operations revenues were up by 0.5% in Q2'15, helped by higher revenues from fixed-mobile convergent offers, as well as infrastructure and IT projects, while traditional voice and broadband revenues were down. As a result of competitive and regulatory pressures, revenues in Albania dropped by 14.8%. Finally, other revenues were up 10.5% to €110.3mn, chiefly reflecting revenues from the EU-funded project for the expansion of broadband access in rural areas in Greece.

Total Operating Expenses, excluding depreciation, amortization, impairments and charges related to voluntary retirement programs and restructuring costs, amounted to €644.4mn in Q2'15, up 3.9% compared to Q2'14, as a result of higher construction costs related to the rural broadband expansion project together with the increase in interconnection costs stemming from higher traffic in Romania and at OTE Globe. Personnel expenses were down 3.9% at Group level. In Greek fixed-line operations, higher personnel costs reflect the transfer to OTE SA of OTE Plus and Voicenet employees; this was offset by a decrease in third party fees, as well as in maintenance and repair expenses. Following the successful completion of an additional voluntary exit scheme at the end of the second quarter, the Group should generate annual personnel cost savings of more than €30mn, starting in H2'15.

Group Pro Forma EBITDA declined 8.0% in the second quarter to €318.4mn, resulting in a 33.4% pro forma EBITDA margin in the period. This was partly due to the basis effect in the Romanian fixed business, where Q2'14 EBITDA had benefited from more than €9mn in disposal of real estate assets and scrap copper. Increased competitive pressures have resulted in EBITDA erosion in our international businesses, flowing through to the consolidated numbers, despite the positive performance of Greek operations. Although these pressures continue, the Group through both network and commercial investments is focused on efforts to restore future performance.

Interest Expenses were down 21.7% in the quarter to €36.0mn, reflecting lower indebtedness.

Group Net Income to Adjusted Net Income Reconciliation:

Note: After tax impact

Group Adjusted Net Income stood at €47.2mn in Q2'15, down 34.5% compared to the previous year, reflecting the EBITDA decline.

Capital Expenditures amounted to €139.6mn in Q2'15 (€131.1mn excluding spectrum payments), reflecting increased investments in fixed and mobile networks in Greece as well as fixed-line infrastructure in Romania, together with a €8.5mn partial payment for the recently acquired spectrum in Albania. Capital expenditures in Greek and Romanian fixed-line amounted to €72.8m and €27.5mn, respectively. In mobile operations, total Capital Expenditures stood at €35.7mn (out of which €8.5mn related to spectrum payments in Albania).

In Q2'15, the OTE Group posted adjusted Net Operating Cash Flow (including interest received and excluding VRS and restructuring-related payments) of €237.3m down 6.2% compared to Q2'14, as a result of lower operating profitability and increased working capital needs.

Adjusted Group Free Cash Flow (including interest received and excluding VRS, spectrum and restructuring-related payments) stood at €106.1mn, significantly improved compared to Free Cash Flow of €99.6mn in Q2'14.

The Group's Underlying Net Debt amounted to €1.1bn at June 30, 2015, down 31.8% compared to June 30, 2014. The Group's ratio of Underlying Net Debt to 12-month trailing Pro forma EBITDA stood at 0.8x.

OTE Group debt outstanding breaks down as follows:

1. GREECE

Fixed-Line Operations, Greece

ACCESS LINES

In Q2'15, the total Greek access market (OTE active retail lines, Wholesale line rental connections and full LLU subscribers) lost 11k lines. OTE fixed-line operations in Greece posted a net loss of only 9k access lines, a sharp improvement compared to recent periods (line losses of 29k in Q2'14 and 27k in Q1'15).

In Q2'15, OTE achieved net additions of 35k retail broadband customers, or nearly 70% of total market net additions, bringing the total number of OTE retail broadband subscribers to 1,429k. OTE's high-speed VDSL broadband service had been adopted by more than 122k subscribers by the end of the quarter. OTE is activating new local exchanges and installing new cabinets to retain customers or upsell to its base and support customer ARPU. VDSL offerings, together with ongoing efforts to improve customer experience, are the major drivers for growing OTE's broadband net additions market share in a highly competitive environment.

