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| RELEASE |  |
Portugal Telecom
2004
First Quarter Results
Lisbon, Portugal, 29 April 2004 – Portugal Telecom (“PT”) (Euronext: PTCO.IN; NYSE: PT) announced today its unaudited results for the first quarter ending 31 March 2004.
Consolidated operating revenues amounted to Euro 1,427 million in the first quarter of 2004. EBITDA reached Euro 583 million, equivalent to a margin of 40.8%. EBITDA minus Capex reached Euro 493 million. Net income for the period amounted to Euro 162 million. Net debt, including the investment of Euro 131 million in the acquisition of treasury stock, was reduced by Euro 58 million from the end of 2003, reaching Euro 3,158 million at the end of the first quarter of 2004.
PT’s financial results have been prepared in accordance with Portuguese GAAP and include certain reclassifications in order to conform more closely to an international presentation format. The results by business segment for the first quarter of 2004 and corresponding prior periods reflect certain changes in the reportable segments made during 2003, as further described in Section 13 below.
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 1,426.5 | 1,312.5 | 8.7% | 1,545.2 | (7.7%) |
| Operating Costs excluding D&A | 844.0 | 792.7 | 6.5% | 971.8 | (13.1%) |
| EBITDA (1) | 582.5 | 519.8 | 12.1% | 573.4 | 1.6% |
| Operating Income | 351.0 | 291.5 | 20.4% | 333.3 | 5.3% |
| Net Income | 161.5 | 84.8 | 90.4% | (39.0) | n.m. |
| Net Income excluding Curtailment (2) | 163.2 | 147.2 | 10.9% | (21.7) | n.m. |
| Capex | 89.1 | 121.9 | (26.9%) | 317.7 | (72.0%) |
| Capex as % of Revenues (%) | 6.2 | 9.3 | (3.1 p.p.) | 20.6 | (14.4 p.p.) |
| EBITDA minus Capex | 493.4 | 397.9 | 24.0% | 255.8 | 92.9% |
| Acquisition of Treasury Stock | 130.6 | 0 | n.m. | 156.4 | (16.5%) |
| Net Debt | 3,158.0 | 3,834.1 | (17.6%) | 3,215.6 | (1.8%) |
| EBITDA Margin (3) (%) | 40.8 | 39.6 | 1.2 p.p. | 37.1 | 3.7 p.p. |
| Net Debt / EBITDA (x) | 1.4 | 1.8 | (0.4x) | 1.4 | 0.0x |
| EBITDA / Net Interest (x) | 12.4 | 15.8 | (3.4x) | 7.3 | 5.1x |
| (1) | EBITDA = Operating Income + Depreciation and Amortisation. |
| (2) | Excluding workforce reduction programme costs, net of the related tax effect. |
| (3) | EBITDA Margin = EBITDA / Operating Revenues. |
1. FINANCIAL HIGHLIGHTS
Operating revenues increased by 8.7% y.o.y in the first quarter of 2004 to Euro 1,427 million, on the back of the growth in the mobile and multimedia businesses.
The contribution to operating revenues from the mobile businesses reached 47.8% in the first quarter of 2004, whilst wireline and multimedia accounted for 36.6% and 7.7% respectively. Vivo accounted for 24.6% of consolidated operating revenues in the quarter.
Domestic retail revenues (wireline, Pay-TV and broadband) increased by 1.8% y.o.y to Euro 452 million in the first quarter of 2004, as a result of strong growth in Pay-TV and broadband revenues (both ADSL and cable modems), which offset a decrease in wireline traffic revenues.
EBITDA increased by 12.1% y.o.y in the first quarter of 2004 to Euro 583 million, equivalent to a margin of 40.8%, a 1.2 p.p. improvement over the first quarter of 2003. The mobile businesses accounted for 54.1% of consolidated EBITDA in the first quarter of 2004, with Vivo accounting for 24.3%.
Revenue and EBITDA of the domestic businesses grew by 1.7% and 6.4% y.o.y respectively, underpinned by a strong performance and margin improvement in the mobile and Pay-TV businesses.
Operating income rose by 20.4% y.o.y in the first quarter of 2004 to 351 million, equivalent to an operating margin of 24.6%, a 2.4 p.p. improvement over the first quarter of 2003.
Net income totalled Euro 162 million in the first quarter of 2004, an increase of 90.4% y.o.y, compared to Euro 85 million in the first quarter of 2003.
Capex fell by 26.9% y.o.y in the first quarter of 2004 to Euro 89 million, equivalent to 6.2% of revenues, a 3.1 p.p. decrease over the first quarter of 2003.
EBITDA minus Capex increased by 24.0% y.o.y to Euro 493 million, equivalent to 34.6% of operating revenues. Approximately 78% of PT’s EBITDA minus Capex is generated in Euros by business segments in Portugal.
At the end of the first quarter of 2004, PT’s net debt amounted to Euro 3,158 million, a reduction of Euro 58 million since the end of 2003. This reported net debt figure includes the impact of the investment of Euro 327 million in the acquisition of treasury stock (Euro 131 million in the first quarter of 2004), in line with the announced 10% share buyback programme. At the end of the first quarter of 2004, PT’s net debt excluding Brazil was Euro 2,698 million.
PT’s net exposure (assets minus liabilities) to Brazil amounted to R$ 7,227 million, or Euro 2,037 million at the Real/Euro exchange rate prevailing as at 31 March 2004. The assets denominated in Reais in PT’s balance sheet as at 31 March 2004, represented 29.8% of total assets.
Further to the announced share buyback programme, as at 31 March 2004, PT had acquired a total of 43,020,108 treasury shares, or 3.43% of PT’s share capital. On 1 April 2004, PT sold to ABN all of the treasury stock it had acquired and contracted an equity swap over these shares. Following this transaction, as at 16 April 2004, PT had acquired a total of 4,585,000 treasury shares, or 0.37% of PT’s share capital. In addition to the above mentioned equity swap, PT has other equity swap contracts equivalent to 2.13% of its share capital.
2. OPERATING HIGHLIGHTS
| 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q | |
| Customer Base ('000) | |||||
| Total Customers | 34,866 | 28,641 | 21.7% | 33,520 | 4.0% |
| Wireline | 6,281 | 5,354 | 17.3% | 5,902 | 6.4% |
| Mobile | 26,856 | 21,757 | 23.4% | 25,931 | 3.6% |
| Pay-TV | 1,466 | 1,346 | 8.9% | 1,442 | 1.7% |
| Broadband (Retail ADSL + Cable) | 454 | 225 | 101.9% | 391 | 16.2% |
| Wireline | |||||
| Main Lines ('000) | 4,235 | 4,177 | 1.4% | 4,225 | 0.2% |
| PSTN/ISDN | 3,999 | 4,099 | (2.4%) | 4,037 | (0.9%) |
| Wholesale ADSL | 236 | 78 | 203.0% | 188 | 25.5% |
| Retail ADSL | 204 | 63 | 225.5% | 161 | 27.1% |
| Net Additions (1) ('000) | 10 | (19) | n.m. | 31 | (68.2%) |
| Total Voice Traffic (mn min.) | 3,189 | 3,155 | 1.1% | 3,245 | (1.7%) |
| F2F Domestic Traffic (mn min.) | 1,372 | 1,528 | (10.2%) | 1,447 | (5.2%) |
| ARPU (Euro) | 34.0 | 34.1 | (0.3%) | 33.7 | 1.0% |
| Employees (no.) | 9,065 | 10,717 | (15.4%) | 9,075 | (0.1%) |
| Domestic Mobile (TMN) | |||||
| Active Customers ('000) | 4,923 | 4,474 | 10.1% | 4,887 | 0.8% |
| Net Additions ('000) | 37 | 47 | (22.4%) | 195 | (81.2%) |
| Total Churn (%) | 22.7 | 24.7 | (1.9p.p.) | 23.5 | (0.7p.p.) |
| MOU (min.) | 116.4 | 118.4 | (1.7%) | 124.5 | (6.5%) |
| ARPU (Euro) | 23.1 | 24.1 | (4.2%) | 24.6 | (6.3%) |
| Data as % of Service Revenues (%) | 9.5 | 8.5 | 1.0 p.p. | 9.2 | 0.3 p.p. |
| CCPU (2) (Euro) | 10.7 | 12.1 | (11.7%) | 11.4 | (6.0%) |
| ARPU minus CCPU (Euro) | 12.4 | 12.0 | 3.4% | 13.2 | (6.5%) |
| Brazilian Mobile (Vivo) | |||||
| Customers ('000) | 21,875 | 16,949 | 29.1% | 20,656 | 5.9% |
| Market Share in Areas of Operation (%) | 55.7 | 59.7 | (4.0p.p.) | 56.2 | (0.5p.p.) |
| Net Additions ('000) | 1,219 | 140 | 769.9% | 2,186 | (44.2%) |
| MOU (min.) | 92.6 | 99.8 | (7.2%) | 102.9 | (10.0%) |
| ARPU (Real) | 34.6 | 37.8 | (8.5%) | 38.6 | (10.4%) |
| CCPU (Real) | 17.4 | 19.6 | (11.6%) | 21.3 | (18.5%) |
| ARPU minus CCPU (Real) | 17.3 | 18.2 | (5.2%) | 17.3 | (0.5%) |
| Multimedia (PT Multimedia) | |||||
| Homes Passed ('000) | 2,495 | 2,405 | 3.8% | 2,472 | 0.9% |
| Bi-directional (Broadband Enabled) ('000) | 2,247 | 2,084 | 7.8% | 2,221 | 1.2% |
| Pay-TV Customers (3) ('000) | 1,466 | 1,346 | 8.9% | 1,442 | 1.7% |
| Pay-TV Net Additions ('000) | 24 | 39 | (37.9%) | 40 | (39.2%) |
| Pay to Basic ratio (%) | 74.9 | 71.9 | 3.0 p.p. | 76.2 | (1.3p.p.) |
| Churn (%) | 14.6 | 13.5 | 1.1 p.p. | 15.3 | (0.7p.p.) |
| Cable Broadband Accesses ('000) | 250 | 162 | 54.0% | 230 | 8.5% |
| Pay-TV Blended ARPU (Euro) | 24.7 | 23.4 | 5.8% | 24.6 | 0.3% |
| Pay-TV EBITDA Margin (%) | 34.5 | 23.6 | 10.9p.p. | 33.9 | 0.6 p.p. |
| (1) | Including Wholesale ADSL. |
| (2) | CCPU (Cash cost per user) = Operating costs minus provisions, depreciation and amortisation and sales of equipment per user. |
| (3) | Regarding Pay-TV customers see Table 25 - Multimedia Operating Data. |
Total Customers
PT’s total number of customers in the first quarter of 2004 increased by 1,346 thousand, which compares with net additions of 282 thousand in the first quarter of 2003. As a result, PT’s customer base grew by 21.7% y.o.y to 34.9 million at the end of March 2004.
In Portugal, PT had 454 thousand broadband customers at the end of March 2004, equivalent to a penetration of 8.9% of access lines (PSTN/ISDN and cable). PT registered 63 thousand broadband net additions (retail ADSL and cable) in the first quarter of 2004.
