Earnings Transcript for PT - Q3 Fiscal Year 2013

Operator: Greetings, and welcome to the Portugal Telecom 2013 Nine Months Results. 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, Luis Pacheco de Melo, Chief Financial Officer for Portugal Telecom. Thank you Pacheco de Melo, you may begin.

Luis Pacheco de Melo: Thank you. Good afternoon ladies and gentlemen, thank you very much for being on this call. I am here with my IR Director, Nuno Vieira; the CFO team and we have the pleasure of being joined by Zeinal Bava in Brazil. I’m going to walk you through the third quarter numbers and the nine months numbers. Then Zeinal, will take you through the operations both in Portugal and in Brazil. And then we’ll open the floor for some Q&A. As we start on our Slide number 1, I just would like to draw your attention to the usual Safe Harbor notice and that will be effective throughout the presentation and the Q&A. If we turn to Slide 3, on the highlight year-to-date consolidated operating revenues amounted to €4.5 billion down 8.8% from the same period last year. This quarter and the following months we had some effects from the – effects of FX movement and in particular the ones related to the Brazilian Real. If we were to exclude those, our revenues would be down by 1.7% year-on-year and the growth of [indiscernible] and across the other international operations were basically affected by the decline on the Portuguese and also on the context business in Brazil. On the consolidated EBITDA front, year-to-date EBITDA was down 12.4% or to €1.5 billion and EBITDA performance reflected mainly a 10% decline in Portugal and a 14% decline in OI. Of course, the OI in our account was affected by the FX impact as well. So if we were to exclude the FX impact the EBITDA would have been down by 6.6% year-on-year. On the net income front, year-to-date, net income stood at €305 million and this will include the capital gain on the sale of Macau. I will take you through more details, net income composition later in the presentation. On Slide 4, during the first nine months of the year, we continued to deliver very strong customer growth in Portugal with 294,000 net adds. This growth is explained of course by the increased penetration and market share in the Triple-Play with 88,000 net adds in the nine months. And by continued grow on the postpaid mobile customers, basically driven by our successful convergent offer, the M4O. As a result the mobile postpaid net adds stood at 313,000 for year-to-date. PP’s total customer base now increased by 1.5 million customers in the first nine months and these already excludes the sale of the CTM. On Slide 6, on consolidated revenues, year-to-date our revenues were down as I explained before 8.8% equivalent to a decline of €437 million. Out of these €328 million is explained by the Real devaluation. On the Portuguese revenues they declined by €120 million. I will take you through that in more detail in the next slide. Other revenues and the elimination revenue lines presented a decline of €26 million which is basically the decline for the depreciation of the Namibian Dollar sale which is more or less the same amount of €26 million. So on the pro-forma basis our international assets increased their proportional revenues by 2% to €305 million. On Slide 7, consolidated revenues at PT and Oi; In Portugal third quarter revenues were down by 5.9% on the first nine months, equivalent to €120 million and in the third quarter, they were down by 6.1%. Service revenues in the Portuguese Telecommunications businesses improved quarterly trends with minus 5.8% this quarter, minus 7% in the second quarter and also minus 6.7% in the first quarter. So a better trend that we are seeing in the Portuguese Telecommunication business. Revenue performance continues to be impacted by competitive dynamics, particularly in the triple-play and also on the enterprise segment and of course by the macro economic environment. Year-to-date, PT posted continued growth on the Residential segment with a growth of 1.3% year-to-date and presented improved trends in the Personal segment where we saw a decline of 5.9% on the first nine months and better trends on the third quarter of this year. In the Residential segment, the slowdown observed in the third quarter where the revenues growth stood up 0.3% is primarily related to the already very high penetration on pay-TV and triple-play and of course, also by some of the competitive dynamics. On the other hand, revenues in the Personal segment continued to improve benefiting primarily from the success of our Convergent offer and by the fact that MTR declines are now averaging out. On the Personal customer segment, third quarter revenue declined by 5.6%, which is a marked improvement versus the second quarter where we saw a decline of 7.4%, and what concerns the impact of MTR, we are now seeing interconnection revenues coming down by 20% whereas before or in the previous quarter we saw decline of almost 38%. So these also has the positive contribution for the evolution on these segments revenue growth. On Enterprises, we continue to see pricing pressure, not only on the SMEs, but also on the large corporate and therefore the trends that we saw in the previous quarters have remained in the third quarter as well. At Oi, on the constant currency basis, we continue to see sustained growth, notwithstanding, there is now a clear focus on the quality of growth and on our revenues effectively translate to collections and cash flows. Oi's revenues were up by 0.8% in the third quarter and 2.2% in the nine months. Growth was underpinned by 3% increase in Residential and by 1.1% increase in Personal Mobility. On this front, I would like to highlight very briefly, but Zeinal will take us through that in more detail. The very good performance on the customer revenues, which were up by 7.5% in the third quarter, and basically on the back of higher recharges for both voice and also on the data revenue. The growth rate incurred on the Personal Mobility in Oi was – as it was already expected penalized by the MTR decline. On Slide 8 and on the consolidated OpEx. Total OpEx was down by 6.8% year-to-date and by 9% in the third quarter. In this case, the Real devaluation has positive contribution for these declines. So the OpEx in Portugal was down 3.7% in the third quarter, accelerating versus the previous quarter, while the cost performance still reflects strong commercial activity on the cost associated with the launch of M4O, and also the customer support services for having launched the M4O, we continue to have a very strict focus on productivity and profitability. As I have referred to you in our least earnings call, as provision process become more streamline we will continue to see going forward a dilution of the impact of these cost associated with the launch of the M4O. Our OpEx performance in Portugal also reflects lower wages and salaries, which came down 11% in the third quarter, which is also a reflection of our results of the curtailment that we executed in the previous quarter and also on continue focus on operational efficiency in our operation. Still in Portugal other operating expenses declined by 4.9% and basically due to the productivity gains, quality of services improving in customer supports, cost coming down as a result of the investment that we carried on the new generation networks. Excluding commercial costs, which were pretty strong given the dynamics in the markets OpEx in Portugal was down 5.6% in the quarter. At Oi, OpEx is already reflecting the early results of increased focus on customer quality and on cash flow protection. As such, the improved collection efficiency is still translating into lower provision for bad debt, which in the third quarter were already 38% below the level seen in the second quarter. OpEx at Oi also reflects lower interconnection costs which in the third quarter were down 14% as MTRs continue to decline. On the Slide 9 on consolidated EBITDA. EBITDA in Portugal stood at €274 million in the third quarter, down 9.1% equivalent to €27 million, of course this is a result of a decline in revenues of €37 million and as these revenues have high operating leverage these translates into – directly into EBITDA line. The 3.4% decrease in direct costs are mainly due to lower traffic cost and lower cost associated with the directories business, but on the other hand, we have higher cost on the IT provision solutions – provision of solutions and higher programming costs. Of course, here the launch of a new premium channel that is Benfica TV contributed to these higher programming costs. EBITDA as reported by Oi stood at 2.14 billion Reis, with a margin of 30%. This performance was impacted by non-recurring operating revenues amounting to 173 million Reis, related to the sale of our real estate properties. Excluding these non-recurring impact which no numbers in Portugal and they are booked below EBITDA. EBITDA at Oi was sequentially improved by 9.4% quarter-on-quarter reflecting early results from Oi focus on financial discipline. Year-to-date, our consolidated EBITDA decreased by €240 million or by 12.4%. These €240 million, €93 million explain as I mentioned before by the Portuguese operation and €87 million is explained the devaluation of the reis. On the Slide 10, net income. Net income for the nine months amounted to €305 million, up from €186 million in the previous year. This increases explained primarily by the gains on the sale of Macau by the settlement of some contractual obligations those on the positive side than on the negative side of course, by the curtailment charges and – by the curtailment charges, but all these items are – already been booked on the second quarter. Below EBITDA, CRP is decline by 21% is just a result of the accounting rule that change in the beginning of the year, the G&A was slightly down but here we are basically three different movements, we have Portuguese G&A coming down €28 million. Oi on a constant exchange rates going back at €53 million and then the Real going down by €63 million, so the overall G&A declined by 3.5% or $36 million in the first nine-months of the year. Net gains on disposal of fixed assets relates of 18 million related to the sale of certain property in Oi. Equity earnings in affiliates of €411 million include the €310 million capital gain in the sale of Macau. And if we work to exclude this capital gains this figure would have come down from €140 million last year to €101 million this year, and this is basically explained by some corporate tax and currency effects in term of our international assets that we consolidate by the equity methods. Still on the P&L, I would like to have a final words on the interest expenses. They were up to €426 million. This is basically a result of higher cost of net debt in Portugal and higher net debt in Brazil. The cost of net debt in Portugal went from 4.2% to 5.3%, part of it is related to the increase of the cost of gross debt. The part of it is related to lower returns on the cash deposits that we have now versus what we have last year. On the CapEx side. And the CapEx for the first nine-months amounted to €864 million equivalent to 19% of revenues. CapEx was down by 3% in the nine-months and by 27% in the third quarter, reflecting of course, smartest spending both in Portugal and in Brazil and despite the investments that we continue to do our new data center in Covilhã which we inaugurated on the 23rd of September. CapEx in Portugal declined by 9.1% if we were to exclude the Covilhã part of it, then they would have declined by 19%. CapEx from other businesses decreased by 9.7%. This also reflects the Brazilian Real and the Namibian dollar devaluation but also lower CapEx floating capability and some other international operations that we have. On Slide 12, just to mention that more and more Portuguese CapEx will be demand driven and for 2014 we expect our CapEx to be in the region of €400 million. On Slide 13, on cash flow and change in net debt, consolidated net debt adjusted for the tax credit declined from €7.75 billion to €7.57 billion in the third quarter. These decline reflects also the depreciation of the Real and the free cash flow of €81 million generated in the quarter. Excluding Oi and Contax net debt, our net debt remained broadly flat and despite of course, some negative impact from some of the cash deposits in foreign currencies that we have in brazil and also despite the settlement payments that I referred to on some contract obligations that we settle in the end of the second quarter, that we actually had cash out in this quarter. From the net debt for Slide 14, we just like to highlight that Portugal economy is well funded and has of strong liquidity position, total cash available and then drawn facility amount now to €3.3 billion and as such we have a very strong liquidity and funding position at this stage. Let me now hand you over to Zeinal, for his comments on the operations both in Portugal and in Brazil, and then I will address after that Africa and the rest of the world and also some final remarks.

