Michael Tsamaz - Chairman and CEO Zacharias Piperidis - COO, OTE Group Babis Mazarakis - CFO, OTE Group Dimitris Tzelepis - Head of IR

Luis Prota - Morgan Stanley Stam Draziotis - Eurobank Equities Hunter Martin - BNT Vikram Karnani - UBS Michael Murphy - Millennium Stanley Martinez - Legal and General Investment Management

Thank you. Good afternoon, ladies and gentlemen, and good morning to the U.S.

participants. I would like to welcome you to the OTE's second quarter of 2013 results conference call.

During the conference, we will review the quarterly performance and we will also leave enough time to discuss any issues you may wish to cover. I remind you that any forward-looking statements we might make during this presentation or our answers to your questions are subject to the usual risks and uncertainties inherent in such situations.

Let me now hand over the call to our CEO, Mr. Michael Tsamaz.

Thank you, Dimitris. Good morning or good afternoon to all of you.

We are pleased have you with us to discuss our activities and achievements in the second quarter. Let me start by saying that it was a good quarter.

Consolidated revenues were down only by 8.6%, a 3 point improvement from the first quarter of the year. And the smallest drop we've experienced in the past four quarters.

The EBITDA was down just 7%, compared to nearly 11% last quarter. So in the middle of the very difficult period for the economy and the consumer spending, we were able to deliver a resilient operating performance.

We also made progress in other areas as well, making sure that when this recession has bottomed out we will still be in a good position with solid infrastructure and attractive fundamentals. There are three takeaways that I would particularly like to discuss this quarter.

First, the most notable is the continued improvement of our performances in Greek fixed line. We recorded the smallest numbers of net lines connections in years and we achieved a strong pick up in ADSL, in VDSL and TV.

As a result, at minus 8%, this was the smallest quarterly revenue drop we have experienced in the past three years, despite some unfavorable internal and external factors Babis will discuss in more detail. But, I'd like to insist even more on the improvement of the Greek fixed line for stability.

For the first time since I became group CEO, we are posting improvement in quarterly EBIDTA in absolute terms, and it is significant nearly 11%. The structural changes we have made to our cost base are paying off.

In particular, payroll benefits were driven down by 18% compared to the second quarter last year, due to our successful early retirement programs. Now I don’t want you to think that things will be easy going forward.

We are facing a new wave of competitive threats, which we are fighting with integrated weapons. Our 2013 ties based on the 2012 cost base, we have submitted to the regulator, and had still not been approved.

This means that we have not been able to update or upgrade our May 12 offers while competitors in turn have no such limitations. The second point I want to raise is the sharp increase in our cash flow generation.

In the first six months of the year our group free cash flow increased nearly by 20%. We were able to considerably improve working capital in the first half despite slower payment by certain customers particularly the Greek space.

Cash flow generations show further improvement in second half of the year. And third, we have now rapidly strengthened our financial structure.

Last week, as you saw we received the net receives from the sale of our Bulgarian operations amounting to EUR663 million. Following that transaction and the sale earlier this year of the Hellas Sat, our satellite, our pro forma net debt will fall below EUR2 million.

At the same time we are nearing the completion of our financial program with latest step, the recent EUR 225 million loans granted to Cosmote Romania by the EBRD and associated banks with the purpose of financing our Romania Mobile broadband spectrum and infrastructure expenditures. This loan which bears an interest rate of EURIBOR plus 5.25% and it will be repaid gradually to April 2018.

It shows the confidence that a supranational organization like the EBRD has in the OTE Group and its prospect. At the same time it constitutes one further step forward towards our strategy to diversify in the OTE Groups funding sources.

With these actions we will probably rank among the best European telecom companies in terms of debt to EBITDA ensuring maturity profile. It took us years to get back to this position and we are very satisfied to be there.

We are now in much stronger position to focus on developing our positions investing in our infrastructure. We are accelerating our investment programs to bring our business and (provide) our customers with the products and solutions they need to succeed.