Wireline
Total accesses increased by 1.4% y.o.y in the first quarter of 2004 to 4,235 thousand, including 236 thousand ADSL customers. Wholesale ADSL net additions in the first quarter were 48 thousand.
At the end of March 2004, the number of pricing packages stood at 388 thousand, which represented 9.7% of total PSTN/ISDN lines.
Total voice traffic in minutes increased by 1.1% y.o.y, while retail traffic decreased by 9.3% y.o.y and domestic fixed-to-fixed traffic decreased by 10.2% y.o.y in the first quarter of 2004.
Total ARPU remained broadly flat in the first quarter of 2004 at Euro 34.0, underpinned by a higher percentage of retail revenues being fixed charges, including subscription fees and pricing packages, and a higher contribution from data, namely ADSL.
Domestic Mobile (TMN)
Net additions totalled 37 thousand in the first quarter of 2004. At the end of March 2004, TMN had 4,923 thousand active customers, an increase of 10.1% over the same period of last year.
MOU in the first quarter fell by 1.7% y.o.y to 116 minutes, primarily as a result of the seasonal adjustment on the back of customer growth in the fourth quarter and the dilutive impact of the rising number of double SIM cards and machine-to-machine.
ARPU in the first quarter of 2004 decreased by 4.2% y.o.y to Euro 23.1, mainly as a result of the reduction in interconnection fees (F2M and M2M) and lower MOU.
Brazilian Mobile (Vivo)
Net additions reached 1,219 thousand in the first quarter of 2004, notwithstanding rising competition from new entrants. Vivo had 21,875 thousand active customers at the end of March 2004, corresponding to an estimated average market share of around 56% in its areas of operation (based on data provided by Anatel).
In the first quarter of 2004, MOU was 93 minutes, down 7.2% y.o.y, as a result of strong subscriber growth, mainly composed of prepaid customers.
ARPU was R$ 34.6 in the first quarter of 2004, a 8.5% y.o.y decrease resulting mainly from the higher percentage of prepaid customers in Vivo’s customer base and the impact of the changes in mobile-to-mobile interconnection rules in the second half of 2003.
Multimedia (PT Multimedia)
Pay-TV net additions totalled 24 thousand in the first quarter of 2004. Total Pay-TV customers rose by 8.9% y.o.y to 1,466 thousand at the end of March 2004.
Network rollout is almost complete with 2,495 thousand homes passed, of which 90% are bi-directional and therefore enabled for broadband.
Pay-TV’s blended ARPU in the first quarter of 2004 increased by 5.8% y.o.y to Euro 24.7, as a result of a higher penetration of premium services, including broadband Internet.
Broadband cable modem customers reached 250 thousand at the end of March 2004, an increase of 54.0% over the same period of last year. Net additions in the first quarter of 2004 reached 20 thousand.
3. CONSOLIDATED RESULTS
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 1,426.5 | 1,312.5 | 8.7% | 1,545.2 | (7.7%) |
| Wireline | 522.5 | 541.3 | (3.5%) | 524.0 | (0.3%) |
| Domestic Mobile (TMN) | 329.9 | 307.4 | 7.3% | 356.5 | (7.5%) |
| Brazilian Mobile (Vivo) | 351.6 | 242.8 | 44.8% | 398.0 | (11.7%) |
| Multimedia (PT Multimedia) | 176.1 | 163.4 | 7.7% | 194.3 | (9.4%) |
| Other | 46.4 | 57.5 | (19.3%) | 72.4 | (35.9%) |
| Operating Costs excluding D&A | 844.0 | 792.7 | 6.5% | 971.8 | (13.1%) |
| Wages and Salaries | 175.8 | 166.5 | 5.6% | 188.1 | (6.5%) |
| Post Retirement Benefits | 49.7 | 54.5 | (8.7%) | 55.0 | (9.5%) |
| Costs of Telecommunications | 135.1 | 147.7 | (8.5%) | 138.4 | (2.4%) |
| Subsidies | (3.7) | (5.1) | (27.3%) | (5.1) | (28.5%) |
| Maintenance and Repairs | 29.6 | 32.0 | (7.4%) | 31.9 | (7.0%) |
| Own Work Capitalised | (18.2) | (11.9) | 53.2% | (28.2) | (35.6%) |
| Raw Materials and Consumables | 16.4 | 13.9 | 18.1% | 23.2 | (29.4%) |
| Costs of Products Sold | 119.5 | 92.1 | 29.7% | 206.8 | (42.2%) |
| Telephone Directories | 21.9 | 22.8 | (4.2%) | 22.2 | (1.6%) |
| Marketing and Publicity | 37.2 | 27.3 | 36.6% | 42.0 | (11.3%) |
| General and Administrative Expenses | 247.7 | 223.3 | 10.9% | 271.3 | (8.7%) |
| Provision for Doubtful Receivables | 28.7 | 24.5 | 17.3% | 40.2 | (28.6%) |
| Other Net Operating Income | (23.2) | (8.3) | 180.5% | (45.4) | (49.0%) |
| Taxes Other than Income Taxes | 27.4 | 13.4 | 103.8% | 31.5 | (13.3%) |
| EBITDA | 582.5 | 519.8 | 12.1% | 573.4 | 1.6% |
| Depreciation and Amortisation | 231.6 | 228.3 | 1.4% | 240.1 | (3.6%) |
| Operating Income | 351.0 | 291.5 | 20.4% | 333.3 | 5.3% |
| Other Expenses (Income) | 66.0 | 113.3 | (41.8%) | 162.8 | (59.5%) |
| Net Interest Expenses | 47.0 | 32.9 | 42.8% | 78.6 | (40.3%) |
| Net Foreign Currency Losses (Gains) | (6.8) | (6.7) | 1.5% | 31.7 | n.m. |
| Net Other Financial Expenses (Income) | (2.5) | (42.2) | (94.2%) | 5.2 | n.m. |
| Goodwill Amortisation | 23.0 | 24.0 | (4.2%) | 30.2 | (23.6%) |
| Losses (Gains) on Disp. of Fixed Assets | 1.1 | 0.8 | 38.3% | 6.2 | (82.3%) |
| Equity in Losses (Earnings) of Affiliates | (5.3) | 9.5 | (156.1%) | 7.9 | n.m. |
| Work Force Reduction Programme Costs | 2.3 | 93.1 | (97.6%) | 25.8 | (91.2%) |
| Other Non-Oper. Expenses/(Income) | 8.1 | 1.8 | 358.4% | (23.3) | n.m. |
| Extraordinary Items (Losses / (Gains)) | (0.9) | 0.0 | n.m. | 0.4 | n.m. |
| Income before Income Taxes | 285.0 | 178.2 | 59.9% | 170.5 | 67.2% |
| Provision for Income Taxes | (98.5) | (78.8) | 25.1% | (186.1) | (47.1%) |
| Loss (Income) Applic. to Min. Interests | (24.9) | (14.6) | 70.7% | (23.4) | 6.4% |
| Consolidated Net Income | 161.5 | 84.8 | 90.4% | (39.0) | n.m. |
Consolidated Operating Revenues
| Euro million | 1Q04 | 1Q03 | y.o.y | 1Q04 Weight |
4Q03 | q.o.q |
| Wireline | 522.5 | 541.3 | (3.5%) | 36.6 | 524.0 | (0.3%) |
| Domestic Mobile (TMN) | 329.9 | 307.4 | 7.3% | 23.1 | 356.5 | (7.5%) |
| Brazilian Mobile (Vivo) (1) | 351.6 | 242.8 | 44.8% | 24.6 | 398.0 | (11.7%) |
| Multimedia (PT Multimedia) | 176.1 | 163.4 | 7.7% | 12.3 | 194.3 | (9.4%) |
| Pay-TV and Cable Internet | 117.0 | 102.3 | 14.4% | 8.2 | 116.9 | 0.0% |
| Other | 46.4 | 57.5 | (19.3%) | 3.3 | 72.4 | (35.9%) |
| Total Operating Revenues | 1,426.5 | 1,312.5 | 8.7% | 100.0 | 1,545.2 | (7.7%) |
| Total Retail Revenues | 452.0 | 444.0 | 1.8% | - | 449.3 | 0.6% |
| Wireline | 342.8 | 349.1 | (1.8%) | - | 342.8 | 0.0% |
| Pay-TV and Cable Internet | 109.2 | 94.9 | 15.0% | - | 106.5 | 2.6% |
| Avg. Revenue per Household (ARPH) | 41.3 | 40.6 | 1.8% | - | 41.0 | 0.6% |
| (1) | Considering a Euro/Real average exchange rate of 3.6241 in 1Q04 and 3.7438 in1Q03. |
Consolidated operating revenues increased by 8.7% y.o.y in the first quarter of 2004 to Euro 1,427 million. Revenue growth in this quarter was underpinned by higher contributions from Vivo, TMN and PTM. Based on a flat Real / Euro exchange rate, operating revenues would have increased by 7.8% y.o.y in the quarter.
In the first quarter of 2004, the consolidation method of Mascom in Botswana was changed from full consolidation to equity accounting, which resulted in a negative impact of 1.2% on consolidated operating revenues. In the past, revenues from Mascom were booked in the “Other Revenues” caption.
In the first quarter of 2004, operating revenues from the domestic businesses rose by 1.7% y.o.y, supported by the robust performance of TMN and PTM.
In the first quarter of 2004, wireline and Pay-TV retail revenues increased by 1.8% y.o.y to Euro 452 million, with average revenue per household (ARPH) increasing to Euro 41.3 per month from Euro 40.6 in the first quarter of 2003.
The contribution to consolidated operating revenues from the mobile businesses rose by 5.9 p.p. y.o.y to 47.8% in the first quarter of 2004. Vivo was the main driver for this higher contribution, having benefited from strong underlying growth, as well as from the fact that TCO was only consolidated as of May 2003. In the first quarter of 2004, Vivo accounted for 24.6% of consolidated operating revenues, an increase of 6.1 p.p. over the same period of last year.
