YoY % 1Q03

Investor Day Agenda
Date
Location
June, 23
20:00
Palácio de
Xabregas
June, 24
8:30 am
Carlton Palace
R. Jau, 54
Lisbon
Cocktails
“Madredeus” Concert
Dinner with Management
Registration
Group Overview & Strategy (Miguel Horta e Costa, CEO)
Financial Overview (Zeinal Bava, CFO)
Wireline Businesses (Carlos Vasconcellos Cruz, Exec. Officer and Wireline CEO)
Coffee
TMN (Iriarte Esteves, Executive Officer and TMN CEO)
PTM (Zeinal Bava, PT Multimedia CEO)
Cash Cost Reduction & Centralized Service Platforms
(Paulo Fernandes, Exec. Officer and IT CEO)
Lunch
Vivo (Francisco Padinha, Vivo CEO)
Wrap-up & Outlook (Zeinal Bava, CFO)
Closing Remarks (Miguel Horta e Costa, CEO)
Q&A´s
End of Session
20:30
21:15
22:15
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30 – 13:30
13:45
14:15
14:45
15:00
16:00
2
Group Overview
& Strategy
Miguel Horta e Costa
Group CEO
Safe Harbour
All the presentations in this Investor Day contains statements which constitute forward looking
statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
These statements are based on the beliefs and assumptions of our management and on
information available to management at the time such statements were made. Forward-looking
statements include information concerning possible or assumed future results of our operations,
earnings, industry conditions, demand and pricing for our products and other aspects of our
business.
These statements are not guarantees of future performance and involve risks and uncertainties that
are difficult to predict. Further, certain forward looking statements are based upon assumptions as
to future events that may not prove to be accurate. Therefore, actual outcomes and results may
differ materially from the plans, objectives, expectations, estimates and intentions expressed or
implied in such forward-looking statements.
Forward-looking statements speak only as of the date they are made, and we do not undertake any
obligation to update them in light of new information or future developments or to provide reasons
why actual results may differ. You are cautioned not to place undue reliance on any forwardlooking statements. You are encouraged to consult our annual report on Form 20-F, as well as our
current filings made on Form 6-K, which are on file with the U.S. Securities and Exchange
Commission.
2
The Management Team
Miguel
Horta e Costa
Zeinal
Bava
Carlos
Vasconcellos
Cruz
Iriarte
Esteves
Paulo
Fernandes
Corporate
Functions
CEO
CFO
HR &
Marketing
R&D
Business
Development
Operating
Media
Multimedia
Wireline
Mobile
IT
3
Program
June, 24
8:30 am
Carlton Palace
R. Jau, 54
Lisbon
Registration
Group Overview & Strategy (Miguel Horta e Costa, CEO)
Financial Overview (Zeinal Bava, CFO)
Wireline Businesses (Carlos Vasconcellos Cruz, Exec. Officer and Wireline CEO)
Coffee
TMN (Iriarte Esteves, Executive Officer and TMN CEO)
PTM (Zeinal Bava, PT Multimedia CEO)
Cash Cost Reduction & Centralized Service Platforms
(Paulo Fernandes, Exec. Officer and IT CEO)
Lunch
Vivo (Francisco Padinha, Vivo CEO)
Wrap-up & Outlook (Zeinal Bava, CFO)
Closing Remarks (Miguel Horta e Costa, CEO)
Q&A´s
End of Session
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30 – 13:30
13:45
14:15
14:45
15:00
16:00
4
2002 Wrap-Up
Profound change in Corporate Governance
Independent Directors on the Board
Restructuring of PT into flexible business units
with decision making at Executive Board level
Creation of Vivo in Brazil
Impeccable operating and financial execution
5
2002 Goals and Achievements
2002 Year End Targets
Status
•
Maintain growth momentum
9
•
Reduce Capex
•
Maximise cash flow to equity holders
9
9
•
Turn-around at PT Multimedia
9
•
Drive JV in Brazil to maximise returns
whilst capping investments
9
•
Increase dividends to shareholders
9
6
Highlights
∆ 01/02
Highlight
Subscribers
+14%
64% are mobile
Revenues
-2.5%
73% is non-fixed telephone service
EBITDA
+5%
Non-PTC businesses up +18%
Capex
-41%
Sustainable capex to sales ratio
EBITDA minus Capex
+80%
Increased contribution from mobile
Net Debt
-26%
Robust Balance Sheet is a strategic
competitive advantage
7
Mission
Remain the leading provider
of telecoms and multimedia
services in Portugal and
achieve a clear status for
world-class efficiency and
quality of service
Retain wireless leadership combined with a
superior return on capital in Brazil
8
Service Reach
Telecoms
Multimedia
Voice
Pay TV
ADSL
Data
Broadband
Cable
Corporate
Solutions
Cinema Exhibition
& Distribution
Video & Games
Distribution
Media
Brazil: Mobile
Portugal
9
Products and Brands
Segment
Wireline
Domestic
Mobile
Multimedia
Company
Products
Market
Position
Share
Voice & Data
#1
92%
Corporate Solutions
#1
80%
Sapo ADSL
#1
80%
www.sapo.pt
#1
45%
Voice & Data
#1
52%
Pay TV
Cinema
Video & Games
Newspapers
News Radio
#1
#1
#1
#1
#1
84%
10
Challenges
Weather the current economic environment
Drive economies of scale through our businesses
Integrate services across the group to increase
revenues and reduce churn
Manage regulatory threat
11
Strategic Objectives
Position PT as a fully integrated provider of telecoms
and multimedia
Retain leadership and a strong market share of best clients
in Portugal and in Brazilian mobile
Be in the Top #3 of the most efficient Telecommunications
Operators in Europe within 3 years
Attract and retain the best human talent available
12
Operational Initiatives
Revenue
• Wireline: Traffic Stimulation and
Customer Retention
• TMN: Traffic Stimulation, Service
Development, Market Share
and Loyalty
Cash Costs
• Integrated Back-
Office
• Centralised Purchasing
• Headcount Reduction
• Capex Control
• Cable: ARPU Growth through
penetration of premium
services
• Vivo: Nationwide Player
Culture & Human
Resources
• One Company Culture
Financial
• ROIC
• Career and Talent Management
• Return Excess Cash
to Shareholders
• Performance Based Compensation
Schemes
• Maintain Credit Rating
Investment Grade
13
Organised for Success
•
•
•
•
Integrated
Products & Services
Wireline
Holding
PT Contact
PT Pro
PT Compras
PT SI
PT Inovação
PT Meios
TMN
Cable &
Entertainment
PT Corporate
PT Prime
Internet Unit
Voice Unit
Media
Strategy, Financial Reporting, Planning & Control, Marketing
Call Centers
Back Office Integration
Purchasing
IT Integration
Technology and platforms development
Media Buying
14
Strategic Management Focus
Top Line stimulation
Cost reduction
Customer loyalty and churn reduction
Capex control and cash-flow generation
Maximize shareholder returns through debt
reduction and cash repatriation
15
Financial Overview
Zeinal Bava
Group CFO
Financials Highlights
€ million
1Q03
∆ YoY%
Revenues
1,312
-8.1
Domestic demand and BR$ devaluation
Operating Costs excl. D&A
793
-8.9
Focus on addressable costs albeit worsening PRBs
EBITDA
520
-6.9
Growth of 7.5% at constant BR$
EBITDA margin (%)
39.6
+0.5pp
Interest Costs
32.9
-15.8
85
-5.9
64% growth excluding curtailment and BR$
Capex
122
-23.1
Sustainable capital allocation management
EBITDA minus Capex
398
-0.5
3,834
-25.7
Net Income
Net Debt
Key Notes
Margin performance despite top line
Cost of debt of 3.4% and 1.6% excluding Brazil
Ongoing focus and used to reduce debt
1.8 net debt to annualised EBITDA
2
Revenues
Wireline
1Q03
∆ YoY
(€ million)
(%)
541
-6.0
Revenues Structure
Multimedia
Vivo
TMN
307
+2.3
VIVO
243
-32.6
Multimedia
163
+7.7
58
+41.0
Other
12.5%
Other
4.4%
18.5%
Wireline
TMN
41.2%
23.4%
TOTAL
1,312
-8.1
3
Group Revenues Overview
Exchange
Other &
Rate BR$/€ +5.4%
Consolidation
Multimedia
(Constant BR$)
+11.7
Vivo
1,429
Wireline
-30.0
TMN
+0.3
+76.8
+18.7
-194.0
-8.1%
€ million
1,312
1Q02
1Q03
4
Revenues Drivers – Wireline
(non-consolidated)
MOU – € 3.5 M
613.3
Line
Loss
-13.5
Net Revenues – € 0.3 M
ARPM – € 6.0 M
-4.9%
F2F
F2M
-9.5
ADSL
+7.8
Other
-5.3
583.3
€ million
-9.5
1Q02
1Q03
5
Revenues Drivers – TMN
(non-consolidated)
491 thousand net adds
Growth of 12.9% of av. base
Subs
MOU
Growth Dilution
-23.4
+41.3
352.4
Billed
ARPM Terminat.
