Zeinal Bava
Good afternoon ladies and gentlemen. Thank you very much for being on this call. I’m here with my CFO, Luis Pacheco de Melo; our IR Director, Nuno Vieira and the finance team as well. We are going to take you through the first quarter numbers as we’ve seen this morning. Our consolidated operating revenues amounted to €1.553 million, consolidated EBITDA stood at €526 million. Our margins reached 33.9% it was underpinned by the sales margin of the Portuguese businesses, which posted the margin of 42.8%. Oi’s EBITDA marginal also improved and it reached 30.5% in the first quarter. As you know, Oi has already announced their results earlier in April. In the first quarter 2013, our fully and proportionally consolidated international assets represented 58.7% and 52% of PT’s consolidated revenues and EBITDA. This is very much in line with our strategy to diversify our international presence and as a result it's very good to see that about almost 60% of our business is now done outside Portugal. In the first quarter of 2013, our CapEx amounted to $287 million, this is equivalent to 18.5% of revenues. The CapEx from Portuguese telecom businesses stood at $99 million, it was down 13.7%. And this is very much in line with the fact that most of the modernization investment in Portugal telecom is pretty much down and completed. Overall, our CapEx to sales was 15.6%. In the first quarter of 2013, EBITDA minus CapEx €240 million, while EBITDA minus CapEx of the Portuguese telecom businesses stood at about €172 million. My CFO will take you through the operating cash flow; allow me also to say just one final comment on the financials regarding our net debt. Our net debt adjusted for unused tax credit amounted to €7.9 billion and excluding the proportional consolidation of Oi and Contax, it amounted to €4.6 billion. My CFO will take you through these numbers in a lot more details later in the call. It is worth mentioning, however, that the cost of net debt excluding the proportional consolidation of Oi reached 5.3% and the cost of gross debt stood at 4.9% with an average maturity of 6.3 years, which takes already into account the recent bond issue which we did. I think these are very competitive terms and this shows how robust our funding position is and Portugal Telecom is fully funded until the end of 2017 and we can therefore continue to look at our business always with the mindset of medium to long term. I will now take you through the presentation we put out today discussing some of the business trends before I hand you over to my CFO. So page number 3, essentially we had another quarter of very solid customer growth. Total number of customers for Portugal Telecom today 101 million, it was up 6.1% compared to the same period last year. We saw growth in Portugal 3.2%, in Brazil 5.5%, and in other international as well. Across all our businesses that are strategic, Portugal Telecom in this quarter posted strong customer growth. Looking at revenues and EBITDA, operating revenues were down 9.5%, for like-for-like adjusting obviously for exchange rates, they were down 2.8%. EBITDA was down 7.9%, like-for-like 2.3%. As you know, there were some one-off impacts in our numbers in the first quarter mainly related to number of working days and also the weather conditions in Portugal and the launch of the M4O in the first quarter of this year. CFO will take you through that in a lot more detail. Let me now take you through the business trend in the Portuguese market starting with the residential side of our business. Notwithstanding the fact that the Portuguese economy remains very challenging and that private consumption is coming down about 5% to 6%, we had another quarter of robust performance in residential on the back of the MEO offer which we have. We have the best TV offer in this market. We have the best triple-play offer in this market. As a result, our Pay-TV and 3G customers increased about 12.3%. We now have 1.248 million customers, out of which 862,000 are triple-play. Triple-play customers have increased 18.5% since the first quarter of this year. Notwithstanding the fact that Pay-TV penetration is about 78.3%, we continue to believe that we can grow our TV business not just by driving the penetration further but also by gaining more market share. You’ll certainly will have seen in the presentation we put out today that we are leaders in triple-play in Portugal, but we continue to reinforce this leadership quarter-after-quarter. Compared to the full quarter this year, our market share in terms of 3P leadership increased another 0.6 percentage points. Having said that, the Pay-TV market share is still 40%, we think we can grow this. Moreover, which is fast one of the most important information put in the slide number 9 is that when we look at our unique customers 41.9% are triple-play, 58.1% are still non-triple-play. We think that there is still substantial upscale potential and we will continue to work very hard at converting these customers to the advantage of having not just three play but four play in the future. Looking at the revenue performance in residential, notwithstanding economic conditions, our revenue was up 4%. When you compare us with the other peer group companies here in Portugal, their revenues were down in the same period 1.8% which means we continue to gain customer share and market share in customers, but we are also gaining market share in revenues as well. Important to highlight that in the first quarter of this year, we posted an ARPU of €31.9 that compares with €31.6 in the fourth quarter and €31.5 in the first quarter of 2012. Thinking about the stability of this business, worth mentioning that 88.4% of our revenues are coming from flat fees, this means that our business is increasingly more robust and more predictable. Let me now take you through some of trends in our mobile business. On the back of the quadruple play launch which we did on 11 January of