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Wireline | 558.5 | 583.3 | (4.2%) | 560.2 | (0.3%) |
| Domestic Mobile (TMN) | 366.6 | 352.7 | 3.9% | 397.1 | (7.7%) |
| Brazilian Mobile (Vivo) (1) | 351.6 | 242.8 | 44.8% | 398.0 | (11.7%) |
| Multimedia (PT Multimedia) | 176.4 | 163.5 | 7.9% | 194.8 | (9.5%) |
| Pay-TV and Cable Internet | 117.4 | 102.4 | 14.7% | 117.2 | 0.2% |
| Other and Eliminations | (26.6) | (29.8) | (10.7%) | (5.0) | n.m. |
| Total Operating Revenues | 1,426.5 | 1,312.5 | 8.7% | 1,545.2 | (7.7%) |
| (1) | Considering a Euro/Real average exchange rate of 3.6241 in 1Q04 and 3.7438 in 1Q03. |
EBITDA
| Euro million | 1Q04 | 1Q03 | y.o.y | 1Q04 Weight |
1Q04 Margin |
4Q03 | q.o.q | 4Q03 Margin |
| Wireline | 226.8 | 234.8 | (3.4%) | 38.9 | 40.6 | 214.5 | 5.7% | 38.3 |
| Domestic Mobile (TMN) | 173.6 | 154.1 | 12.6% | 29.8 | 47.3 | 185.1 | (6.3%) | 46.6 |
| Brazilian Mobile (Vivo) (1) | 141.8 | 100.2 | 41.5% | 24.3 | 40.3 | 128.2 | 10.6% | 32.2 |
| Multimedia (PT Multimedia) | 42.1 | 27.3 | 54.4% | 7.2 | 23.9 | 43.8 | (3.8%) | 22.5 |
| Pay-TV and Cable Internet | 40.5 | 24.1 | 67.9% | 7.0 | 34.5 | 39.7 | 2.0% | 33.9 |
| Other | (1.7) | 3.4 | n.m. | (0.3) | n.m. | 1.8 | n.m. | n.m. |
| Total EBITDA | 582.5 | 519.8 | 12.1% | 100.0 | 573.4 | 1.6% | ||
| EBITDA Margin (%) | 40.8 | 39.6 | 1.2 p.p. | 37.1 | 3.7 p.p. | |||
| (1) | Considering a Euro/Real average exchange rate of 3.6241 in 1Q04 and 3.7438 in 1Q03. |
EBITDA increased by 12.1% y.o.y in the first quarter of 2004 to Euro 583 million, while EBITDA margin improved by 1.2 p.p. to 40.8%. In absolute terms, EBITDA growth was underpinned by Vivo, TMN and PTM. Margin performance was strong across all business units, with TMN and PTM expanding margins by 3.7 p.p. and 7.2 p.p. y.o.y respectively.
Based on a flat Real / Euro exchange rate, EBITDA would have increased by 11.2% y.o.y in the quarter. The change in the consolidation method of Mascom in the first quarter of this year had a negative impact on EBITDA of 1.4%.
In the first quarter of 2004, the EBITDA of the domestic businesses grew by 6.4% y.o.y. Strong EBITDA growth and margin expansion at TMN and, particularly at PTM underpinned this performance.
The contribution to consolidated EBITDA from the mobile businesses rose by 5.2 p.p. y.o.y to 54.1% in the first quarter of 2004. The contribution of Vivo to consolidated EBITDA improved by 5.1 p.p. y.o.y to 24.3% in the first quarter of 2004 in part due to the fact that TCO’s results were not consolidated until May 2003, whilst PTM improved its contribution by 2.0 p.p. to 7.2% on the back of a 54.4% EBITDA growth.
Consolidated Operating Costs
Consolidated operating costs amounted to Euro 1,076 million, an increase of 5.3% over the first quarter of 2003, which is lower than the 8.7% increase in consolidated operating revenues in the period.
| Euro million | 1Q04 | 1Q03 | y.o.y | 1Q04 % Rev. |
4Q03 | q.o.q | 4Q03 % Rev. |
| Wages and Salaries | 175.8 | 166.5 | 5.6% | 12.3 # | 188.1 | (6.5%) | 12.2 |
| Telecommunication Costs | 135.1 | 147.7 | (8.5%) | 9.5 | 138.4 | (2.4%) | 9.0 |
| Costs of Products Sold | 119.5 | 92.1 | 29.7% | 8.4 | 206.8 | (42.2%) | 13.4 |
| Marketing and Publicity | 37.2 | 27.3 | 36.6% | 2.6 | 42.0 | (11.3%) | 2.7 |
| Provision for Doubtful Rec. | 28.7 | 24.5 | 17.3% | 2.0 | 40.2 | (28.6%) | 2.6 |
| General & Administrative Exp. | 247.7 | 223.3 | 10.9% | 17.4 | 271.3 | (8.7%) | 17.6 |
| Other Operating Costs | 50.2 | 56.9 | (11.8%) | 3.5 | 30.0 | 67.1% | 1.9 |
| Oper. Costs ex. D&A & PRBs | 794.2 | 738.2 | 7.6% | 55.7 | 916.8 | (13.4%) | 59.3 |
| Post Retirement Benefits | 49.7 | 54.5 | (8.7%) | 3.5 | 55.0 | (9.5%) | 3.6 |
| Oper. Costs excluding D&A | 844.0 | 792.7 | 6.5% | 59.2 | 971.8 | (13.1%) | 62.9 |
| Depreciation & Amortisation | 231.6 | 228.3 | 1.4% | 16.2 | 240.1 | (3.6%) | 15.5 |
| Total Operating Costs | 1,075.6 | 1,021.0 | 5.3% | 75.4 | 1,211.9 | (11.2%) | 78.4 |
Wages and salaries amounted to Euro 176 million, an increase of 5.6% over the same period of last year and a decrease of 6.5% over the fourth quarter of 2003. Wages and salaries currently represent 12.3% of consolidated operating revenues, compared to 12.7% in the first quarter of 2003. In the case of the wireline business, which accounted for 40.7% of consolidated wages and salaries, these costs fell by 9.8% over the first quarter of 2003. Wages and salaries of Vivo increased by 26.5% y.o.y in the first quarter of 2004, primarily due to the fact that TCO was only fully consolidated by Vivo as of May 2003.
Post retirement benefits (“PRBs”) decreased by Euro 5 million or 8.7% to Euro 50 million, accounting for 3.5% of consolidated operating revenues compared to 4.2% in the first quarter of 2003. The decline in PRBs is primarily due to a change in the calculation of the pension upon retirement of an employee following recent retirement legislation approved by the Portuguese Parliament. Since the beginning of the year, the calculation of pensions considers 90% of the average salary of the last three years of employment, which compares with the previous method where by pensions were calculated based on 100% of the salary of the last year of employment.
Telecommunications costs amounted to Euro 135 million compared to Euro 148 million in the first quarter of 2003, decreasing by 8.5% y.o.y mainly as a result of lower traffic volumes in wireline and the decrease in fixed-to-mobile interconnection fees. Telecommunications costs accounted for 9.5% of consolidated operating revenues.
Costs of products sold increased by 29.7% y.o.y to Euro 119 million in the first quarter of 2004, mainly driven by the 21.5% y.o.y increase in the sales of merchandise and products. This cost item represents 8.4% of consolidated operating revenues.
Marketing and publicity costs rose by 36.6% y.o.y in the first quarter of 2004 to Euro 37 million, mainly as a result of the increase in advertising expenditures and promotional activities in connection with the rollout of new services at TMN, Vivo and PTM, which accounted for 80.1% of the increase in this caption. The remainder was due to the fact that TCO was only fully consolidated by Vivo as of May 2003. This cost item represents 2.6% of consolidated operating revenues.
Provisions for doubtful receivables, inventories and other increased by 17.3% y.o.y to Euro 29 million in the first quarter of 2004, primarily because of a higher level of provisioning at TMN and the fact that TCO was only fully consolidated by Vivo as of May 2003. Provisions accounted for 2.0% of consolidated operating revenues.
General and administrative expenses increased by 10.9% y.o.y in the first quarter of 2004 to Euro 247 million, primarily as a result of the fact that TCO was fully consolidated by Vivo in the first quarter of 2004 (Euro 10 million). General and administrative expenses accounted for 17.4% of consolidated operating revenues.
Depreciation and amortisation costs increased by 1.4% y.o.y in the first quarter of 2004 to Euro 232 million. Depreciation charges exceeded capex by Euro 142 million, resulting in a capex to depreciation ratio of 0.38 times in the first quarter of 2004. This cost item accounted for 16.2% of consolidated operating revenues.
EBIT
EBIT in the first quarter of 2004 amounted to Euro 351 million, an increase of 20.4% y.o.y. The operating margin improved 2.4 p.p. y.o.y in the first quarter of 2004 to 24.6%.
Net Income
Net income amounted to Euro 162 million in the first quarter of 2004, an increase of 90.4% compared to Euro 85 million in the same period last year.
Net interest expenses increased from Euro 33 million in the first quarter of 2003 to Euro 47 million in the first quarter of 2004, corresponding to an average cost of debt of approximately 5.8% in the first quarter of 2004. Excluding financing costs in Brazil, the average cost of debt was 4.7%.
Net other financial income amounted to Euro 2 million in the first quarter of 2004, compared to Euro 42 million in the same period last year. In the first quarter of 2003, this caption included gains on the cancellation of certain derivative instruments.
Goodwill amortisation amounted to Euro 23 million in the first quarter of 2004 compared to Euro 24 million in the first quarter of 2003. This caption included mainly the amortisation related to the investments in Vivo (Euro 9 million), Lusomundo (Euro 4 million), PTM (Euro 3 million) and PTM.com (Euro 2 million).
Equity accounting in earnings of affiliated companies amounted to Euro 5 million in the first quarter of 2004, compared to a loss of Euro 10 million in the first quarter of 2003. In the first quarter of 2004, this caption included mainly PT’s share in the earnings of CTM, Unitel and Mascom, in the amount of approximately Euro 3 million each, and in the losses of Médi Télécom in the amount of Euro 5 million. The improvement in this caption (Euro 15 million) is primarily explained by the reduction of PT’s share in the losses of Médi Télécom (from Euro 9 million to Euro 5 million) and by the consolidation of Mascom under the equity method in the first quarter of 2004 since this company is in the process of being divested and pending regulatory approval and therefore is no longer being fully consolidated by PT.
The non-cash provision for income taxes in the first quarter of 2004 amounted to Euro 99 million, compared to Euro 79 million in the same period of last year. This increase is primarily explained by the 59.9% y.o.y increase in income before taxes, offset partially by the reduction in the corporate tax rate from 33% to 27.5%.
4. CAPEX
Capital expenditure was managed in line with the Group’s announced focus on maximising cash flow.
| Euro million | 1Q04 | 1Q03 | y.o.y | 1Q04 Weight |
1Q04 % Rev. |
4Q03 | q.o.q | 4Q03 % Rev. |
| Wireline | 30.7 | 27.4 | 12.1% | 34.5 | 5.5 | 60.6 | (49.3%) | 10.8 |
| Domestic Mobile (TMN) | 17.1 | 46.7 | (63.3%) | 19.2 | 4.7 | 78.6 | (78.2%) | 19.8 |
| Brazilian Mobile (Vivo) | 17.9 | 22.5 | (20.5%) | 20.1 | 5.1 | 103.2 | (82.7%) | 25.9 |
| Multimedia (PT Multimedia) | 9.9 | 15.9 | (37.5%) | 11.2 | 5.6 | 18.0 | (44.9%) | 9.3 |
| Pay-TV and Cable Internet | 8.9 | 12.8 | (30.2%) | 10.0 | 7.6 | 12.2 | (26.9%) | 10.4 |
| Other | 13.5 | 9.4 | 42.4% | 15.1 | n.m. | 57.3 | (76.6%) | n.m. |
| Total Capex | 89.1 | 121.9 | (26.9%) | 100.0 | 6.2 | 317.7 | (72.0%) | 20.6 |
PT’s capex in the first quarter of 2004 reached Euro 89 million, decreasing by 26.9% y.o.y and equivalent to 6.2% of consolidated operating revenues.
