Portugal Telecom, SGPS (PT)

Q2 2011 Earnings Call

August 31, 2011 11:00 AM ET


Zeinal Bava – CEO

Luis Pacheco de Melo – CFO


Georgios Ierodiaconou – Citi Group

Soomit Datta – New Street Research



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Greetings and welcome to the Portugal Telecom 2011 First-Half Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Zeinal Bava, CEO of Portugal Telecom. Thank you sir, you may begin.

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Zeinal Bava

Okay, thank you very much. Good afternoon, ladies and gentlemen. Zeinal Bava from Portugal Telecom. I’m here with my CFO, Luis Pacheco de Melo and our financial team including our IR Director, Nuno Vieira.

We following the Vivo transaction on the 27th of September 2010, Portugal Telecom has adjusted its 2010 financial statements in order to recognize Vivo as a discontinued operation, and following the acquisition on the 28th of March of 2011 of a 25.3% stake in Oi and a 14.1% stake in Contax, PT’s statements of financial position and our proportionally consolidated the assets and liabilities of these stakes as at 31st March, 2011 and income statement as from 1st of April 2011.

So this second quarter, we are already proportionately consolidating the investments that we have made in both these companies.

In the first half of 2011, our consolidated operating revenues amounted to Euro 2,669 million, while EBITDA reached Euro 1,000 million. Our consolidated EBITDA margin stood at about 37.5%. Net income reached Euro 228 million, and basic earnings per share stood at roughly $0.26 in the first half of 2011.

Our CapEx in the first half as well amounted to 418 million, that’s equivalent to roughly 15.7% of revenues. And in Portugal that’s primarily directed to investments in new technologies, future proof technologies, namely FTTH network and the pay- TV service, as well as the swap of the 2G equipment that we’re doing in order to prepare ourselves to launch 4G as and when.

In the first half of 2011, our EBITDA minus CapEx reached Euro 582 million and the EBITDA minus CapEx of Portuguese businesses amounted to roughly Euro 409 million, which was an increase of 7.4% year-on-year.

Our operating cash flow was roughly Euro 525 million, while excluding the consolidation of Oi and Contax, it amounted to roughly 451 million on the back of improving revenues and EBITDA trends in Portugal, and of course downward pressure on CapEx following the completion of the network modernization program and tight management of working capital in Portugal.

Our free cash flow excluding the cash out-flow related to the acquisition of the investment in Oi and Contax stood at roughly Euro 317 million in the first half, that compares with 22 million in the first half of last year. And therefore a significant improvement.

As at 30th June, excluding the proportional consolidation of Oi and Contax, net debt adjusted for the receivable of 2 billion from Telefónica, which is still pending and the transfer of our regulated pension plans to the Portuguese state, our net debt therefore amounted to Euro 4.269 billion. And this is of course after the payment of about Euro 1.1 billion in dividend in the 3rd of June of 2011.

Our cost of net debt remains very competitive. If you exclude the interest on certain cash deposits that we had preparing ourselves for the Oi investments, our net debt, our cost of debt stands at roughly 3.5%.

The liquidity position of Portugal Telecom continues to be very robust. Our balance sheet is very well-financed, all maturities and commitments are fully financed until the end of 2013. And as my CFO will explain to you later, with the roll if we – with the roll up of certain banking facilities that we have, it is possible that the financing requirements of Portugal Telecom will be fully financed not until the end of 2013, but until the end of 2015, but I will let Luis explain that to you in more detail.

Let me now just perhaps take you through some of the operational highlights of Portugal Telecom. And perhaps some of the key messages I would like to leave with you in this call and considering that we’ve already provided you with a trading update is that, mail continues to drive solid performance of retail accesses in Portugal.

The retail accesses were up about 6.6%. We continue to do also fairly well in terms of broadband. Broadband customers were up 11.5% year-on-year and pay-TV customers were up about 31% year-on-year. So with regard to the fixed line drivers thinking about the residential market, all of our services continue to do fairly well, notwithstanding the fact that we are facing adverse market conditions.

TMN is the market leader, customers were up about 0.9% and 27.3% of our revenues are already coming from data. When one looks at the mix of revenues of Portugal Telecom, thinking about the resilience of our top line performance, it is worth highlighting that between the fixed and mobile in Portugal, non-voice revenues already account for almost half of service revenues in the first half of 2011.

To be more precise, it’s roughly 46% and we would expect this 46% to continue to grow in the future as we actually take advantage of the opportunities of the digital world on the back of the significant investments that we have made in new technologies at Portugal Telecom.

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