Zeinal Abedin Mahomed Bava: Okay, thank you very much, Luis. Allow me now to take you through operations in Portugal before I give you perhaps a very quick review of what’s going on Brazil, and the early results that we represents at this morning. Starting in Portugal in the consumer segment of the market, and perhaps 4% first and foremost from residential, Portugal now has a pay-TV market share which is pretty high 78.6% penetration. Portugal Telecom from that standpoint has enabled to build a market share of roughly 40.9%. It is worth mentioning that Portugal Telecom is not in the business of selling pay-TV, all our offers tend to be triple-play or quadruple-play. So we have made a substantial program, since we launched this service in 2008. End of third quarter 2013 we had 1.294 million customers, which is a growth of about 8% compared to the same period last year. Not withstanding the fact that the penetration is high, we still believe that there is potential for us to up sell to existing customers. So if we look at, for example the 3P penetration right now, in terms of households that do by services, fixed line services on Portugal Telecom, expenses about 47.9%. 3P the triple-play rate in terms of any customers as well, it’s 44.1%. So clearly these where to be down in terms of penetrating further with double and triple-play particularly triple-play, our existing customer base and that’s why we continue to believe that not withstanding the high penetration, that pay-TV has already achieved in Portugal the fact that we do have with total customer base that we can migrate to triple-play, there is clearly work to be done. Now as we know in terms of differentiation of the product and services of Portugal Telecom is down on the back of innovation and leading edge technology. We are very rational players in terms of pricing in the market. So if you look at the pipeline of innovation that we have rolled out, its pretty significant, it is what’s highlighting the fact that today we are delivering same content, similar sort of experience, across multiple screens and this is also coupled with functionalities like interactivity and apps. On page 20, you can see some of the successes that we are having in terms of the new services that we have launched. Now growth is essentially our service that’s allowed to carry your TV experience from inside the house to the outside world. Now within the house you can multiply your screens by using Wifi and the iPads and smartphones to watch TV free of charge. You can also carry the same 60-channels if you like outside the house for an extra €5 of charge. Now we already have about 1 million [indiscernible] per month. It is worth also mentioning the fact that you have 4G that covers over 90% of the population and there is also 4G, we can provide people with unique experience. Music Box, it’s another one of those music apps services that we have. It’s also proving to be pretty resilient in terms of if you like making customers loyal. We’ve launched also a cloud service where every single customer can have field charge 16 gigabytes and we recently as you know renamed it PT to MEO Cloud because MEO is our branded product for retail. And in terms of our quadruple-play, page 21 as you can see we continue to make extremely good progress. End of November, we had 1.3 million revenue generating units already. I also call your attention to the fact that 47% of our customers have two SIM cards. 24% of our customers have three SIM cards and 29% of our customers have four SIM cards. I think we’ve had this discussion before, we’ve seen in other calls, for us it is very clear that Convergent should be a family product. And as a result it should have certainly more than one SIM card and ideally four SIM cards, so we saw that you can cater for the needs of our family so that we can offer people simplicity in terms of the tariff plan, we can offer the convenience of six month bill and we can offer if you like savings. Obviously there is a revenue uplift net-net. Having said that a number of customers of Portugal Telecom that has migrated to this product that are obviously saving a lot of money already not withstanding net, net for us continues to be in a value creative proposition. Also, we would like to mention one aspect that’s been referred a couple of times by some analysts and investors; you are seeing active SIM cards in Portugal decline. And that’s because as you move towards all met quadruple-play offers, chances of people concentrate the spending of multiple things on that quadruple-play offer. If you take our quadruple-play service, you get between two and four SIM cards and its all net and you have a favorite policy of about 2000 minutes, 2000 SMS and we also include 200 megabyte of mobile Internet traffic. So trends in the market will most likely go in the direction of less SIM cards being active and of course more of the share of wallets being taken by those people that can offer quadruple-play services, which are full net debt. We believe that the data continues to be a significant opportunity for us in Portugal, not just in fixed, but also in mobile. Well not withstanding the fact that our data revenues already are in some 35%, 36% ratio. We think there is work to be done here and the strategy that we implemented a few years ago push aggressively. Smartphone penetration is now beginning to deliver if you like the kind of dividends that we expected. So mobile Internet usage is picking up, mobile Internet penetration is increasing on the exact, when it comes to mobile Internet, it’s a wireless Broadband. But you’re seeing that people has become more price sensitive and as a result that part of the business is obviously being cannibalized by one Wi-Fi and on the other hand by mobile Internet. In Peru, page 24, allowed our profitability to increase 253%. It has been great for us to actually gain market share in mobility. If you look at our postpaid net adds, we’ve been doing record postpaid net adds quarter-after-quarter after we launched this service. We launched this service on the 11 Jan. First quarter would be 99,000 postpaid net adds in mobiles, second quarter 105, third quarter 117. So as a result when you look at our personal segment, our total number of postpaid customers are growing about 30.6% and our overall number of personal customer is growing about 7.7%. With regards to residential, page 25, clearly what we are finding is that with this increased penetration, the focus is in driving triple-day in those customers that have double-play, but clearly you have seen some slowdown in terms of revenue, which natural with this kind of penetration that we are already seeing, which is roughly almost 80% of postpaid. It is worth also mentioning the fact that this is a very predictable business for us, 89.1% flat fee. So we are much less if you like to expose that to changes in the profile of usage in terms fixed line, voice or data for that. So from that perspective I think that quadruple-play offer that we launched and the fact that we pushed aggressively in loyalty contracts and flat fees. Today we can say that 89% of this very resilient product of our business is in the residential