Greetings, and welcome to the Portugal Telecom 2013 First Half Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Luis Pacheco de Melo, CFO for Portugal Telecom. Thank you sir, you may begin.

Thank you. Good afternoon ladies and gentlemen, and thank you very much for being on this call. I understand it’s a mid-August call, so some of you might be on holiday and therefore our excuses for that, our apologies for that. I am here with our IR Director, Nuno Vieira, our CFO team, and this time, we are being joined by Zeinal Bava down in Brazil, and he will take you through the operations, both in Brazil and Portugal. I will start the presentation with a brief overview of the first half numbers, Zeinal will then address the operation issues in Portugal and Brazil, and I will finish with a brief overview of the other international investments, and also on our shareholder remuneration policy that we have just put out an announcement on the revision of this remuneration policy. We will then follow with a Q&A session. I will use the presentation that we’ve put out this morning as a reference. So, if we quickly move to slide number 1. I just would like to draw your attention to the usual Safe Harbor notice that will be effective throughout the presentation and the Q&A session as well. So, if we move then to slide number 3, on the financial highlights. In the first half, operating revenues amounted to Euro 3.1 billion, on the second quarter they amounted to Euro 1.54 billion. In the second quarter, the revenues of Portugal Telecom were in a way penalized by the depreciation of the Brazilian real, and to a lesser extent by the Namibian dollar depreciation result. As such, revenues were down 5.5% and ex-real, it was 2%. This revenue growth joining real and international assets almost compensating the decline for Portugal. In Portugal, revenues were down 4.8% as a result of the competitive…

Okay. Thank you very much Luis, and again thank you very to all of you for being on the call. As you know in Portugal, we are organized along business segments; Consumer, basically B2C, which is split between Residential and Personal but increasing we are looking as both together. And we had SMEs, SOHOs and large corporates. Let me start off by discussing first the trends of the B2C segment, starting with the Residential first. First and foremost, I would like to highlight that is on slide 16, is that MEO continues to enjoy one of the highest brand notorieties and brand recalls in Portugal. I have said it plenty of times before in previous calls, it’s not just about notoriety in the telecom sector, MEO today is a Portuguese retail brand and clearly top three retail brand in Portugal. And of course just from a consumer company such as ourselves, it’s absolutely critical. Why? Because as you know, proved sales are a lot cheaper than pushed sales. So, from that standpoint I think what we have been able to do with MEO in the last three years has been absolutely formidable. We launched our convergent offer M4O on the 11 of January of 2013. We indicated at the time of launch that there would be three to four weeks before we were able to stabilize all the processes but never imagined that within six months, we would be able to achieve one million revenue generating units. It is absolutely incredible that we have been able to achieve this one million RGUs, 40% of which are new RGUs. So the Portugal Telecom ecosystem in the domestic market today has an additional 400,000 services that we are billing to customers. We also discussed in the last conference call and in some…

Okay, thank you Zeinal. Let us move directly to slide 47 just to address very quickly the other international markets. So we continued to see a very good growth on a proportional basis, both on revenues and EBITDA. This is basically on the back of very strong growth in Namibia and Angola, especially on the data side. Just to remind you they have – these two operations are very good extension and coverage of the 3G network and they have both launched the 4G network as well. On the constant FX basis, the growth is even more substantial with 8.7% in revenues and 9.5% in EBITDA. In Cape Verde and Timor and I mentioned before, we’re experiencing more competition with two new players in the Timor markets and in Cape Verde with a stronger competitor and also from regulatory negative impacts. Let me now address the shareholders – the revision of our shareholder remuneration policy on slide 49. With regards to the shareholder remuneration, we are now in revised policy for the fiscal year of 2013 and 2014, which will now be solely proposed of a cash dividend per share per year paid annually of Euro 0.10. The Board of Directors remain confident on PT’s cash flow generation and clear we want to convey the message of more prudent financial strategy and on strengthening PT’s balance sheet, i.e. de-leveraging. We need to continue investing in the development of our businesses in our core regions, and with the current market environment and also in the current volatile financial market conditions the Board believes that this is the right decision to take at this point. So let me just go very quickly through some final remarks. I would like to highlight that the first half results show on one side continuous customer…

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) One moment please while we poll for questions. Thank you. Our first question comes from the line of Mandeep Singh with Redburn Partners. Please proceed with your questions.

