Fourth Quarter and Full Year 2011Financial Results

OTE GROUP REPORTS 2011 FOURTH QUARTER RESULTS

UNDER IFRS

·; Another resilient quarter in tough operating environment

·; Cost containment continues, in line with revenue drop

·; Net loss due to RomTelecom impairment

·; Strong Free Cash Flow generation

·; Further reduction in underlying Net Debt, down €418mn yoy

·; Disposal of stake in Telekom Serbia completed in Q1'12 for nearly €400mn

ATHENS, Greece - February 23, 2012 - Hellenic Telecommunications Organization SA (ASE: HTO, OTC MARKET: HLTOY), the Greek full-service telecommunications provider, today announced audited consolidated results (prepared under IFRS) for the quarter and twelve months ended December 31, 2011:

* See Exhibit VIII

** Excluding impact of Voluntary Retirement Programs and Restructuring Plans

*** Including Mobile Spectrum payments of €83.2mn in Q4'11 and €98.3mn in 12M'11

Commenting on OTE's performance in the fourth quarter and full year, Michael Tsamaz, Chairman & CEO, stated: "We finished 2011 on a resilient quarter - revenue decline slowed down or remained stable in all core operations, cash flow generation was healthy, and we announced the sale of our stake in Telekom Serbia. In Q4, for the first time since 2009, our pro forma EBITDA margin was up year-over-year." Mr. Tsamaz added: "Throughout 2011, working under tough conditions, we made significant progress in all priority areas we had identified. The new labor agreement we have reached provides security to our employees, while enabling the company to secure the savings it needs. Our transformation into a more productive, customer-focused organization has begun at a rapid pace and is on track. We are streamlining our distribution infrastructure and improving the competitiveness of our services to the extent that we are allowed to do so. We have successfully defended or strengthened the market positions of all our operations. We have significantly reduced our debt burden and are confident in our ability to meet future obligations. We are determined to pursue and intensify all of these efforts in 2012."

Financial Highlights

BREAKDOWN OF GROUP REVENUES

The OTE Group experienced a revenue drop of 6.3% in Q4'11, resulting in an 8.1% drop in full year 2011 revenues. The slowdown in revenue decline continued in both the Greek and Romanian fixed businesses, while the pace of decline in mobile operations was roughly in line with the previous quarter, reflecting the gradual stabilization of market conditions. The 9.6% drop in Other Revenues in the quarter is mainly attributable to lower international interconnection activity in Q4'11. For the year, other revenues was up 3.5%.

Total Operating Expenses, excluding depreciation, amortization, impairments and charges related to voluntary retirement programs, amounted to €826.6mn in Q4'11, a drop of 6.7% compared to €886.4mn in Q4'10. The decrease reflects lower payroll and employee benefits, lower charges from domestic and international telephony operators, lower costs of telecommunications equipment as well as considerable cost-containment efforts across all operations. During the year, headcount has been reduced by 356 in Greek fixed-line, 1,728 at RomTelecom and 515 in mobile operations in Greece and internationally. Other operating expenses were up by 1.5%, largely reflecting higher provisions for doubtful accounts as well as higher marketing and advertising expenses at year end.

After seven quarters of year-over-year margin erosion, the decline in operating expenses exceeded the drop in revenues, leading to an increase in Group pro forma EBITDA margin to 34.0% in Q4'11, compared to 33.5% in Q4'10.

The Group posted a net loss of €77.1mn for the quarter compared to net a loss of €91.7mn in Q4'10. In both quarters, net results were burdened by impairment charges regarding RomTelecom's assets (Impairment charge Q4'11: €253.2mn; Q4'10: €244.5mn). In addition, the Group net result in Q4'10 was impacted by a €135.3mn charge for early retirement (Q4'11: €15.2mn), and had benefited from a €30.1mn reversal of the special contribution tax. Excluding these items and their tax benefit consequences, OTE Group net income would have been €58.7mn in Q4'10 and €71.9mn in Q4'11.