segment continues in my view to all the well for future. With regards to the personal segment customer revenues is improving sequentially. First quarter 2012, our customer revenues were down 11.3%, as we launched our quadruple-play off in the first quarter, we were able to mitigate already to 8.6, now it’s about 5.6. It is also worth mentioning that Portugal Telecom both residential, mobility and if you like b2b, we are poised to growth with the economy. As the actual cause of Portuguese economy improved chances are that we are better positioned at most to take advantage of this change in sentiment in terms of confidence both of consumer and business to actually write away and further build our top line. But when you look at likewise in mobility, our weight of, if you like flat-fees is 38.4% it’s up about 8 percentage points in terms of lower residential as I mentioned was 89%, but in something like mobility 38.4% we think is quite impressive. Most of the revenues are now 36% and we think we can continue to grow this as we drive mobile Internet. So in a nutshell, when we think about the Portuguese consumer market we are seeing improving dynamics. Page 47, third quarter 2012, was if you like, the peak of negative sentiment around consumer behavior, then since then what you’re seeing is growth strength stabilize partly underpinned by the M4O, which as I mentioned earlier is giving people savings, while at the same time is including our ARPU roughly 10%. Consumer spending in Portugal continues to be negative. Adjusting towards that point, we’re well poised to take advantage of a turn in the economy as and when it happens. Enterprises; enterprises continues to be a challenge, in part because a number of very sizable project are being put in the back burner and because there is a lot of pricing pressure. In the B2C market particularly the two leading triple-play, quadruple-play operators are being rational in the way that they are approaching the market in the case of these B2B market as these things are slightly different. Notwithstanding, in terms of SMEs, what you find is that we are making very good progress. On one hand in pushing convergence and on the other moving people actually buy more than one products from us. So the revenue weight from convergent consumers is that about 0.4 percentage point and at the end of the third quarter stood at 62.1%. One other interesting information for you, in a recent study that’s come out, we have a leading position in all services in the enterprise segment, as a result the future growth of Portugal Telecom in the SME segment will have to be done on the back half. Gain of market share on one hand and gain of share of wallet on the other. With regards to the Corporate segment as we mentioned again in the previous calls, what we’re trying to do is we’re trying to change the portfolio of the mix of services that we offer. Cloud is clearly center staged in everything that we’re doing now in Portugal. The fact that we now operate our data center – our new data center on the 23rd of September was actually important. So from that standpoint and one hand we are cutting costs, on the other hand we are aligning CapEx with the share price performance that we are seeing in B2B and on the other what we’re doing to diversify if you like our product offering so that we can command a greater share of wallet. From that standpoint, smartphones and internet service is growing and the growth of non-voice revenues is actually growing as well. So we put out 70%, in value-added services, 26%. Now the competitive dynamics continues to be difficult in terms of the B2B segments and you will probably see a rush through impact in terms of the taxables that we have of certain customers that are in this environment a lot more price sensitive and that is happening both in terms of SMEs, this is also happening in terms of surplus. So enterprise segments revenue perhaps is the only good news that I can share with you from a financial standpoint, if trends are stabilizing, financially [indiscernible]. But in terms of our competitive positioning, if anything we have reinforced by becoming leaders in every service in SMEs and in the case of the corporate by leading if you like the cloud service that we expect to roll out even more aggressively in the future. When you look at the operations in Portugal, perhaps some other interesting facts that I can share with you on Page 34, when you look at our non-voice revenues per segment in residential is 65%, almost 66% and in enterprise 65%. Obviously much higher in corporate than in SMEs, so the average is 65.1%. So from a group standpoint today 63% of our revenues are non-voice which means that there are future group and which means that they are a lot more resilient in terms of future performance. The weight of the flat fees gives you a sense for how convincible the business performance is likely to be in the next few quarters. So 89% of our bundles and products in residential are now flat fees and in mobility it’s about 38.4%. When you look at our financial performance in terms of the revenues, excluding regulations revenues were down 4.4% and of course that the drag mainly coming from termination rates. Having said that customer revenues have indeed improved in the third quarter and depending on the momentum that we continue to have in the B2C segment on that back of this quadruple-play offer chances are that, that couples with economy we could potentially end up doing better in the future. Now against that backdrop clearly efficiency gains and productivity is top of our agenda, so we continue to be savvy cost coupled in Portugal, our OpEx is down 2.4%. Our CapEx was down 19% and as Luis indicated in his initial speech, next year, we are looking to do a CapEx which is lower than in 2013 and that CapEx will be increasingly demand driven, simply because a lot of the transformation, technological transformation of the company has been completed. EBITDA minus CapEx in Portugal was actually – in the third quarter was down 2.3%, which basically shows how responsive we as management are being in terms of adjusting if you like expenses and CapEx on the other hand, if you like OpEx to whatever is happening in terms of the top line. In terms of Brazil, numbers have been put out already, and we’ve done a conference call as well, but I’ll just give you some insight. First and foremost we have invested in Brazil in terms of telecom’s growth market. Now that growth will be underpinned by strong demographics and by an emergence and establishment of cost. I’ll reinforce the method of establishment in class whereas three years ago, we were talking about redistribution of products, now we are talking about a lot of this middle-class having disposable income to invest in new technologies and in telecoms. Now the penetration of the broadband and pay-TV is below what we think is the potential of this market and therefore we think that the growth will be driven by strong demographic and the emerging middle class, an establishment of that and also higher take out of broadband pay-TV and of course mobile Internet. Mobile Internet in Brazil has a huge potential for growth if