OTE also achieved steady growth in its TV offering. As of June 30, 2015, total TV subscribers amounted to 378k, an increase of 11k in the quarter. The acquisition of the three-year broadcasting rights for European football UEFA Champions League and UEFA Europa League is expected to support a further increase in the number of OTE TV subscribers in the second half of 2015.

SUMMARY FINANCIAL DATA - FIXED-LINE OPERATIONS, GREECE

* Excluding impact of Voluntary Retirement Programs & Restructuring costs

Following the steady improvement in fixed-line revenue trends, evident since 2013, and after years of revenue contraction, Greek fixed-line revenues were up for a third consecutive quarter in Q2'15. Revenues from retail fixed services also remained stable in the quarter, while wholesale revenues and ICT revenues also contributed positively to the improvement of Greek fixed-line revenues.

Total Greek fixed-line Operating Expenses, excluding depreciation, amortization and charges related to voluntary retirement programs and restructuring, amounted to €232.0m in Q2'15, unchanged compared to Q2'14. Personnel expenses were up 10.6% in Greek fixed-line operations, entirely due to the transfer to OTE SA of OTE Plus and Voicenet employees, starting in Q1'15; this was offset by a decrease in third party fees as well as in maintenance and repair expenses.

Pro forma EBITDA margin further improved in Greek fixed-line operations, reaching 38.5%, a 150 basis point improvement compared to Q2'14, continuing the gradual margin improvement this year.

MOBILE OPERATIONS, GREECE

SUMMARY FINANCIAL & SUBSCRIBERS DATA

 * Excluding impact of Restructuring costs

As of the end of Q2'15, Cosmote provided mobile telephony services to 7.4mn customers in Greece, nearly unchanged from June 30, 2014.

In Q2'15, the rate of service revenue decline at Cosmote Greece was 4.6%, a slight improvement from the prior quarter (Q1'15: -4.9%), despite pressure on ARPU from macroeconomic uncertainty.

In line with its strategy to fully protect and grow its customer base, focusing on customer experience and high quality of services, Cosmote is investing in maintaining network superiority in terms of coverage and data speeds. In Q2'15, Cosmote further expanded its 4G footprint, now covering approximately 77% of the Greek population, significantly ahead of its nearest competitor. The company has already launched a 4G+ mobile broadband network not only in Athens and Thessaloniki, but also in additional cities and touristic spots across Greece.

Demand for handset mobile data usage continued to grow at a rapid pace in Q2'15, resulting in nearly 80% growth in Cosmote Greece's data traffic compared to the same quarter last year, reflecting the network's high-speed capabilities as well as growing smartphone uptake.

In Q2'15, Cosmote Greece's blended AMOU dropped by 7.1% to 291 minutes. Blended ARPU for the same period was €11.8, down 3.8% from Q2'14.

2. Romania

Fixed Line Operations, Romania

SUMMARY FINANCIAL & SUBSCRIBERS DATA

* Excluding impact of Restructuring Plans

In Q2'15, competition in the Romanian telecommunications market further intensified. Q2'15 revenues from Romanian fixed-line operations were up 0.5% compared to Q2'14. Consistent with the Group's strategic focus on fixed-mobile convergence, the Telekom-branded fixed-mobile offers had a good market acceptance. The successful launch of such offers, together with positive trends in pay-TV services, increased Fiber-to-the-Home rollout and roughly unchanged ICT project revenue streams, offset the expected drop in voice revenues. Compared to June 30, 2014, the total number of TV subscribers increased by 2.7%. Conversely, the number of Broadband subscribers dropped by 3.0% in Q2, while the number of customers opting for integrated offers increased by 38% from Q1'15 to Q2'15.