Thank you. Just a quick question on your domestic EBITDA. On the first quarter call, you reiterated that you were comfortable with consensus of about Euro 1.1 billion for domestic EBITDA. I just wanted to hear your thoughts on that again. That would require a significant reduction in the rates of decline year-over-year for the second half against the first half, and if you are comfortable with that consensus, what are the drivers of that reduction in the year-over-year decline in EBITDA?

Okay, thank you for your question. Just to address directly your question that we reiterate our confidence with the consensus out there is around Euro 1.1 billion. Basically that is on the back of continuous improvement in efficiency on the cost side, and also on the benefits that we’re seeing especially on the Personal segment on the revenue trend over there. Very recently, and as Zeinal mentioned also in July, we’ve seen very good demand for services both on the Personal and on the Residential, so we remain confident that we can deliver on the consensus that is out there.

Thank you very much.

Thank you. Our next question comes from the line of Luis Prota with Morgan Stanley. Please proceeds with your question.

Yes, thank you. A couple of questions please. First, in terms of Oi, and now that you are not providing guidance any more, maybe you can comment on consensus estimates for 2013 as you look for Portugal Telecom, and I think that consensus EBITDA for Oi is between 8.6, 8.7 so whether you are happy with that one? The second question would be on the African assets, whether you might consider selling some or all of this assets, further increase balance sheet flexibility? And finally in terms of Oi’s parent company Telamar, whether you have heard from them in terms of potential implications in the dividend cut in terms of potential need to capital injection? Thank you.

Okay, let me just perhaps take the – Luis, thank you again for your third question. With regard to Oi, as we’ve said in the earlier call, we are disposing of certain assets. There is a specific slide in our presentation that gives you if you like detailed inputs on that. There is particular one disposal which is the GlobeNet which is our company that has submarine cables, and that alone will result in about Euro 1.2 billion EBITDA impact. So with regard to this year’s EBITDA which what have been indicated by the company in the past is it seems that we’ve included the recurrent and non-recurrent, so from that standpoint, we are not changing anything that has been said in the past in that regards. With regard to the dividends, what I can say is the following, by taking a view over a full year period of distributing circa R$500 million we have essentially improved substantially the financial flexibility of Oi. This means that rather than us actually distributing R$8 million, we will distribute R$6 million. And that was something which was decided at the Board level and we are very grateful, because it shows that the Board is – it’s committed to actually correcting that if you like the cash flow profile of the company and you also will have seen that we have indicated that we – that the Board will decide regarding an interim payment in October of circa R$500 million. And so therefore that is if you like a package that we have announced today. R$500 million per annum for four years as a minimum within those three criteria that we put out, but in respect to fiscal year 2013, we will have an interim of R$500 million and that of course will be accounted towards what we also pay in 2013. And with regards to Tmar Part, there is nothing else I can say. I cannot add much other than to say that we have an interim dividend, and we believe that this interim dividend will allow of us to actually live up today as to the obligation. Luis Pacheco will probably answer the third question. Thank you.

Thank you. Our next question comes from the line of James McKenzie with Fidentiis. Please proceed with your question.

Thank you. Just a couple of questions. Firstly, maybe following up, from a Portugal Telecom point of view, do you see the need to recapitalize the holding companies above Oi and when might we get some news on this? Secondly, you reported a negative tax charge in Q2 in the P&L. I was wondering if you could give us more or less what the extraordinary tax charge or the tax charge on the extraordinary items you reported, so we can get to an underlying EPS figure? And then thirdly, just on domestic net debt. I realized that Oi is a little bit of joker in the pack [ph] at the moment, but on domestic net debt you talked about de-leveraging. Where do you think you might be able to take domestic net debt over let’s say, by the end of this year and in 2014 and 2015?

Ladies and gentlemen, please standby, your conference will begin momentarily.

Just there was a technical problem in connection with Portugal, so I think they’ll be joining – Luis and his team will be joining in a few minutes, a couple of minutes, okay, so just standby please. Thank you.

Okay.

Okay. Mr. McKenzie, please proceed with your questions.

Yes, sure. Luis, can you hear me?

Yes, I can.

