ECONOMY

OTE disappoints with first-half earnings but says expense cuts will make up for it next year

Greece’s dominant telecoms operator OTE reported a larger-than-expected drop in first-half net profit yesterday and warned that an earnings gain for next year would depend on long-delayed restructuring. The group said it expected the first-half trend to continue over the rest of the year and that the longer-term outlook would depend on management’s ability to lower expenses and cut staff costs. «If so, by mid-2005 the positive results will be visible at the bottom line,» OTE said in a statement. Chief Executive Panagis Vourloumis told analysts OTE was working on two plans to cut its headcount next year – one a more aggressive scheme based on changes in labor laws and the other a more modest scheme based on the current legal framework. Investors welcomed management’s plans to turn the company around, and the stock closed up 4.4 percent at 10.44 euros, outperforming the broader market, which ended nearly 1 percent higher. First-half net profit fell 55.7 percent to 93.1 million euros ($112.6 million) and came below the 113 million average forecast in a Reuters poll of 18 analysts. Second-quarter net dropped 62 percent to 45.0 million. The weak performance of OTE’s key fixed-line business compared with the success of its mobile operator CosmOTE and operations abroad. That performance underlined the need for restructuring measures, Vourloumis said. Job cuts eyed «The deterioration of OTE’s domestic competitive position in fixed-line telephony and the continuing rise in operating expenses in the face of a shrinking revenue base reinforce the need for drastic action aimed at bolstering revenues and cutting costs,» Vourloumis said in a statement. The CEO gave no details of its plans but said OTE aimed to complete them by October. An OTE source early this week told Reuters the CEO had circulated an internal note last month concerning 5,000 voluntary retirements and forced early retirements in 2005. «Results were weaker than expected, but the operator has been able to contain its market share loss through aggressive marketing of its package deals,» said analyst Dimitris Yiannoulis at Alpha Finance. He added that OTE’s success in cutting its working capital and freeing up cash was positive because it would enhance its dividend yield going forward. Vourloumis said restructuring plans for the 37.7 percent state-owned company would require «radical shifts in the way the Greek authorities and the unions deal with OTE.» Last week he said the former monopoly has double the number of workers it needs and that the government has to change labor laws. First-half group earnings before interest, tax, depreciation and amortization (EBITDA) fell 6.4 percent to 865.1 million euros. Group revenues rose 8.6 percent to 2.53 billion euros. Revenues in the fixed-line business fell 8.5 percent to 1.42 billion euros due to lower traffic volume and a new tariff structure. OTE’s share of the domestic fixed-line market fell to 85 percent in June from 87 percent at the end of March as competition intensified. OTE reported results under US generally accepted accounting principles. The figures included CosmOTE’s mobile operations and OTE’s majority-owned Romanian telecoms operator, Romtelecom. (Reuters)