Wireline capex in the first quarter of 2004 increased by 12.1% y.o.y to Euro 31 million, equivalent to a capex to sales ratio of 5.5%.
In the mobile businesses, TMN and Vivo were managed with capex to sales ratios of 4.7% and 5.1%, respectively, in the first quarter of 2004. The capex of TMN and Vivo amounted to Euro 17 million and Euro 18 million, respectively, equivalent to decreases of 63.3% and 20.5% y.o.y. Regarding TMN, approximately 25% of its capex was spent on UMTS.
In the first quarter of 2004, PTM’s capex decreased by 37.5% y.o.y to Euro 10 million, equivalent to 5.6% of operating revenues. The capex reduction in PTM’s Pay-TV business reflects the fact that most of the investments in rolling out the cable network and in making the network bidirectional are now mostly complete. Over half of PTM’s capex is related to terminal equipment, including set-top boxes and cable modems.
5. CASH FLOW
EBITDA minus Capex
| Euro million | 1Q04 | 1Q03 | y.o.y | 1Q04 Weight |
1Q04 % Rev. |
4Q03 | q.o.q | 4Q03 % Rev. |
| Wireline | 196.0 | 207.4 | (5.5%) | 39.7 | 35.1 | 153.9 | 27.4% | 27.5 |
| Domestic Mobile (TMN) | 156.4 | 107.4 | 45.6% | 31.7 | 42.7 | 106.5 | 46.8% | 26.8 |
| Brazilian Mobile (Vivo) | 123.9 | 77.7 | 59.4% | 25.1 | 35.2 | 25.0 | 395.5% | 6.3 |
| Multimedia (PT Multimedia) | 32.2 | 11.4 | 182.6% | 6.5 | 18.3 | 25.8 | 25.0% | 13.2 |
| Pay-TV and Cable Internet | 31.6 | 11.3 | 178.9% | 6.4 | 26.9 | 27.5 | 14.9% | 23.4 |
| Other | (15.1) | (6.0) | n.m. | (3.1) | n.m. | (55.4) | n.m. | n.m. |
| Total | 493.4 | 397.9 | 24.0% | 100.0 | 34.6 | 255.8 | 92.9% | 16.6 |
EBITDA minus Capex reached 493 million in the first quarter of 2004, increasing by 24.0% y.o.y, as a result of higher contributions from TMN, PTM and Vivo. The domestic businesses on a combined basis continue to show an improvement in EBITDA combined with capex rationalisation and contributed approximately 78% of PT’s EBITDA minus Capex.
Operating Cash Flow
| Euro million | 1Q04 | 1Q03 | D y.o.y | 4Q03 | D q.o.q |
| EBITDA excluding PRB (1) | 632.3 | 574.3 | 58.0 | 628.4 | 3.9 |
| Non-Current Provision and Other Non-Cash Items | (6.4) | (4.4) | (2.0) | 21.6 | (28.0) |
| Change in Working Capital (EBITDA related) | (43.3) | (30.2) | (13.1) | 114.2 | (157.5) |
| Cash Generated from Operations | 582.5 | 539.7 | 42.8 | 764.1 | (181.6) |
| Capex | (89.1) | (121.9) | 32.8 | (317.7) | 228.6 |
| Change in Working Capital (Capex related) | (63.1) | (75.7) | 12.6 | 123.8 | (186.9) |
| Payments to Fixed Assets Supliers | (152.2) | (197.6) | 45.4 | (193.9) | 41.7 |
| Operating Cash Flow | 430.3 | 342.1 | 88.2 | 570.2 | (139.9) |
| (1) | Excluding post retirement benefits costs. |
In the first quarter of 2004, operating cash flow PT increased by 25.7% y.o.y to Euro 430 million. Cash generated from operations totalled Euro 583 million, with payments to fixed assets suppliers reaching Euro 152 million. The investment in working capital in the first quarter of 2004 amounted to Euro 106 million, basically as a result of the decrease in accounts payable to trade suppliers (Euro 114 million) and to fixed assets suppliers (Euro 63 million), due to the higher level of payments to suppliers regarding acquisitions made in previous quarters.
6. CONSOLIDATED BALANCE SHEET
| Euro million | 31 March 2004 | 31 December 2003 |
| Current Assets | 4,937.3 | 5,039.7 |
| Cash and Short Term Investments | 2,464.1 | 2,531.1 |
| Accounts Receivable, Net | 1,469.1 | 1,517.3 |
| Inventories, Net | 108.5 | 102.9 |
| Deferred Taxes Assets (Short Term) | 738.5 | 748.1 |
| Prepaid Expenses and Other Current Assets | 157.1 | 140.2 |
| Investments, net | 454.0 | 448.1 |
| Fixed Assets, net | 4,116.7 | 4,268.0 |
| Intangible Assets, net | 3,165.5 | 3,150.1 |
| Defered Tax Assets (Medium and Long Term) | 517.1 | 583.5 |
| Others | 106.6 | 68.5 |
| Total Assets | 13,297.3 | 13,557.8 |
| Current Liabilities | 3,708.1 | 3,354.5 |
| Short Term Debt | 1,683.3 | 1,191.1 |
| Accounts Payable | 1,072.6 | 1,225.9 |
| Accrued Expenses | 604.2 | 589.4 |
| Taxes Payable | 103.0 | 102.9 |
| Deferred Income | 212.7 | 212.4 |
| Deferred Taxes Liabilities (Short Term) | 32.4 | 32.8 |
| Medium and Long Term Debt | 3,938.8 | 4,555.6 |
| Accrued Post Retirement Liability | 1,196.9 | 1,256.0 |
| Deferred Tax Liabilities (Medium and Long Term) | 297.2 | 300.7 |
| Provisions for Other Risks and Charges | 130.7 | 140.7 |
| Others | 358.3 | 365.5 |
| Total Liabilities | 9,630.1 | 9,973.0 |
| Minority Interests | 640.9 | 644.0 |
| Total Shareholders' Equity | 3,026.4 | 2,940.8 |
| Total Liabilities, Minorities and Shareholders' Equity | 13,297.3 | 13,557.8 |
PT’s equity to total assets ratio increased from 21.7% as at 31 December 2003 to 22.8% as at 31 March 2004, while the equity plus long term debt to total assets ratio increased from 55.3% to 56.9% over the same period.
PT’s net exposure (assets minus liabilities) to Brazil amounted to R$ 7,227 million as at 31 March 2004 (Euro 2,037 million at the Real/Euro exchange rate prevailing on 31 March 2004). The assets denominated in Brazilian Reais in PT’s balance sheet as at 31 March 2004 amounted to Euro 3,958 million, equivalent to approximately 29.8% of total assets. Approximately 97% of PT’s net exposure (assets minus liabilities) to Brazil is accounted for by PT’s 50% investment in Vivo.
The accrued post retirement liability amounted to Euro 1,197 million at the end of the first quarter of 2004. The net decrease of Euro 59 million is a result of Euro 109 million in payments made in the first quarter in connection with post retirement benefits, which were offset by the PRB expense of the period amounting to Euro 50 million.
Consolidated Net Debt
| Euro million | 1Q04 | 4Q03 |
| Net Debt (Initial Balance) | 3,215.6 | 3,560.9 |
| Operating Cash Flow | 430.3 | 570.2 |
| Acquisition of Financial Investments | - | (169.9) |
| Interest Paid | (91.2) | (61.0) |
| Payments Related to Post Retirement Benefits (1) | (137.4) | (59.6) |
| Income Taxes Paid by Certain Subsidiaries | (8.5) | (13.1) |
| Reimbursement of Taxes Paid in Advance in 2002 | - | 201.2 |
| Other Cash Movements | 0.9 | 8.4 |
| Free Cash Flow | 194.2 | 476.2 |
| Gains on Certain Foreign Currency Derivatives | 6.8 | (3.0) |
| Translation Effects of US Dollar and Real Denominated Debt | (12.9) | 28.5 |
| Acquisitions of Treasury Shares (2) | (130.6) | (156.4) |
| Change in Net Debt | 57.6 | 345.3 |
| Net Debt at the End of the Period | 3,158.0 | 3,215.6 |
| Change in Net Debt (%) | (1.8%) | (9.7%) |
| (1) | In the first quarter of 2004, this caption included Euro 65 million related to additional contributions to the pension funds made during the period in connection with the work force reductions occurred in 2003, Euro 33 million related to normal contributions to the pension funds made during the period, Euro 32 million related to payments of salaries to pre-retired employees and Euro 7 million related to payments to PT-ACS regarding healthcare services provided to retired and pre-retired employees. |
| (2) | In the first quarter of 2004, this caption includes Euro 14 million related to acquisitions made in the fourth quarter of 2003 and Euro 117 million related to acquisitions made in the first quarter of 2004. |
PT’s consolidated net debt as at 31 March 2004 amounted to Euro 3,158 million, a decrease of Euro 58 million compared to year-end 2003. Excluding the investment of Euro 131 million for the acquisition of treasury stock, net debt reduction would have reached Euro 189 million. This net debt reduction was achieved on the back of a Euro 430 million operating cash flow generation.
| Euro million | 31 March 2003 | 31 December 2004 | D y.o.y | y.o.y |
| Short Term | 1,683.3 | 1,191.1 | 492.2 | 41.3% |
| Convertible Bonds | 450.5 | 450.5 | 0.0 | 0.0% |
| Bond Loans | 724.7 | 124.7 | 600.0 | 481.2% |
| Bank Loans | 250.9 | 293.8 | (43.0) | (14.6%) |
| Other Loans | 257.2 | 322.1 | (64.8) | (20.1%) |
| Medium and long term | 3,938.8 | 4,555.6 | (616.8) | (13.5%) |
| Convertible Bond | 440.3 | 440.3 | 0.0 | 0.0% |
| Other Bond Loans | 2,070.5 | 2,669.1 | (598.6) | (22.4%) |
| Bank Loans | 1,348.6 | 1,363.6 | (15.0) | (1.1%) |
| Other Loans | 79.4 | 82.5 | (3.1) | (3.8%) |
| Total Indebtedness | 5,622.1 | 5,746.7 | (124.6) | (2.2%) |
| Cash and Short Term-Investments | 2,464.1 | 2,531.1 | (67.0) | (2.6%) |
| Net Debt | 3,158.0 | 3,215.6 | (57.6) | (1.8%) |
| Shareholders Loans to TCP | 587.8 | 582.3 | 5.5 | 1.0% |
As at 31 March 2004, 70.1% of PT’s total indebtedness was medium and long term, while 78.5% of total indebtedness was at fixed rates. As at 31 March 2004, 84.2% of PT’s debt was denominated in Euros, 2.2% in US Dollars and 13.3% in Brazilian Reais. All of Vivo’s debt (50% consolidated by PT, amounting to Euro 175 million), is either Real denominated or has been swapped into Reais. PT’s average cost of debt in the first quarter of 2004 was 5.8% (4.7% excluding loans obtained in Brazil and denominated in Reais). The average maturity of PT’s loan portfolio is currently 4.4 years. At the date of this release, the only loans of PT with rating triggers (if PT is downgraded to below BBB+) are two EIB loans totalling Euro 150 million. In addition, PT has fully underwritten and available commercial paper lines amounting to Euro 875 million, of which Euro 220 million had been drawn down as at 31 March 2004.