this year, we have seen already important impact in particularly on the mobile side of our business. In the mobile side of our business, the revenue generating units in the first quarter were up 49,000 this is against the backdrop where our direct competitors saw revenue generating units come down. We saw a substantial increase in our postpaid net ads 99,000. The customer mix has also changed. In the first quarter of 2012 81.7% of our customers were prepaid and now it's down to 80.4%. So we continue to migrate customers from prepaid to postpaid and with the quadruple play service that we launched we are doing this without recourse to subsidies, and I’ll mention that a bit later on in my presentation. I also use this presentation to share with you something, which for us has been a significant achievement. Portugal Telecom was not leader in the Youth segment in Portugal. When we think about the Youth segment, we’re talking about 10 to 14 years, 15 years to 24 years, we are not leaders yet in the 15 years to 24 years. Having said that in the 10 year to 14 year old segment, Portugal Telecom has recouped leadership away from our most direct competitor in the segment in the Portuguese market. We think this augurs very well for the future and moreover I would like to think that this also positions us uniquely to continue to drive the penetration of four-play in the homes and with the families here in Portugal. In the mobile business, we continue to be impacted still a lot by exogenous factors. One of them is mobile termination rates. Portugal actually as a country side took the unprecedented decision to lower termination rates to a level, which amongst the lowest in Europe. Termination rates at the end of December in Portugal were €1.03. It is worth mentioning that in Europe the average termination rate is €2.04. So termination rates in Portugal are 90% below the European average. In the first quarter across all the industry in Europe you’ve heard lot of [the years] talk about calendar effects. Of course this quarter, we had less three working days in terms of doing business and that has significant impact as well. These are a couple of exogenous factors that I wanted to mention. Notwithstanding this the good news is that customer revenue performance in our personal segment has improved and is improving. Our customer revenues were down 9.1% in the fourth quarter and now they are down 8.6%. We continue to believe that we can do better than this, assuming that we are successful with the quadruple play offer that we launched. Notwithstanding that it is also worth mentioning that there is work to be done when it comes to data revenues. Mobile Internet still has substantial scope to grow in Portugal. Having said that, of course, we will see churn pick up when it comes to mobile broadband, why, because simply in this market conditions people are substituting mobile broadband for Wi-Fi, not just at home, but also in public places and we do have pretty good coverage of Wi-Fi outside the homes as well. Notwithstanding all this, we continue to push smartphone penetration in order to prepare ourselves for this big data growth that we expect to see as and when market conditions and economic conditions in Portugal improve. So, when it comes to the personal segments the trends are improving, and we expect this improvement to continue on the back of the success of our quadruple play service. Talking now, of course about the quadruple play launch that we did on the 11th of January, we are extremely happy with the performance that we’ve had in the last 100 days considering that we just launched this on 11 of January. I would like to spend a few minutes on this, so that you can understand the approach we took which is very different to what other peer group companies are doing inroad. We firstly went out there and we asked the consumers whether they will buy of an integrated service and they said, yes. 81% said, yes, we would like to have an integrated offer. Then we asked them, which brand, which retail, which telecom brand in Portugal will survive the test of being able to convince them to buy an integrated offer? And the answer for 31.4% was MEO. MEO is clearly the consumer choice of brand for convergence. We then did not want to do abundant like others are doing in the Portuguese market and like others are doing in Europe. We wanted to do through convergence. This is not about technological convergent, we just need some about a year ago. You can use our TV service at home, outside the home. Today with the quality of the network that we have in Portugal, we can provide unique and seamless experience of voice, video data in the home and outside the home. We already gone above the technological convergence challenge on the back of the investment that we did in the last few years. What we wanted to make sure is that each customer that bought our quadruple play felt like it was a single customer of Portugal Telecom independent of whether it was using fixed mobile technology or voice, video or data service. That’s why we have included the slide here, slide 18 in the presentation that basically shows how we have put this puzzle together. On the back of the future proof networks that we have today in Portugal, the investments we have done in IT, I have no doubt in my mind to say that MEO is uniquely positioned to deliver the best convergence experience in Portugal. We can offer our customers speed, reliability, very good coverage and of course, security. We then on the 11th of January launched our quadruple play offer. It comprises 90 TV channels, 18 very good channels, you could actually add them all up, add them together like our competition does and say, we have 108 channels. Internet up to 100 megabits per second, fixed phone and mobile phone; our mobile phone offer comprises two SIM cards, unlimited calls to all networks as well as 200 megabits of data per SIM card. You can actually buy an additional two SIM