Greetings and welcome to the Portugal Telecom 2012 First Half Results Conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Zeinal Bava, CEO for Portugal Telecom. Thank you. You may begin.

Okay, thank you very much. Good afternoon, ladies and gentlemen. Thank you very much for being on this call. I’m here with our CFO, Luís Pacheco de Melo, and our financial team as well our IR Director, Nuno Vieira. We are here today because of the announcement of Portugal Telecom’s First Half Results. Our first half 2012 results, consolidated operating revenues amounted to EUR3,345 million while EBITDA reached EUR1,141 million. Consolidated EBITDA margin stood at about 34.1% and that was underpinned very much by the solid margin of the Portuguese telecoms businesses, which reported margins in excess of 45%. Net income reached EUR125 million and basic earnings per share stood at EUR0.15. In the first half of 2012, our consolidated CapEx amounted to EUR522 million, that’s equivalent to 15.6% of revenues. In the first half as well, EBITDA minus CapEx amounted to EUR619 million, while EBITDA minus CapEx of the Portuguese businesses amounted to EUR377 million. In the first half of 2012, operating cash flow amounted to EUR287 million. Free cash flow as you know that will have seen in the press release were impacted by a number of events which my CFO Luís will take you through in a lot more detail. Maybe now perhaps use the presentation that we put out this morning to take you through some of the highlights of the business in the first half of this year and then hand it over to my CFO for much more detailed information on the financials of the company. Second quarter of this year with Portugal Telecom ended up with 97 million customers and we saw very strong RGU, revenue generating unit growth across all our businesses. In Portugal, RGUs went up by about 3%, in Brazil 9.7% and in Africa and rest of the world we…

Thank you very much. So before we answer questions you may have and we’ll be delighted to do that, just a recap, in the case of Portugal I would say the performance was better than most analysts and investors had expected. Our residential segment is proving to be a lot more resilient, top line actually accelerated. You’ve seen some recovery in the personal segment. You are seeing stabilization in the corporate enterprises segment, albeit as I mentioned, more pressure on the SMEs perhaps slightly better performance in corporate and there is some lumpiness in some of those contracts as well. We are maintaining costs very much under control as you will have no doubt seeing, costs were once again down in our company and we will continue to maintain that discipline. Also focus is on cash flow generation because we would like to continue to enhance our financial flexibility and de-leverage the balance sheet. Oi’s turnaround, its working progress. Africa and Asia, robust. And as you no doubt what have seen, we have not only secured funding in Portugal Telecom so that we have no refinancing risk in our company until June 2016. That compares with end of 2013 where we were three months ago, which means that Portugal Telecom’s credit continues to be perceived well and generally speaking by the market we just recently completed the retail offer of EUR400 million as well in Portugal. So we are funded until June 2016 and we continue to believe that whilst we have revised our dividend policy, it continues to be an attractive remuneration for shareholders in the context both of the market and also the sector. Thank you very much and of course my team and I are now available to answer any questions you may have.

We’ll now be conducting a question-and-answer session. (Operator Instructions) One moment while we poll for questions. Our first question comes from the line of Paul Marsch with Berenberg Bank. Please proceed with your question.

Yes, thanks. I hope you can hear me. Firstly on the OpEx in Portugal, all the keys OpEx segments were down nicely in the quarter compared to last year, any particular influences on those four main OpEx items through the second half that might change that trajectory? Secondly, maybe you could comment on the Angola dividend and the likely timing of that? And then finally, what interest rates are you seeing on your cash deposits? You got EUR2 billion of cash on the balance sheet, just wondering what you’re receiving on those deposits at the moment? Thanks.

Okay, thank you very much Paul for your question. With regard to OpEx, we are – I think we will continue to benefit from low churn. In the next quarter we’ll come back to a more detailed discussion on the churn because we would like to have a little – few more months under our belts before we can share what I think very good numbers of churn in our TV service in particular. So I think churn will continue to have a positive impact in commercial costs going forward because clearly the net adds will come through much, much faster without necessarily pushing commercial costs aggressively and this is one of the reasons why we have scaled back a number of promotions because we think they are not necessarily very – I would say appropriate in this current environment. So clearly churn I would say is something will that be a very proud of in terms of the – as an achievement and I hope next quarter, we can come back to on that. But I think mobile subscriber acquisition, retention costs are likely to remain low as well, partly because one of the shift that you are seeing in this market is that people are buying less handsets, people are actually spending if you like more in voice minutes or are prepared to spend more in voice minutes than data rather than actually buying handsets, so I think you are beginning to see and you are likely to see subscriber acquisition retention costs particularly on the subsidy side to be very much under control. If you think about programming costs for customer, I would say that those are going to be stabilize, also because we’ve take into view that we needed to invest a bit more that start…

Great, thank you.

Thank you, Paul.