+6.0
Other
-20.0
-3.0
+0.1%
Sales
-0.6
352.7
127.7 min. in 1Q02
118.4 min. in 1Q03
1Q02
€ million
Decline of 7.3%
1Q03
6
Revenues Drivers – Vivo *
1,771 thousand net adds
+12.4%
Growth of 17.6% of av. base
Subs
ARPU
-138
1,618
+284
Sales
1,818
+54
BR$ 41 in 1Q02
BR$ 37 in 1Q03
1Q02
* 100% of Vivo (non-consolidated)
BR$ million
Decline of 8.5%
1Q03
7
Revenues Drivers – Multimedia
(non-consolidated)
Product Sales + € 5.2 M
Pay-to-basic +7.2pp
Video Games - € 3.8 M
+14.7%
Premium ARPU +14.6%
Other
163.5
+5.7
€ million
142.6
Pay TV
Subs
+6.7
Broadband
Subs
Advert.
Pay TV
-2.1
+7.2
ARPU
+3.4
1Q02*
* Pro-forma figures excluding PTM.com and Deltapress
1Q02 reported figure was € 151.8 million implicating a 1Q03 YoY growth of 7.7% (€ 11.7 milliion)
1Q03
8
Operating Costs Overview
1Q03
∆ YoY
(€ million)
(%)
Wireline
307
-4.6
TMN
153
0.0
VIVO
143
-35.3
Opex
Structure
Multimedia
17.2%
Other
6.8%
Vivo
18.0%
Multimedia
Other
TOTAL ex- D&A
136
+2.3
54
+28.6
793
-8.9
Wireline
38.7%
TMN
19.3%
9
Operating Costs – Wages and Salaries
1Q03
Struct.
Wireline
(€ million)
(%)
•
•
167
21.0
Post Retirement Benefits
55
6.9
•
•
Telecommunication Costs
148
18.6
Costs of Products Sold
92
11.6
Marketing and Publicity
27
3.4
Provision for Doubtful Rec.
25
3.1
223
28.1
56
793
Wages and Salaries
Other G&A
Other
Opex excl – D&A
Amounted to € 79 M, representing 47.6% of Group total
Decreased 4.3% in the 1Q03 on the back of 425
redundancies
≈ 1,500 staff reduction planned for year 2003
≈ € 45 million annualised savings
TMN
•
•
•
•
Amounted to € 13 M
Increased 17.1% in the 1Q03 as UMTS no longer
capitalized
No new staff
Wage increase indexed to inflation
7.3
•
•
•
Contributed with € 15 M
Decreased 27.3% in the 1Q03 pro-forma
Redundancies of 444 employees since launch
100
Multimedia
Vivo
•
•
•
Amounted to € 21 M
Decreased 8.3% in the 1Q03
Shift in staff profile to enhance QoS
10
Operating Costs – PRBs
1Q03
Struct.
(€ million)
(%)
167
21.0
Post Retirement Benefits
55
6.9
Telecommunication Costs
148
18.6
Costs of Products Sold
92
11.6
Marketing and Publicity
27
3.4
Provision for Doubtful Rec.
25
3.1
223
28.1
56
7.3
793
100
Wages and Salaries
Other G&A
Other
Opex excl – D&A
Wireline
•
•
•
•
>99% is wireline business
Amounted to € 54 M
Increased by € 9 M or 19.7% in the 1Q03
Full year 2003 PRBs will be ≈ € 210 M, comprised of:
• Interest cost: € 110 M
For correct analysis, should be reclassified as a financial cost as related to
unfunded pension fund
•
•
Service cost: € 30 M
Amortization of actuarial gains/losses: € 70 M
11
Operating Costs – Telecoms Costs
1Q03
Struct.
Wireline
(€ million)
(%)
•
•
167
21.0
•
55
6.9
Telecommunication Costs 148
18.6
Costs of Products Sold
92
11.6
Marketing and Publicity
27
3.4
Provision for Doubtful Rec.
25
3.1
223
28.1
56
7.3
•
793
100
Multimedia
Wages and Salaries
Post Retirement Benefits
Other G&A
Other
Opex excl – D&A
Amounted to € 114 M, representing 77.4% of Group total
Decreased 8.5% in the 1Q03 due to lower volumes
and fixed-to-mobile interconnection fees
Market share of TMN is key to reduce costs further
due to network effect
TMN
•
•
•
Amounted to € 74 M on a stand alone basis
Decreased 13.7% in the 1Q03 due to lower mobile-tomobile interconnection fees
PTC / TMN traffic stimulation is key focus
Vivo
•
•
Impacted by migration to SMP
Amounted to € 6 M on a stand alone basis
But 95% disappear on consolidation
12
Operating Costs – COGS
1Q03
Struct.
(€ million)
(%)
167
21.0
Post Retirement Benefits
55
6.9
Telecommunication Costs
148
18.6
Costs of Products Sold
92
11.6
Marketing and Publicity
27
3.4
Provision for Doubtful Rec.
25
3.1
223
28.1
56
7.3
793
100
Wages and Salaries
Other G&A
Other
Opex excl – D&A
Wireline
•
•
Amounted to € 7 M on a stand alone basis
Increased 7.1% in the 1Q03 due to higher sales
TMN
•
•
Amounted to € 35 M on a stand alone basis
Decreased 10.1% in the 1Q03 due to lower sales
and subsidization of handsets
Vivo
•
Subsidization of 10.5% versus 15% in 2002
Multimedia
•
•
Amounted to € 14 M on a stand alone basis
Decreased 31.5% in the 1Q03 due to lower
sales and lower price of the cable modem
13
Operating Costs – Marketing and Provisions
1Q03
Struct.
(€ million)
(%)
Marketing and Publicity
Wages and Salaries
Post Retirement Benefits
Telecommunication Costs
167 21.0
55
6.9
148 18.6
Costs of Products Sold
92 11.6
Marketing and Publicity
27
3.4
Provisions (Doubtful Rec. and Other) 25
3.1
Other G&A
Other
Opex excl – D&A
223 28.1
56
7.3
793
100
•
•
Low marketing costs a reflection of reduction in unit
costs of GPR’s
May need to reinforce marketing going forward
Provisions (Doubtful Receivables and Other)
•
•
Policy in line with best practices
Despite difficult economic environment,
provisions have not been growing as a
result of a strict receivables policy:
• % of Revenues
2001
2002
1Q03
2.3%
2.4%
1.9%
14
Operating Costs – Other G&A
1Q03
Struct.
(€ million)
Wages and Salaries
(%)
167
21.0
Post Retirement Benefits
55
6.9
Telecommunication Costs
148
18.6
Costs of Products Sold
92
11.6
Marketing and Publicity
27
3.4
Provision for Doubtful Rec.
25
3.1
223
28.1
56
7.3
793
100
Other G&A
Other
Opex excl – D&A
• PT Pro
• PT Compras
• PT SI
• PT Inovação
• PT Meios
• PT Contact
Back Office Integration
Purchasing
IT Integration
Technology development
Media Buying
Call Centers
15
Revenues and Cost Structure
Domestic Revenues Profile
17.0%
14.9%
3.3%
52.2%
5.3%
50.2%
6.8%
30.8%
34.8%
2001
1Q03
Cost Profile
26.2%
Staff
Costs
43.6%
Variable
17.4%
30.2%
Other
1995
2002
Other
Mobile
Data
55.1%
Traffic
Broadband
Monthly
Fees
Focus on “fixed” revenues with
higher gross margins
27.5%
Guarantying a flexible
cost structure
16
EBITDA
EBITDA Structure
-6.9%
558.4 Wireline
-19.4
+6.8
+4.6%
Vivo
-39.3
PTM
+8.6
-28.2% +45.6%
Other
+4.7
519.8
1Q02
39.1%
Vivo
Multimedia
19.3%
5.2%
Other
0.7%
€ million
-7.6%
TMN
TMN
Wireline
29.6%
45.2%
1Q03
40.3%
43.7%
41.3%
16.7%
-
39.6%
Mg
17
Capex
Capex Structure
158.4 Wireline
-23.1%
Multimedia
-21.5
-43.9%
13.0%
TMN
-21.7
Vivo
121.9
7.7%
Wireline
Vivo
22.5%
18.5%
€ million
+5.8
-31.8% +35.0%
PTM
+0.7
+4.4%
Other
+0.1
Other
TMN
1Q02
11.1%
1Q03
5.1%
15.2%*
9.3%
9.7%
* Including the acquisition of certain OniWay assets
-
9.3%
38.3%
% of
Sales
18
EBITDA minus Capex
TMN
400.0
Wireline
+2.1
+1.0%
Vivo
+28.5
-45.0
+36.1%
EBITDA minus Capex
Structure
-0.5%
PTM
+7.9
Other
+4.4
397.9
Vivo
Multimedia
19.5%
2.9%
Other
- 1.5%
-36.7%
TMN
€ million
27.0%
Wireline
52.1%
1Q02
1Q03
19
RoIC
19.0%
17.6%
13.4%
12.9%
14.3%
16.3%
15.0%
RoIC excl.
Goodwill
13.7%
11.6%
11.9%
RoIC
9.7%
1996
16.8%
1997
1998
1999
2000
10.3%
8.8%
2001
2002*
* Excluding the acquisition of the fixed network in 2002; based on quarterly figures.
20
RoIC by Business Area
2002
% total
NOPLAT
% total Inv.