Let me remind you that in Greece alone we have invested more than EUR340 million in the past four quarters, certainly, the largest single private investment in the country’s infrastructure. Let me conclude with a few words on our outlook for the rest of the year.

From a microeconomic standpoint, we do not expect that things will improve this. The Greek government is looking for EUR10 billion in tax receipts that is money the consumer will not spent.

Even if some experts predict GDP growth turns positive next year it will not immediately translate into consumer spending. Finally, past MTR cuts will continue to weigh on quarterly comparisons until the beginning of next year.

Conversely, though competition is showing a new vigor, we are hoping to rapidly see our improved packages approved by the regulator. The deduction in our cost base is here to say and we are continuously looking for ways to further cut expenses.

Finally, as I just said, we are in a much healthy financial situation to get back on defensive. With this I would like to turn the call to over to Babis, who will cover the financials for the quarter.

Babis?

Thank you, Michael and welcome to all of you. Let me first say to avoid any confusion that the older numbers we are discussing over this call have been restated to eliminate global and the Bulgarian activities for Germanos, treated as discontinued operations in the second quarter, the first half of both 2012 and 2013, so the numbers are fully comparable from that standpoint.

By contrast, we demonstrate our numbers account for the deconsolidation of Hellas Sat as of March 26, 2013, as these were not really material. So Group revenues were down about 8.6% in the second quarter of the year, a certain improvement from the first quarter.

If we exclude the revenues from Hellas Sat from the 2012 base, revenues would have been down just 8% in the second quarter, marking a notable deceleration in the rate of revenue erosion. Mobile termination rate cuts were again in this quarter the major element explaining the drop in group revenues.

We estimate that if we exclude the MTR cuts, total group revenues excluding Hellas Sat would be down approximately 4% in the quarter. As you know, the latest round of MTR cuts in Greece took place in January of this year, so in the next two quarters our top line will still suffer from a significant base effect which should be attenuated after that.

Economic conditions in Greece didn’t show any improvement in this quarter and explains the balance of the revenue decline we experienced. Greece GDP is expected to drop by another 4% or more this year and our customers are feeling the pinch.

We are also impacted by the increased competition Michael mentioned. In mobile, lower MTRs enabled our Greek competitors to improve the attractiveness of their off network offers, disproportionately impacting Cosmote as the market leader.

In fixed-line, new triple play offers have been launched by our current carriers at rates that cannot possibly cover their costs. As long as our lower tariffs and upgraded services are not approved by the regulator, our competitive premium is harder to justify.

In Greek fixed line, OTE's revenues were down 8.1% in Q2, a dramatic improvement from the previous quarter. While the drop in fixed mobile revenues reflecting MTR cuts was commensurate with Q1, our order decline international revenues other revenue were little changed from last year’s second quarter, thanks to good performances in TV and broadband.

In the second quarter, we lost about 53,000 lines and our competitors added just 18,000, far less than half of the average level of the previous eight quarters. The net loss for the total Greek fixed line market showed a slight deterioration compared with the previous quarters but to a less extent, this is of our own making.

We are cutting down the time it takes us to disconnect overdue accounts. In the quarter, this lead to approximately 8,000 involuntary disconnections which account for roughly all of the increase, either market net disconnection for the period.

Our broadband performance also continued to show strong momentum. In the second quarter, the market showed net additions of approximately 65,000 broadband subscribers, roughly lined with the number achieved in Q1.

Our share of net additions in Q2 was about 37%, this is lower than Q1, but again it reflects disconnections of bad payers. In addition, as Michael pointed out we are impacted by our inability to (inaudible) properties in the market that are now 15 months old, in eternity the business where company does can (contract) in terms of services on a daily basis.

As of the end of June, we had over 25,000 subscribers to our recently introduced VDSL offer, the high speed internet, an increase of nearly 6,000 during the quarter. We have been given approval to bring another 1,000 cabinets online more than doubling our current capacity and giving us the means to meet healthy demand levels.