Total Romanian fixed-line Operating Expenses, excluding depreciation, amortization, charges related to voluntary retirement programs and restructuring, and one-off items increased by 9% in Q2'15 compared to Q2'14. Part of the increase stems from direct costs (interconnection), devices and IT products required to deliver a differentiated customer experience, as well as construction costs related to the EU-funded broadband expansion project in rural areas (RoNet).

Other income declined by 57% or down €8.5mn in Q2'15 to €6.5mn; in Q2'14 it had been boosted by disposal of scrap copper and unused operating real estate. The drop in other income negatively impacted Romanian fixed-line EBITDA, which has also been affected by the cost increases, in turn driven mainly by competitive pressures on marketing, distribution and network expenses, as well as the shift in revenue mix.

MOBILE OPERATIONS, ROMANIA

SUMMARY FINANCIAL & SUBSCRIBERS DATA

 * Excluding impact of Restructuring costs

In Q2'15, Telekom Romania Mobile's total customer base stood at 5.9mn, of which 28% was postpaid. The number of business customers grew by 6.4% compared to Q2'14, reflecting the company's targeted offers for professional users and synergies created following the company's rebranding, together with Telekom Romania Communications, under the "Telekom'' name.

Blended ARPU increased by 1.2% in Q2'15 compared to Q2'14, due to higher incoming ARPU, while blended AMOU was slightly lower (-0.9%). Increased expenses related to interconnection and distribution however led to a decline in EBITDA.

3. albania

MOBILE OPERATIONS, ALBANIA

SUMMARY FINANCIAL & SUBSCRIBERS DATA

 * Excluding impact of Restructuring costs

At the end of Q2'15, AMC's customer base totaled 2.1mn subscribers, unchanged from the year-earlier level, as the company successfully maintained its position in the highly competitive Albanian telecommunications market.

AMC posted an 8.7% increase in mobile handset data revenues in Q2'15 compared to the same period last year, fueled by the efficiency of its 3G network, with population coverage at 96%, and its very competitive smartphone and service offering.

Wholesale regulation introduced in December 2014 and announced retail regulation coming into force from July 1, further intensified competition in the Albanian market in Q2'15. In this context, AMC's total revenues declined by 14.8% and service revenues by 16.7%, compared to Q2'14. Excluding termination rate cuts, AMC's service revenues would have been up compared to Q2'14. The decline in revenues, which was mainly driven by termination rate changes and resulting competitive pressures have led to a significant EBITDA decline.

4. Events of the quarter

BoD Appointments

On April 1, 2015, OTE S.A. announced that the Company's Board of Directors elected as new members Manousos Manousakis, Vasileios Kafouros, Ioannis Margaris, Athanasios Misdanitis and Konstantinos Christopoulos, in replacement of Nikolaos Karavitis, Stylianos Petsas, Theodoros Matalas, Leonidas Filippopoulos and Christos Kastoris, for the rest of their tenure, namely until the Ordinary General Assembly of Shareholders to be held in the year 2015. Following the conclusion of the Ordinary General Meeting on June 12, 2015, OTE S.A announced that the Board of Directors elected as a new member Mr Panagiotis Skevofylax in replacement of Mr Ioannis Margaris.

Bond Buyback

On April 7, 2015, OTE SA announced that further to the Company's announcement in July 2014, its subsidiary OTE plc had repurchased a principal amount of €70.6mn in aggregate from the 4.625 per cent Notes due May 20, 2016 (ISIN: XS0275776283). The repurchased Notes have been cancelled. Following this repurchase and earlier buybacks, the outstanding principal amount of the Notes was €629.5mn.

ote voluntary leave schemes

On May 22, 2015, OTE announced the implementation of a voluntary leave scheme mainly addressed to employees close to their retirement age. The scheme was completed at the end of June 2015, when the participating employees left the Company. The cost of the scheme amounted to €75mn.