| Maturity | Net Debt | Notes | |
| 2004 | (1,200.1) | Net cash position, which also includes a Euro 450 million Exchangeable Bond issued in Jun. 1999 and a Euro 125 million domestic Bond issued in Nov. 1997 | |
| 2005 | 913.8 | Includes a Euro 585 million Eurobond issued in Nov. 2001 (1) | |
| 2006 | 1,444.4 | Includes a Euro 440 million Exchangeable Bond issued in Dec. 2001 and a Euro 900 million Eurobond issued in Feb. 2001 (1) | |
| 2007 | 399.3 | ||
| 2008 | 431.4 | ||
| 2009 | 957.4 | Includes a Euro 880 million Eurobond issued in Apr. 1999 (1) | |
| 2010 | 75.4 | ||
| 2011 | 65.0 | ||
| 2012 | 43.9 | ||
| 2013 | 27.6 | ||
| Total | 3,158.0 | ||
| (1) | These amounts are net of the nominal value of outstanding Eurobonds held by PT as marketable securities. |
PT continued to hold as marketable securities some of its outstanding Eurobonds. As at 31 March 2004, PT held 2.51%, 10.05% and 12.05% of its 2005, 2006 and 2009 Eurobonds, respectively. These bonds, which have a nominal value of Euro 236 million, were acquired for a total amount of Euro 230 million.
PT’s gearing ratio (Net Debt / (Net Debt + Equity + Minority Interests)) as at 31 March 2004 decreased to 46.3% compared to 47.3% at the end of 2003. The net debt to EBITDA ratio as of 31 March 2004 was 1.4 times and EBITDA cover was 12.4 times.
Shareholders’ Equity
As at 31 March 2004, shareholders' equity amounted to Euro 3,026 million, an increase of Euro 86 million since the end of last year, which resulted from the net income generated during the period of Euro162 million and the effect of positive translation adjustments of Euro 65 million, mainly due to the improvement in the Brazilian Real exchange rate against the Euro (Euro/R$ 3.6646 at year end 2003 compared to Euro/R$ 3.5474 at the end of March 2004). The positive impact was offset by the decrease in shareholders’ equity resulting from the acquisition of treasury stock amounting to Euro 125 million (of which Euro 117 million were paid in the first quarter of 2004), in line with PT’s announced share buyback programme.
7. EMPLOYEES
| 1Q04 | 1Q03 | D y.o.y | y.o.y | 4Q03 | q.o.q | |
| Wireline | 9,065 | 10,717 | (1,652) | (15.4%) | 9,075 | (0.1%) |
| Domestic Mobile (TMN) | 1,110 | 1,123 | (13) | (1.2%) | 1,109 | 0.1% |
| Brazilian Mobile (Vivo) (1) | 3,511 | 2,735 | 776 | 28.4% | 3,500 | 0.3% |
| Multimedia (PT Multimedia) | 2,608 | 2,711 | (103) | (3.8%) | 2,588 | 0.8% |
| Pay-TV and Cable Internet | 600 | 674 | (74) | (11.0%) | 629 | (4.6%) |
| Other (2) | 9,837 | 5,787 | 4,050 | 70.0% | 8,600 | 14.4% |
| Total Group Employees | 26,131 | 23,073 | 3,058 | 13.3% | 24,872 | 5.1% |
| Domestic Market | 15,256 | 16,145 | (889) | (5.5%) | 14,427 | 5.7% |
| International Market | 10,875 | 6,928 | 3,947 | 57.0% | 10,445 | 4.1% |
| Fixed Lines per Employee (3) | 467 | 390 | 77 | 19.9% | 466 | 0.3% |
| Mobile Cards per Employee | ||||||
| TMN | 4,436 | 3,984 | 452 | 11.3% | 4,406 | 0.7% |
| Vivo | 6,230 | 6,197 | 33 | 0.5% | 5,902 | 5.6% |
| (1) | The number of employees in the Brazilian mobile business corresponds to 50% of the employees of Vivo. |
| (2) | The increase in this caption results primarily from employees working in call centre operations in Brazil which were outsourced externally in previous years. |
| (3) | Fixed lines per employee of the wireline business. |
At the end of March 2004, PT had 26,131 employees. The number of staff employed by PT in the domestic market decreased by 889 employees in the first quarter of 2004, or 5.5% y.o.y, primarily as a result of the work force reduction programme undertaken throughout 2003.
At the end of March 2004, the total number of staff employed by Vivo increased by 28.4% y.o.y to 7,022 employees, mainly as a result of the acquisition of TCO.
8. WIRELINE BUSINESS
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 558.5 | 583.3 | (4.2%) | 560.2 | (0.3%) |
| Services Rendered | 518.0 | 540.8 | (4.2%) | 515.2 | 0.5% |
| Telephone Directories | 33.2 | 34.5 | (3.8%) | 33.4 | (0.7%) |
| Sales and Other | 7.3 | 8.0 | (8.3%) | 11.6 | (36.9%) |
| Operating Costs excluding D&A | 331.7 | 348.5 | (4.8%) | 345.8 | (4.1%) |
| Wages and Salaries | 71.5 | 79.2 | (9.8%) | 72.6 | (1.6%) |
| Post Retirement Benefits | 49.2 | 53.8 | (8.5%) | 54.3 | (9.3%) |
| Costs of Telecommunications | 97.4 | 114.2 | (14.7%) | 104.0 | (6.3%) |
| Own Work Capitalised | (7.8) | (6.9) | 13.6% | (11.1) | (30.1%) |
| Marketing and Publicity | 6.0 | 6.5 | (7.2%) | 8.2 | (26.8%) |
| General & Administrative | 62.7 | 48.4 | 29.4% | 59.1 | 6.1% |
| Other Net Operating Costs | 52.7 | 53.2 | (0.8%) | 58.7 | (10.2%) |
| EBITDA | 226.8 | 234.8 | (3.4%) | 214.5 | 5.7% |
| Depreciation and Amortisation | 94.0 | 101.5 | (7.4%) | 101.5 | (7.4%) |
| Operating Income | 132.8 | 133.3 | (0.4%) | 113.0 | 17.6% |
| EBITDA Margin | 40.6% | 40.3% | 0.3 p.p. | 38.3% | 2.3 p.p. |
| Capex | 30.7 | 27.4 | 12.1% | 60.6 | (49.3%) |
| Capex as % of Revenues | 5.5% | 4.7% | 0.8 p.p. | 10.8% | (5.3p.p.) |
| (1) | Includes intragroup transactions. |
Operating revenues of the wireline business amounted to Euro 559 million in the first quarter of 2004, a decrease of 4.2% compared to the same period of last year. This decline was explained by the decrease in wholesale (-11.9%), in retail (-1.9%) and other wireline revenues (-6.9%).
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Retail | 344.4 | 351.1 | (1.9%) | 345.2 | (0.2%) |
| Fixed Charges | 165.4 | 155.3 | 6.5% | 165.3 | 0.0% |
| Traffic | 153.1 | 178.4 | (14.2%) | 157.0 | (2.5%) |
| ADSL Retail | 17.7 | 5.4 | 228.5% | 14.8 | 20.0% |
| ISP and Other | 8.2 | 12.0 | (31.7%) | 8.1 | 1.7% |
| Wholesale | 110.3 | 125.3 | (11.9%) | 100.0 | 10.3% |
| Traffic | 57.8 | 66.1 | (12.5%) | 56.4 | 2.6% |
| Leased Lines | 41.7 | 48.4 | (13.9%) | 32.6 | 27.9% |
| Other | 10.8 | 10.8 | 0.3% | 11.0 | (2.4%) |
| Data & Corporate | 57.4 | 57.1 | 0.6% | 63.6 | (9.7%) |
| Data Communications | 23.5 | 22.5 | 4.4% | 23.7 | (0.6%) |
| Leased Lines | 13.4 | 15.2 | (11.7%) | 12.4 | 8.3% |
| Network Manag. & Outsourcing | 3.5 | 4.7 | (26.3%) | 10.4 | (66.3%) |
| Other | 17.0 | 14.6 | 16.2% | 17.2 | (1.0%) |
| Other Wireline Revenues | 46.3 | 49.8 | (6.9%) | 51.5 | (10.0%) |
| Other Fixed Line Telephone Services | 4.2 | 5.9 | (28.7%) | 4.3 | (2.5%) |
| Sales of Telecom. Equipment | 7.3 | 8.0 | (8.3%) | 11.6 | (36.9%) |
| Telephone Directories | 33.2 | 34.5 | (3.8%) | 33.4 | (0.7%) |
| Portals | 1.6 | 1.4 | 15.2% | 2.2 | (24.1%) |
| Total Operating Revenues | 558.5 | 583.3 | (4.2%) | 560.2 | (0.3%) |
| (1) | Includes intragroup transactions. |
In terms of retail revenues, the improvement in fixed charges in the first quarter of 2004 (+6.5% y.o.y or Euro 10 million), caused by the increase in the monthly fee and by the growth of pricing packages, and the strong rollout of ADSL (+228.5% y.o.y or Euro 12 million) were still not sufficient to offset the decline experienced in traffic revenues (-14.2% y.o.y or Euro 25 million).
However, part of the decline in traffic revenues is explained by falling interconnection rates, namely fixed-to-mobile. Although revenues were negatively impacted by this trend, the corresponding costs of telecommunications was also lower. As a result, net retail revenues, calculated as retail revenues less corresponding telecommunications costs, increased by 2.3% y.o.y to Euro 279 million in the first quarter of 2004, which compares to a 2.3% y.o.y decline in the fourth quarter of 2003.
As for wholesale revenues, which fell by 11.9% y.o.y, the main causes for this decline were the reduction in interconnection rates and leased line tariffs and the growing usage by competitors of their own infrastructures.
Several initiatives have been launched as part of an ongoing effort to enhance the performance of the wireline business by improving customer retention and loyalty, increasing usage of the fixed network, improving market competitiveness and upgrading the value proposition of the service to customers. These initiatives include several new pricing and traffic packages, terminal equipment with new features, including SMS, and an aggressive promotion of ADSL. At the end of March 2004, the number of pricing packages stood at 388 thousand, which represented 9.7% of total PSTN/ISDN lines. These packages have resulted in improved retention and loyalty of clients, higher usage even in situations beyond the characteristics of the package, the partial replacement of variable revenues by up-front fixed charges, and higher total ARPU. ADSL take-up in the first quarter is encouraging for the achievement of the long term targets of PT. As a number of these initiatives are in the process of being rolled out the full impact is unlikely to be noticeable for a few quarters. Nevertheless, it should be highlighted that total ARPU (voice and data) was Euro 34.0, flat over the same period of last year and higher than the fourth quarter of 2003.