We also had another strong quarter in TV services adding 26,000 new subscribes to reach 175,000 as the end of June. We have attractive new content, particularly popular exclusive sport events coming on stream this month, so leased line should continue to grow nicely.

In RomTelecom, our Romanian fixed business had a mixed quarter. Revenues were down less than 5% as compared to about 9% in the previous quarter, but most of this relative improvement comes from the lower margin wholesale business which had been severely impacted in prior periods by termination rate cuts.

This cut held for the most part already been implemented in the second quarter of last year, so we are now comparing apples-to-apples came to the smaller revenue (drop). The decline in retail revenues at minus 5% was a little better than the first quarter.

Voice revenues… down about 17% a year-on-year more in line with Q1, we're offset impact by higher revenue in TV and broadband. With most of the slowdown in revenue decline coming from low margin business this quarter, telecom CBDA margins was down by more than 2 percentage points to 23.5% compared to the second quarter of last year.

Revenues from mobile operations declined 10.7% in this quarter. This reflects somewhat mild decline in service revenues, we're comparing our performance to (quarters) where some of the MTR cuts had started to (kick in).

It also reflects higher product sales this quarter. In Greece, Cosmote’s revenue were down less than 15% in the quarter, with service revenue down less than 18%.

We estimate that MTR cuts are responsible for approximately 60% of the quarter's EUR49 million decline in total revenue. Average revenue per user once again was impacted in the quarter with prepaid heat particularly hard.

We have expanded our 4G LTE network to cover (islands) and other summer resorts for scheduled tourist in vacation season, which appears to be going quite well compared to past couple of years. Our LTE coverage now exceeds 50% of the Greek population of our nearest competitor with virtually total coverage of Athens and Thessaloniki this are two larger metropolitan areas.

We need to consolidate the advance ahead of implementation network sharing by the two other operators. We have also taken other initiatives to leverage the strong Cosmote brand and increase its visibility.

We launched Cosmote books; online books are offering a good selection of Greek language titles, largely in electronic format. We also introduced a very popular loyalty program, deals for you, with selected partners in travel, cultural and food industry to offer excusive benefits to Cosmote customers.

Higher seasonal sales of handsets and merchandise, notably through the Germanos network partially offset the drop in service revenues at Cosmote, Greece. Turning to Cosmote Romania, service revenues were down only 2% a much smaller rate of decline than in the past few quarters.

Excluding MTR cuts which reduce service revenues by EUR8 million, the quarter would have shown positive growth. We estimate that we outperformed the market in the quarter.

We posted another huge increase in 3G customers underscoring our focus on the business customer base. In Albania finally both service revenue and total revenues were down about 6% for the quarter, a sharp improvement compared to prior periods.

AMC posted another quarter of very strong growth in data revenues, more than 50% compared to the same quarter last year. Other group revenues were down more than 60% in the second quarter to EUR105 million, this decline is large part, due to the consolidation of Hellas Sat since the end of March.

These sums up our top line performance this quarter; let's now turn to the rest of the P&L. The group's pro forma EBITDA for the quarter was a little over EUR352 million a drop of less than EUR28 million or 7.3% from the comparable level in the second quarter of last year.

MTR cuts reduced EBITDA by about EUR19 million in our mobile activities, and by about EUR17 million of the consolidated level. At the EBITDA level we managed to absorb far more than two-thirds of the decline in revenues that we experienced during the quarter.

This is entirely due to the cost of reductions in Greek fixed-line. As Michael pointed out Greek fixed-line EBITDA was up year on year for the first time since log ago.

At the group level personnel costs were down about EUR24 million and other OpEx by more than EUR12 million. In addition (charges) from operators largely benefited from the cut in MTRs and (inaudible) was changed.

As a result of their book, the group's pro forma EBITDA margin stood at 35.1% in the quarter an improvement of 40 basis points compared to the second quarter of 2012. A 10.6% increase in pro forma EBITDA in Greek fixed-line achieved on an 8% drop in revenues yielded a huge 570 basis points, probably EBITDA margin is up segment.