Loans to the auxiliary pension fund/tayteko

On May 28, 2015, following the approvals from OTE's and TAYTEKO's Board of Directors, an agreement was signed between the two parties for the restructuring of the loans OTE has granted to the Auxiliary Pension Fund/TAYTEKO, accepting the Fund's request in order to facilitate the payments of the monthly installments, due to the Fund's difficulties in repaying its obligations. The impact of this restructuring to the present value of these loans was €17.0mn (before tax) and is included in the income statement of the first half of 2015. The nominal amounts of these loan receivables have not been affected.

Dividend Distribution

On June 12, 2015, the General Assembly of OTE's Shareholders approved the distribution of a dividend from 2014 profits of a total amount of €39.1mn, or €0.08 per share. Dividend has been paid on August 5, 2015.

5. Subsequent Events

income tax

Based on Law 4334/2015 published on July 16, 2015, the income tax rate of legal entities in Greece increased from 26% to 29% and the income tax prepayment increased from 80% to 100%, effective from January 1, 2015. The net effect of the tax rate change in the income tax of the Group and the Company will be positive in the income statement and is estimated to be €23.3mn and €17.9mn, respectively and will be recorded in the third quarter of 2015

rebranding of amc

On July 22, 2015, after the necessary approvals, AMC was renamed to TELEKOM ALBANIA.

OTE Group is Greece's leading telecommunications organization and one of the pre-eminent players in Southeastern Europe, providing top-quality products and services to its customers.

Consisting of the parent company OTE S.A. and its subsidiaries, the Group offers fixed-line (voice, broadband, data and leased lines), TV and mobile telephony services in Greece and Romania, as well as mobile telephony services in Albania. The Group is also involved in a range of activities in Greece, notably in real-estate and professional training.

OTE is listed on the Athens Stock Exchange and the London Stock Exchange. Following OTE's delisting from the NYSE, OTE's ADSs (American Depositary Shares) trade in the OTC (Over the Counter) market under the ticker HLTOY through the Level I ADSs program.

Additional Information is also available on http://www.ote.gr.

Contacts:

Evrikos Sarsentis - Head of Mergers, Acquisitions and Investor Relations

Tel: +30 210 611 1574, Email: esarsentis@ote.gr

Maria Tsavdaridou - Assistant to the Head of Mergers, Acquisitions and Investor Relations

Tel: +30 210 611 1574, Email: mtsavdaridou@ote.gr

Kostas Maselis - Deputy Director, Investor Relations

Tel: + 30 210 611 7593, Email: kmaselis@ote.gr

Sofia Ziavra - Senior Financial Analyst, Investor Relations

Tel: + 30 210 611 8190, Email: sziavra@ote.gr

Christina Hadjigeorgiou - Senior Financial Analyst, Investor Relations

Tel: + 30 210 611 1428, Email: cchatzigeo@ote.gr

Exhibits to follow:

I. Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

II. Consolidated Income Statements for the quarter and six months ended June 30, 2015 and comparative 2014

III. Consolidated Statement of Cash Flows for the quarter ended June 30, 2015, and comparative quarters

IV. Free Cash Flow to Adjusted Free Cash Flow Reconciliation for the quarter ended June 30, 2015, and comparative quarters

V. Group Revenues for the quarter and six months ended June 30, 2015 and comparative 2014

VI. Segment Reporting based on the Group's legal structure

VII. Operational Highlights

EXHIBIT I - CONSOLIDATED BALANCE SHEET

EXHIBIT II - CONSOLIDATED INCOME STATEMENT

* Excluding the impact of Voluntary Retirement Programs and Restructuring Plans

EXHIBIT III - CONSOLIDATED STATEMENT OF CASH FLOWS

EXHIBIT IV - FREE CASH FLOW TO ADJUSTED FREE CASH FLOW RECONCILIATION:

EXHIBIT V - GROUP REVENUES

EXHIBIT VI - SEGMENT REPORTING (Q2 2015)

*Excluding impact of Voluntary Retirement Programs and Restructuring Plans

EXHIBIT VI - SEGMENT REPORTING (Q2 2014)