Capital expenditures in Q4'11 stood at €242.6mn versus €183.8mn in Q4'10. The increase in CAPEX outflow was due to a €83.2mn payment related to the acquisition of mobile spectrum licenses in Greece in Q4'11. Total CAPEX excluding spectrum-related payments as a percentage of Group revenues in Q4'11 was 12.8%, as compared to 13.8% in Q4'10. Capital expenditures in Greek fixed-line, Romanian fixed-line, and mobile operations amounted to €54.5mn, €16.5mn and €161.9mn respectively. 

During the quarter, the Group generated Net Operating Cash Flow of €399.2mn, compared to €432.2mn in Q4'10. In the full year, Net Operating Cash Flow rose by 8.8% to €1,208.2mn despite the drop in EBITDA.

Reflecting strong cash flow generation, the Group's underlying net debt declined by nearly 10% during the year to less than €3.9bn. In Q4'11, OTE increased by nearly €300mn its holdings of short-dated highly rated government notes, included under Other Financial Assets. The proceeds from the sale of OTE's stake in Telekom Serbia were received in Q1'12 and placed in similar instruments.

OTE Group debt outstanding breaks down as follows:

1. Fixed Line Operations, Greece

ACCESS LINES & TRAFFIC STATISTICS

Note: Starting Q1 2011, to harmonize access line data with those utilized by the Greek regulatory authorities, OTE reports data based on the total number of ISDN connections rather than on channel equivalents. The corresponding total is provided above under "Total connections".

In Q4'11, OTE fixed-line operations in Greece recorded the loss of approximately 107,000 PSTN and ISDN retail connections, roughly in line with the trend in prior quarters, as residential and business customers once again cut down costs to reflect shrinking income. The total Greek market (OTE active retail lines, Wholesale line rental connections and full LLU subscribers) declined by 2.5% in 2011 compared to a decline of 0.9% in 2010.

At the end of December 2011, OTE's retail ADSL customers stood at 1.1mn, recording a net loss of nearly 8,100 subscribers in the quarter, while the total Greek ADSL market (based on the regulator's assumption that about 80% of full LLU subscribers are ADSL customers) added approximately 61,000 subscribers compared to nearly 99,000 in Q4'10, reflecting the continued impact of macroeconomic developments on market growth. Once again held back by its inability to compete effectively on pricing and to help reverse the overall slowdown of the Greek broadband market, OTE experiences a continuous market share erosion in the Greek ADSL market.

In Q4 '11, OTE pursued a host of initiatives aimed at enhancing customer relationships and services. The new OTE shop concept was unveiled during the quarter, and should be implemented throughout the streamlined retail network in coming quarters. The customer contact program, launched earlier in the year, was completed during the period, with the aim of strengthening customer loyalty and better matching service offering to customer needs. The simplification of call center access has proven successful, as is the new single internet portal. OTE's efforts remain hampered by its inability to offer competitive prices, but the company is confident that its significant cost-reduction efforts will be taken into account by the regulatory authorities, leading to a narrowing of the pricing gap with its competitors.

In October, OTE launched its satellite TV service, building upon the foothold gained through its IPTV offering. Both services are now offered under the OTE TV brand.

OTE has also completed the first phase of a major reorganization of all its technical and operating units across the country, with the aim of eliminating overlaps standardizing procedures and facilitating central control. The second phase of the project, currently underway, should result in important opex and capex reductions, as well as enhancing the quality of OTE's infrastructure, responsiveness and overall services.

SUMMARY FINANCIAL DATA

* Excluding impact of Voluntary Retirement Programs

Total Greek fixed-line Revenues declined by 8.5%, a sharply improved rate of revenue drop compared to prior quarters (Q3'11: -10.3%; Q2'11: -15.0%; Q1'11: -13.4%; Q4'10: -15.8%).

Total Greek fixed-line Operating Expenses, excluding depreciation, amortization and charges related to voluntary retirement programs, amounted to €334.2mn in Q4'11, a drop of 9.7% compared to €370.2mn in Q4'10. Total personnel related cost (payroll, benefits, staff retirement indemnities and youth account) stood at 30.5% of total revenues in Q4'11, down from 31.1% in the comparable quarter last year and 34.1% in Q3'11, mainly as a result of personnel-cost reduction initiatives announced and expected to save approximately €32mn on an annual basis. 

In 2011, OTE pursued cost-reduction efforts across the board. In addition to the new labor agreement reached in late September and to the measures highlighted above, which will enhance efficiency and customer-friendliness, OTE shut down a total of 71 shops during the year.

