Zeinal Bava
Thank you very much. Good afternoon, ladies and gentlemen. This is Zeinal Bava here. I’m here with my CFO, Luis Pacheco de Melo and also with our financial team and IR Director. I propose to take you through if you like the operational parts of the business and then I’ll hand you over to our CFO, so he can do a deep dive on the financials. Today, we are going to discuss the results of Portugal Telecom for the third quarter ending in September in nine months 2011. As you know our consolidated operating revenues amounted to roughly €4.416 million. EBITDA reached €1.654 billion as well. Our EBITDA margin consolidated to a profit of 37.5% and with regard to the Portuguese businesses, our margin was 45.7%, which is an increase of 1.3 percentage points. Our net income reached €333 million and basic earnings per share stood at €0.39. Let me perhaps now start just by discussing in more detail how our business is done. As you know Portugal Telecom in 2008 organized itself along business segments. In addition to organizing ourselves along the business segments in Portugal, residential, personal, SMEs, SOHOs, corporate and wholesale. With regard to our international footprint, we basically have engaged ourselves much more actively in the sort of day-to-day and operational management of those businesses as well. As you know opportunistically, Portugal Telecom has businesses in Africa, but our main investment is actually in Brazil. Furthermore, in the last few years Portugal Telecom has invested significant amounts in innovation and in ensuring that we have best-in-class execution capabilities as well. Our investments have not just been directed towards state-of-the-art or future-proof technologies, but the company has also invested significant amounts in integrating its IT systems to deliver convergence, accelerate transformation, essentially use technology as means to an end which is to improve the quality of services and the breadth of the services we offer to our customers and contribute towards improving the efficiencies of our corporate customers as well. Lots of investments have also been made to improve our customer care in order to provide end-to-end vision in terms of service, not just to us as suppliers, but also to our customers. Cost discipline in our company continues to run very high across the board, as you no doubt will have seen in these third quarter results. Once again Portugal Telecom delivered on all of its commitments and the numbers came out ahead of consensus across the board. Portugal Telecom in our view has a unique global profile. 58% of our revenues are now being generated outside Portugal, 42% of our revenues are being generated in Portugal. When looking at EBITDA, 52% of our EBITDA is generated in international businesses and 48% is being generated in Portugal. In terms of revenue generating units and customers in general, we had a very strong quarter in the residential segment and we saw improvements also in personal and enterprises as well. With regard to Oi, Oi continues to grow, also revenue generating units and also had a pretty good and solid performance especially in mobile. Our total number of customers at end of the nine-month period was 89.678 million customers, wireline about 4.7 million. When thinking about Oi, 67 million are coming from Oi and with regard to mobile in Portugal roughly 7 million. So across the board, Portugal Telecom saw its subscribers increase. 89.678 million is total number of customers, that’s an increase of 7.2% compared to the same period last year. With regard to our financial performance, we saw improving revenue trends and I will take you through some of those if you like underlying trends, but generally speaking the residential segment continues to do pretty well, personal is recovering, corporate I think we are now beginning to see better performances because of the end of the drag from the very large internet project we did in the schools last year in Portugal. Cost reduction remains very high and with regard to free cash flow, our free cash flow increased substantially, not just because of the consolidation of Oi, but also in Portugal when looking at our free cash flow excluding Oi in contacts. Our cash flow has increased from €152 million to €591 million in the nine months of this year, which basically supports the view that we have been passing on to analysts and to investors that we remain very confident about the ability of our company to continue to generate cash, so as to maintain the investments that we have made, but also to deliver on the commitments that we have also made to our shareholders by way of dividends, but also in terms of ensuring the robustness of our balance sheet allows us also to look forward to in terms of the future with significantly high confidence and otherwise. With regard to Portugal now, our performance is clearly benefiting from what we believe is a strong technical and operational capabilities of our company and clearly the digitalization of the real economy. When you look at revenues in Portugal, non-voice revenues and this is why our revenues in Portugal are much more resilient than perhaps would be your initial reaction considering the challenging economic environment we live in, but when you look at our Portuguese businesses, non-voice revenues today amount to 46.1% of our total revenues. When you look at residential only, our non-voice revenue is up 57.8%. In mobile, in personal segment for example, our data revenues are in excess of 30%. When you look at enterprise, our non-voice revenue is up 46% and therefore notwithstanding the fact that we are in challenging economic conditions. We believe that the digitalization of the real economy and the investments that Portugal Telecom has made in future-proof technologies, which has allowed us to transform our business model and our business is certainly