Total group expenses excluding depreciation and amortization and one-offs were down more than EUR74 million or about 10% in the second quarter. This is in line with cost cutting rates in recent quarters.

In Greek fixed-line total expenses excluding depreciation, amortization and one-offs were down by merely 17% with personnel expenses down 18% reflecting the permanent benefits of recent (headcount) reduction efforts. Other operating expenses were down more than 4% in the quarter.

In addition to continued cost cutting initiatives this line benefited from the capitalization with the portion of our TV (comm) cost meeting strict criteria of exclusivity and longevity. Interest expense totaled EUR69 million in the quarter; I remind you that in the same quarter last year interest expense have been reduced exceptionally by our purchase of bonds below par in the upper market.

The level of this year second quarter is more in line with our normal activity. We had low capital gains in the quarter; we have received the proceeds from the sale of our Bulgarian businesses on July 27 and the capital gains of estimated EUR160 million was recorded in the third quarter's financial statements.

After the exception of tax benefit over the first quarter we're back to a normal income tax situation in Q2 with a tax provision of EUR27 million. Including the global related profit from discontinued operations during the period, net income attributable to (inaudible) or EUR79 million as compared to 106 million in the second quarter last year.

The drop primarily reflects the absence of the gains on bond buy-backs recorded in the same quarter of 2012 which further reached EUR 17 million. Stripping off the effect of these gains in the voluntary scheme costs, the net gain would have declined by nearly 9.4%.

The groups underlying net debt was reduced by EUR 277 million in the second quarter to less EUR 2.5 billion. Our cash position at the end of the quarter was EUR 1.3 billion.

Proceeds from the sale of Hellas Sat and the significant operating cash flow, I would discuss in a moment, were used to repay debt. Following the sale of Globul, we will have a net debt EBITDA ratio of 1.2 times EBITDA and we’ll be able to redirect our interest to other elements of our job.

Net operating cash flow excluding voluntary exit programs payments was up more than 13% in the quarter, EUR 250 million excluding Globul. The quarter’s increase is largely due to a further improvement in working capital.

In Q2 our working capital requirements were down by an impressive EUR 63 million compared to same quarter of the previous year resulting in an improvement of EUR 133 million in the first six months of the year. CapEx excluding spectrum payments was (EUR 122 million), up sharply from the level in the second quarter of last year.

As we mentioned, we are accelerating capital expenditures notably mobile to enhance our 4G coverage and customer experience. In addition, we saw EUR 130 million in spectrum payments in Romania in the quarter.

And let me close my commentary with the most recent development on August 5, we proceeded with the full redemption of the remaining outstanding amount of EUR 713.8 million from the original EUR 1.25 billion bond. With that, Michael, Zach and myself are now ready to answer any question you may have.

Operator?

I have a question on WIND Hellas which I heard that just acquired call option to buy 30% to 33% or something like that of Forthnet. So the question is whether you think that this is the first step for a full takeover?

How this could change the competitive environment? And not only in broadband but also in the convergent space?

And if this transaction occurred, whether OTE would be keen to take any assets not included in the deal? Or maybe forced by the regulator to be sold to facilitate conservation?

I'm especially thinking on the TV asset. Thank you.

Actually, we were also informed on this deal through the news. And as I have said in the past, our market is very small and given the circumstances is highly fragmented.

So I would say that it's a positive move to see some consolidation. Now, whether the regulator will approve or not approve or will force for a partial let's say, deconsolidation or disinvestment of this deal, I’m not aware of and I don’t think this will be a subject of, I don’t think it will be any, this would be strict scrutiny or (inaudible) because we're talking about small operators and not dominant place in the market.

Regarding our interest on this transaction, as you know we were financially quite strong. We don’t have any proposals or any indications from anyone approaching us on this subject.

If we’re approached we’ll analyze it as we do with any opportunity that arises in the market.

Firstly, I was just wondering about the Greek mobile market. You mentioned in your comments intensifying competition.

I mean, I'm just looking at ARPU which is now at very low levels between EUR12 and EUR13. So I'm just wondering how much further you think this can decline?