you look at contribution of data in terms of total revenues, but one particular companies, most of it remains in 17% to 20%. So clearly work to be done there, which will of course have to be underpinned by increased penetration of smartphones. Now when you think about Brazil, one has to take a granular approach, because each state is each state and within each state, different cities different consumptions happens and growth profiles as well. So we have just given you a sense for what’s happening in terms of GDP growth, in terms of 4747 municipalities, residencies, [indiscernible], about we’re growing 11% to 12%, others are growing 8%. Some states are having China type, if you like GDP growth. So therefore what we’re doing at Oi is that we are talking increasingly about spending in a smart way, so that we can direct our CapEx if you like in those areas where we you generate higher returns and lower payback. One of the big advantages of Oi is its footprint. We cover seven times more municipalities at fixed network in the second operator. We have 1.3 times more kilometers of fiber in the second operator. So as a result if you’re thinking about future growth in this market, that growth will come from those cities with 500,000 to 1 million subs and those are the cities where it already has a genuine and a pretty good presence. Like we did in Portugal, in Brazil what we are trying to do is, increasing the more bundled offerings, trying to push people from one to two place, two place to three place. Obviously here we talk about bundles and conversions simply because from a pure customer experience standpoint, we don’t have the systems integrated product matter. So we will move in the direction of mid to large convergence, but I would say that the strategy is very similar to what we have done in Portugal. In terms of churn, we’ve included some numbers here for you, just to give a sense of the progress that’s being done. In the second quarter call, we indicated that churn was a challenge and we indicated that this was clearly one area of significant improvement at Oi. And from that standpoint, in September, I am very happy to report that in broadband, we have the most churn of the last two years and in terms of Oi [indiscernible] which also includes fixed mobile, obviously the churn is coming down than we had if you like the lowest level of churn in 2013. Now in the Residential segment, we are growing 3%, notwithstanding the fact that we are instilling more discipline in terms of what we saw, who we sell to that’s pretty good news. In terms of mobility, the key focus is to increase – personal mobility revenue generating units were up 3.9%. If you look at recharges, recharges were up 8.8%, which is very much in line of what we said in the second quarter call, which was that we wanted to work to reduce our bad debt provisions and we wanted to work towards reducing our accounts receivable. And clearly by the fact that we are implementing this strategy of pushing aggressively fee base, it certainly helping the performance of the company on both those accounts. Now, data, the bandwidth developed only 17.7% of our total revenues in Brazil. Good news is that third quarter 2013, third quarter 2012 it was up 57.6% again, we believe we can do a lot more in the future and this is clearly one of those areas where we believe these substantial growth to come and come in the future as well. And in terms of the Corporate; Corporate segment revenues are growing 2.5%. Data revenues most importantly which are more future growth are growing 6.8%. Equity revenues are down and that has to do with the fact that we are growing profound business versus reengineering in SMEs. We are beating up channels, we are tackling the challenges have showed as well. So here it’s work in progress, it’s a turnaround as we speak, and then someone asked me earlier today, the quick fix to those, it’s systems, it’s processors, so we will continue to work with them in 2014, we can change the profile of the revenue profile of the segment. Also the revenues are coming down simply because regulator tariffs are also coming. So when you look at the performance in Brazil, from a financial standpoint, residential is going 3%, personal mobility service revenues are up 7.5%. In the third we already posted the second best performance in terms of mobility revenue in the Brazilian market, the second best. And this is against the backdrop where we have on average of 17%, 18% market share. Corporate and SME together and also minus 1.3, but I emphasize a point I made earlier, corporate is growing 3.5% overall and the data about 6%. In terms of cost cutting, like I said in Portugal, we’ve been several cuts of costs, in Brazil we are beginning to deliver also in execution. What is required is execution and this is exactly what we are doing. And so across the board, what we are doing is, we are tackling line by line cost instilling if you like, discipline across the board, bringing back into the culture of the company as well, and again, happy to say that we were able to post a 30% EBITDA margin, which was the highest margin in the Brazilian telecom sector this quarter. In terms of EBITDA, our EBITDA in the third quarter sequentially was up 19% and compared to the same period last year was down – was circa of 2.4%. The worth mentioning is that the comparison with last year is lowered by the fact that the bad debt provisions last year were only €75 million which is equivalent to 1% of revenues. So if you align that is what is, if you like expected on average which is roughly 2%, our EBITDA performance was pretty much acceptable and if anything its trending better. Changing the cash flow profile, it’s happening as we speak. EBITDA minus CapEx was up 599 million Reis. Our net debt came down 0.7% sequentially. This is the first time the net debt comes down in the last eight quarters. Now of course, there is clearly a lot of work to be done here. This net debt does not take into account, just one-off. It’s like non-recurrent impact of disposal of the real estate, which impacted our EBITDA €173 million that’s on top office. But clearly, the fact that we have been able to post 39.3 billion Reis of net debt, which is about 2 billion Reis better than consensus analysts numbers. I think it goes to show the focus that we are putting in cash flow is beginning to deliver on the results of the expected. So in a nutshell in Brazil it’s all about changing the cash flow profile of the Company, deleveraging, it’s all about consolidating if you like the business model that we have in residential moving from single to double to triple-play. In mobile doing a lot of prepaid, so paving the way to the postpaid in the future and you can think about Corporate, it’s clearly taking advantage of the synergies that we have within Portugal Telecom and voice in the developing cloud services as well. Of course, we also believe that growth should be on the agenda, but we want to grow comfortably and we will have to do that in the context of this one sole single objective that we have, is to just change the cash flow profile of the Company and reduce the debt. Let me now hand you over to Luis. Thank you.