Our next question comes from the line of Ivón Leal with BBVA. Please proceed with your question. Ivón Leal: Yes, good afternoon. Maybe just couple of questions, first on the broadband side in Portugal. I don’t know if you could share with us if there has been any change or strategy from Cabovisão? And on the other side, on your Pay TV business, now I think that the 65% of the fixed-line customers has Pay TV. What’s the target? What’s the ceiling for that penetration? Is it 90% or 80%, because that’s driving a large part of your growth, so interesting to know that. And then final one your credit facilities, any of your commercial paper or credit facilities or the cost of that is subject to sustaining current credit ratings?

Luís, why you don’t answer the third and then I’ll come back to the rest of the questions. Luís Pacheco de Melo: So none of our facilities are linked to obtaining certain credit ratings. So at this stage, the facilities there and the commercial paper neither of them have any triggers in terms of the ratings in terms of being forced to repay those credits.

With regard to broadband, as you might have seen in slide eight, we have invested in ensuring that we have more availability than anyone of our competitors and that we have yet to see when you look at Portugal Telecom to offer what you will see that we are at this stage offering speed that’s about 24 megabit per second all the way to 400 megabits per second if you are a fiber customer. Our fiber customers today have a standard offer of 100 megabits per second. So I think that in our view that is a big differentiator of our service offering in those markets. The other big differentiator is the fact that we are pushing triple-play aggressively because we think that it offers our customers convenience. It offers them the comfort of having just one supplier to deal with and of course it offers them the best value for money. So in that regard I would say that we are very pleased with the way that in the last four years Portugal Telecom has made a significant come back in terms of our market share in broadband, underpin to begin with, with our TV offer but increasingly as you move forward internet is becoming to be – certainly becoming one of the key attributes that our customers want to buy if you like triple-plays. So it’s not just about TV any more. It’s also about the quality of your broadband connections simply because interactivity has become extremely important in the decision making of the people. It is worth mentioning here that 50% of our Meo customers are active users of what they call the red button, the green button and the blue button. These are the buttons on your remote control and actually open out if you like…

Our next question comes from Mr. Georgios Ierodiaconou from Citi. Please proceed with your question.

Good afternoon. I’ve got a couple of questions. Firstly on mobile, Vodafone and Sonaecom reported deterioration in their service revenues and Sonaecom during their conference call was talking about there is tough macro environmental model. So a bit surprised by A, the numbers you reported but also opportunities around the turning point in mobile. So if you could share some more data points around the recharging patterns or anything else that could explain the difference between your performance and your competitors will be clearly appreciated. My second question is on the timing of the buyback. Should we assume that EUR200 million would be evenly spread over the next 2.5 years or would there be possibly backend loaded so it gives you enough time to have visibility on the credit side or maybe front-end loaded for other reasons? And perhaps third, a question on commercial costs, which were down comparatively in the second quarter. Any reasons for us to be concerned about growth additional going into the second half from the lower expenses? Thanks.

Thank you, Georgios. With regard to the mobile trend, as I think I mentioned to a number of analysts and investors in my recent road show, large operators such as Portugal Telecom, we are leaders in this market. We have as you know some impact from back door of customers in this environment, actually if you like moving on to tariff plans which are if you like, more price competitive. So that watch through have been happening in the case of the larger operators. In the sector, so this is not just specific to Portugal, it’s actually in the sector and that has been happening for quite some time. So I am not surprised that some of our competitors actually catching up with our revenue performance because that impact was most severe on us than on others simply because we are the larger operator. What we are seeing is on the back of much, much more targeted pricing campaign, we are having better performance of recharges particularly in the month of July. Now its early days, as you know there is seasonality. A quarter has three months but I would say that the month of July we clearly saw the improvements of recharges in the case of Portugal Telecom, but as I mentioned a lot of it, it has been achieved on the back one to one marketing as we have been doing increasingly using if you like, tool that we developed within our own innovation companies (inaudible) what we call active campaign manager which allows us to do a targeting almost to a sort of one to one basis with promotions. So I think July from debt standpoint was better than particularly in the personal segment, so specifically for the personal segment, but it’s still early days and we…

Our next question comes from the line of Frederic Boulan from Nomura. Please proceed with your question.

Yes.

Hi good afternoon. I’ve got two questions on Brazil if I may, they were asked already on the call yesterday, but I’d been keen to get your take on them. First of all in terms of slowdown in the market, the entire industry sort of very significant step down in terms of gross level and Oi in particular grew revenues 3.6% to 11.3%. So even if a bit of that about 2.2% in MTR that leaves in the line target around six points. Can you share a little bit your analysis of that and how things could evolve going forward? And secondly, the implications for financial guidance, so you make a point about sequential growth but if we look at on the revenue side to reach your full-year guidance you need about 9% growth in H2 versus minus 2% in H1 and at the EBITDA level it’s a similar improvement about 8% growth in H2 versus minus 7% in H1. So can you tell us a little bit more what are the drivers that means your confidence in reaching this target? Thank you very much.