2. Fixed Line Operations, Romania 

SUMMARY FINANCIAL & ACCESS LINE DATA

* Excluding impact of Restructuring Plans

Romania's economic situation showed initial signs of stabilization in the final quarter of 2011, reflecting determined government actions combined with decisive support from international organizations. For its part, RomTelecom once again faced increasingly cost-conscious consumers but managed to reduce its rate of revenue decline in Q4'11 and achieved improved operating profitability.

RomTelecom revenues were down 4.4% in the quarter, primarily reflecting a 13% decrease in PSTN services, due to line losses and lower ARPU, partly offset by higher TV revenue.

RomTelecom is continuing to reduce its dependence on declining voice telephony services and rebalancing its revenue mix. Compared to Q4'10, RomTelecom achieved 12% increases in both broadband customer and TV subscriber numbers, partly bolstered by satellite TV subscriber acquisitions. Consequently, as a percentage of total RomTelecom voice clients, broadband penetration rose to 46% and TV service penetration to 47%.

In addition, thanks to its CDMA network, RomTelecom was able to capture wireless broadband market share, with over 92,000 customers by 2011 year end.

NextGen, RomTelecom's low-cost subsidiary, continued to gain market share, achieving a 17% increase in subscriptions compared to Q3'11 through a combination of organic growth and successful asset deals.

In the quarter, pro forma EBITDA excluding redundancy costs was up 2% compared to Q4'10, resulting in an 130 basis point improvement in pro forma EBITDA margin.

RomTelecom pursued its downsizing and migration to a more flexible, cost-effective operating model. As a result, operating expenses (excluding D&A and one-off costs) were down 6.3% in Q4'11, notwithstanding higher customer-related costs, notably from TV content. Payroll and benefits were down nearly 25% in the quarter, due to operating efficiency improvements and voluntary leave programs, as well as reversal of provisions. As of December 31, 2011, total headcount at RomTelecom and subsidiaries was 7,451, down from 9,179 one year earlier, resulting in a sharp increase in productivity.

3. Mobile Operations

SUMMARY FINANCIAL DATA

*Excluding impact of Restructuring Plan at Mobile Operations in Greece & Voluntary Exit Scheme in Romania

As of December 31, 2011, the mobile operations of the OTE Group counted approximately 20.5 million customers, down by 1.5% from the prior-year level, mainly due to the prepaid customer base clean up in Albania and Romania. In highly competitive markets, management estimates that the Group's mobile operations strengthened their positions in all four countries in which they operate.

Mobile Operations, Greece

As of the end of Q4'11, Cosmote provided mobile telephony services to 7.9 million customers in Greece, down by 1.4% from December 31, 2010.

Cosmote estimates that total mobile service revenues in the Greek market further declined in the quarter, as the challenging economic conditions continued to impact consumer spending. Against this backdrop, Cosmote recorded a service revenue decline of approximately 4.5% in the quarter, driven by a 24.3% drop in incoming revenues, reflecting termination rate cuts. For the full year, service revenues were down 7.8%, as compared to a 10.9% drop in 2010.

Cosmote has developed a strong position in mobile internet data, supported by innovative, flexible offerings targeting all customer segments. In Q4'11, smartphones accounted for over one-third of handset sales.

For full year 2011, blended AMOU increased by 9.9% to 299.3 minutes, while blended ARPU for the year was €15.5, down approximately 4% from 2010, mainly reflecting lower ARPU in the postpaid segment.

Towards year end, Cosmote launched a successful communications campaign to further support its brand equity.

Mobile Operations, Romania

As of the end of Q4'11, Cosmote's total customer base in Romania reached 6.5 million, of which 23.1% was postpaid. With service revenues up approximately 6.2% in a contracting market, Cosmote Romania continued to strengthen its market share despite intense competition. This was achieved without impacting margins, as EBITDA was up about 20% compared to Q4'10, reflecting significant operating improvements and lower marketing and network expenses.

For the first time in its history, Cosmote Romania was solidly cash positive on a full-year basis. The company continues to make solid progress in terms of service revenue as well as profitability and cash flow, in a market showing signs of stabilization.

