OTE Reports Lower Q3 Profit

Third-quarter net income of €19.3M was down 84.2% from €122M in Q3 of last year

November 26, 2004

4 Min Read

ATHENS, Greece -- Hellenic Telecommunications Organization SA (ASE:HTO)(NYSE:OTE - News)

  • Operating revenues up on strong mobile (Cosmote, Globul), good RomTelecom performance, slower Greek fixed-line revenue erosion

  • Further increase in Greek fixed-line operating expenses; restructuring plan to be presented to unions, Greek authorities in December

    Hellenic Telecommunications Organization SA, the Greek full-service telecommunications provider, today announced consolidated unaudited results (prepared under US GAAP) for the quarter ended September 30, 2004.

    Commenting on the quarter, Mr. Panagis Vourloumis, Chairman and CEO, noted: "The third quarter was another period of mixed results for OTE. On the positive side, OTE achieved a flawless technical performance during the recent Olympics, earning broad international recognition, which did not, however, translate into any material financial gain. Our mobile operations as well as RomTelecom continued to turn in strong performances, while OTEnet strengthened its position as the dominant internet provider in Greece. These achievements were once again overshadowed by the deterioration of our core Greek fixed-line activities. While the rate of traffic erosion is slowing down and market share stabilizing, operating expenses rose sharply. And we continue to suffer from the lack of a coherent policy by the regulator, resulting in an unpredictable environment that is detrimental to the entire sector."

    Mr. Vourloumis added: "We are concentrating all our efforts on tackling our structural cost issues. The restructuring plan, which we will present to employee representatives and the Greek government in December, in line with schedule, will seek to obtain up to 6,000 voluntary departures in 2005, for a cost of about EUR 1 billion, generating significant future savings. In parallel, we are launching a major reorganization to streamline Greek fixed-line operations. While OTE's performance in the short term will remain far from satisfactory, we remain steadfast in our objective to rebuild a strong and profitable organization."

    FINANCIAL HIGHLIGHTS

    Operating Revenues

    OTE Group Operating Revenues increased by 6.8% in the three months ended September 30, 2004 to EUR 1,369.4 million. This is largely due to the continued strong performance in mobile telephony, both in Greece and abroad. Higher revenues from Cosmote and, to a lesser extent, Globul offset the decline in revenues from Greek fixed-line operations. The continuing decline in Greek fixed-line telephony revenues is due to the combined effect of lower traffic and prices as well as the decision by the telecommunications regulator (NTPC) to impose reductions on leased lines and interconnection tariffs.

    Operating Expenses

    Payroll and Employee Benefits increased by 3.2% to EUR 289.0 million in the third quarter of 2004, compared to the third quarter of 2003.

    Voluntary Retirement Costs amounted to EUR 1.2 million in the third quarter of 2004, the total cost of which reached EUR 28.9 million for the nine months of 2004.

    Payments to International Operators increased by 2.2% to EUR 45.7 million. Payments to domestic telephony operators (Mobile and Fixed-line Operators) increased by 8.4% to EUR 178.5 million. These payments do not include payments to Cosmote, but include payments from Cosmote to other mobile operators.

    Depreciation and Amortization increased by 8.5%, to EUR 261.4 million in the third quarter of 2004. This increase reflects significant infrastructure investments completed in 2003 at Globul, CosmoFon and HellasSat, as well as projects related to the 2004 Athens Olympic Games.

    Other Operating Expenses increased by 43.8% to EUR 399.1 million, reflecting significant increases in repairs & maintenance, advertising and provisions for doubtful accounts. A significant portion of the increase is due to costs incurred in relation with the Olympic Games, notably advertising -- reflecting both OTE's and Cosmote's roles as Grand Sponsors -- and a EUR 30 million provision to cover the dismantling and reduction of value of equipment used during the events.

    Operating income before depreciation and amortization

    For the third quarter of 2004, OTE Group Operating income before depreciation and amortization, amounted to EUR 455.9 million, or 33.3% of revenues. The drop in margin, from 40.1% in the comparable quarter last year, primary reflects the deterioration of operating performance in Greek fixed-line operations.

    Net Income

    Net Income for the three months ended September 30, 2004 reached EUR 19.3 million, down 84.2% from net income of EUR 122.0 million in last year's third quarter. This fall is attributable to the decline in operating income, higher net financial expenses, and a provision for non-payment of the management fee related to Telecom Serbia.

    OTE S.A.

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