EBITDA in the first quarter of 2004 decreased by 3.4% y.o.y to Euro 227 million, equivalent to an EBITDA margin of 40.6% and corresponding to a 0.3 p.p. improvement over the same period of last year. Compared to the fourth quarter of 2003, EBITDA grew by 5.7% q.o.q and EBITDA margin increased by 2.3 p.p. on a sequential basis.
This margin performance is the result of the cost cutting initiatives being undertaken, the reduction in post retirement benefits costs and lower telecommunication costs (because of lower traffic volumes and terminations rates). In the first quarter of 2004, operating costs excluding depreciation and amortisation fell by 4.8% y.o.y to Euro 332 million. At the end of March 2004, the number of employees in the wireline business was 9,065 thousand, corresponding to 467 accesses, compared to 390 in the same period of last year.
Capex amounted to Euro 31 million in the first quarter of 2004, an increase of 12.1% y.o.y and equivalent to 5.5% of operating revenues. Quality of service in the first quarter of 2004 has been maintained with a call completion rate of 99.90% and 2.5 faults per 100 access lines. EBITDA minus Capex in the first quarter of 2004 amounted to Euro 196 million, representing a 5.5% y.o.y decrease over the same period of last year and a 27.4% increase over the fourth quarter of 2003.
| 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q | |
| Main Lines ('000) | 4,235 | 4,177 | 1.4% | 4,225 | 0.2% |
| PSTN/ISDN ('000) | 3,999 | 4,099 | (2.4%) | 4,037 | (0.9%) |
| Per 100 Inhabitants (n°) | 40.8 | 41.7 | (2.1%) | 41.2 | (0.9%) |
| ISDN Penetration (%) | 20.1 | 20.0 | 0.1 p.p. | 20.1 | (0.0p.p.) |
| ADSL ('000) | 236 | 78 | 203.0% | 188 | 25.5% |
| ADSL Retail ('000) | 204 | 63 | 225.5% | 161 | 27.1% |
| Net Additions (1) ('000) | 10 | (19) | n.m. | 31 | (68.2%) |
| ARPU (2) (Euro) | 34.0 | 34.1 | (0.3%) | 33.7 | 1.0% |
| Voice | 31.0 | 31.9 | (3.0%) | 31.0 | 0.1% |
| Data | 3.0 | 2.2 | 39.1% | 2.7 | 11.1% |
| Call Completion Rate (%) | 99.90 | 99.90 | 0.0 p.p. | 99.90 | 0.0 p.p. |
| Faults per 100 Access Lines (no.) | 2.5 | 2.9 | (0.4p.p.) | 2.9 | (0.4p.p.) |
| Total Data Commun. Accesses ('000) | 34 | 35 | (4.1%) | 38 | (10.6%) |
| Frame Relay | 13 | 11 | 20.6% | 13 | 3.3% |
| Broadband | 3 | 1 | 248.2% | 2 | 22.3% |
| Corporate Web Capacity Sold (Mbps) | 3,397 | 1,181 | 187.6% | 2,459 | 38.1% |
| Number of Leased Lines ('000) | 18 | 20 | (7.8%) | 19 | (2.6%) |
| Capacity (equivalent to 64 kbps) ('000) | 178 | 121 | 47.4% | 122 | 45.7% |
| Digital (%) | 95.2 | 92.1 | 3.1 p.p. | 92.7 | 2.5 p.p. |
| (1) | Including ADSL. |
| (2) | Including ADSL and dial-up Internet. |
As at 31 March 2004, PT continued to lead the market in Portugal in terms of total minutes of outgoing traffic, number of access lines and ADSL lines. This performance has been achieved as a result of the successful implementation of a customer loyalty strategy, based on product differentiation and innovation, competitive pricing offers, customer care and quality of service.
In the first quarter of 2004, the price basket decreased on average by 1.9% y.o.y over the first quarter of 2003. The fixed telephone service tariffs were updated and rebalanced as of February 2003, which resulted in an average line rental increase of 2.1% y.o.y in the first quarter of 2004 and average decreases of 6.3% and 13.3% in the cost of regional and domestic long distance calls respectively, thereby reinforcing PT’s competitive position in the domestic market.
Total access lines (PSTN/ISDN + ADSL) increased by 10 thousand in the first quarter of 2004, with 48 thousand ADSL net additions more than offsetting the 0.9% q.o.q decline in PSTN/ISDN lines. Total access lines in the wireline business reached 4,235 thousand at the end of the first quarter of 2004, of which 3,999 thousand were PSTN/ISDN and 236 thousand were wholesale ADSL. PT’s subsidiaries had 204 thousand ADSL connections at the end of the first quarter of 2004.
| Million of minutes | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Total Traffic | 4,335 | 4,770 | (9.1%) | 4,483 | (3.3%) |
| Voice Traffic | 3,189 | 3,155 | 1.1% | 3,245 | (1.7%) |
| Retail | 1,863 | 2,053 | (9.3%) | 1,978 | (5.8%) |
| F2F Domestic | 1,372 | 1,528 | (10.2%) | 1,447 | (5.2%) |
| F2M | 231 | 256 | (9.6%) | 243 | (4.9%) |
| Other | 173 | 174 | (0.8%) | 195 | (11.1%) |
| International | 86 | 95 | (9.0%) | 93 | (6.8%) |
| Wholesale | 2,472 | 2,717 | (9.0%) | 2,505 | (1.3%) |
| Internet | 1,010 | 1,470 | (31.3%) | 1,091 | (7.4%) |
| Total Orig. Traffic in the Fixed Network | 3,354 | 3,889 | (13.8%) | 3,506 | (4.3%) |
| Originated Traffic / Access / Day (min) | 9.2 | 10.5 | (12.6%) | 9.4 | (2.7%) |
| F2F Domestic / Access / Day (min) | 3.8 | 4.1 | (9.0%) | 3.9 | (3.5%) |
Although total traffic dropped by 9.1% y.o.y in the first quarter of 2004, voice traffic increased by 1.1% y.o.y. In the first quarter of 2004 retail traffic decreased by 9.3% y.o.y and domestic fixed-to-fixed traffic fell by 10.2% y.o.y. Line usage of domestic fixed-to-fixed traffic, measured in minutes per access line per day, dropped by 9.0% y.o.y to 3.8 minutes in the first quarter of 2004. Line usage of originated traffic, which includes dial-up Internet traffic, decreased by 12.6% y.o.y in the first quarter of 2004 to 9.2 minutes. Wholesale traffic posted a 9.0% y.o.y decline in the first quarter of 2004, explained by the 31.3% y.o.y drop in Internet access traffic, which was due in large part to the migration of users to broadband platforms.
Total ARPU (voice and data) remained broadly flat in the first quarter of 2004 at Euro 34.0. Voice ARPU (PSTN/ISDN less dial-up Internet) declined by 3.0% y.o.y to Euro 31, whilst data ARPU (ADSL plus dial-up Internet) increased by 39.1% y.o.y contributing Euro 3.0 to total ARPU in the first quarter of 2004. Compared to the fourth quarter of 2003, total ARPU increased by 1.0% q.o.q.
PT remains the leading operator in the corporate data and integrated solutions market in Portugal. In this business segment, Internet capacity sales increased by 187.6% y.o.y in the first quarter of 2004, as a result of the expansion of ADSL. The number of broadband connections based on the ATM network rose by 248.2% y.o.y. Data communications capacity decreased by 4.1% and frame relay accesses grew by 20.6% y.o.y. Leased lines capacity to end-users rose by 47.4% y.o.y and leased line digital capacity reached 95.2% of the total leased line capacity, an increase of 3.1 p.p. over the first quarter of 2003.
9. DOMESTIC MOBILE BUSINESS (TMN)
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 366.6 | 352.7 | 3.9% | 397.1 | (7.7%) |
| Services Rendered | 340.2 | 321.1 | 5.9% | 351.5 | (3.2%) |
| Billing | 252.5 | 230.7 | 9.4% | 259.5 | (2.7%) |
| Interconnection | 87.7 | 90.4 | (3.0%) | 92.0 | (4.7%) |
| Sales | 26.5 | 31.6 | (16.3%) | 45.5 | (41.9%) |
| Operating Costs excluding D&A | 193.1 | 198.6 | (2.8%) | 211.9 | (8.9%) |
| Wages and Salaries | 13.7 | 12.7 | 7.9% | 16.7 | (18.3%) |
| Costs of Telecommunications | 69.7 | 74.1 | (5.9%) | 72.4 | (3.7%) |
| Own Work Capitalised | (0.6) | (0.9) | (33.1%) | (1.0) | (40.7%) |
| Cost of Products Sold | 31.7 | 35.3 | (10.2%) | 45.1 | (29.7%) |
| Marketing and Publicity | 7.6 | 6.4 | 18.8% | 5.2 | 46.1% |
| General & Administrative | 49.3 | 49.6 | (0.7%) | 56.1 | (12.3%) |
| Other Net Operating Costs | 21.7 | 21.4 | 1.3% | 17.4 | 25.1% |
| EBITDA | 173.6 | 154.1 | 12.6% | 185.1 | (6.3%) |
| Depreciation and Amortisation | 46.7 | 48.4 | (3.5%) | 44.5 | 5.0% |
| Operating Income | 126.8 | 105.7 | 20.0% | 140.7 | (9.8%) |
| EBITDA Margin | 47.3% | 43.7% | 3.7 p.p. | 46.6% | 0.7 p.p. |
| Capex | 17.1 | 46.7 | (63.3%) | 78.6 | (78.2%) |
| Capex as % of Revenues | 4.7% | 13.2% | (8.6p.p.) | 19.8% | (15.1p.p.) |
| (1) | Includes intragroup transactions. |
Operating revenues of TMN in the first quarter of 2004 reached Euro 367 million, an increase of 3.9% y.o.y, primarily reflecting a strong growth in the customer base and higher contribution from data services. Service revenues increased by 5.9% y.o.y to Euro 340 million, as a result of the 9.4% increase in billing revenues, whilst revenues from handset sales decreased by 16.3% y.o.y to Euro 26 million. Revenues from data services, namely SMS and WAP services, accounted for 9.5% of service revenues in the first quarter of 2004, a 1.0 p.p. improvement over the first quarter of 2003.
EBITDA amounted to Euro 174 million in the first quarter of 2004, an increase of 12.6% over the same period of last year, as a result of lower cash costs per user. Accordingly, EBITDA margin in the first quarter of 2004 rose by 3.7 p.p. y.o.y to 47.3%.
Capex in the first quarter of 2004 declined by 63.3% y.o.y to Euro 17 million, equivalent to 4.7% of operating revenues. Capex was mainly directed towards the expansion of network capacity and coverage, improvements in quality of service and customer care, and UMTS investments (approximately 25% of capex). EBITDA minus Capex climbed by 45.6% y.o.y in the first quarter of 2004 to Euro 156 million.