And maybe if you could give us some more color regarding the mix of your postpaid versus prepaid? What I mean is that the austerity measures are probably exacerbating migration from post to prepaid.

Is this something that you have been experiencing? Like for example, one of your competitors has been seeing prepaid rising within the mix.

You have mentioned certain parameters which affect the figure that you have mentioned in your question. So, all the movements that you have referred to are happening in the market, but definitely the macro is the one that is mainly affecting the movements, both in terms of postpaid contraction usage and also migration from postpaid to prepaid.

So, I would say that what we have seen in the second quarter compared to the first quarter is a slight improvement in the trend of the deterioration. But still, this is impacted by the macros.

So, in terms of intensification of the competitiveness, yes it happens and we were expecting this. I cannot comment on this at this point whether this will have a major impact on the following queues.

But I would say that the most important factor on the evolution of the numbers will be the macros and not the competitive dynamics, which always affect the numbers but at least point in time macro is the dominant thing.

That's very helpful. And could I also ask a question regarding Romtelecom?

If you want to share any thoughts after the decision by the government there to resume the final stage of their privatization process so far on telecom.

Okay this actually a process that has to do with the decision of the government, it’s not the first time that comes up, it was in the past three or four years it has always been in the agenda of the Romanian government to look into the alternatives of further privatizing their stake, so we're expecting to see how they will approach the whole thing and observe and see what the weather will do.

Hi. I just have a few questions on margins and then also on refinancing.

So first on fixed line margins, I was just wondering if you could quantify how much of the (inaudible) relation of TV costs improved margins. I estimated it could be between 1% to 2%.

And also if that will be something that should be beneficial going forward? In the Greek mobile margins, if you could help quantify how much of the margin contraction was attributable to what seems to be higher equipment revenues?

And then on refinancing, I know your liquidity position is very strong. But I was just kind of wondering as to some of the strange movements on the repayments of the EUR 500 million facility.

I saw you paid back EUR 200 million in June, then canceled EUR 67 million. Then redrew another EUR 133 million in July.

So I was just kind of interested as to why did you do that? And also do you plan to sign a new facility before the end of the year as that one matures in February?

And now I guess it's down to a relatively small amount.

Let me start from the question on the refinancing. Regarding the moment in the revolving facility, this is exactly the nature of a revolving facility.

You withdraw money, you deposit money based on the circulation of cash that you need to do to do certain repayments so it was a month where we were preparing the prepayment of the bond and also we've had to arrange for different circulation flow of all costs as dictated by our needs, nothing to do with something which was forced, it was just a ordinary movement of revolving facility nature of loan. You're right the agreement with the Greek banks of the revolving facility is due to being paid in February, we are open to examine further moves from this facility and with the recapitalization of the Greek banks now behind us, we could do some discussions and give us a ground for further cooperation there.

Our (inaudible) on this is that opposite, it's a much different place now than what we were a few months ago, but it's always good to have a facilities, commit facilities aside and we would be working according to those lines. Regarding the question the fixed line margin, the amount that was capitalized was at low single digits so it didn't really affect the movement of the, the improvement of the EBITDA margin which was a huge majority due to the more efficient the structure of our cost base and of course the lower drop in the revenues this quarter versus the previous quarter.

On the mobile segment, it's quite seasonal that the Q2 is always a quarter where you have big events like Easter and you have preparing the methodized sales that are because of the summer coming. So there's nothing extraordinary versus the previous year maybe some more handsets because of the new Smartphones take up and as you know the story about data requires the selling of Smartphones which explains in terms of nominal value, Smartphones are more expensive than the ordinary phones, so that create some additional revenues comparing to the previous quarter.

However again this does not distort the margins in a way that we should adjust let's say the comparison.

Yes, thank you guys. I've got a couple of questions.

Firstly, on cost cutting, the momentum is quite impressive. But still, personnel expenses remain quite high.

