Taxes cut into OTE H1 profit

Fixed-line telecom OTE met forecasts with a slight drop in second-quarter net profit, mainly due to higher taxes, but said it remained confident it will meet full-year targets. The group said yesterday profit dropped 4.3 percent to 112.2 million euros ($144 million), roughly in line with a median forecast of 113.9 million euros by 11 analysts polled by Reuters. «OTE paid a greater amount of taxes in the second quarter of this year due to a higher operating profit of the parent company’s fixed-line business,» said HSBC Pantelakis analyst Vangelis Karanikas. OTE has fixed-line operations in Romania and Serbia and through its mobile arm Cosmote has expanded into the Balkan markets of Albania, the Former Yugoslav Republic of Macedonia, Bulgaria and Romania to tap their higher growth prospects. Karanikas said apart from dividends from subsidiaries like Cosmote, which are not taxed, OTE had a bigger operating profit, which translated into higher tax for the group. Analysts expect continued improvement of top-line growth in OTE’s fixed-line business in the second half, primarily through increased broadband take-up. Cost benefits from its voluntary retirement scheme are expected by the fourth quarter. The scheme, signed into effect last year and aimed at reducing OTE’s work force by around 5,000, is part of a broader restructuring that has attracted the attention of foreign investors. The government has said it plans to sell part of the state’s 38.6 percent stake in OTE next year as part of its ambitious privatizations plan to pay down public debt. OTE said earnings before interest, tax, depreciation and amortization (EBITDA) rose by 2.5 percent to 517.6 million euros, but were weighed down by its Romanian unit Romtelecom, which posted a second-quarter loss of 4.1 million euros. «In Romania, heightened competition and delays in implementing a needed round of tariff rebalancing affected the quarter’s revenues,» OTE Chief Executive Panagis Vourloumis said in a statement. «But we are cautiously optimistic about Romtelecom’s ability to maintain its first-half margin in the last six months of the year,» he added. Group sales rose 4.6 percent year-on-year in the second quarter to 1.4 billion euros, with mobile telephony in Greece still growing, although at a slower pace. Cosmote, the group’s 67 percent-owned mobile arm, reported a 2.9 percent drop in second-quarter net profit of 81.5 million euros, hit by start-up costs of its Romanian subsidiary. «Our results in the first six months definitely provide us with a solid platform to meet our full-year targets,» Vourloumis said. OTE shares trade at 17 times 2006 estimated earnings, compared with a multiple of 12.4 for Spain’s Telefonica and 12 for Deutsche Telekom, according to Reuters Estimates. Analysts attribute the premium to expected benefits from OTE’s restructuring. (Reuters)

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