Luis Pacheco de Melo: Thank you, Zeinal. Very quickly to open the floor then to Q&A. On Slide 53 Africa and the rest of the world, I just like to say that all our international operations are number one player in their respective market. They all generate very strong cash flow. They are all very well funded, apart from Timor where we saw two new entrant to the market. We continue to gain market share. On mobile, in some of the markets we’ve seen slower growth given the penetration in some of the main – some of those main markets, and also because of some competitive pressures and regulatory pressures that we see in some of those markets. From a financial point of view, our results on a proportional basis from some of the international assets of course, we are affected by especially the devaluation of the Namibian dollar. But as I said all of them are – have pretty strong cash flows and are very well funded. So as final remarks, I will follow same quarter results. I would say that the early investment in technology and innovation in Portugal are enabling boost operational and financial performance. Our Convergent offer is gaining even more traction and which just proves that we took the right strategic decisions. We are continuing and we will continue the focus on efficiency improvement. Going forward, our CapEx will be more and more demand driven as we have done all the main investments in new technology and innovation. In Brazil, as Zeinal explained in greater detail we have seen early signs of operational and financial improvement. We see better quality of sales improving churn rates, we see investments being done and deployed in the smarter way. We see financial discipline supporting the change of the cash flow profile. And as a result we are also seeing, or we saw flat net debt evolution in the third quarter of this year. And last, as you’ve seen also our results were impacted by FX and non-recurring items as I’ve detailed or explained in great details throughout the presentation. And now let me open the floor for the Q&A. Thank you.