Capital
RoIC
PT Comunicações
45%
62%
13.7%
TMN
35%
14%
47.9%
TCP
21%
22%
18.2%
0%
6%
1.5%
100%
19.0%
PT Multimedia
PT
100%
PT including Goodwill
-
-
10.3%
NOPLAT = EBIT x (1-33%) and amounting € 849 million for PT Group
Total Invested Capital: Average Invested Capital based on quartly figures and amounting € 8,278 million for PT Group
including goodwill and € 4,467 million excluding goodwill
21
Balance Sheet Discipline
Debt
•
•
•
•
•
De-leveraging: Net debt at € 3.8bn and 1.8x annualised EBITDA
Hedging of Brazilian liabilities
Locked in interest rates: 80% of total debt at fixed rates
Extend maturities: 92% of total debt was M/L term and maturity at 4.7 years
Review and restructuring of assets under management in Pension fund
Assets
•
Clean up intangibles
•
•
•
Independent fair value review
Write down leading to tax credits
Non-core asset review
– Goodwill as % of total assets reduced from 26.1% in 2001 to 17% in 1Q03
– Internet & dot.com assets reduced from 1.4% in 2001 to 1.3% in 1Q03
Shareholder funds
•
•
Change in law to allow for “top up” of carried forward losses from share
premium reserves to allow for dividend payment in relation to 2002
Re-denominated Goodwill over Vivo to BR$ to reduce risk of
additional impairments in the future
22
Net Debt Evolution
Drivers
1Q03
(€ million)
Cash Generated from Operations
•
•
•
EBITDA
Non-Current Increase in Provisions
Decrease in Working Capital (EBITDA related)
Payments to Fixed Asset Suppliers
•
•
Capex
Decrease of A/P to Capex Suppliers
Finance Function & Other Impacts
•
•
•
•
•
530
520
6
4
(232)
(122)
(110)
(95)
Acquisitions of Financial Investments
Interest Paid
Translation of US$ and BR$ debt
Gains on FX instruments
(27)
(95)
6
48
Other
(27)
Net Debt
reduction
in 1Q03 of
€ 203 million
Net Debt
at the end of
1Q03 stands at
€ 3,834 million
23
Brazil Exposure
Net exposure to Brazil (assets minus liabilities) amounts
to BR$ 7,387 M (€ 2bn considering a BR$/€ exchange rate of 3.6589)
95% is accounted for by PT’s 50% investment in Vivo
PT’s assets denominated in BR$ amounted to € 3,332 million,
equivalent to 26% of total assets
12.7% of net debt was denominated in BR$
All debt in Vivo is BR$ denominated or is hedge to BR$ under
derivative contracts
PT does not hedge equity exposure to Brazil
24
PT’s Pension Fund – December 2002
Health Care
€ 639 M
Unfunded
€ 1,990 M
Pensions
€ 1,351 M
Total
Liabilities
•
Junior debt
•
•
•
Not all senior debt
6% discount rate
16 years to fund it
€ 3,654 M
Pension Fund
Assets
€ 1,664 M
•
•
•
•
Equities
22%
Fixed Income
56%
Real Estate
10%
Cash
12%
25
Conclusion for 2003
Top line performance to remain under pressure but EBITDA to be
underpinned by cost cuts
Vivo Cellular financials helped by stable outlook for Real whilst it is
self funding
Balance sheet restructuring completed including write-off of goodwill
Strong cash generation with domestic businesses accounting for
more than 90% of cash flow
Cash repatriation will become an increasing focus and PT will have
ample financial flexibility in 2004
Sarbanes – Oxley compliance: actively monitoring impacts
on PT is working to fully compliance with significant
developments already made
26
Sarbanes – Oxley Compliance
Timing
Section
301
302
404
406
Rule
Audit Committees
CEO and CFO
certifications
Management`s
Reports on Internal
Controls
Code of Ethics for
Senior Financial
Officers
PT Progress
Compliance Date
31/Jul/2005
29/Ago/2002
Definition and Evaluation of Disclosure Controls and
Procedures
Implementation of a certification model within PT Group
to support the CEO and CFO certification to comply with
section 302 of SarbOx
Establishment of a Disclosure Committee, which will have
an oversight responsibility over Disclosure Controls and
Procedures
Definition of a Corporate Internal Control Model and
implementation of Internal Controls for Financial
Reporting in the principal subsidiaries of the PT Group in
order to support the requirements of section 404 of SarbOx
15/Apr/2005
Planning of the evaluation of Internal Controls for Financial
Reporting to support the section 404 attestation
Establishment of an Internal Audit Function at Corporate
level, responsible for the evaluation of Internal Controls for
Financial Reporting
15/Jul/2003
Establishment of an Audit Committee
which will have an advisory role to the Board
of Directors in respect of financial reporting,
internal controls and relationships with the
external auditors
27
Wireline Businesses
Carlos Vasconcellos Cruz
Executive Officer and Wireline CEO
Contents
1. Wireline Business in Portugal: Background
2. Financials
3. May Update: Key Operating Data
4. Volumes
5. Pricing
6. Market Share
7. Strategic Focus – Reinventing the Business
7.1 Revenue Initiatives
7.2 Costs Initiatives
7.3 Capex & Quality of Service
8. Conclusion
2
Wireline in PT Group
Revenues
41.2%
45.2%
EBITDA
52.1%
EBITDA minus CAPEX
1Q03
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
3
Background – European Context
Strong
Performance
Challenging
Context
Low Fixed Penetration
High Mobile Penetration
Low Ratio of Fixed vs. Mobile
Tariffs
Market Share
Margins
Capex Intensity
Labour Efficiency
Economy
Capital Return: 14% RoIC
4
Financials
Key Financial Highlights
€ million
FY02
∆ YoY %
1Q03
∆ YoY %
Revenues
2,441
-3.9
583
-4.9
Operating Costs (excl. D&A)*
1,456
-1.2
348
-3.0
EBITDA
985
-7.7
235
-7.6
EBITDA margin (%)
40.4
-1.6pp
40.3
-1.2pp
Capex
256
-35.8
27
-43.9
Capex to Revenues (%)
10.5
-5.2pp
4.7
-3.3pp
EBITDA minus Capex
729
9.1
207
+1.0
* Excluding PRB, Opex would have decreased by 4.5% in 2002 and 6.2% in 1Q03
5
May Update: Key Operating Data
2002
∆ YoY %
1Q03
YTD
∆ YoY %
4,196
-2.5
4,177
-2.0
4,185
-1.1
PSTN
3,318
-5.3
3,279
-4.7
3,266
-3.9
ISDN
826
3.2
819
0.9
821*
-0.6
53
n.m.
78
n.m.
98
n.m.
42
n.m.
61
n.m.
78
n.m.
158.0
n.m.
44.4
-3.5
56.3
-25.5
20,065
-3.1
4,770
-5.5
7,920
-6.9
Retail
8,235
-9.2
2,053
1.5
3,416
-0.1
F2F
6,479
-12.8
1,528
-7.4
2,527
-8.1
11,830
1.6
2,717
-10.1
4,503
-11.4
10.6
-3.2
10.5
-2.5
10.3
-4.5
Customers (‘000)
ADSL, of which:
Retail
Net Disconnections (Lost Lines)
Total Traffic (min.106)
Wholesale
MoU Originated
(min./line/day)
∆ YoY %
* ISDN Penetration: 20%
6
Volumes
Change in Originated and F2F Traffic Y.o.Y
2001
1Q
2Q
2002
3Q
4Q
1Q
2Q
2003
3Q
4Q
1Q
1%
-0%
-4%
-6%
-7%
-6%
-6%
-7%
-9%
-15%
-6%
-10%
-16%
-17%
-19%
Originated Traffic excl. Internet
-18%
-9%
Originated Traffic
excl. Internet:
stable
F2F: a decrease of
6% in 4Q02 and 7%
in 1Q03
(less than half the
decline 2001-02)
-17%
F2F Traffic
7
Wireline Prices
Price cap regime for 2003 (already implemented):
•
•
CPI minus 2.75%
2.5% - 2.75% = -0.25% nominal
The Portuguese regulator has stated that pricing is reasonably in
line with its European peers
Cumulative price basket nominal change since liberalization (2000)
•
•
-9.1% in nominal terms
-19.5% in real terms
Interconnection rates already below EU average
•
•
•
Termination: -24.6%
Origination: -26.9%
Transit: -19.8%
An average decrease
of 25% in 1Q03
8
Market Share Estimates
100%
95%
94.8% (share of accesses)
91.7% Total Orig. Traffic
(indirect access)
90%
88.4% Local
88.1% F2M
85.1% International
84.6% DLD
84.4% Regional
85%
80%
4Q00
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
Competitor Lines (K)
Cabovisão (K)
Market Share
224
162
3.7%
May03
9
Wireline Competition
Player
ONI
Shareholders
EDP 56%
BCP 22.8%
Total Revenues (1Q03)
Voice 7 M€
Data 34 M€
Target Market
Global Operator with strong
presence in the Corporate Market
BRISA 17%
GALP 4.2%
NOVIS
France Telecom 43.33%
Sonae.Com 56.7%
VODAFONE
VODAFONE Plc 100%
CABOVISÃO
Cable Satisfaction
International Inc.
