Portugal Telecom's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Portugal Telecom (PT)

Q1 2012 Earnings Call

May 17, 2012 9:00 AM ET

Executives

Zeinal Bava – CEO

Luís Pacheco de Melo – CFO

Analysts

Georgios Ierodiaconou – Citi

Tim Boddy – Goldman Sachs

Paul Marsch – Berenberg

Daniel Morris – JP Morgan

Nuno Matias – Espirito Santo Investment Bank

Frederic Boulan – Nomura

Presentation

Operator

Greetings and welcome to the Portugal Telecom 2012 First Quarter Results. At this time, all participants are in a listen-only mode. A 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, Mr. Zeinal Bava, CEO for Portugal Telecom. Thank you. Mr. Bava, you may begin.

Zeinal Bava

Okay, thank you. Good afternoon, ladies and gentlemen. Thank you very much for being on this call. I’m here with my CFO, Luís Pacheco de Melo, our IR Director, Nuno Vieira, and the rest of our finance team as well.

In the first quarter of 2012, consolidated operating revenues of Portugal Telecom amounted to €1,716 million while EBITDA reached €572 million. Our consolidated EBITDA margin stood at 33.3% underpinned by the solid margin of the Portuguese telecoms businesses, which stood at 45.2%. Our net income reached €56 million and basic earnings per share stood at €0.07.

In the first quarter of 2012, our CapEx amounted to €259 million. That’s equivalent to 15.1% of our revenues. In the first quarter, our EBITDA minus CapEx amounted to about €313 million while EBITDA minus CapEx of the Portuguese businesses amounted to €193 million.

In the first quarter 2012, our operating cash flow stood at €113 million. Free cash flow was negative €158 million and it was impacted by a number of events, which our CFO will take you through in a lot more details.

With regard to our debt, our cost of gross debt was 4.6%. That compares to 4.2% in the first quarter 2011. The liquidity position excluding the consolidation of Oi and Contax in Brazil and including cash, underwritten commercial paper lines and facilities was €3.4 billion as at 31st March 2012.

In the first quarter, we continued to see strong RGU momentum across various regions. Let me perhaps start with Portugal. We ha6 an incredible quarter in terms of retail fixed broadband, retail fixed pay-TV as well. As you no doubt will have seen, we had 69,000 net adds in our pay-TV service in the first quarter. This is the best quarter out of the last nine quarters of Portugal Telecom.

In the case of broadband as well, we added 35,000 subscribers. And again we continue to gain market share, not just in terms of subscriber numbers, but also in terms of revenues. We continue to push RGU penetration in the installed customer base and this is, of course, being reflected in increasing ARPU as well in the Residential segment.

In TMN, our mobile operator in Portugal, we continue to lead the market. And I think worth highlighting are two – I would say two points. First is that postpaid customers grew 6.3%, in line with our strategy to promote smartphone penetration and unlimited packages. And it is also worth mentioning that the – our unlimited plan, e nunca mais acaba, actually ended up the quarter with more than 800,000 subscribers.

In the case of Oi, which now has 70.8 million RGUs, we saw very stable RGUs quarter-on-quarter on Residential. Very strong growth in mobile customers. Enterprises also posted a pretty good performance and this is, of course, being underpinned by innovative offers that I will discuss a bit later in my call.

With regard to other international businesses, we also saw very strong subscriber growth underpinned by increasing market penetration of telecom services in pretty much all of the markets in Africa and also, the businesses we have in Asia.

With regard to financial performance, we will go into that in a lot more detail, but I just would like to mention that we posted, I would say, pretty resilient top line performance. Revenues were down 2.7% if you exclude Brazil, so leaving to one side the impact of consolidation of Brazil, revenues were only down 2.7%, against a backdrop which, as you know, is very challenging.

We posted very strong margin performance in Portugal and this has to do with the fact that we remain very focused in being disciplined when it comes to cost and also cash flow management. We also saw improving margins in Oi, despite the investments that the company is now making in its own turnaround.

With regard to other regions, we continue to see very profitable growth. International businesses now represent 50% of Portugal Telecom’s revenues. Basically, Portugal Telecom is today a diversified company, not just in terms of the scope of services that we offer in each market, but also in terms of our geographical presence.

Regarding CapEx, there’s, of course, seasonality but whereas in Portugal, we are now in the final stages of the completion of our modernization program, we will invest in Oi to ensure that Oi can deliver on the numbers that Oi’s management presented recently on their Investor Day.

Let me now, focus on Portugal. Revenues were down 5.2%, but if you exclude the regulatory impact, revenues would have been down 4.2%. As I mentioned, our CapEx program was countercyclical to what’s going on in the sector. In fact recently, a number of peer group companies have announced significant investments in fiber, whereas, for example, our fiber program is coming to an end in terms of investment. But we have made already important choices with regard to technology and I think the good news is that a lot of those investments are now beginning to come through, if you like, the top line and underpin the transformation of our business model.

Read the rest of this transcript for free on seekingalpha.com