Operator: Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our question is from Frederick Boulan of Nomura. Please go ahead.

Frederic E. Boulan: Hi good afternoon. Firstly, to fill up on Brazil, you talked to us a little bit about the level of turn of margins at Oi in the call earlier this afternoon. I just want to know, staying for the first nine months you had about 26% on a clean basis. So where can we see this level evolving next year? Can we think about levels closer to 28% as realistic levels, or the improvements in profitability is going to be more gradual. And secondly, question on Portugal, if you could comment a bit on your expectations for a mid-term competitive environments, the light if is [indiscernible] intangibles, so Vodafone decision to accelerate fiber rollouts to $1.5 million homed by the end of 2015. So how do you see competition there? And specific on where your residential segment, is it bound to contract going forward as say the pay-TV penetration is speaking or you see further potential for rebounding this business in the medium term? Thank you very much.

Zeinal Abedin Mahomed Bava: Okay thank you. With regards to the margin performance, in Oi in the third quarter, if you like, we have 30%, nine months 28.7%. And we decided not to give the guidance other than what could consensus out there. What I can tell you, however, is that, we are putting a lot of pressure on the cost side, so we’ve made productivity gain at something like a mantra in our company, something that we would like to aspire to do as a single day. So we can position ourselves as one of the best managed operator here in Brazil and become even a reference which you like in our sector. So difficult to say, but I would 30% was a good performance in the context of the sector, when you look at the peer group companies here. Their margins oscillated between 22% and 27%. So I think that considering if you like, the investments that need to be undertaken in this market in Brazil, we need rational behavior, we need to generate cash flows, because it’s a pretty sizable country and we need to if you like continue to invest and increase in coverage, improving our capacity and so on and so forth. So and what concerns Oi, we will always look to be rational in the way that we approach the market, and if anything we will continue to differentiate based on technology, innovation, quality of service. Now for those of know OEM equally, they know that it’s an aspiration. There is a lot of work to be done, it’s not going to happen overnight. But that’s how we see the market? We see the market as companies focusing a lot more in their own productivity and being rational out there. So that we can generate enough cash flow to continue to invest and develop, if you like our coverage and the qualities of our service. With regard to Portugal, you have at the two companies that are very good triple-play operators. We have three companies in our case, we are leaders in triple-play and quadruple-play. We launched our quadruple-play in the 11th of Jan. And recently we saw one of our direct competitors announced their own package. I think clearly the market in Portugal with the consumer challenges that we have at the moment, demands from all of us, if you like, responsible behavior in the way that we go about, if you like developing our business because investments are required. We just recently rolled our 4G, but there is a lot of work to be done in 4G. We even get a decent if you subscriber base out there, in terms of 4G. We’re going to have to have, if you like, a handset strategy to make that happen. So all those cost money in our sector, and as you know, technological obsolescence in our factor is becoming faster and faster, so it was so good to see that these rational behavior, at least on the part of one operator that understands the TV business like we do and we hope that will mean for us and that the quadruple-play prices will hover around where we are at the moment. With regard to a recent announcement that was done by another competitor follows that the investment of £1.5 million, I mean Portugal for the Portuguese economy obviously welcomes any investment at this stage, all investments that promote employment are very good news for the economy, and it’s very good to see that they are people out there that want to continue to invest in the Portuguese economy. So it’s a part of confident in the outlook of the Portuguese economy. Having said that, allow me to say the following, doing well in TV and in quadruple-play it’s not just an issue building your own infrastructure. And here, we for example have benefited from the fact that for 14 years, we used to have a cable business at least to one ourselves, so when you talk about content aggregation, installments and content negotiation and when you think about the DNA of the company looking to a store Portugal solid government in Portugal they will try and sell to you is quadruple-play and TV those are the sort of things that require time. They allow you to build a structural competitive advantage, so it’s hardly a concern in our strategy will not change. We want to continue to supply the Portuguese consumer with innovation, with more technology we want to continue to boost our productivity. So we can reduce our unit costs, improve our margins, pass some of that on to our customers. It gives me a great pleasure to say that those customers that are buying our M4O service, they are saving somewhere between 10% and 15% in the monthly spending. 10% to 15% which is great news because guess what, I’m seeing my ARPU uplift of 10%. They are seeing that growth at the end of the month also come down, so it gives me great amount of pleasure that we’ve given them a simple tariff plan, data translation relationship, the convenience of having just one supplier, one CRM, one bill and guess what? You got a saving, so our strategy will not change. We will continue on the top of a investment innovation and differentiating ourselves with a number of services, and again I reinforce the message it’s not just about building infrastructure, it’s about understanding how this whole business comes together, thank you.

Frederic E. Boulan: Thank you, very much.

Operator: Thank you. The next question is from John Keith of Sanford Bernstein. Please go ahead.

John R. Keith: Thank you, a couple of questions, please. Firstly, you obviously have made pay-TV a domestic service. How important do you think that TV can be for Oi in Brazil and from what else can you do and are you doing to improve that experience for the consumers. And then just secondly, can we expect further working capital improvements for Oi for the rest of this year and throughout next year as well and what do you think the main drivers of that could be. Thank you?

Luis Pacheco de Melo: We’ll come back to – with regard to our strategy in Brazil double and triple-play of course, we benefit often the fact we’ve been a lot of investment [ph]. We have huge amounts of activities and now we can if you like, change of stores in how we can bring the bad business inside operating target if you like, if that make sense in targeting. The are very different market and if you like the transport network that we have in Portugal at the moment, we can carry data at speeds of 100 gigabits per second. Okay, and we have FTTH in 1.6 million homes, but in other places we have ADSL 2+. We have 90% of the population with 4G already. So it’s very difficult for you to extrapolate one market versus the other at least in the short-term, but if you think about the business principle they remain valid. We should be moving customers from single to double, double to triple-play why? Because it increases my share of wallet and it reduces my ARPU. So and also it reduces churn. So we are doing exactly the same as we did in Portugal Telecom. We have a slide in the Oi presentation, which is our Page 41, I think in this presentation already Page 41, but you will see is that we are looking at those customers that have just one service and we want to be moving those customers from one service alone to more than one service. So I think of course, when I look at the Portuguese number then we are clearly at a very, very different stage of our development because in the Portuguese market, what we have been able to do, in terms of triple-play penetration, it’s unique in not just for Portugal, but for the sector. I would say in Europe and possibly even worldwide, 47.9% of Portugal Telecom customers have triple-play, so the TV strategy, if you like, the TV strategy would be firm short-term perhaps the main focus will be DTH. Why? Because it gives you extensive coverage very quickly, moreover simple because, we already bought a lot of satellite capacity anyway. We are not pushing in Brazil right now, our pay-TV service aggressively because for these new satellites you are going to have to change the direction of our dish and changes are you’re going to have to a new set-top box, because you will have a different conditional access but, starting March, April next year, you will see it’s actually drive our triple-play agenda far more aggressively but aggressively in terms of sales. But all is very rationale when it’s comes to pricing simply because there is a lot of money at stake here, so I think that the lessons that we learned from Portugal, helping us reduce the execution risk here in Brazil and if anything allowing us to fine tine our marketing strategy as well. Because if they one thing that I think we can do very well now, Portugal Telecom is to market triple and quadruple-play, thank you.