100%
JAZZTEL
JAZZTEL Plc. 100%
NOVIS 37 M€
CLIX 10 M€
-
NOVIS: Addresses the global
market, higher presence in SME’s
CLIX: Second largest ISP after
Telepac
Focus on SME’s and SOHO
Voice 7 M€
Internet 6 M€
-
Residential
Focus on SME’s and
SOHO
10
Strategic Focus
Revenue
Initiatives
Traffic stimulation
ADSL rollout
Cost reduction
Smart Capex spending
Wireline
Re-invention
Customer retention
Free
Cash Flow
Cost
Initiatives
11
Revenues
Priorities
Reverse
the trend of
access loss
Stimulate
usage of
voice traffic
Enhance
growth of
new
services
Initiatives
1. Access retention by redefining processes for proactive and
reactive retention
2. Installation of new accesses
3. New products and services
4. Management of pricing perception vis-à-vis mobile telephony
5. Definition of a new pricing strategy based on an aggressive
promotion of flat-rate family plans
6. Reinforcement of the convenience of fixed telephony by
promoting new terminals (namely cordless and video) and VAS
aimed at stimulating MoU
7. Leadership of broadband (ADSL) roll-out – access and content
8. Restructuring of product portfolio around solutions
9. Enhancement of data services penetration in the corporate
segment of the market
12
Customer Retention
Mobile net adds
in 2002: 975 K
158 K disconnections
in 2002
or 3.7% of base
24
Run rate excl. January: 8K
26
Target 2003:
100K disconnections
19
16
Mobile net adds
In 1Q03: 139 K
16
14
13
11
14
12
10
10
9
6
6
6
2
Jan Feb Mar Apr May Jun Jul
2002
Customers in
pre
- selection
reduced by
12K over the
last 12 months
Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2003
Disconnections (K)
12 months rolling average
13
Customer Retention
Customer Retention
Proactive retention
outbound unit
Reactive retention
inbound center
shops program
New Lines
50%
Improvement
in Customer
Retention
Dedicated sales team
New direct channels: door-to-door sales force
Partnership with banks and real estate agents
Immediate installations
14
New Products and Services
VOICE PLUS
Need: Economic solution
Target or audience: permanent
residence/young couples/seniors
VOICE EXTRA
ADSL PLUS
ADSL
ADSL EXTRA
Analog network line
Fixed phone
Sapo Free
Need: Economic solution and voice mobility
Target or audience: young couples/small
families
Analog network line
Wireless phone
Sapo Free
Need: Economic solution and fast internet access
Target or audience: internet heavy users, juniors/families
Need: Solution of total mobility
Target or audience: VIP families/professionals
Need: Full solution for professionals, with full mobility
Target or audience: technology advanced businesses/SoHo in general
Analog network line
Fixed phone
ADSL
Analog network line
Wireless phone
ADSL
Analog network line
Wireless phone
ADSL
Wireless switchboard
15
Stimulating Voice Traffic
Rationale
Description
3. Management of
pricing perception
Wrong price perception hampers fixed
business
- Fixed perceived as more expensive
than mobile, although the latter is 3
to 4 times more expensive
- Surveys show that price of fixed
perceived as 2 to 3 times higher
than it is in reality
Launching of marketing
campaigns focused on
improving price perception of
fixed vis-à-vis mobile
Monitor impact of campaigns
on perception as well as on
traffic
4. Evolution of pricing
strategy towards a
flat-rate philosophy
Migration to a fixed revenue basis
Changes in the competitive arena visà-vis mobile
Maximization of communication impact
to end customer
Development of a price plan
pack under a flat-rate concept,
aimed at meeting customer
needs whilst being easy to
communicate to the massmarket
5. Evolution towards a
strategy of terminals
that promotes the
convenience of fixed
telephony
Fixed telephony perceived as less
convenient and less functional than
mobile
Usage of wireless terminals stimulates
traffic
Redesign of portfolio of
terminals
Launch of new functions
(e.g., SMS and video)
16
Price Comparison
Average price per minute. Euro cents
Mobile is 3-4 times more expensive
than fixed telephony …
… but it is perceived as 10%
cheaper
Launch of campaigns to
act upon price perception
- December 2002
x0.9
x0.9
x3.4
x3.4
27
x0.6
x0.6
18
16
- February 2003
8
x2.3
x2.3
Actual price gap
Source: Survey over the phone
Perceived price gap
17
Price Plans
Concept of family
“PT Preços para si” Subfamily
Description
Daily minutes not
cumulative in off-peak
periods for a specific
destination against
payment of monthly fee
Launch
Launch of
of plans
plans
with
with daily
daily
minutes
minutes not
not
cumulative
cumulative for
for
specific
specific traffic
traffic
against
against payment
payment
of
of aa monthly
monthly fee
fee
Plans
Portugal
France
Germany
Destinations
UK
Spain
USA and Canada
Daily minutes not
cumulative of local and
regional traffic with PT
network in specific
periods against payment
of monthly fee
Evenings and
weekends
Schedules
After hours
Part-time in the morning
Part-time in the afternoon
Daily minutes not
cumulative for 1 to 10
specific numbers in offpeak periods against the
payment of monthly fee
Friends 1 to 1
Friends 1 to 3
Groups
18
Plans Sold to Date
As of May 31
250,000
21,100
7,521
Significant
Significant impact
impact
on
on ARPU
ARPU (∆)
(∆)
90,998
–– Plano
Plano Portugal
Portugal
+3.6€
+3.6€
–– After
After hours
hours +5.8€
+5.8€
62,377
–– Evening
Evening &
&
Weekends
Weekends +3.9€
+3.9€
–– Part-time
Part-time in
in the
the
morning
morning +4.1€
+4.1€
–– Part-time
Part-time in
in the
the
afternoon
afternoon +7.1€
+7.1€
Destinations
Schedules
Groups
Total
2003
Objective
19
Terminals Strategy
Preliminary results of PT Free (cordless phone) campaign
Analysis for 7,078 customers that activated the phone between
23/12/2002 e 14/02/2003
–– Launching
Launching of
of aa new
new
terminals’
portfolio
terminals’ portfolio
organized
organized in
in six
six product
product
families
families (PT
(PT Basic,
Basic, PT
PT
Fun,
PT
Classic,
PT
Fun, PT Classic, PT
Image,
Image, PT
PT Evolution,
Evolution, PT
PT
Design)
Design)
–– Equipments
Equipments with
with VAS
VAS
stimulators
of
stimulators of ARPU
ARPU
•• SMS
SMS
•• Caller
Caller ID
ID
•• Voice
Voice mail
mail
Traffic evolution
Percentage
Traffic revenues evolution
Percentage
4.2
1.6
11.8
11.8
pp
pp
12.5
12.5
pp
pp
-7.6
PT Free
Average customer
-10.9
–– 55
55 thousand
thousand cordless
cordless
phones
phones sold
sold as
as of
of May
May 31
31
–– 2003
2003 sales
sales objective
objective of
of 200200280
280 cordless
cordless phones
phones ––
potential
potential revenues
revenues impact
impact of
of
3.3
3.3 –– 4.7
4.7 M€
M€
20
Fixed SMS
Product launch campaign
Product launch campaign built on Mother´s Day
– from April 24 to May 4
Advertising campaign (TV, press….)
SMS sent to TMN customers
Audio diffusion to PT customers
“Now your home fixed phone can send and
receive SMS ”
“Send SMS to any terminal from PT network”
As
As of
of May
May 31
31
►
► ~~ 33 thousand
thousand SMS
SMS
activation
activation
►
► ~~ 125
125 thousand
thousand SMS
SMS
sent
sent and
and received
received
21
ADSL Penetration
Levers
Description
Development of differentiated offers to the distinct
customer segments
Product
Product
•
•
SMEs
Development of bundles aimed at maximizing ADSL
penetration
•
•
Commercial
Commercial
actuation
actuation
Residential
ADSL + voice
Strong
growth
potential
ADSL + PC
Development of a program aimed at increasing
commercial aggressiveness of sales channels
Provisioning
Provisioning
Redesign of the ADSL provisioning process in order to
reduce the activation period to 3 days
After-sale
After-sale
service
service
Redesign of the after-sale service in order to improve
service levels and minimize complaints
35
thousand
ADSL net
adds as of
May 2003
22
ADSL Deployment
ADSL Accesses
98
Retail
Dedicated sales force
78
53
Bundle offer for “first time
voice” customers
78
61
61
Thousand
42
21
5
7
4
5
1Q
2Q
2002
14
3Q
4Q
1Q
YTD
Broadband portal leverage
- new Sapo XL portal
Market share of 80%
2003
23
Data Services
Segment
Monosite
Monosite
PT
PT
Business
Business
Net
Net
Monosite
Monosite
companies
companies
Multisite
Multisite
PT
PT Linhas
Linhas
Privadas
Privadas
Standard
Standard
PT
PT Linhas
Linhas
Privadas
Privadas
Premium
Premium
Less
Less
sophisticated
sophisticated
companies
companies
Medium/Highly
Medium/Highly
sophisticated
sophisticated
companies
companies
Product components
Access –Business internet package: ADSL access to internet
(Telepac), domain, mail boxes, hosting, Wizard Web Design
Terminals equipment
Other services: inclusion in Sapo directory, Dial- up access
accounts
Access: ADSL access to VPN, centralized firewall, internet
connectivity
Terminals equipment
Web services (domain, mail boxes, hosting, Wizard Web
Design, inclusion in Sapo directory)
Access: Permanent access, centralized firewall, internet
connectivity
Terminals equipment
Web services (domain, mail boxes or mail relay, hosting,
Wizard Web Design, inclusion in Sapo directory)
~ 5,000
ADSL sold
~ 100
packages
sold in the
first month
24
Data Communication
Web Capacity Sales and
Data Communications Accesses
35.5
35.5
35.7
35.3
1,430
Thousand
35.3
35.8
PT Prime
1,181
PT Prime offers:
Mbps
847
524
678
413
1Q
2Q
3Q
2002
Web Capacity Sales
4Q
PT Prime is the commercial
front end for corporate
customers with approximately
6,500 accounts
1Q
YTD
2003
•
•
•
•
•
•
Integrated voice and data
telecommunications solutions
Information systems
Internet
e-commerce
B2B, and
Outsourcing of
communications networks
Data Com. Accesses
25
ISP and Portals
Total Accesses and Penetration
ISP and Portal – PTM.com
3.0%
Broadband
10.4%
948
11.0%
10.3%
10.3%
151
189
259
309
883
870
809
823
10.0%
122
ARPU dial-up €25; ARPU ADSL
€35
1Q
2Q
3Q
2002
Dial-up
4Q
1Q
2003
Broadband
2.7 million unique users per month
and over 307 million page views
per month
27%
New broadband channel - Sapo
XL - including live video streaming,
movie trailers, video game demos
and exclusive sport’s content
73%
PT is the best placed player to
take advantage of broadband
development
Broadband market share of
approximately 80% and global
market share of 35%
Accesses / Pop
26
Opex Structure of PTC
Telecomun.