TMN had 1,110 employees at the end of March 2004 and 4,436 customers per employee, representing a 11.3% improvement over the same period of last year.
| 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q | |
| TMN Active Customers ('000) | 4,923 | 4,474 | 10.1% | 4,887 | 0.8% |
| WAP Terminals | 1,686 | 906 | 86.1% | 1,528 | 10.3% |
| GPRS Terminals | 775 | 184 | 321.2% | 609 | 27.3% |
| Net Additions ('000) | 37 | 47 | (22.4%) | 195 | (81.2%) |
| Total Churn (%) | 22.7 | 24.7 | (1.9 p.p) | 23.5 | (0.7 p.p) |
| Data as % of Service Revenues (%) | 9.5 | 8.5 | 1.0 p.p. | 9.2 | 0.3 p.p. |
| ARPU (Euro) | 23.1 | 24.1 | (4.2%) | 24.6 | (6.3%) |
| Customer Bill | 17.1 | 17.3 | (1.0%) | 18.2 | (5.8%) |
| Interconnection | 6.0 | 6.8 | (12.3%) | 6.4 | (7.7%) |
| MOU (Min.) | 116.4 | 118.4 | (1.7%) | 124.5 | (6.5%) |
| ARPM (Euro cents) | 19.8 | 20.4 | (2.5%) | 19.8 | 0.3% |
| SARC (Euro) | 56.7 | 65.5 | (13.4%) | 37.2 | 52.6% |
| CCPU (1) (Euro) | 10.7 | 12.1 | (11.7%) | 11.4 | (6.0%) |
| ARPU minus CCPU (Euro) | 12.4 | 12.0 | 3.4% | 13.2 | (6.5%) |
| (1) | CCPU (Cash cost per user) = Operating costs minus provisions, depreciation and amortisation, and sales of equipment per user. |
TMN had 4,923 thousand active customers at the end of March 2004, a 10.1% increase over the same period of last year. TMN added 37 thousand customers in the first quarter of 2004, compared to 47 thousand in the first quarter of 2003. The increased focus on segmentation and customer loyalty led to a 5.6% growth in the number of postpaid customers, which totalled 783 thousand in the first quarter of 2004. Prepaid cards accounted for 84.1% of the total customer base. Churn decreased from 24.7% in the first quarter of 2003 to 22.7% in the first quarter of 2004. However, churn to competition was approximately 7%.
The take-up of I9, launched in June 2003, is progressing well, having reached more than 47 thousand customers at the end of the first quarter of 2004. Games, rings and tones, sports, highlights and video constitute the top daily access subjects per user. Active MMS customers at the end of March 2004 reached 94 thousand. The number of GPRS handsets reached 775 thousand.
Minutes of usage (MOU) posted a 1.7% reduction y.o.y to 116.4 minutes in the first quarter of 2004, reflecting the seasonal impact of strong holiday season sales and dilutive impact of the rising number of double SIM cards and machine-to-machine applications. The number of SMS messages in the first quarter of 2004 increased by 11.3% y.o.y to 362 million, corresponding to approximately 51 messages per month per active SMS user. The number of active SMS users reached 47.1% of the total customer base.
ARPU in the first quarter of 2004 was Euro 23.1 compared to Euro 24.1 in the first quarter of 2003, equivalent to a 4.2% y.o.y reduction. The interconnection bill posted a drop of 12.3% y.o.y, as a result of the 19.6% cut in fixed-to-mobile interconnection fees, while the customer bill decreased by 1.0% y.o.y to Euro 17.1.
CCPU decreased by 11.7% y.o.y in the first quarter of 2004 to Euro 10.7, reflecting the success of the cost control initiatives. ARPU minus CCPU in the first quarter of 2004 was Euro 12.4, corresponding to a 3.4% y.o.y increase over the same period of last year.
10. BRAZILIAN MOBILE BUSINESS (VIVO)
| R$ million | 1Q04 | 1Q03 (2) | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 2,548.7 | 2,231.0 | 14.2% | 2,783.9 | (8.4%) |
| Services Rendered | 2,048.5 | 1,947.4 | 5.2% | 2,090.0 | (2.0%) |
| Sales | 500.2 | 283.6 | 76.4% | 693.9 | (27.9%) |
| EBITDA | 1,027.6 | 910.5 | 12.9% | 897.0 | 14.6% |
| Depreciation and Amortisation | 484.4 | 438.6 | 10.4% | 466.2 | 3.9% |
| Operating Income | 543.2 | 471.9 | 15.1% | 430.8 | 26.1% |
| EBITDA Margin | 40.3% | 40.8% | (0.5 p.p.) | 32.2% | 8.1 p.p. |
| Capex | 129.6 | 194.9 | (33.5%) | 719.5 | (82.0%) |
| Capex as % of Revenues | 5.1% | 8.7% | (3.7 p.p.) | 25.8% | (20.8 p.p.) |
| (1) | Information prepared in accordance to Portuguese GAAP. |
| (2) | Pro forma information including TCO's results. |
Vivo’s operating revenues, stated in Brazilian Reais and in accordance with Portuguese GAAP, increased by 14.2% y.o.y in the first quarter of 2004 to R$ 2,549 million, underpinned by robust subscriber growth. Revenues from sales of equipment rose by 76.4% y.o.y and service revenues increased by 5.2% y.o.y. EBITDA rose by 12.9% y.o.y to R$ 1,028 million, equivalent to a margin of 40.3% in the first quarter of 2004.
Capex reached R$ 130 million in the first quarter of 2004, equivalent to 5.1% of revenues, decreasing by 33.5% y.o.y. Accordingly, EBITDA minus Capex increased by 25.5% y.o.y to R$ 898 million in the first quarter of 2004.
| 1Q04 | 1Q03 (1) | y.o.y | 4Q03 | q.o.q | |
| Customers ('000) | 21,875 | 16,949 | 29.1% | 20,656 | 5.9% |
| Market Share in Areas of Operation (%) | 55.7 | 59.7 | (4.0 p.p.) | 56.2 | (0.5 p.p.) |
| Net Additions ('000) | 1,219 | 140 | 769.9% | 2,186 | (44.2%) |
| MOU (min) | 92.6 | 99.8 | (7.2%) | 102.9 | (10.0%) |
| ARPU (R$) | 34.6 | 37.8 | (8.5%) | 38.6 | (10.4%) |
| CCPU (2) (R$) | 17.4 | 19.6 | (11.6%) | 21.3 | (18.5%) |
| ARPU minus CCPU (R$) | 17.3 | 18.2 | (5.2%) | 17.3 | (0.5%) |
| (1) | Pro forma information including TCO. |
| (2) | CCPU (Cash cost per user) = Operating costs minus provisions, depreciation and amortisation, and sales of equipment per user. |
Vivo had 21.9 million active customers at the end of the first quarter of 2004, a 29.1% increase over the same period of 2003, boosted by strong net additions. In the first quarter of 2004, Vivo added 1,219 thousand new customers. Despite aggressive competition from operators such as TIM and Claro, Vivo’s average market share in the regions where it operates was 55.7% at the end of March 2004. Vivo remains the uncontested leader in the mobile market in Brazil, boasting a 45% overall market share, more than two times larger than its next competitor.
Although most of the growth in the Brazilian mobile market is in terms of prepaid customers, Vivo is increasingly targeting post-paid customers through new special offers for the corporate segment, such as “Vivo Empresas”, to capture the potential growth prospects this segment offers. The number of mobile accesses held by corporate clients reached 1.3 million in the first quarter of 2004, increasing by 29.1% over the same period of last year.
Vivo’s blended MOU dropped by 7.2% y.o.y in the first quarter of 2004 to 92.6 minutes. In the first quarter of 2004, the number of SMS messages per user increased by 42.5% y.o.y, with SMS active users now accounting for 29% of Vivo’s customer base. Data as a percentage of revenues was 4.4% in the first quarter of 2004, an increase of 2.4 p.p. y.o.y. Vivo has been actively marketing 2.5G data services, supported on the 1XRTT platform.
Vivo’s blended ARPU was R$ 34.6 in the first quarter of 2004, an 8.5% y.o.y decline over the same period of last year, as a result of the dilutive impact of the increasing weight of prepaid customers. New rules for long distance calls and for mobile-to-mobile interconnection (“bill & keep”), introduced in the second half of 2003, negatively affected ARPU comparisons.
CCPU dropped by 11.6% y.o.y in the first quarter of 2004 to R$ 17.4, helped by cost control initiatives. ARPU minus CCPU in the first quarter of 2004 was R$ 17.3.
11. MULTIMEDIA BUSINESS (PT MULTIMEDIA)
| Euro million | 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q |
| Operating Revenues | 176.4 | 163.5 | 7.9% | 194.8 | (9.5%) |
| Pay-TV and Cable Internet | 117.4 | 102.4 | 14.7% | 117.2 | 0.2% |
| Pay-TV | 89.8 | 80.4 | 11.8% | 88.3 | 1.7% |
| Broadband | 19.4 | 14.6 | 33.0% | 18.2 | 6.6% |
| Advertising | 3.7 | 2.8 | 31.7% | 5.2 | (29.3%) |
| Sales and other | 4.4 | 4.6 | (5.4%) | 5.6 | (21.5%) |
| Audiovisuals | 24.1 | 27.4 | (12.0%) | 38.6 | (37.4%) |
| Media | 35.0 | 33.7 | 3.7% | 39.0 | (9.8%) |
| Operating Costs excluding D&A | 134.2 | 136.2 | (1.5%) | 151.0 | (11.1%) |
| Wages and Salaries | 21.5 | 20.8 | 3.3% | 22.1 | (2.6%) |
| Costs of Telecommunications | 6.5 | 6.0 | 8.1% | 6.4 | 1.1% |
| Costs of Products Sold | 7.8 | 13.8 | (43.8%) | 25.1 | (69.1%) |
| Marketing and Publicity | 7.7 | 6.3 | 21.9% | 7.7 | (0.4%) |
| General & Administrative | 80.3 | 77.1 | 4.3% | 79.8 | 0.7% |
| Other Net Operating Costs | 10.5 | 12.3 | (14.6%) | 9.9 | 5.7% |
| EBITDA | 42.1 | 27.3 | 54.4% | 43.8 | (3.8%) |
| Depreciation and Amortisation | 13.8 | 16.8 | (18.0%) | 15.6 | (11.7%) |
| Operating Income | 28.4 | 10.5 | 170.6% | 28.2 | 0.6% |
| EBITDA Margin | 23.9% | 16.7% | 7.2 p.p. | 22.5% | 1.4 p.p. |
| Capex | 9.9 | 15.9 | (37.5%) | 18.0 | (44.9%) |
| Capex as % of Revenues | 5.6% | 9.7% | (4.1p.p.) | 9.3% | (3.7p.p.) |
| (1) | Includes intragroup transactions. |
PTM’s operating revenues rose by 7.9% y.o.y to Euro 176 million in the first quarter of 2004, primarily as a result of the 14.7% y.o.y increase in revenues from Pay-TV and Cable Internet. EBITDA rose by 54.4% y.o.y in the first quarter of 2004 to Euro 42 million. As a result, EBITDA margin improved by 7.2 p.p. to 23.9% in the first quarter of 2004, underpinned by strong Pay-TV and broadband customer growth, ARPU pick-up, and lower costs namely programming costs.