Yes, okay. The first question was, I was just following up on Luis’s question, if in Portugal you see a need to recapitalize Tmar Part and the other holding companies that sit above Oi following a dividend cut, and if – when we might get some news on this? Secondly, I was looking at I think that there is a negative tax charge in Q2. And I was trying to get to underlying net income for the second quarter, and I wondered if you could give us what the tax charge on the extraordinary items that you reported might be? And then thirdly, on the domestic net debt, I wonder if you could give us an idea of where you expect that domestic net debt maybe by the end of 2013 and then with de-leveraging in 2014, and 2015?

Okay, James. Thank you very much for your questions. Sorry for this technical problem. On the recapitalization of the holding company in Tmar Part is also as Zeinal mentioned and went through in the previous question. Basically at this stage, there is no issue on the short-term with the decision by Oi to pay the interim dividend of R$500 million. So that will adjust the interest payments in October at Tmar Part. Of course we will have time to sit down with our partners and see what are the alternatives and that we have at this stage, but just to put it into context, as you know there are R$3 billion with that holding company. We have around 25% of that holding company. So translating that into euros our share of that net debt is around Euro 250 million, but as I mentioned, we are still through that with our different alternatives with our partners and as soon as we have any news, we will of course get back to you.

What about…

On the negative tax charges, what I can say that all the capital gains that we had, both on the settlement of the contract and on the sale of CTM, those are non-taxable. CTM is just under small tax of around Euro 2 million because of the – we own part of CTM a domestic company here. So basically that is around – the sum of the two is around Euro 392 million on the net again that were not taxable. On the domestic net debt, we should see some decline both in the third and fourth quarter. Basically due to what I mentioned during the call, one is the interest payments on these two quarters is much lower. Second, normally the third and fourth quarters of our businesses are, I would say either working capital.

Correct.

Are zero or negative especially in the fourth quarter. So we should see some generation of cash flow over there. Going forward, of course with the decision that we took today in terms of cutting the dividends and also with the decision of Oi of cutting their own dividend, the net effect is positive on our side, just bear in mind that that part. We should see probably improving trends on the EBITDA front and due to what we are seeing first – both on Residential and on the Personal, we should see further CapEx decline. So basically from an operational point of view, CapEx on a domestic front might be more or less stable for the next year. And therefore we should see some de-leveraging across our financial charges on the commitments to pay dividends have now been reduced. So we should see some de-leveraging both in 2014 and 2015.

Okay. That’s very good. Thank you.

Our next question comes from the line of Georgios Ierodiaconou with Citi. Please proceed with your questions.

Good afternoon. I’ve got a couple of questions. First on, I was wondering if you could comment a bit on – I know there has been a couple earlier around Tmar Part, can you perhaps give us an indication of when is the interest that has to be paid by Tmar Part, I know you’re proportionately consolidate that debt, so I was wondering for example out of your Euro 161 million interest payments in the first half, is that – does that include any payments made by Tmar Part on its interest. And the second question is around Brazilian OpEx. I know during the Oi conference call, Zeinal you mentioned the efforts have been initiated to contain costs, and I am conscious of the fact that there are more costs associated with the process, but if we look on an organic basis given the inflation you have in Brazil, do you think it will be possible for you to maintain the cost base flat or even reduce it or is that the case of managing growth in the cost base trying to keep it under control? Thank you.

Okay, Georgios, thank you very much for your question. I’ll address the first one and Zeinal will address the second one. On the first one, the interest payments on Tmar Part in October and April, average rate is around 10%. So average round numbers interest payments for the year or each one of the semester is around R$150 million. We have 25% of that. We consolidate 25% of that. So around I would say R$37.5 million which then gets converted into euros. Zeinal?

Okay, thank you. Georgios, a couple of things. Obviously telecom companies have very high fixed costs and this is why we’ve said that we need to continue to grow our top line, because we believe that the translation of this incremental real or dollar in EBITDA is significant compared to be margins that we have today. So that’s why we’re going to have to, if you like to grow our business also to improve our cost ratio, but leaving that one side, we believe that we can reduce cost in the number of areas. And in my call, I mentioned for example field force. We have service providers in the particular area given to whom we pay and we only spend about R$2 million to R$2.5 billion per annum. We believe that if we can increase the productivity of that, one percentage points that could mean a saving of R$20 million for the ecosystem, it doesn’t mean that we will pay R$20 million but there will be a saving of R$20 million. If you were to ask me on top of my head and like I said, don’t hold me – if you like don’t use this against me when we get together, can we improve this 20 percentage points, I think we can. And if we do that, it’s about 400 million that we will if you like crystallize in terms of value in that ecosystem. How that gets split? That’s a different discussion, but we feel that there are significant areas. I mean I mentioned also in my calls today, bad debts are running at 4.5% of revenues. It’s totally unacceptable. We should be running at probably half of that. Now if we are able to do that, we could be talking about an uplift of EBITDA of…

Thank you. Ladies and gentlemen, we have time for one more question which comes from the line of Nuno Matias with Espirito Santo Bank. Please proceed with your question.