35%
Other
4% COGS
2%
Other G&A
∆ 1Q03/02
1Q 2003
Advertising 1%
Call Centers 2%
-14%
+10%
IT 3%
-2%
Network
Maintenance 5%
-3%
21%
HR
38%
Other 10%
-13%
Excluding Depreciation and Amortization
Operational merger of fixed line, data and Internet businesses with significant
cost gains, Capex efficiency and customer focus
27
Staff Reduction at PTC
19.4
460
18.5
17.4
390
16.7
418
403
319
246
188
206
230
1,500 redundancies in 2003, a
15% reduction (425 in 1Q and
the remaining 1,000 in 2/3Q)
13.3
11.0
10.3 10.3
8.8
1995 1996 1997 1998 1999 2000 2001 2002 2003E
No. of Employees (K)
460 lines per employee in 2003
(Top Tier European Telcos)
Wages and Salaries savings
cruise speed full year of Euro 45
million
Additional 10% from headcount
related cost savings
Main lines per Employee
28
Non-HR Cost Reduction Programs
Cost pool
Expected savings
Major initiatives
12 months - 2004
Network maintenance
Programme “Operational Efficiency”
(fault prevention and productivity increase
in repairing)
Contracts renegotiation
Information Systems
Renegotiation of outsourcing contracts
and of licence fees
Storage and application consolidation
Invoicing and accounts
receivable
Consolidation of customer payment channels
Bi- monthly invoicing
Electronic channels
11%
Call Centres
Consolidation of call centres
Alignment of KPIs with best practices
10%
Premises
Rationalization of power consumption,
supplies and tariffs
Consolidation of premises
Renegotiation of security and cleanup
contracts
Vehicles
30%
8%
Phasing out of network operations vehicles
and improvement of fleet management
Consolidation of maintenance contracts
Total
32%
~
~ – € 20M
9%
100%
29
Capex - PTC
Capex Evolution
Capex Structure
16.2%
9.9%
5.3%
4.6%
40
31
2Q
3Q
2002
Capex
New
Business(1)
15%
Core
Business(2)
32%
65
1Q
IT
19%
92
25
4Q
FY
Euro million
6.8%
%
11.3%
228
Other
5%
1Q
2003
Capex to Revenues (%)
Baseline(3)
29%
Network
76%
(1) ADSL, WiFi, SMS, Ethernet.
(2) Demand Change (ULL, IN, etc).
(3) Technology substitution, OPEX reduction,
monitoring&control, regulatory obligations.
30
Quality of Service
QoS Indicators
99.9%
99.9%
99.8%
11.6
10.3
10.2
2002
1Q03
YTD
The quality of service
continues to improve,
as a result of specific
QoS programmes,
despite the reduction in
the maintenance and
repair costs per line
Call Completion Rate
Notified faults per 100 access lines
31
Wi Fi – Internet Mobility
Target
•
•
•
•
•
Business Executives
Mobile Sales Force
Students
Early Technology Adopters
Business Market (SMEs and Corporate)
Hot Spots
•
250 to 300 end of 1st year
Time To Market
•
•
Free Trial since 15.06.03 until 31.08.03
Commercial Offer – 01.09.03
Commercial Offer
•
•
•
Post Paid access
Pre Paid access
Pay as You Go
Services
•
•
Internet Access
Wireless Virtual Private Networks
32
Wrap-up
Fall in volumes is totally market related
Strong operational performance focused on:
•
•
•
•
•
Strong cash flow
Strong margins
Strong market share position
Strong cost control and headcount reduction
Capex management
Profound cultural change Ö Building a customer centric organization focused on:
•
•
•
•
•
Outstanding service levels
Customer retention
Segmentation
Solutions
Innovation
New revenues streams
•
•
•
ADSL
WIFI
New pricing schemes
– Traffic stimulation
– Flat rates concept
33
Conclusion
Wireline Businesses
Building a customer centric,
efficient and market aggressive
organization
Focused
Customer
Satisfaction
Free
Cash Flow
34
Mobile Businesses
Iriarte Esteves
Executive Officer and TMN CEO
Mobile Businesses: Overview
Subscribers
Market Ranking
Market Share
MediTel
Mascom
100%
31.3%
50.01%
Portugal
Morocco
Botswana
4.5 million
#1
52%
1.7 million
#2
41%
Disposal
almost
complete
50%
Brazil
16.9 million
#1
60%
23.1 million mobile subscribers
2
TMN Financials
Key Financial Highlights
€ million
2002 ∆ YoY %
1Q03 ∆ YoY %
Revenues
1,475
5.8
353
0.1
Operating Costs excl. D&A
852
-0.5
199
-3.2
EBITDA
623
15.7
154
4.6
EBITDA margin (%)
42.3
3.6pp
43.7
1.9pp
Capex
283
-0.2
46.7
-31.8
Capex % Revenues
19.2
-1.1pp
13.2
-6.2pp
EBITDA minus Capex
341
33.5
107
36.1
3
May Update: Key Operating Update
2002
∆ YoY %
1Q03
4,426
13.3
4,474
TMN Net Additions (‘000)
521
-46.1
Data (% of Service Revenues)
7.4
TMN Active Customers (‘000)
ARPU (Euro)
Customer Bill (Euro)
Interconnection (Euro)
MOU (minutes)
∆ YoY %
YTD*
∆ YoY %
12.3
4,494
11.1
47
-38.3
68
-51.6
1.4pp
8.5
1.9pp
8.4
1.7pp
27.1
-9.8
24.1
-11.2
24.6
-9.3
19.0
-4.3
17.3
-4.6
17.7
-4.3
8.1
-20.6
6.8
-24.5
6.8
-20.1
130.5
-5.1
118.4
-7.3
119.8
-7.5
* Cumulative
4
The Year to Date
Market leadership
4.5 million subs, a rise of 12.3% y.o.y.
Tariff adjustment of approximately +3% across the board
New services launch like Kolmi and video MMS
ARPU drop of 11.2% to € 24 driven by interconnection decreases
(24.3% in M2M and 21.1% in F2M)
SACs and CCPU down by 11.4% and 11.9% y.o.y respectively
EBITDA margin improvement to 43.7%
5
Strategic Focus
Market Share Leadership
Promoting Customer Loyalty and Retention
Stimulating Voice Bill
Managing Regulatory Risks
Development of new services
Containing Cash Costs
(Focus on AMPU = ARPU – CCPU)
UMTS Rollout
Management of a sustainable Capex Intensity
6
Market Leadership
Market Share
Market Perception
80,0
-
+
70,0
60,0
Tariffs
50,0
Technology
40,0
Coverage
30,0
20,0
10,0
0,0
50.1%
51.9%
52.1%
Communic.
More
experienced
1995
TMN
2002
Vodafone
1Q03
Optimus
Quality
TMN
Customer
Care
Innovation
Vodafone
+
Optimus
April 2003
7
TMN vs. Vodafone
Subscriber Evolution
4,474
4,426
3,905
1,389
1,389
1,118
2,939
624
3,085
3,037
2,787
2,315
2000
2001
TMN
2002
1Q03
Vodafone
8
Brand Power and Loyalty
I know it …
I have tried it …
Spontaneous recognition (in %).
TMN
Among users that know it, those of them which
have already been customers (in %).
99.5
Vodafone
98.5
Optimus
96.9
TMN
56.8
Vodafone
Optimus
40.1
24.4
Avg: 40.4
Avg: 98.3
I stayed with it …
…, I am loyal to it.
Among users which have been customers,
those that still are (in %).
Among users that have stayed as customers,
those which are loyal (in %).