a good news is terms of the future ability of this company to continue to deliver on its guidance and generally speaking on its financial targets. With regard to the transformation of our business, we have made investments in the network, also in IT and also in re-engineering of processes. When you look at for example, the wireline performance in terms of EBITDA, that improvement in terms of transformation business is coming through. This is a second quarter in a row that we have posted positive evolution in terms of EBITDA year-on-year. We had indicated to the market way back in 2008, that sometime in 2011 we would turn EBITDA positive in terms of growth quarter-on-quarter. This is the second quarter in a row this year that we have been able to deliver on that. And this is not just because we have been able to transform the top line of our wireline business, but also because the financial discipline and cost discipline in our company remains very high. With regard to mobile, while we continue to see pressure in terms of regulation in mobile termination rates and we also continue to see some contraction of consumer demand as a result of austerity measures, the company continues to reduce costs to deliver best-in-class margins. Our EBITDA margin, cumulative nine months 2011 reached 46.6% that’s an 8.6% if you like better performance than our peer group average. Turning now to our segments, when you look for example, our residential segment or each segment in terms of trends quarter on quarter, what you see is that we are maintaining residential revenues growing at roughly 5%, which compares very favorably. So actually when you look what’s going on in terms of the cable performance in the Portuguese market. Personal revenues are stabilizing. Having said that and I will talk about this later. The recharges especially in prepaid are improving month-after-month and enterprise values are beginning also to improve as a result of the drag that I mentioned from last year’s significant internet project for schools in Portugal. So when you look at Portugal Telecom revenues in Portugal, those revenues are stabilizing and if anything improving. In terms of residential segment, one in my meetings with analysts and investors, I get asked the question many times is, how is it that we have become so resilient? We’ve included the slide in our presentation to show that consumer behavior in Portugal has changed substantially over the last three to five years as a result of significant investments that have been made in increasing the connectivity of the overall countries and this is what's underpinning right now, the pick up of broadband. When you look at for example [EGAS] availability in Portugal, today the percentage of online availability of the top 20 basic public services is 100 compared to the European average of 84. When you look at e-banking usage for example, in Portugal that stands at about 42% compared to 37% in the European Union. When you think about students accessing internet, the percentage in 2010 in the European Union was 60%, in Portugal it is 72%. Thinking about channels, Pay TV, the free-to-air channels available in Portugal are only 4 and that compares with other European markets that have significantly more in offer in terms of free-to-air channels. And as the result if you are looking for a napping TV experience in Portugal, you need to subscribe to Pay TV. Moreover it's also what’s highlighting at the daily TV average watching time in Portugal is roughly two hours 40 minutes during the week days, four hours weekend and daily internet usage time is roughly five hours, which compares again extremely well with the rest of the our European comparables. This is the reason why broadband market in Portugal is growing and compared, since the first quarter of 2010 up until the third quarter of 2011, the growth has been sustainable at about 3%. And with the regard to the Pay TV market again, it’s been growing roughly 4%. We expect both broadband and Pay TV markets to remain strong in Portugal, mainly as a result of the consumer behavior change that we are seeing in the market. With regard to mail, we are on track to achieve 1 million customers by yearend. In fact, we believe that we will achieve 1 million subscribers before yearend. We continue to do very well. We had a very strong month in September and we continue to see very positive feedback from our customers, not just because we offer and we make available in Portugal the best TV experience, but we also have the best quality of service as well as significant investments that we have made in providing interactivity to our customers and increasingly taking advantage of the conversions between fixed and mobile. Our market share, we estimate that at the end of the third quarter was roughly 34%. In fact we think our market share may even be slightly higher than this. It just depends on how you actually measure the number of cells in the market. With regard to the collateral benefits of this IPTV strategy and DTH strategy that we have is the fact that broadband penetration continues to increase. Our broadband performance continues to be very strong. We had a good third quarter with 32,000 net adds. Furthermore line loss is declining and when you just focus alone on the residential segment, actually we are growing in line as opposed to loosing lines and any lines are being lost, those are mainly in the enterprises and they in partly has to do with the fact that there is some technological evolution which is leading to people disconnecting the standard PFDN line and moving to the IP world. Focusing now on residential, we saw another very solid customer growth, but also equally important or more important, ARPU growth. Our ARPU increased 5% in the third quarter 2011 compared to third quarter 2010. In terms of residential customers our TV customers were up 