cards. So, the positioning of our M4O offer, convergence offer, was for the family, for the Portuguese families. We launched a significant marketing campaign and MEO last year was already one of the most successful retail brands, not telecom brands only, retail brands. We actually underpinned the success of last year and today up to now I can tell you we continue to be the leading retail brand in Portugal achieving a very, very high, almost record high brand notoriety. So, the good thing about this is that our pool channels are performing extremely well in the sale of our product. Our pool channel, as you know command a lower, cost us a lower commission than the push channel. Now we have – up until now, we have sold 600,000 revenue generating units. On average, as you know, each customer minimum have to buy five RGUs, which means that by now we have at least 120,000 customers that have bought M4O. Out of the 600,000 revenue generating units, 40% are new RGUs. Now, these could be RGUs from existing Portugal customers – Portugal Telecom customers or these are RGUs from new customers that we have been able to get into the service either on the mobile side, on the fixed side, or on the fixed and mobile side. So this is much better than we had ever anticipated ourselves. This is way better than we have thought we could achieve. And I think it just goes to show that this market has been well educated to understand the benefits of actually buying an integrated service, because you tend to get, if you like, the simplicity in terms of tariff, the convenience of just having to deal with one supplier, and of course, cost savings. In an economic environment that Portugal Telecom is going – Portugal is going at the moment, savings are very important. Out of the analysis that we have done of the customers that bought our quadruple play service in February, those customers are saving right now 18.5%. Now, of course, this is a blend of new customers, existing customers. These are surveys that we have done outbound as well, but this is what leads me to believe that we will continue to be successful with M4O. Why? Because we provide a simple tariff plan. It's convenient for you to deal with just one supplier and by the way we will give you an 18.5% savings. Now as 40% of our revenue generating units are new large use we are also seeing ARPU enhancements and I have no doubt in my mind that these ARPU enhancements that we're seeing coupled with the sales that we're doing, we should be able to continue to work to reverse the trends especially that we're seeing in the B2C segment. So, it's still early days. It's been about 120 days that we have launched our M4O service. Of course, the first 30, 40 days were difficult days in order for us to get the back office up and running to what would be expected. Right now, we're promising our customers installation within six days and that includes number portability as well. So, from a back office standpoint this is an absolute if you like reference for the sector, so if you are to buy somewhat a TV service, coupled with mobile including portability in 95% of the cases we will install that within six days. So, we're very confident that with the best back office around the convergence product and with the appeal in terms of value for money that is people actually can also benefit from savings of at least 18.5%, we believe that we will not just be leaders in triple-play in Portugal, but we will also be – leaders in quadruple play as well. Let me talk to you a little bit about our enterprise business. We as you know, and you will have seen in this presentation and other presentations that we have made available to you in the past, we have a comprehensive service offering. We have diversified geographically as a company, but we've also diversified the services that we make available to our customers, independent of whether you're talking about SMEs or corporate customers. These are vertical solutions in some cases. In some cases these arte cloud solutions, IT consultancy, et cetera. So, we are continuing towards adjacent markets in order to increase our shelf wallet with the enterprise customers in Portugal. We've made significant investments in cloud, in cloud offers. We're building one of the most modern data centers in the world two hours here from Lisbon. We are very confident that as and when we inaugurate this data center, not only we will be able to underpin the cloud business in Portugal, but we will also be able to generate revenues from doing similar business elsewhere as well, by leveraging the processing and storage capacity that we will have in Portugal. In the enterprise segment, you have two different stories. First is SMEs, SMEs, as you will have seen, we saw important RGU growth, whether we're talking about broadband, whether we're talking about Pay-TV or whether we're talking about landline. In fact, you will have seen in the slide that this has been our best quarter in the last five quarters. This has been underpinned of course, by our quadruple play offer, which meets the requirements of servers and in some cases, small enterprises as well. It is worth mentioning, in this case, thinking about SMEs, we have substantial market share to gain. Portugal Telecom's market share in this segment is likely to be around 52%, 53%. So here, we have substantial market share gain. Furthermore, when you think about convergent customers, we believe that we can do much better than the current 59.3%. So, the focus is convergence, convergence, convergence, also, when you're thinking about SME. With regard to the large segments, the story is slightly different. The current economic conditions have led large corporate customers of Portugal Telecom, which includes the state as well in some cases to delayed projects, [freeze] project and as a result we are seeing pressure in terms of top line performance in this sector. On the back of this and because Portugal Telecom is very