Mobile Operations, Bulgaria

Globul's total customer base reached nearly 4.3 million at 2011 year end, up 8.8% from the prior year level, reflecting increases in both postpaid and prepaid subscriber numbers. The postpaid customer base rose 13.3% to 2.6 million, representing over 60% of the total, in line with the company's focus on this segment. Reflecting innovative voice and data solutions, Globul also achieved a 2.5% increase in its prepaid customer base. Globul's hybrid fixed telephony offer posted another quarter of strong growth, with a total subscriber base of approximately 210k customers at year end, while its mobile data subscriber base nearly tripled from the 2010 year-end level.

Service revenues decreased by 0.6% in Q4'11, largely due to intense competition in the business market segment and lower off-bundle customer spend. However, Globul's service revenue market share remained stable in a highly competitive market.

Mobile Operations, Albania

At 2011 year end, AMC's customer base reached 1.8 million subscribers, down 10% compared to 2010 year end, mainly as a result of the company's effort to clean up its customer base from inactive customers.

Revenues decreased compared to the same quarter of 2010, negatively affected by lower interconnection tariffs, intense competition in a highly fragmented market, and adverse macroeconomic conditions.

AMC management pursued its efforts to optimize the organization's cost structure with particular focus on marketing and administrative expenses, yielding an EBITDA margin of 38.9% in Q4'11.

In Q4'11, the company rolled out its 3G service, achieving 90% population coverage, following the acquisition of the country's second 3G license in September 2011. This will enable the company to strengthen its competitive position in the data segment.

4. Events of the Quarter

OTE files Form 15F to terminate Sec registration and reporting obligations

On September 29, OTE SA filed a Form 15F with the United States Securities and Exchange Commission in order to terminate its registration and reporting obligations. The termination of registration under the Exchange Act became effective 90 days after the filing of the Form 15F. 

New BOD Members

On October 26, following the resignation of the non-executive BoD member Mr. Roland Mahler, Ms. Claudia Nemat was appointed as new member for the remainder of Mr. Mahler's term. Ms. Nemat has been a member of the Board of Management of Deutsche Telekom AG since October 2011, responsible for European operations outside of Germany.

On November 16, following the resignation of the non-executive BoD member Mr. Rainer Rathgeber, Mr. Klaus Müller was appointed as new member for the remainder of Mr. Rathgeber's term. Mr Müller, a member of the Deutsche Telekom Group since 1997, currently holds the position of Senior Vice-President for Strategy Execution and Performance Management in DT´s Board Area Europe.

Bond Repurchases-Redemption

During 2011, OTE PLC proceeded with the partial repurchasing of a total nominal amount of €376.3mn under the notes €650.0mn 3.75% due on November 11, 2011, along with the payment of accrued interest. The repurchased notes were cancelled. On November 11, 2011 OTE PLC proceeded with the redemption of the remaining €273.7mn outstanding amount of the above mentioned notes, along with the payment of accrued interest.

Enhancing Spectrum Portfolio

On November 14, 2011, Cosmote secured additional spectrum in the 900 and 1800 MHz bands in the auction conducted by HTPC and also renewed its current license in the 900MHz band, for an amount of €118.8mn (€77.6mn for GSM 900 and €41.2mn for DCS 1800). Payment of 70% (€83.2mn) of the total was carried out in 2011, with the remaining 30% (€35.6mn) to be paid in three equal annual installments plus interest, starting in 2015.

Extraordinary General Meeting Resolutions

On December 6, OTE held its Extraordinary General Meeting of Shareholders. The issues approved during the meeting were the increase of the number of the members of the Board of Directors from 10 to 11, and the election of Mr. Timotheus Höttges as 11th Member of the Board of Directors. Following the conclusion of the General Meeting of Shareholders, ΟΤΕ's Board of Directors comprises:

Michael Tsamaz Chairman / CEO, Executive member

Dimitris Tzouganatos Vice-Chairman, Independent non-executive member

Kevin Copp Executive member

Timotheus Höttges Non-executive member

Klaus Müller Non executive member

Claudia Nemat Non-executive member

Stathis Anestis Non-executive member

Nikolaos Karamouzis Non-executive member

Michael Bletsas Independent non-executive member

Vassilis Fourlis Independent non-executive member

Panagiotis Tabourlos Independent non-executive member

Employee Exit Program With Incentives

On December 9, OTE announced that it had reached agreement with the unions, regarding an employee exit program with incentives. The program provided for exit bonuses of up to €55,000 for employees who wished to leave OTE, and it applied to employees that would leave the company within 2012 and fulfilled certain criteria. A total of 254 employees subscribed to the program, and a charge of €12.9mn has been taken in Q4'11 results.