88.7
TMN
Vodafone
97.8
96.8
Vodafone
80
TMN
Optimus
77.5
Optimus
Avg: 82.1
95.1
Avg: 96.6
Source: “Imagem e Fortaleza da Marca” – First Half of 2003
Once TMN always TMN
9
TMN “Miles” Club
% of Members in TMN’s
Customer Base
+338.000 Customers
Main Discounts in 2002
80,0
Partnerships
2%
Gifts 3%
Services 3%
Handsets
10%
5% Parts
25%
18%
2002
2003
Credits
77%
10
Distribution Network
Balanced Use of Channels
Low weight p/ channel (less than 10%
per agent)
Long term exclusive contracts
(partnerships w/ more than 8 years)
Partnerships w/ main distribution chains
Market Intensive Coverage
Large Commercial Scale
2,000 points of sale
Large customer relationship
200 POS w/TMN full branding
More than 1 million gross adds per year
22 million of annual client visits
More than 1,000 commercial assistants
Presence in all major retail outlets
experienced and trained
Telecomunicações
Móveis Nacionais
TMN strength in commercial distribution can
hardly be achieved by any competitor
11
ARPU
ARPU
18.1
26.9
18.9
28.1
20.0
9.0
8.0
8.1
1Q
2Q
3Q
26.3
% of
Roamers 1.9%
Data
6.6%
24.6
18.9
17.3
17.7
7.4
6.8
6.8
4Q
1Q
YTD
2002
Billing
24.1
Euro
27.1
2003
Interconnection
2.7%
4.7%
2.3%
2.0%
2.2%
6.9%
7.5%
8.5%
8.5%
8.4%
12
ARPU Evolution
27.1
MOU
-2.0
ARPM
Interconn.
Data
24.1
+0.3
€
-1.7
ARPM
Billing
+0.4
1Q02
1Q03
13
Regulation
F2M Termination vs. Benchmark
(€ cents)
Evolution
M2M
1st Half 02
€ 0.247
2nd Half 02
€ 0.187
st
1 Quarter 03
SUI
HOL
- 24.3%
GRE
BEL
€ 0.187
UK
19.75
POR
ITA
F2M
st
SP
1 Quarter 02
€ 0.237
DEN
2nd Quarter 02
€ 0.217
GER
3rd Quarter 02
€ 0.207
4th Quarter 02
€ 0.197
FRA
- 21.1%
IRL
F2M Termination
Tariff European
Average = 17.34
AUT
SUE
1st Quarter 03
€ 0.187
LUX
FIN
Overall impact on ARPU: -7.6%, - € 2
NOR
0
9
18
27
April 2003
Source: Cullen International and TMN
14
Subscriber Usage
MOU
Traffic Structure (1Q03)
TMN – Other Mobile
277
TMN- Fixed
266
262
128
118
120
98
90
91
4Q02
1Q03
YTD
MoU Post Paid
MoU Prepaid
MoU
TMN – Int’l
4.2%
minutes
7.5%
13.9%
TMN- TMN
74.4%
15
Voice Margins
Total Margin
Customer Bill Margin
299
297
83.1%
207
194
80.9%
75.7%
70.7%
57
1Q02
Service Revenues
50
1Q03
Interconnection
Costs
57
1Q02
Billing Revenues
50
1Q03
Interconnection
Costs
16
Pricing
Price Comparison
Pricing
Tariff Change
Post Paid
Pre Paid
From May 1, 2003, GSM
tariffs increased
approximately 3%
GER
FRA
ITA
No visible impact in May
daily MOU
UK
SUE
POR/TMN
33.3
0%
69.8
100%
On net
29.3
0,0
0%
20,0
40,0
Off net
60.0
60,0
100,0
100%
80,0
2.7% increase in billing
ARPM of originated traffic,
from April to May
Source: CMT, TMN
17
SMS Revenue Structure
Penetration 45%
SMS/user : 39 P2P + Infotainment
51 P2P + Infotainment +
Interconnection
Revenues €mn
1Q02
1Q03
SMS
100%
100%
77%
69%
7%
17%
16%
14%
P2P
Infotainment
Interconnection
Penetration 48%
SMS/user : 39 P2P + Infotainment
50 P2P + Infotainment +
Interconnection
30% growth
≈15 partners
150 different services
≈ 30 partners
≈ 350 different services
18
New Services
Kolmi
Karga
MMS
MMS Video
GPRS
PayShop
Bundled
Solutions
MMS Album
ARPU enhancement
Brand
Churn & Customer Retention
19
UMTS – Progress to Date
PT intends to be the first to launch UMTS
Vodafone has mentioned that it may launch in 1Q04
Anacom may revise UMTS license obligations
“Gentle” rollout of UMTS to add capacity
Estimated Capex 2003
€ 60 to 100 million *
* Including Oniway assets
20
Operating Costs excl. D&A
1Q 2003
Wages &
Salaries
6.4%
Cost of
Telecoms
37.3%
Lower interconnection fees
Cost of
Products
Sold
17.8%
Less subsidization
OG&A
25.0%
Contents & promotion of new services
Other
13.5%
100%
Personnel freeze
EBITDA Margin: 43.7%
21
EBITDA
ARPU minus CCPU
EBITDA
2002
13.6
Euro
+4.6%
13.4
14.2
12.7
170
14.0
12.0
169
12.6
154
137
Euro million
147
Mg 43.7%
1Q
2Q
3Q
2002
4Q
1Q
YTD
2003
1Q
2Q
3Q
2002
4Q
1Q
2003
22
Capex
Capex Evolution
Capex Structure / GSM in 2002
26.6
19.4
Other
4%
18.3
12.4
13.2
65
48
47
3.8
1Q
2Q
3Q
2002
Capex
4Q
Radio
40%
IT
9%
1Q
2003
Infrastructure
5%
Euro million
68
101
Handsets
9%
Real Estate
14%
Switching
19%
Capex to Revenues
Excl Oniway Assets
23
Capex per Minute & Subscriber
119.7
107.0
105.3
102.3
88.0
77.0
73.1
72.5
78.1
74.1
71.3
65.2
50.8
52.9
49.5
43.6
63.9
44.1
58.4
40.3
Cumulative Capex per Client
2000
1Q 01
2Q 01
3Q 01
4Q 01
1Q 02
2Q 02
3Q 02
4Q 02
Euro
Cumulative Capex per 1000 min
1Q 03
24
Conclusion
Market Share Leadership
Stimulating Voice Bill
Development of new services
Promoting Customer Loyalty and Retention
Managing Regulatory Risks
Containing Cash Costs
(Focus on AMPU = ARPU – CCPU)
UMTS Rollout
Management of a sustainable Capex Intensity
25
Multimedia Business
Zeinal Bava
Executive Officer and PTM CEO
PT Multimedia Overview
Pay TV
# 1 Pay TV operator in
Portugal
# 1 Broadband internet
access provider in
Portugal
Ownership of football
rights (SportTV)
Audiovisual
Entertainment
Exclusive holder of key
Pay TV content
Media
National Daily
Newspapers
News radio station (TSF)
Cinema exhibition and
distribution
Magazines
DVD and videogames
distribution - Exclusive
PS2 distributor
Revenues: EUR 364.2 mn
Revenues: EUR 119.1 mn
Revenues: EUR 135.7 mn
EBITDA: EUR 71 mn
EBITDA: 13 mn
EBITDA: 1 mn
58.5% Total Revenues
19.1% Total Revenues
21.8% Total Revenues
2
Key Financials
€ million
2002 ∆ YoY %
1Q03 ∆ YoY %
Revenues
623
17.4
164
14.7
Operating Costs excl. D&A
544
14.7
136
9.0
79
40.1
27
54.9
12.7
2.1pp
16.7
4.3pp
79
-35.0
16
5.3
12.7
-10.2pp
9.7
-0.9pp
0
n.m.