So I just wanted to know just how much headroom you have to cut these costs further, and the rate of decline as well? And if there are any other areas that you are targeting other than personnel costs?

And secondly, on dividend resumption with strong free cash flow generation that you have done so far this year. And balance sheet issues now broadly addressed.

Leverage coming down to 1.2 times. Should we expect resumption of dividend in the near term?

Or would you focus on using the free cash flow for further investments, which was in a brief pause?

Okay let me start with your second question about dividends, let me remind here that the dividends are distributed from the (OTE)P&L and the distributable income, and this is something that is too early to say whether there will be a distributable income enough generation in order to don't resume dividend. So we need to be a bit patient here, you're right we're not under the cash preservation regime that we were last year.

But right now in the middle of the year, we don't really know where the P&L or (inaudible) will end up at the end of the year so we would have to be a bit patient to resume the discussion about dividends for the next quarter. On the cost cutting issue, it's a never ending story, I mean every time there is a, the cost cutting efforts are continuing.

Maybe if we have the same question last year we would probably you have the same answer, since then we did the voluntary exit scheme successfully last year. That took a big chunk of our cost out, efficiently and most importantly socially responsible and this is an effort that continues.

Regarding the other lines, although payroll cost is the biggest ticket in our OpEx list, but however we also do cost cutting in other areas, leveraging our procurement capabilities and this also is offsetting some externally driven increases in the cost. Like for example power and electricity that they increase every year because of the situation in the market and the only thing I can say here is that the whole team in OTE is focused on keep delivering cost cutting numbers for the coming quarters especially in an effort to offset the top line pressure that still exists.

Good afternoon, gentlemen. Congratulations on a very strong and encouraging set of results.

I just wondered if I could get an update on the regulatory relationship. How is that at present?

And how are the negotiations continuing to go on that front? Thank you.

The relationship with the regulator is an adventurous one.

I thought you might say that.

I don't want to comment anymore, as you know its summertime, we’re planning to go like on our vacation and I want to have 10 days of rest and peace. So I will not make any further comments.

Good afternoon, Gentlemen. And thanks for taking my question.

I want to engage with you on capital spending. And, particularly, whether you have any priorities that you can discuss with me?

And looking into the second half of 2013 and possibly into 2014, are there any terms in total spending versus the EUR 213 million that you did in half one? Or potential improvements that you're looking to address in the capillarity and density of the fixed and mobile network in the latter, particularly maybe in small cells?

Or do you have any priorities in terms of increasing the average realized consumer high speed, speed realized? Or are any of these potential priorities gated by the discussion with EETT that we're not going to have right now, with respect to potential unbundling requirements on the core on the radio access network?

Thanks.

Okay regarding the cap ex spending, as we said in second quarter we notice that we accelerated spending a bit since there's always seasonality in the cap ex spending in a year. Usually you spend the first quarter trying to figure out the procurement of DVDs, select suppliers and so on.

So there's a ramp up in the CapEx spending in the following quarters, so what we see in Q2 in the six months, is in line with, I think we have mentioned the number before, for the CapEx that at the end of the year we'll reach in the area or a bit below EUR 0.5 billion. So that's the ticket that we have in mind and of course in this CapEx you have the functionally or levying generating let's say pieces which is as you mentioned the investment on the high speed internet the so called video cell, I think in our comment we mentioned the importance of 4G for the Greek mobile segment and also the continuous investment in Cosmote Romania, now of course after the Spectrum acquisition and the need to further roll out 3G and 4G network, to compete with our competitors there.

Let me just remind that this 0.5 billion ticket is before Spectrum acquisition and just to make clear that here there is another EUR 150 million of spending for the spectrum that we just bought in Cosmote Romania. So CapEx we have spent and we have spectrum, we have EUR1 billion, we should see some ramp up in the coming couple of quarters to get close to this number, and then 2014, of course in 2014, we have to, it's still a bit early to have a very definite number but we should expect a CapEx bill that is going to be at the level I mentioned before for 2013 or even a bit, tad lower.

Thank you for your participation, and that's it. Good bye.