Agreement On Sale Of Telekom Serbia

On December 30, a share purchase agreement was signed between OTE and Telekom Serbia for the sale of OTE's 20% stake in the company to the latter for a consideration of €380.0mn. In addition, an interim dividend of €17.0mn for fiscal year 2011 was recognized in the Q4'11 results.

Impairment Charge

As at December 31, an impairment test was performed by RomTelecom with respect to its property, plant and equipment and goodwill. Αs a result of this test, an impairment charge of €253.2mn was recorded in the 2011 consolidated income statement and is included in the line "Depreciation, amortization and impairment".

5. Subsequent Events

Completion of the Sale Of Telekom Serbia

On January 25, 2012, the sale of OTE's 20% entire stake in Telekom Serbia was completed. OTE received total proceeds of €397.0mn (€380.0mn as a selling price and €17.0mn as a dividend). The after taxes capital gain from this disposal amounted to approximately €211mn and will be recognized in the Q1'12 results.

6. Outlook

In 2012, OTE expects a rate of revenue erosion in its various operations commensurate with that experienced in 2011. Reflecting its wide-ranging cost-reduction efforts and the full-year impact of its new labor agreement in Greek fixed-line, OTE expects its operating performance to further stabilize throughout the year. 

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.

Apart from serving as a full service telecommunications group in the Greek telecoms market, OTE Group has also expanded during the last decade its geographical footprint throughout South East Europe, acquiring stakes in the incumbent telecommunications companies of Romania and Serbia, and establishing mobile operations in Albania, Bulgaria, and Romania. At present, companies in which OTE Group has an equity interest employ about 28,500 people in four countries, and our portfolio of solutions ranges from fixed and mobile telephony to Internet applications, satellite, maritime communications and consultancy services.

OTE shares are listed on the Athens Stock Exchange, and the London Stock Exchange (in the form of GDRs). Following their delisting from NYSE in September 2010, the company's ADRs trade in the US OTC market. OTE's American Depositary Receipts (ADR's) represent ½ ordinary share.

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

Contacts:

Dimitris Tzelepis - Head of Investor Relations

Tel: +30 210 611 1574, Email: [email protected] 

Maria Kountouri - Assistant to the Head of Investor Relations

Tel: +30 210 611 5381, Email: [email protected]

Kostas Maselis - Senior Financial Analyst, Investor Relations

Tel: + 30 210 611 7593, Email: [email protected]

Sofia Ziavra - Financial Analyst, Investor Relations

Tel: + 30 210 611 8190, Email: [email protected] 

Exhibits to follow:

I. Consolidated Balance Sheets as of December 31, 2011 and comparative 2010

II. Consolidated Income Statements for the three months and twelve months ended December 31, 2011 and comparative 2010

III. Consolidated Statement of Cash Flows for the three months ended December 31, 2011, comparative 2010 and Q1'11, Q2'11, Q3'11

IV. Group Revenues for the three months and twelve months ended December 31, 2011 and comparative 2010

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

VI. Mobile Operations

VII. Operational Highlights

VIII. EBITDA and Pro Forma EBITDA calculation

EXHIBIT I - CONSOLIDATED BALANCE SHEET

EXHIBIT II - CONSOLIDATED INCOME STATEMENT

EXHIBIT III - CONSOLIDATED STATEMENT OF CASH FLOWS

EXHIBIT IV - GROUP REVENUES

EXHIBIT V - SEGMENT REPORTING (12M 2011)

*Excluding impact of Voluntary Retirement Programs and Restructuring Plans

EXHIBIT V - SEGMENT REPORTING (12M 2010)

* Excluding impact of Voluntary Retirement Programs and Restructuring Plans

EXHIBIT VI- MOBILE OPERATIONS

 *Excluding impact of Voluntary Retirement Programs and Restructuring Plans