11
344.2
EBITDA
EBITDA margin (%)
Capex
Capex % Revenues
EBITDA minus Capex
3
May Update: Key Operating Data
2002
∆ YoY %
1Q03
YTD*
∆ YoY %
2,390
2,048
1,307
1,017
4.6
42.3
12.7
8.7
2,405
2,084
1,346
1,038
3.8
35.5
13.4
9.6
2,413
2,110
1,358
1,045
3.3
22.9
12.2
8.7
DTH
290
29.5
308
28.3
313
25.7
Premium
916
24.6
968
26.2
980
23.1
140
21.6
19.0
31.3
125.8
11.9
4.4
4.3
162
23.4
19.8
30.6
116.0
14.3
4.9
15.9
174
23.4
19.7
30.4
97.2
12.9
3.8
13.3
TV Cabo
364
30.9
102
27.2
170
22.5
Audiovisuals
119
8.4
28
-10.8
45
-20.8
Media
136
-2.4
35
14.1
60
11.3
Homes Passed (‘000)
Homes with two way cap (‘000)
Subscribers (‘000)
Cable
Broadband
ARPU (Eur)
Pay TV
Broadband
∆ YoY %
Segment Revenues (Eur mn)
* Cumulative
4
The Year to Date
Sustainable double digit subscriber and revenues growth
Strong consolidated EBITDA margin improvement
Growing positive free cash flow
Launch of digital platform with pay per view and other services
Launch of the Lusomundo premium movie channels (replacing Telecine)
Media restructuring underway but no help from advertising market
Acquisition of the 50% stake in Warner Lusomundo that was not already owned by PT
5
Strategic Focus
Continued Subscriber and ARPU growth
Bring to bear full extent of synergies of ownership and control of windows of rights
from theatrical distribution to pay-TV
Margin expansion through lower programming costs
Increase viewing share and advertising revenues
Excel in the execution of the turnaround of Lusomundo Media
Build financial strength and ROCE
6
ARPU Growth
Broadband
Penetration
Tariffs
0.1
Premium
Penetration
Digital
Services
0.1
1.9
0.9
Subs: 162 k
+116% YoY
Subs: 968 k
+26% YoY
Euros
20.4
23.4
1Q02
1Q03
7
Up-sell Opportunity
% of Customer Base
ARPU (1Q03)
Customer Bill
Basic & Premium
+
Broadband
6%
€ 52.4
€ 25.1 - € 96.6
Basic
+
Broadband
11%
€ 38.8
€ 15.7 - € 45.1
24%
€ 28.6
€ 25.1 - € 67.2
59%
€ 15.0
€ 10.5 - € 15.7
Basic
+
Premium
Basic
Package
8
Killer Content
Major Producers
Paramount, Sony, Dreamworks and Walt Disney Pictures
Movies
Independent Producers
Spyglass, Revolution Studios and other
Exclusive rights for Portuguese 1st league
Additional international soccer rights (English, Spanish, German,
Brazilian and Italian leagues) and other sports rights (i.e. tennis,
golf, basketball)
Sports
No risk: rights acquired with no upfront payment for PTM
Portuguese news channel with 6.3% share of audience with
advertising revenues reverting 100% to TV Cabo
Local
SIC Mulher, SIC Radical, SIC Gold, TV Saúde and NTV
Content
More to come…
Additional 2 to 4 channels to be launched before mid 04
9
Broadband Success Factors
Pricing
Flat fee
“eat as much as you can”
Cap on heavy users who
pay after 1 GB of
downloads
Per usage fee
“pay as you go”
Installation
Self Installation Kit
New adds
85% self installed
Wi-Fi Solution
2% of Subs with Wi-Fi
PS2 Option
Content
Exclusive content
Tailored for the broadband
experience
Relevant to the local market
Branding power
Blended ARPU: € 30.8
10
Sapo XL
Online TV
SIC
Games
Demos &
downloads
Online Radio
TSF & RR
Video Streaming
sports, cinema, music &
breaking news
11
Digitalization
Already 74K cable and DTH digital
enabled boxes
Pay per view capability
Piracy control
Pre-paid services via SMS/ATM
Lusomundo’s video library will
provide killer content for Pay Per
View
Set Top Box technology identical
across satellite and cable
Box factory gate price below €120
Rented to subscribers with payback
over 24 months
12
Cost Control
TV Cabo Cost Structure
1Q03
Programming
41.1%
Renegotiation of content contracts supported by viewing share
analysis and substitutability of channels
Wages and Salaries
9.3%
Scope for further reduction on an absolute basis, notwithstanding
the fact that need to have talent in marketing and costumer care
Telecommunication
7.7%
Benefits from economies of scale as major increase was due to
dual-path connectivity, and from unit prices fall
Marketing
1.6%
Low as own channels are used to promote service
G&A
28.9%
Scope for further reduction mainly related to:
Call center costs, which are expected to drop as no. of
faults declines and calls are being billed
Other
11.4%
Sales commissions will be linked to customer loyalty and
should fall as direct sales increase
EBITDA target of above 30% in Q4
13
Programming Costs Breakdown
€ 120 mn
9.0%
3.0%
1.8%
6.6%
17.4%
21.7%
40.5%
Sports
Portuguese
Content
Movies
Documentary
Children
Music
Other
FY 02
14
Channel Redundancy
General
Entertainment
News
Music
Documentary
Movies
Children
Sports
15
Renegotiation Process Update
2002
2003
Renegotiated
%Total
Programming
Costs (FY02)
8%
2004
In Progress
22%
18%
Savings
(% renegotiated
amount)
50%
35%
16
Synergies with Lusomundo
Content
Wholesaler
Platform
1st window
-
Cinema
Content
Distributor
75 films distributed
in 2002
134 Screens
41% Market Share
46% Market Share
UIP, Buena Vista
& Independents
AOL Time Warner
8.1 mn admissions
Direct sale & rental
45% Market Share
Time Scale
Video
Pay-TV
Columbia, Disney,
Paramount &
Independents
Rights distribution
to pay TV
PPV
VOD
Premium
Subscription
+
Free to Air
Television
Rights distribution to
all FTA: RTP, SIC &
TVI
17
Movie Channels
Previous Situation
Current Situation
-43%
Cost per Subs.
6.23
3.50
Content
Represented 34%
of US Box Office
Revenues
Representing 53%
of US Box Office
Revenues
18
Advertising
Cable
Daily Press
-12.7%
5.7%
4.1%
10,475
4.1%
9,143
Euro Million
3.2%
1Q02
Viewing Share
1Q03
Advertising Share
1Q02
1Q03
Daily Press Market*
*Medium Agencies
19
Lusomundo Media Restructuring
Product revamp
•
•
•
Graphical changes and creation of transversal supplements
Paper saving format changes
Changes in the radio product
Commercial optimization
•
•
Regional cross-selling, new channels and sales network reinforcement
New points of sale
G&A
•
•
Staff Reduction
Back office structures rationalization
20
Conclusion
Continued subscriber and ARPU growth
Improve quality of customer service and rollout of digital STB to reduce churn
Bring to bear full extent of synergies of ownership and control of windows of
rights from theatrical distribution to pay-TV
Margin expansion through lower programming costs
Increase viewing share and advertising revenues
Excel in the execution of the turnaround of Lusomundo Media
Implement lean corporate structure
Build financial strength and ROCE
21
Cash Cost Reduction
and Centralized Service
Platforms
Paulo Fernandes
Executive Officer and IT CEO
Progress to Date
Euro million
-7.0%
-8.9%
3,603
3,352
870
FY02
1Q02
793
Opex
FY01
1,316
-41.0%
-23.1%
776
Capex
FY01
FY02
EBITDA minus Capex
FY01
158
122
1Q02
1Q03
-0.5%
+79.9%
808
1Q03
1,454
400
398
FY02
1Q02
1Q03
2
Main Efficiency Driven Projects
Purchasing: PT Compras
Back-Office: PT Pro
IT Systems: PT SI
Real estate
Reduce unit prices
Contain and control cash out
Aggregate and optimize
accounting, treasury, logistical
and administrative procedures
Integrated and efficient IT/IS
Platform
Optimization of PT’s real estate
portfolio
3
PT Compras
PT Compras will consolidate and
amplify the efficiency gains already
obtained:
• Higher professionalisation in the
relation with the group’s
companies
• Increased institutional presence,
robustness and transparency
• More precise cost allocation
• Consulting and negotiation
services rendering to third parties
February 2003
June 2002 Purchasing model definition
Creation of PT’s
purchasing central
for VIVO
(JV PT-Telefónica)
June 2003
Creation of
PT Compras, S.A.
2002
2003
July to December 2002
May 2003
July to December 2003
Centralization of PT
Comunicações’, TMN’s and PT
Multimedia’s purchasing
VIVO’s integration in the
corporate purchasing system
Refining of the purchasing model and
migration of smaller companies
4
Main Objectives of Purchasing Centralization
Approach
Scope
Independence
Portugal
Systematic approach
Transparency
Brazil
Rigour
Ambition
Other
markets
Robustness
Separation between...
Order
Negotiation
Payment
Savings in 2002: €38 million OPEX and €25 million Capex
5
Systematic Review of the Entire PT’s
Supplier Base
Today
Process under way
1st wave (from July 2002
to December 2002)
2nd wave (from January
2003 to June 2003)
3rd wave (from July 2003
to December 2003)
Mobile handsets and mobile networks
Services (Temporary Labor, Security and Cleaning Services, Energy, Fleet, Travel, etc.)
Mobile networks’ supply and maintenance (GSM, CDMA, GPRS, UMTS and service platforms)
Infrastructure’s supply and
maintenance (ADSL, etc)
ADSL and Cable modems
Wireline handsets
Network interventions
IS projects (desktop maintenance,
CRM, etc.)
Postage
Others (underwater cables, etc.)
Lusomundo’s materials and merchandising products
SIM cards
Contract programming
Marketing and advertising
Construction
Billing
IS maintenance
Transportation
Next Generation networks
Data Centers
Others
Average 20% to 30% price reduction on renegotiated items
6
Unit Cost Reduction
Examples
Optical Fibre
Local Loop Copper
12%
2000/01
2001/02
39%
27%
2001/02
Approved Suppliers
- Cabelte
- Cunha Barros Approved Suppliers
- Cabelte
Approved Suppliers
- Cunha Barros
- Cabelte
- Alcatel Cable Ibérica
- Cunha Barros
- Alcatel Cable Ibérica
- Corning Cables
€ 2.5 million
decrease per year
54%
Approved Suppliers
- Cabelte
- Cel-Cat
- Enertel
Approved Suppliers
- Cabelte
- Cel-Cat
- Enertel
- Cunha Barros
- Nexans Ibérica (Alcatel)
- Alcobre/Cables de Comunicaciones
€ 2.6 million
decrease per year
7
Purchasing Power
Examples
Sample Negotiation
Processes
Prior to Centralized
Negotiation
Unit Price
Savings
(€ million)
Telesp Celular Handsets
82
13%
Submarine Cable
22
36%
Wireline Switching Maintenance
19
30%
ADSL Infrastructure
6
50%
TMN Handsets
39
6%
ADSL and Cable Modem
4
24%
CTT (Mail company)
14
6%
Desktop Hardware Maintenance
4
18%
Sintra/Sirel Hardware for Environment
2
18%
8
PT Pro’s rational
Main Advantages
Capture of scale economies through
Aggregate back office
aggregation
Redesign and standardization of all back
functions of PT’s
subsidiaries in
office processes and procedures increasing its
efficiency, verifiability and reliability
Continuous improvement of productivity
Portugal into a single
mode through optimization of process
scale-meaningful and
Increased focus and higher professionalism
in execution
specialized company
Allows far greater focus and flexibility to the
business areas
9
First 100 Days Achievements of PT Pro
40% of the PT’s
back office
processes already
migrated to PT Pro
Implementation
and migration
plan on target
High service levels
assured for all
critical processes
Productivity
improvements in
some early win
processes already
achieved
10
Quick Wins: PT Pro
Main Advantages
Cash Pooling
The initiative resulted in estimated savings of around € 2,8
million per year; induce savings were also obtained from better
average transaction costs (a reduction of approximately 8% per
transaction).