In the first quarter of 2004, PTM’s capex declined by 37.5% y.o.y to Euro 10 million, equivalent to 5.6% of revenues. EBITDA minus Capex increased from Euro 11 million in the first quarter of 2003 to Euro 32 million in the first quarter of 2004.
Pay-TV and Cable Internet Business (TV Cabo)
In the first quarter of 2004, operating revenues rose by 14.7% y.o.y to Euro 117 million, as a result of the increase in revenues from Pay-TV, broadband Internet and advertising. EBITDA amounted to Euro 41 million, corresponding to an increase of 67.9% y.o.y. EBITDA margin of the Pay-TV and Cable Internet segment in the first quarter of 2004 reached 34.5%, representing a 10.9 p.p. improvement over the same period of last year. This margin performance is explained not only by strong top line growth, but also by the effective cost rationalisation programme, with particular emphasis on the renegotiation of programming contracts and staff reduction.
Capex dropped by 30.2% y.o.y in the first quarter of 2004 to Euro 9 million, equivalent to 7.6% of revenues. The reduction in capex was achieved through a decrease in network spend as rollout is almost complete and a decline in equipment prices. EBITDA minus Capex in the first quarter of 2004 amounted to Euro 32 million compared to Euro 11 million in the first quarter of 2003.
| 1Q04 | 1Q03 | y.o.y | 4Q03 | q.o.q | |
| Homes Passed ('000) | 2,495 | 2,405 | 3.8% | 2,472 | 0.9% |
| Bi-directional (Broadband Enabled) | 2,247 | 2,084 | 7.8% | 2,221 | 1.2% |
| Pay-TV Customers (1) (2) ('000) | 1,466 | 1,346 | 8.9% | 1,442 | 1.7% |
| Cable | 1,111 | 1,038 | 7.0% | 1,094 | 1.6% |
| DTH | 355 | 308 | 15.3% | 348 | 1.9% |
| Net Additions ('000) | 24 | 39 | (37.9%) | 40 | (39.2%) |
| Churn (%) | 14.6 | 13.5 | 1.1p.p. | 15.3 | (0.7 |
| Premium Customers (2) ('000) | 1,098 | 968 | 13.4% | 1,099 | (0.1%) |
| Penetration Rate of Cable (%) | 48.9 | 47.6 | 1.3p.p. | 48.6 | 0.3p.p. |
| Pay to Basic Ratio (%) | 74.9 | 71.9 | 3.0p.p. | 76.2 | (1.3 |
| Cable Broadband Accesses ('000) | 250 | 162 | 54.0% | 230 | 8.5% |
| Blended ARPU (Euro) | 24.7 | 23.4 | 5.8% | 24.6 | 0.3% |
| Pay-TV ARPU | 20.3 | 19.8 | 2.2% | 20.4 | (0.5%) |
| Cable Internet ARPU | 26.4 | 30.6 | (13.6%) | 27.5 | (3.8%) |
| (1) | These figures are related to the total number of Pay-TV basic service customers. PTM's Pay-TV business offers several basic packages, based on different techonogies, and directed to different market segments (residential, real estate and hotels), with a distinct geographic scope (mainland Portugal and the Azores and Madeira islands) and with a variable number of channels. |
| (2) | These figures include products in temporary promotions, such as the "Try and Buy" promotion. |
The rollout of the cable network is almost complete with 2,495 thousand homes passed at the end of March 2004, of which 90.1% are bi-directional and therefore broadband enabled. Approximately 24 thousand Pay-TV customers were added in the first quarter of 2004, reaching 1,466 thousand at the end of March 2004 (1,111 thousand cable and 355 thousand DTH) and representing an 8.9% y.o.y increase.
The number of premium services customers increased by 13.4% y.o.y in the first quarter of 2004 to 1,098 thousand, corresponding to a pay to basic ratio of 74.9%, compared to 71.9% in the first quarter of 2003. Sport TV customers grew by 4.2% y.o.y in the first quarter of 2004 to 432 thousand. The slight decrease registered in the number of other premium channels subscriptions over the fourth quarter of 2003 was essentially due to the end of “Try & Buy” promotions.
The take-up of broadband cable Internet access (Netcabo) continued to increase significantly (+54.0% y.o.y) in the first quarter of 2004, reaching 250 thousand customers. Approximately 20 thousand Netcabo customers were added in the first quarter of the year. The penetration of the Internet service among cable TV subscribers stood at 22.5% at the end of March 2004, which compares with 15.6% a year earlier.
Blended ARPU in the first quarter of 2004 was Euro 24.7, representing an increase of 5.8% over the first quarter of last year. In the first quarter of 2004, Pay-TV ARPU reached Euro 20.3, a 2.2% y.o.y increase. The ARPU of broadband Internet customers in the first quarter of 2004 was Euro 26.4, a 13.6% y.o.y decrease, as a result of the significant increase in the customer base and tougher competition.
Audiovisuals Business
In the first quarter of 2004, operating revenues of the audiovisuals business segment amounted to Euro 26 million, a 3.8% decrease over the same period of last year. This performance is explained by the 45.5% y.o.y decline in consoles and videogames revenues, which offset the increase of 14.1% y.o.y in film distribution revenues and the increase of 31.9% y.o.y in exhibition revenues. EBITDA reached Euro 3 million in the first quarter of 2004, a decrease of 33.7% over the first quarter of 2003, explained in great part due to the recognition of a number of costs as opex upfront. Capex in the first quarter of 2004 totalled Euro 0.4 million, equivalent to 1.7% of revenues.
Media Business
Lusomundo Media posted operating revenues of Euro 35 million in the first quarter of 2004, an increase of 0.9% y.o.y, as a result of the increase in advertising revenues (+12.8% y.o.y) and newspaper circulation revenues (+4.4% y.o.y). Lusomundo Media’s EBITDA increased to Euro 0.5 million in the first quarter of 2004 from a negative Euro 0.1 million in the same period of last year. Capex in the first quarter of 2004 totalled Euro 0.5 million, equivalent to 1.4% of revenues.
12. FIRST QUARTER KEY EVENTS AND RECENT DEVELOPMENTS
On 22 January 2004, PT reallocated certain operational responsibilities within its Executive Committee. As a result of these changes, Mr. Miguel Horta e Costa, in addition to his role as Group CEO, has also taken on direct responsibility for PT’s wireline business. Mr. Zeinal Bava and Mr. Iriarte Esteves, in addition to their current roles, were also appointed executive vice-presidents of the wireline business. Mr. Bava is now responsible for the residential/SoHo segments and Mr. Esteves for the corporate/wholesale segments of the wireline business. Mr. Carlos Vasconcellos Cruz, is now supervising all of PT’s international businesses, focusing primarily on Vivo in Brazil.
On 15 March 2004, PT Comunicações (“PTC”) entered into an agreement with the Portuguese Institute for the Consumer’s Defence (“DECO”) that ends the legal dispute between these two entities and upon which several legal proceedings, in 1998 and 1999, were brought against PTC by DECO, pleading for the declaration of the nullity of the tariff plan, which had been approved by the competent authorities and subsequently confirmed by Portuguese Government, and the conviction of PTC to refund the amounts charged as activation fees. Under the terms of this agreement, DECO and PTC reached an alternative solution to refunding the amounts charged as activation fees, whereby certain benefits are granted to consumers.
Further to the announced share buyback programme, as at 31 March 2004, PT had acquired, on the Euronext Stock Exchange, a total of 43,020,108 treasury shares, or 3.43% of PT’s share capital, at an average price of Euro 7.78 per share. On 1 April 2004, PT sold to ABN all of the treasury stock it had acquired, at an average price of Euro 7.78 per share, which corresponds to the average price for which it had previously acquired the treasury stock. PT also contracted with ABN an equity swap over the shares sold, under the terms of which PT has the option to reacquire these shares. As a result, the above mentioned sale of treasury shares and the related equity swap have not been recognised in PT’s balance sheet in line with the requirements of Generally Accepted Accounting Principles. Following this transaction, as at 16 April 2004, PT had acquired a total of 4,585,000 treasury shares, or 0.37% of PT’s share capital, at an average price of Euro 9.09 per share. In addition to the above mentioned equity swap, PT has other equity swap contracts under the terms of which it has the option to acquire PT shares, equivalent to 2.13% of its share capital, at an average exercise price of Euro 7.74 per share.
On 2 April 2004, PT’s shareholders approved at the AGM the payment of a cash dividend of Euro 0.22 per share for the year ended 31 December 2003, amounting to Euro 276 million. Shareholders also approved a reduction of PT’s share capital in the nominal amount of up to Euro 125,428,500, to be done under the share buyback programme, through the cancellation of up to 125,428,500 treasury shares, representing 10% of PT’s share capital, and the corresponding amendment to the articles of association.
On 19 April 2004, TMN became the first mobile operator to launch UMTS in Portugal, with a service that allows customers to make videocalls. The 3G handset function both on GSM/GPRS and UMTS, allowing customers to use all the voice, multimedia and data services already offered by TMN. For data access exclusively, TMN also offers a 3G access card. Initial coverage is in Lisbon and Oporto, and will be extended progressively to cover the whole of Portugal.
On 26 April 2004, the Portuguese telecommunications regulator (Anacom) and Directorate General for Enterprises (Direcção Geral de Empresas) approved the 2004 fixed telephone service prices proposed by PTC. These prices were set within the Universal Service Convention, complying with a price cap of CPI-2.75%, in terms of average annual change and assuming an inflation range of 1.5% to 2.5% as per the Portuguese State Budget for 2004. The new prices will become effective as of 2 May 2004, with a line rental increase of 2.9% and a decrease of 16.8% and 24.0% in the cost of regional and domestic long distance calls respectively, thereby reinforcing PT’s competitive position in the domestic market.
13. BASIS OF PRESENTATION
PT’s financial results by business segment reflect certain changes to its reportable segments made during 2003, in line with management’s current view of PT’s businesses. PT’s results by business segment for the first quarter of 2003 have been restated to reflect these changes. PT’s business segments are now the following:
| • | Wireline Business (PTC, PT Prime and PTM.com), which comprises: |
Retail, which comprises: |
Fixed
Charges – PTC |
Wholesale
– PTC |
Other
Fixed Telephone Service revenues – PTC |
| • | Domestic Mobile – TMN |
| • | Brazilian Mobile – Vivo (50% proportionally consolidated) |
| • | Multimedia – PTM, which comprises: |
Pay-TV and
Cable Internet – TV Cabo (plus PT Conteúdos) |
| • | Other – Other businesses, PT holding company and instrumental companies |
This information is also available on PT’s IR website http://ir.telecom.pt.
| Contacts: | Zeinal
Bava, Group Chief Financial Officer |
This release contains forward-looking statements. Such statements are not statements of historical fact, and reflect goals of the company's management. The words "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts,” "projects" and "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, the results of operations of the company to be achieved may be different from the company's current goals and the reader should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.
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PORTUGAL TELECOM, SGPS, S.A.
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| By: |
/S/
Nuno Prego
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Nuno Prego
Investor Relations Director
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This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.