27%, our broadband customers were up 14% and we did not loose any lines in terms of fixed telephone lines. Our residential revenues were up 5.9% in the first nine months of this year, 58% of our revenues are now non-voice and we expect this percentage to actually continue to increase over the next few quarters. Which turning now to the personal segment, we believe that we have the most competitive portfolio of wireless broadband plans and smartphones as well. And this is clearly leading to a change in the revenue mix of our personal segment. Today, the contribution from data as a percentage of service revenues is roughly 30.6%. It is also worth highlighting that notwithstanding the fact that in terms of SIM card market shares, our market share is roughly 44% to 45%. Our market share of smartphone sales right now is running at about 49%. And when you look at the penetration of smartphones in our subscriber base, we believe that there’s still a lot of work to be done, which basically augers very well for the future potential for us to continue to increase data revenues in Portugal. When looking at customer revenues, our customer revenues were down 9.4% in the first quarter, 8.9% in the second quarter, 6.8% in the third quarter. Furthermore, it’s worth highlighting is that the prepaid recharge growth has significantly improved in the last two quarters. So we would expect that as we continue to promote more active usage of our mobile services in Portugal, some of these recharges will actually translate into top line performance and therefore, if we are able to maintain this kind of prepaid recharge growth in this market, chances are that we will see a reversal or continuous improvement in these trends in the next few quarters as well. In the enterprise market, we are essentially leveraging the investments we have made in new technologies in order to improve the offer we have to enterprises in Portugal, especially I’ve included a couple of slides in the presentation, which would like to bring your attention first is the fact that we have now made available a cloud offer. And we believe that the cloud offer enhances significantly the value propositional PT offers to enterprises as well as providing them with increased flexibility and of course giving them a unique opportunity to reduce costs especially in this environment. We believe that, that those companies that did buy cloud services from Portugal Telecom, we will be able to reduce their costs somewhere between 20% and 25%. We have engaged in significant marketing activities, one-to-one marketing over the last six months. The initial indication of the market is extremely positive and therefore we believe that Portugal will buck the trends in terms of virtualization. Similar trends are being seen in other more developed markets and we believe that Portugal will be in forefront of that as well. In anticipation of these industry trends and changes in customer behavior, in this case enterprises, we have also decided to invest in the state-of-the-art data center. This state-of-the-art data center is going to significantly improve Portugal Telecom’s existing capacity, both in terms of storage and processing capacity and if also worth highlighting is that this will be a green data center. We expect annual energy consumption to be down 40%. When thinking about power uses efficiency, we think that we should be somewhere between 1.2 and 1.4, which will certainly enable us to obtain a lead certification of gold and position this data center, not only to serve Portuguese customers, but also to serve international enterprises leveraging the international relationships that Portugal Telecom has namely with companies such as Cisco and Microsoft. In terms of enterprises, we have also transform and we continue to transform our service portfolio. When you look at hosted email, mobile internet, virtual private servers which you will see across the board is that Portugal Telecom continues to do well, continues to increase the penetration of these services in its customer base and as the result notwithstanding the fact that in this environment we are having to extend more discounts to our enterprise customers. Long term, we will also increase the customer lifetime value because the churn will be significantly lower. In the third quarter, we also posted solid margins as a result of cost discipline. Myself here, my CFO, all of the team of Portugal Telecom remains very committed to ensuring that we will continue to cut costs in order to mitigate additional pressures that we may see on the top line. Our EBITDA margin has actually increased 1.3 percentage points and thinking about Portugal, our EBITDA margin is 45.7%, which as you can imagine considering the fact that we have seen some headwinds in terms of top line. I think the fact that we have been able to reduce our costs 9.9% is a major team achievement. Turning now to Brazil. We believe and we have said before, Brazil continuous to enjoy very favorable economic trends. The symmetry of wealth distribution is changing. We are witnessing the emergence of a new middle class which essentially means more consumers in that market. And therefore we believe that in part because of the digitalization of the real economy and second because of the increase, if you like buying power of the middle classes, we should be able to see significant future growth in depth market. The competitive dynamics, however in Brazil remained very challenging. OI continues to enjoy from the fact that it has a national footprint and therefore significant potential to grow as an integrated operator plus the secular trends that we are seeing in terms of fixed line in Brazil, very similar that was seen in other markets. Wireline customer growth was actually negative 6.5%. Fixed broadband continues to grow 10.5% which is good news and as I’ve said earlier we had a