Travel Management
The new travel management model introduce in 2003 will allow
the group to reduce travel costs by around 15%. Savings for
the first year after implementation of the new policy are
estimated at around 0,35 million euros.
Merchandising &
other miscellaneous
materials
Outsourcing to specialized brokers for management off
merchandise materials (e.g. outdoors), company papers (e.g.
envelopes), printing (e.g. magazines, management accounts)
and several other related materials will allow the group to obtain
estimated savings around 20% per year.
11
Next Steps until December 2003
PT Comunicações’ back office migration to PT PRO
Common processes redesign (SAP Template)
Launch the second wave of “quick win” projects (facilities
management, fleet management, treasury management, etc.)
Goal: Full gains to be gradually obtained until
2005 and should exceed €20 millions
12
IT systems: Action Plan in place since 2001
Calendar:
Main Goals:
Stage I
Concluded
“Increase Efficiency
and Competitiveness”
Stage II
“Transform our Information
Systems ”
2001 and 2002
2003 to 2005
Aggregation of PT’s Applications and
Information Systems operations in a
single company - PT-SI
Acquisition of PT SI’s minorities
Company turnaround focused on
improving its efficiency and
competitiveness
Reinforcement of central IT strategic
planning
Reinforcement of internal skills in
the IT area
OPEX and CAPEX rationalization on
all IS/IT divisions
Major contracts renegotiation
Substantial improvement in the quality
of the services provided
Kick-off of webification project
Selectively pursue market opportunities
(focus on bundling IS/IT with telecom
services)
Today
13
Central IT Services to PTC
Example
Centralized IT cost
savings passed
on to PTC
Euro million
Initial
Contracts
24.2
26.6
25.5
3.3
9.3
The strong
efficiency gains
achieved by PTSI
have been
transferred to
internal clients
2000
Cost Savings
2001
2002
13%
35%
14
Next Steps
Additional Fronts under “attack” for IT/IS Optimization
Applications
Integrated strategic
vision
Web-related
platforms
consolidation
Centralized
sourcing model
Consolidation of
applications and
licenses
Infrastructures
Organization
Centralized
network
management
Back-offices
consolidation and
reduction
Datacenters
consolidation
Consolidation of
development teams
Desktop
management
integration
Rationalization of
support teams
Smart outsourcing
Performance
oriented analytical
accounting
External Market
Total
Bundled offer of
IT/IS solutions with
telecoms for large
corporate clients
(selective and in
coordination with
PT Corporate)
15
Real-estate Optimization Levers
Increase occupation
density
Optimize building location
and costs
Open space as the new standard
Increase occupation density by 30 to 40%
(in line with best practices)
In some units occupation area from 15m2 to 6.15 m2 per
employee
Concentrate business units in single buildings or in nearby
areas
Vacate the most expensive buildings
Renegotiate all building related cost (e.g. security,
cleaning, electricity,…)
Sell vacant real-state
Sell gradually vacant real-estate, releasing capital to
invest in core businesses and/or reduce debt
Negotiate all real-estate
centrally
Increase PT’s bargaining power through centralized and
specialized negotiation of all real-estate
Consider more structural
solutions
Analyse stronger centralization for main cities
16
Space Released
Example – Lisbon area action plan
Space Under Release
Buildings
Releasing Program Going Forward
Area (‘000 sq m.)
Buildings
Estimated Timing
►
Entreposto
18.2
►
Expo
►
Expo
13.3
►
Taguspark Inovação II
2Q03
►
Arquiparque
7.8
►
Prodiário – Av. 5 de Outubro
2Q03
►
Taguspark Inovação I & II
4.1
►
JN – António Augusto Aguiar
2Q03
►
Defensores de Chaves
1.1
►
Taguspark Tecnologia I
3Q03
►
Taguspark Tecnologia I & II
1.1
►
Taguspark Tecnologia II
3Q03
►
Prodiário
1.0
►
Arquiparque - Miraflores
4Q03
►
JN
0.5
►
Defensores de Chaves
2Q04
►
F. Pereira de Melo, 32 (in 2005)
3.2
►
F. Pereira de Melo, 32
2005
Sold
17
Wrapping Up…
1.
The restructuring program launched by PT one year ago was timely, and initiatives already
impacting the bottom-line
2.
The centralization of the purchasing process already delivered significant savings through
new negotiation procedures and the systematic review of PT’s supplier base
3.
“PT Compras” creation will consolidate and amplify the efficiency gains
4.
PT Pro’s creation was an important step in improving PT’s overall efficiency. The project’s
progress to date has been very favourable with 40% of the Group’s back office processes
already migrated
5.
More ambitious objectives have already been set for PT Pro: PT Comunicações’ back office
migration by the end of 2003 and full gains of €20 million to be gradually obtained in full in
2005
6.
The vigorous action plan launched in the Information Systems areas has already generated
significant cost savings in 2002. PT-SI proved to be financially viable and is the prime
contractor of IT service for PT Group
7.
The group-wide Information Systems consolidation will progress vigorously and PT-SI will
continue to evolve towards organizational and business excellence
8.
Key-axis for real-estate optimization are already being “attacked”. This optimization will have a
significant impact in PT’s results (full potential captured gradually until 2005)
9.
These are just four examples. PT Group’s transformation will continue on many other fronts
(no rock unturned mode)
18
2003 Estimated Savings
Examples of restructuring projects
Savings in OPEX
(as a percentage of the Group’s
EBITDA)
Savings in CAPEX
(as a percentage of the Group’s
CAPEX)
Purchasing central creation
1.3 to 1.9%
2.1 a 3.0%
Shared services
~1.0%(1)
-
Information systems
0.5 to 0.8%
-
Real estate optimization
0.1 to 0.2%
6.0 to 8.6%(2)
(one –off)
Total
2.9 to 3.9%
8.1 to 11.6%
(1) Savings in steady-state; (2) Due to the sale of real estate assets;
19
Wrap-up and Outlook
Zeinal Bava
Chief Financial Officer
Main Trends for the Future
From
To
PT’s Initiative
Driving
Dial up
Broadband
Rev. up
Voice
Data
Product Offer
Integrated
Services Offer
• Net Cabo
• i9
• PT Corporate
Acquisition
Retention
Costs down
Back Office &
Procurement
Management
Integrated &
Centralised
Management
• Loyalty Program
• PT Pro
“Variable”
Revenues &
“Fixed” Costs
Structure
“Fixed” Revenues
& Flexible Costs
Structure
Rev. & Mg up
Rev. up
Costs down
PT Compras
PT Meios
2
Closing Remarks
Miguel Horta e Costa
Group CEO
Investment Case PT: Financial Year 2003
Restructuring benefits ensures sustainable
returns
Unparalleled scope of business in domestic market
Brazil upswing brings additional growth
through Vivo leadership
Management will return cash
Build on a solid track record
2
Ongoing Benefits
Restructuring benefits ensures sustainable
returns
•
Headcount reduction
•
Capex control
•
Cash Opex control
•
Interest & Tax cost savings
3
Business Scope
Unparalleled scope of business in domestic market
•
•
•
•
•
•
•
•
•
Position
Customers
Revenues*
Wireline
#1
4.1 M
574
Domestic Mobile
#1
4.5 M
353
Brazilian Mobile (100% Vivo)
#1
16.9 M
486
Pay TV
#1
1.3 M
81
Broadband
#1
224 k
24
Cinema Exhibition/Distribution
#1
2.2 M
12
Portals (Monthly Unique Visitors)
#1
2.6 M
2
Newspapers (Daily Circulation)
#1
213 k
32
News Radio (Daily Listeners)
#1
366 k
2
* Non-consolidated 1Q03
revenues in € million
4
Brazil Upswing
Brazil upswing brings additional growth
through Vivo leadership
Vivo EBITDA
∆ 02/03%
20%
×
Vivo
weight
25% of PT’s P&L
in PT
Contribution
to PT growth
Year End
Average
∆ 02/03%
18 to 22% growth in BR$
=
4.5%
5%
5.5%
4
3.9
-29%
3.5
3.7
-24%
3
3.4
-19%
€ 410M
€ 440M
€ 470M
5
Portugal Telecom, SGPS, S.A.
Investor Relations
Tel.:
+351 21 500 17 01
Fax:
+351 21 355 66 23
E-mail:
vitor.j.sequeira@telecom.pt