John R. Keith: Thank you.

Operator: Thank you. The next question is from Guy Peddy of Macquarie. Please go ahead.

Guy R. Peddy: Hi and just a quick one, more for Luis, perhaps could you just give us a sense of how powerfully funded you’re through to now, and secondly by the way we should expect so the asset sales to accelerate your deleveraging process domestically, thank you?

Luis Pacheco de Melo: Okay, currently we are fully funded into basically end of 2017, 2016, 2017 so mid 2017 I would say and therefore that’s why we say that we are in a pretty comfortable liquidity and financial position. In terms of asset sales, as you know and as we have said in the past, the remaining assets for three add of course Oi, we are of course engaged in this transaction that we announced. The other assets, the African assets, with regards to African assets, what we said is that we like the assets. They are well funded, they generate good cash flow, but as we have said also in the past, our main focus on the merged entity will be Brazil and Portugal, but at these ranges, we have said also, in the past we are pretty well funded and so we don’t have anything on the table at this stage.

Guy R. Peddy: Perfect, thank you.

Operator: Thank you. The next question is from Giles Thorne of Jefferies. Please go ahead.

Giles D. Thorne: Hi, there, I had a couple of questions, please. I just wanted to pickup on the Vodafone question, the first question, and I think it’s perfectly fair to respond. Vodafone doesn’t have a pedigree in TV, but as everyone knows and you have been going on for a couple of quarters now. The way to acquisition and selecting the market currently with the full play product is on price and you previously said very sadly that this is the price point that’s uneconomic for them. But as we look forward and see the projects spring investment coming through that, that’s going to legitimate the economics of that existing price points. So while they don’t have the pedigree in TV, they are going to have the better economics to remain at that price point. So I wanted to gain revisit how do you see mid-term pricing pressure for your fixed – for your quadruple-play products? And secondly, just staying on the scene with pricing, but at this time, in terms of domestic mobile, we’ve obviously seeing again Vodafone being fairly disruptive around this time last year and they work through with that repricing has been a drag to service revenue throughout the year 2013. It will be interesting to hear how the pricing environment has evolved recently and should we expect to further repricing drag as we go into next year or is it a case that really the cyclical usage time factor will start to come through and perhaps think about some growth? Thanks.

Zeinal Abedin Mahomed Bava: Okay, thank you. Vodafone is a very good company and I am sure with the resources they have, they will still be able to catch up very quickly. I wonder what’s the main issue and just specifically statically would do on analysis if I guess scale that can make the economics work under current offers that they have. I don’t think that scale will have the economics of the current offer stack up, because that price is obviously if you take into account the data [indiscernible] with the investment that are required and then that’s an issue that’s not always showed. We look at our own P&L, we look at our cash flow statement, we have great amounts of pack for our competitors and we think they all are very good and what we’re trying today is to be slightly better than them. So as far as we are concerned, quadruple-play is a unique opportunity for this sector in here, not just in Portugal to mobility. And we thereby feel free that approve that as a result we produced in Europe in mobile right now. And people have taken mobility for granted, most of them made huge investments to beef up the quality of service. So it is our gross market wise, it is very difficult to differentiate pricing based on quality, just from other markets. And from that standpoint, either we bring that innovation, a different value proposition. It is very difficult, okay, for you to actually drive a higher ARPU. Now as seen so far in quadruple-play is that, if we price the product well, we position it well, we market it well, people want it and we have been so incredibly well in less than a year and what you are seeing is now posting quarter-after-quarter better possibility numbers, huge entries in terms of postpaid customers and what you see as also growth is much, much better if you like B2C revenue performance and if you want to speak specifically on mobile, all we need to compare is our performance in terms of billing revenues to our operators not just in Portugal, but in Europe. So as far as we are concerned we have always lived great competition across the Board, we respect all of them, but we also understand what our group strengths are and one of our growth strength is the fact that we not only understand TV, but we can install TV and we can provide a great TV experience independent of the kind of things we’re using in the house and outside the house. So we have if you like a times market advantage because we launched our service on the January 11 and the challenge for us is to continue to innovate, so that in the future it doesn’t become just a pricing discussion. With regard to mobile prices, the only avenue that we believe that exists for us to do any recycling is quadruple-play, why, because it brings there if you like the convenience of having just loan supply and the comfort of having if you like one try, all you can need wholeness and I think we missed that opportunity, it is going to be very difficult for us to come on to any weak pricing industry for us. So I would caution I think I mean for public sector, we need to understand that we are in a business where we need to invest constantly, technological excellence is a challenge for us, every single day and that we basically need to do the math and make sure that we generated enough returns not just to satisfy our shareholders, but to continue to invest in the development of our business in the future. So I don’t expect mobile process in Portugal to get worse from where they are, because we believe they are already competitive enough and therefore, in our only form of discussions we’re going to be if you like very responsible in a way that we address the market and considering the competitive reaction in the markets in the last few quarters, we don’t think it’s can get much worse, if anything is going to get better. Thank you.

Giles D. Thorne: Thanks. Thank you very much.