discipline when it comes costs, we are continuing to drive costs down. So, it's not just an issue of driving costs down, but we will also have to transform the business model in the large corporate segment by offering our customers cheaper alternatives than we have done in the past. As a result, this is one area where I think we're going to have to dedicate a lot of management time and chances are that this will remain under pressure for most of the year. But I'm confident that with the restructurings that we are putting in place and the launch of our data center in September this year, we will probably end up having better news independent of whether the economy improves or not. And obviously, we will continue to work the cost base short-term and expect that at some stage economy will improve and then we will be able to reverse some of these trends. So, one final word about Portugal, before I can discuss Brazil; our strategy is delivering results. We have transformed the revenue mix of Portugal Telecom profoundly in the last few years. When I look at the slide 30 of the presentation, what I see here is that 65% of the residential revenues are now non-voice. This makes our business a lot more predictable. When I look at the weight of the flat fees in Portugal whether it's residential or personal, you see them grow quarter-after-quarter. What this means is that our business is becoming more predictable, more visible and with the investments we have made in the network, more future-proof. So, we are confident that we are well-poised to gain and to continue gain market share not just of subscribers but also revenues in the future. And in this endeavor the launch of M4O will certainly be a very important – will play a very important role and I am sure that when we speak again when we announce our second quarter results or in the road show that we are planning to do after – in the next few weeks. We will go into a lot more detail, but I am sure that we will be able to convince you that M4O will help us of some of the secular trends particularly in the B2C segment of the market. With regard to Brazil, Oi has already announced results, and you will have seen that line loss is declining. You will have seen that we continue to post solid broadband and Pay-TV growth. In fact, from an operational standpoint, the company continues to deliver the net adds independent of whether we're talking about voice, video, or data. The revenue trends are – residential revenue trends have also been improving. Our ARPU has picked up 9% compared to the first quarter of last year. When it comes to mobility, the focus has been on postpaid. Having said that, we are becoming increasingly more stringent on credit control when it comes to postpaid, and as a result, in the next few months, we will certainly be paying a lot more attention to that, and we will pay more attention to that than actually continue to drive the growth as we have done in the past. Having said that, postpaid weight in personal mobility customers has gone up from 12.6% to 14.3%, and this goes to show that we still have a long way to go when it comes to mobility. And the fact that Oi has a significant presence in the Brazilian market, we should be able to leverage that significant regional presence in significant market share gains in the future. But before we actually move in that direction, we also need to make sure that the logistics, the back offices are all up and running as efficiently as we would expect them. We will continue to also pay a lot of attention to the prepaid market, and therefore recharges is clearly one lead indicator that we will continue to monitor. And the good news is that in Brazil people are still savvy users of technology and mobile users as well, and therefore recharges continue to post, I would say, a very encouraging performance. In terms of mobility, we saw significant postpaid market share gains and that is what's actually underpinning the 10% revenue growth in terms of personal mobility revenues. Prepaid customers were up 3.6%, postpaid customers were up 19.6%, as a result personal mobility revenues were also up. Having said that, we believe that there is a long way to go before we can capture the full potential of the Brazilian market when it comes to value added services and data. Value added services and data is still a lot SMS driven. We think when it comes to mobile internet and mobile broadband there's still a lot more to be done, and I’m sure the experience in Portugal Telecom has in the Portuguese market coupled with the strength that Oi has in the Brazilian market and its management team we should be able to bring to bear that and improve our performance in the future as well. So in a nutshell when it comes to Brazil, we are seeing an improving performance. The investments we are doing in the network are positioning us well for the future, having said that, clearly one of the big challenges that we have is to take full advantage of the synergies that exist in Oi and Brazil – Oi and Portugal Telecom in order to make sure that we reduce the execution risk of our strategy. Well, last word on international; on international revenues were up 3%. If you exclude the Forex impacts revenues were up 5.1%. When it comes to EBITDA, proportional EBITDA was up 3.7% and excluding Forex was 5.8%. When it comes to customer growth you will have seen we saw strong growth across the board. But worth mentioning when it comes to Timor and (inaudible) Telecom we have seen an increase competition in this market, and that's why as a result in the next few quarters. We will have to – as we have always done in the past and maintain a rational approach to the market, but always make sure that we command the leading position in those markets as well because we think leadership commands the premium and as a result, we should maintain that leadership. Let me now hand you over to my CFO and then we will do some wrap up and Q&A. Thank you.