very good quarter in terms of mobile customers partly because we were able to deal with churn better than what we have done in the past. Line loss is actually in the third quarter inline with previous quarters, but fixed broadband performance is improving. We’ve saw fixed broadband increase to 10.5%. The Pay TV customers are still low 330,000. Having said that, we have scaled back our growth plans in the short term, this is because we are redesigning our pay-TV offers in order to accommodate if you like the fact that we have now signed the global-sat channels which I think will significantly improve the quality of the TV channels that we will make available to our customers in Brazil in the future. In terms of mobile, we have the best performance in gross adds and lower churn. And as a result, we saw mobile gross adds up by 35.3% and mobile net adds up again significantly. As you also know, Oi have been very stringent in the way that the account for customers in our data base not very similar; its not what other operators in Brazil have done, but Oi has to preview that that have to be done; we've done it and of course we are seeing clearly the benefits of the fact that today our growth is a lot more transparent. Mobile ARPU was up 2.8%, mobile gross revenues were up 8.1%. Oi financial performance is of course suffering from secular wireline trends. CapEx is higher compared to the same period last year as we have preparing the company for broadband growth in the future and as we are preparing the company for the offer of TV also in the future. In terms of Portugal Telecom’s relationship and strategic investments in Oi, perhaps the update I can give you is that the technology and networks committee is now fully operational, work is progressing extremely well. The relationship of Portugal Telecom with the two Brazilian partners Andrade and La Fonte, is actually going extremely well and as well as we are working very well with the Oi management team and therefore we continue to be very confident that overtime the sharing of best technical and operational practices, the technology alignment of both companies, the ability for us to get together and translate scale to increase volumes and therefore negotiate better prices. And the fact that Portugal Telecom, because of its leadership in innovation we should also be able to ensure that Oi in Brazil has perhaps one of the best portfolio of services to offer. So we remain, I would say confident about the ability of both companies to work together to create value for all our shareholders. And clearly the signification of the corporate structure is a critical step for the execution of the operational turnaround. And we hope to conclude this transaction as soon as possible, because we believe that this is clearly a stepping stone to ensuring that this can actually transform itself to capture the growth opportunities that exist in Brazil. In Africa and the rest of the world, we are capturing mobile data growth and subscriber penetration growth opportunities as well, across the board all our businesses have done very well, no doubt that you’ll have seen that in the press release. Financially, what I can say is that we posted another quarter of solid profitable growth and the financial position of all our investments in Africa and rest of the world is very, very strong and all our companies are self funding, cash flow positive and as a result they are all contributors in terms of dividends to Portugal Telecom. With regards to our cash flow, no doubt you saw that as a result of the completion of the network modernization investments which are coming to an end and the financial discipline, our free cash flow increased substantially and that will allow us to continue to honor all our commitments in terms of the future. The fact that we have the best-in-class networks will allow us to as you can imagine manage efficiently coverage and also traffic growth; increasingly in Portugal Telecom, we are technologically agnostic and our essentials if you like ambition in life is to deliver all our services and content in any screen or device anywhere. I think the promise of convergence in Portugal will be real, sooner rather than later not just because we are technology agnostic, but also because we have made the necessary investments in terms of IT in order to deliver end-to-end vision not just to our customers but also to Portugal Telecom. And with regard to our future investments, most of our investments have now been done. As you know, Portugal Telecom end of the year will complete its rollout of the FTTH and our FTTH rollout will cover roughly 1.6 million homes. We will be bidding for the spectrum in order to move ahead with the LTE launch. And therefore, with regard to the future, what I can say to you is that, if you like, with the completion of the modernization investments at Portugal Telecom, our maintenance CapEx will be stable, account for roughly 40% of our total CapEx. Our modernization CapEx which accounts for 30% is probably going to come down. And last but not the least, 30% of the CapEx is customer related and that will be if you like success base. So therefore the financial flexibility that this company has in order to honor all of its commitments it's actually well above average. So with regard to the third quarter what I would like to reiterate is that like in Brazil, we are still going to go through a process where a lot of the work between Portugal Telecom and Oi needs to be filtered through and needs to be translated into a strategic plan. In Portugal, we are actually or we have been able to translate the advantage we have in terms of technology to further leverage our position in this market and to deliver a solid operational performance which in turn is also if you like underpinning a good financial performance. Let me hand you over now to our CFO. Thank you.