Operator: Thank you. The next question is from Georgios Ierodiaconou of Citi. Please go ahead.

Georgios Ierodiaconou: Yes, good afternoon and thank you for taking my questions, I have two please. The first one is around the 700 megahertz Spectrum auction in Brazil, there was some news out today that published in the official concert its plan for 700 megahertz Spectrum with a view to have on auction in the first half of next year. So I wanted to get your thoughts firstly around the allocation that you chose to make and the timeframe that you are looking at whether you think in terms of what to expect it as early as first half of next year and any comments on you have any concerns around that? And secondly, we’ve discussed a lot about the consumer mostly and there were commerce during the presentation around enterprise being competitive. Obviously, you do very well on KPIs partly down to M4Os in fixed KPIs of enterprise. Do you see any moves from you competitors or have you seen any moves recently that would worry you going forward and do you believe with the re-pricing we’ve seen recently in enterprise, we should see a fairly confident revenues can recover next year? Thank you.

Luis Pacheco de Melo: Okay Georgios, with regards to the 700 megahertz, recently we are also seeing question and we need to see the details before we take a public view on that. So I don’t think enough details have been made available for us to apply. Theoretically speaking, it is clearly one of those frequencies that all the operators will want, simply because with 700 megahertz you can get the kind of coverage that’s required for you to pick 4G as far as we can and furthermore against the backdrop where 4G handset prices are coming down, it’s a great opportunity for us to actually migrate this market faster than people expect to go deep, but to comment specifically on 700 megahertz, not enough details has been made available for me to be able to do that. With regards to the corporate segment beware that we are moving people to be IT world. So some times when we look at some of the lend wise KPIs we are cannibalizing ourselves, but all I can say to you is that one of the major impacts right now is simply the fact that no big projects are being allocated. So people are very sensitive to price yes but we all know this but of course people need to feel confident about the future so that they can invest and that’s why examples like one that was mentioned that Vodafone wants to build fiber in Portugal. That’s great news for the country because its show how confident they are with the economy and they want to create jobs and all that different processes. So I think what we need is we need to get that consumer confidence and business confidence levels up and as the economy starts to develop, I have no doubts in my mind that some of these very larger contracts or projects will be looked at again. I think for example the cloud, it makes a hell of a lot of sense for SMEs and large corporates to work toward consolidating data center and adopting the cloud. Do you want to move away from variable fixed cost to variable cost and you of course would want to take advantage of this new infrastructure we put in place in [indiscernible] that new data center that has a high use of efficiency 1.2 in addition to all the safety and security issues and so on and so forth. In order for me to engage in that project where you virtualise your own data center, its’ a journey, it requires investments on both sides. So some of these projects, I think they will start gathering momentum as and when people feel more confident about the economy. A good news is that it seems that the news coming out of the Portuguese economy tends to be getting better. So let’s hope the next year a business in general and consumers will feel more confident and hopeful we’ll get uplift from that. Thank you.

Operator: Thank you. the next question is from Madeleine King of Credit Suisse. Please go ahead.

Madeleine King: Oh, hi. I wonder if you would provide us with an update on your fund liability management following the merger, and specifically we’ve had some comments from the rating agencies about one exchanges or buyback. So if you could just tell us what you kind of thinking that would be great.

Zeinal Abedin Mahomed Bava: Okay. Thank you. You would have to excuse us because basically we would like to as usually today’s call to be focused on the third quarter results. All I can say at this stage regarding the transaction is that we have indicated that it will take about five to six months. We are working out in order to execute in that timeframe. Of course in the meantime we just referred you to our previous public statements and our publically available filing with CBM, CMGM and SEC. And so if you excuse us on this call, we’d like to focus at this stage on the third quarter results.

Operator: Thank you. We have time for one final question that comes from the line of Giovanni Montalti of UBS. Please go ahead.

Giovanni Montalti: Hello good afternoon, thanks for the question. If I may can I ask you to share with us some thoughts about the market consolidation scenarios in Brazil. Do you think the market is say mature enough for such scenarios? And do you think you are sufficiently capitalized to take part for these processes? Thank you.

Zeinal Abedin Mahomed Bava: Okay. Thank you. As you can imagine very difficult comment on market rumors what I can say to you is well I said earlier in call which was at – we need to work the margins in the Brazil market to a higher level, significant investments are required therefore it is important that we maintain a rational behavior which is a big thing in this market which I think is a good news from standpoint. With regards to voice clearly the challenge for us is the merger that we announced Portugal Telecom and that’s what keeping us busy at this time and that’s what’s actually going to allow us to simplify one that biggest advantage of actually executing in that’s right, so I think, that’s the transaction if you like, that will position Oi so that in the future it can continue to develop itself in the Brazilian market and we are hopefully with it, even higher ambition than that. But so I think right now, we don’t like to comment on rumors and so on and so forth other than to say that we are working to get transaction values we set and we Portugal Telecom and that’s going to keep us busy from next five to six months, thank you.

Giovanni Montalti: Sorry, just a very quick follow-up, when you say 5 to 6 months starting from now and from when you have announced the deal?

Luis Pacheco de Melo: When we announced we said when we announced the deal we said 5 to 6 months which means, we probably talk about April, okay from the time of announcement.

Giovanni Montalti: Thank you so much.

Luis Pacheco de Melo: Thank you.

Operator: We have no further questions in queue at this time. I return call back over to management for any closing remarks.

Henrique Granadeiro: Okay thank you very much, ladies and gentleman for being on this call as usual my team and I will be available to further clarify any questions that you may have, offline of course. Next week myself, Zeinal Bava and Nuno Vieira will be in Barcelona. And we’ll most likely have the pleasure to meet most of you. And therefore we can further elaborate some of the issues that were raised today, as we’ll see you in Barcelona and thank you very much once again for being on the call and bye, bye. Thank you.

Operator: Thank you, ladies and gentleman this concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.