Hi, good afternoon. The first is on Oi. If you do expect any additional assets disposed until year-end especially on (inaudible) or any real estate that you could sell. And secondly, can you give us any expectation of the amount of the dividends that you expect to receive from your other African subsidiaries? And final on there on the Portuguese operation. You mentioned that you made a 400 employee headcount reduction, but looking at your figures it seems to be that the total employee numbers from Q1 to Q2 actually increased in Portugal. Should we expect this 400 number to be reflected in Q3 or did the hiring going in fact higher and then offsetting the layoff of these 400 people? Thank you.

Okay, so let me address the last two questions. And then I’ll past it to Zeinal to also address the first question. On the last question of our 400 employees, we have decided to take a charge of a future redundancy. So the effects of that reduction will become clear from now onwards, so on the next 12 months, okay. So you will see some personnel decline from here onwards. So, since we have taken the decisions we have to account for the immediate charge on that front. On the dividend front for the remaining part of the year, we should receive additional around Euro 10 million for the remaining part of the year on MTC and the other operations, plus whatever we can receive one Unitel. On the Unitel front, I would like to clarify that out of the Euro 280 million of this spending to be received from Angola, we have received now the confirmation that the Central Bank of Angola has already approved around $94 million. So we should be expecting that inflow in the coming quarters. The remaining part has been approved yet. With regards to Oi. Zeinal, please?

Thank you. Couple of things, I just want to pick up on this curtailments that Luis mentioned and relates to the efforts that are being done in the restructuring our B2B side of the business in Portugal. So, and earlier on I was saying that we are seeing pressure on the B2B. So what measures are being taken to address that pressure and reduce costs, this is clearly one of the if you like, initiatives that is being undertaken, so that we can adjust the cost base for the company in that particular segment to what we think are the headwinds that we are seeing in terms of the prices. With regard to asset disposals, couple of things I would like to mention. First, we put a very significant slide in this presentation so that you can have all the disclosures [ph] and the way we see this is as follows, GlobeNet actually derives an impact, positive impact in EBITDA of about 1.2 billion. And so that has to be factored into the EBITDA numbers for the full year. We clearly think that will be concluded by December – November, December. Second thing, I also would like to highlight is that the way we see these asset disposals is that it gives that access – it enhances our financial flexibility and it gives us access to cheaper funding, so you get longer maturities and you get cheaper funding. And this is why we are not overly concerned about the EBITDA impact and as far as we are concerned we look at the cash flow. So from a cash flow standpoint, it is better for us to actually do these asset disposals than it is to contract debt because that will have shorter maturities and higher costs. And therefore whilst accounting-wise it will be impacted in EBITDA. The way we think about burn is actually a financing costs. Now we will continue to look at assets to sell in the future, of course we are, because we would like to continue – we would like to make our assets swiped a lot more and we want to make sure that we continue to include our financial flexibility, so this is an ongoing process. And you could always speak in the past about selling some real, etcetera, etcetera. So we will continue to look at ways in which we can if you like, crystallize value on our balance sheet and then deploy the capital, particularly to reduce our leverage, increase our financial flexibility, and when needed and if needed to continuously invest in the future development of our business. Thank you very much.

Thank you, Zeinal. So thank you very much for being on this call. First of all, apologies for the technical problem that we experienced during the call. Before we close this call, I would just like to highlight that we have good customer growth in Portugal and Brazil. We’re taking the right steps both operationally and financial turnaround Oi. From PT’s perspective, we remain confident on the cash flow generation, and we decided to take a more prudent financial strategy. And of course to – and that will enable us to deliver also on the domestic front. Myself and IR Director will be available to take any further questions that you may have. Thank you very much once again to being on the call.

Okay, thank you. Bye-bye.

Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. Thanks for your participation and have a wonderful day.