Portugal Telecom's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Portugal Telecom (PT)

Q2 2012 Earnings Call

August 2, 2012 11:00 AM ET

Executives

Zeinal Bava – CEO

Luís Pacheco de Melo – CFO

Analysts

Paul Marsch – Berenberg Bank

Ivón Leal – BBVA Research

Georgios Ierodiaconou – Citi

Frederic Boulan – Nomura

James McKenzie – Fidentiis

Mathieu Robilliard – Exane BNP Paribas

Presentation

Operator

Greetings and welcome to the Portugal Telecom 2012 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, Mr. Zeinal Bava, CEO for Portugal Telecom. Thank you. You may begin.

Zeinal Bava

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

We are here today because of the announcement of Portugal Telecom’s First Half Results. Our first half 2012 results, consolidated operating revenues amounted to EUR3,345 million while EBITDA reached EUR1,141 million. Consolidated EBITDA margin stood at about 34.1% and that was underpinned very much by the solid margin of the Portuguese telecoms businesses, which reported margins in excess of 45%.

Net income reached EUR125 million and basic earnings per share stood at EUR0.15. In the first half of 2012, our consolidated CapEx amounted to EUR522 million, that’s equivalent to 15.6% of revenues. In the first half as well, EBITDA minus CapEx amounted to EUR619 million, while EBITDA minus CapEx of the Portuguese businesses amounted to EUR377 million. In the first half of 2012, operating cash flow amounted to EUR287 million.

Free cash flow as you know that will have seen in the press release were impacted by a number of events which my CFO Luís will take you through in a lot more detail. Maybe now perhaps use the presentation that we put out this morning to take you through some of the highlights of the business in the first half of this year and then hand it over to my CFO for much more detailed information on the financials of the company.

Second quarter of this year with Portugal Telecom ended up with 97 million customers and we saw very strong RGU, revenue generating unit growth across all our businesses. In Portugal, RGUs went up by about 3%, in Brazil 9.7% and in Africa and rest of the world we had a phenomenal growth of about 20.2%.

Let me start off by focusing on Portugal. In Portugal as we had indicated in the first quarter of this year, the key focus was to just make sure that the trends, especially top line trends were either stabilizing or improving in the numbers that we have reported to you this morning. What you saw was acceleration in top line performance in Residential. Residential revenues were up 5.1% compared to 4.6% in the first quarter of this year. This has no doubt to do with the fact that Meo has not only reinforced its triple-play leadership in this market, but clearly we are going through a process where the fact that we’ve transformed ourselves into a company away from standard telecoms offering just voice telephony into triple-play has made our services far more resilient.

In the case of mobile, we reported Personal customer revenues down about 8%, that’s a slight improvement compared to the first quarter performance amongst the macro environment which continues to be very adverse and whereas you know mobile because of the bias towards prepaid tends to have in recharges and lead indicators, so things are not improving a lot but clearly have stabilized in the context of other mobile operators in Portugal, I think our performance if anything was better.

In the case of Enterprises, we also saw an improvement in terms of top line performance. Revenues were down 8.8% compared to 9.8%. In this 8.8%, it’s what highlighting is that in the corporate segment, large corporate enterprises actually the improvement has been more and better than in SMEs and SOHOs where we are still being impacted by increasing number of insolvencies. So when you look at Portugal, top line was down 6.5% and the delta compared to the 5.2% that we reported in the first half had a lot more to do with wholesale and other which my CFO will explain to you in more detail later on.

One of the major transformations that we have gone through at Portugal Telecom on the back of the investments we’ve made in modern technologies is to actually move away from selling to our customers whether we’re talking about Residential, Personal or Enterprise, just standard if you like voice services. So I am very happy to report to you that first time ever Portugal Telecom today has non-voice revenues accounting for more than 50% of our total revenues. No doubt, you’ll have seen in the slide, page number five.

And in the case of Residential, the data contribution rather the non-voice contribution is already 63.4% in the case of mobile 33.2% and this is against the backdrop where SMSs in this market are pretty much free nowadays. And if you think about Enterprises, we are very close to 50% as well in terms of non-voice contribution. What this does, is that it makes our business a lot more resilient. What it does, it increases our not only pricing power in this market but also it allows us to continue to explore new business models so that we can increase the depth of the services and the breadth of the services that we offer to our customers, whether we’re talking about Residential customers or Enterprises.

We continue to believe that this transformation away from standard telecoms into a digital Telco, or an ICT player. If we’re thinking about Enterprises, we’ll increase substantially addressable market and as and when we get tailwinds in terms of the economic performance in the country, we should be able to translate that into superior top line performance and market share gains.

In terms of CapEx, contrary to a lot of the sector and cable companies, Portugal Telecom has invested significant amounts in the last few years in upgrading our technology and in investing in what we think are future proof networks. We have already pretty much completed the FTTH rollout. We have covered today 1.6 million homes in fiber. 90% of our mobile base stations are now connected with fiber. 4G has been rolled out. We already have more than 80% of the Portuguese population covered.

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