Okay, thank you. Yesterday in Oi’s conference call, I think a number of asks were asked to the CEO and the CFO, Francisco Valim and Alex about the impact of the economy. And as was indicated, so far Oi hasn’t really felt the impacts on the economy, and I think yesterday the guidance of about 28.9 billion reals of revenues for the full-year was actually reinforced as well as if you like EBITDA guidance and the CapEx guidance as well. It’s worth mentioning here couple of things. First, that there was a lot of low hanging fruits in terms of the performance at Oi that needed to be fixed and so I think we could take advantage of that and no doubts you will have discussed this also directly with Oi that for example we have very limited presence in point of sales, we didn’t have a significant for example, sales effort when it came to talk to door to door sales. And when you think about availability of broadband and also speeds that were being offered, again they had a significant disadvantage vis-à-vis the competition. So I would say that in the case Oi, one needs to differentiate a little bit about the economy versus good execution, operational execution and as was indicated yesterday, and I think in no uncertain terms Oi’s management is confident about the delivery on the numbers and even in the case of mobile – that mobile is growing in line with the plan. So I think with regard to the economy of course that has the direct impact in consumer behavior and we being a consumer company will lot of our revenues being consumer driven revenues, we get impacted, but these if you like turnaround opportunities for Oi that would look to fix if…

Okay. That’s very useful. Thank you very much.

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

Hi, thanks for taking the questions. Just a couple of questions on your levels, domestic debt and your client de-leverage. You always a lot of liquidity, you got no net maturities and no net maturities until mid 2016. I wonder could you give us slightly if you would to pay the maturities that come up over the next 2.5 years with your cash flow – with your credit lines, what would happen to your interest costs which are currently look back at very low of below 4%. If you have an idea where your interest costs may go to? And then secondly on your cash flow statement in the first half of the year, there were couple of items which are included as other but are quite material the first being a payment of EUR225 million and then in the net debt reconciliation a EUR160 million. Could you give us just any idea if possible what they are and whether they will revert or continue in the second half of the year? Luís Pacheco de Melo: Okay, so with regards to your question in terms of the possible impact on the interest cost of using part of those maturities. Basically the bond and the converts, they are basically with interest rate of one of them almost 6% than the convert 35%.

Okay. Luís Pacheco de Melo: And so there won’t be a significant impact in terms of interest cost reduction on that front, okay. And the cost of our net debt right now is at 3.9%. The cost of gross debt that we have now is at 4.3%.

Okay. Luís Pacheco de Melo: So that shouldn’t be a significant difference between costs and the other.

Okay, very good. Luís Pacheco de Melo: Can you please repeat your last question?

Yes, there were two if you like cash outflows, one is in your cash flow statement which is in the other line which is $225 million of negative cash flows and then in the net debt reconciliation between the two quarters, there is – once again a cash outflow under the heading of other which are EUR150 million or EUR159 million of outflow both in the first half of the year. And I was just wondering, one, these outflows that are going to continue in the second half of the year of extraordinary is it something that could reverse just little bit more on the nature of those because they are quite material. Luís Pacheco de Melo: Okay, thank you. With regards to the EUR224 million, the net (inaudible) which is the EUR40 million in Oi, okay. In addition to that basically we saw the judicial deposits that Oi needs to do.

Okay, right. Luís Pacheco de Melo: Okay.

But that’s on the free cash flow statement, yes? Luís Pacheco de Melo: Yes. On the changes in net debt to reconciliation part of EUR26 million, EUR27 million is our LTE payment, the 4G payment, okay and the other part is the normal one. So actually yes, there is this one-off otherwise it should have been basically stable vis-à-vis the previous years.

Okay. Luís Pacheco de Melo: So again that’s right, EUR86 million in this one that shouldn’t have occurred in the second half of the year.

Okay, that’s really helpful. Thank you very much.

Our last question comes from the line of Mathieu Robilliard with BNP Paribas. Please proceed with your question.

Yes, good afternoon, thank you very much. A question on FTTH, if you could just confirm that we heard that you have around 300,000 customers now and on that, can you share with us some data about what kind of downloads these customers do as compared to more traditional ADSL customers. Are you seeing a very sharp increase in the quantity of data downloaded? And then eventually would you consider in traditional tiered pricing on fix to monetize that. That’s the first question and the second question with regards to the net profit line that was linked to the USO and I just wanted to know if there was (inaudible) that has been cached up in – cut up in that number and what should we expect for the future in terms of USO contribution to your P&L? Thank you.

Okay, thank you. I think with regard to fiber, thank you actually very much for asking that question. We have like I mentioned 1.6 million homes. I said we had roughly 300,000 to be more exact, the right number is 250,000 fiber customers. I would say that right now it is not a great concern for us in terms of how much the traffic they are actually doing because clearly we’re still a long way from if you like a level where we have to be concerned about that, but you’ve got to ability to monetize if you like, better quality of service going forward, I think you will see that about half of the traffic increasingly that’s being done on the network is actually video. And when it comes to video, people do demand if you like quality of service and I think that this will become a key differentiator of the FTTH value proposition compared to any other technology that exists out there and claims to be a next generation network. So overtime I believe that the business model will evolve in that direction. I think at this stage we’re still not there because I think at this stage clearly the key focus for us is to ensure that people understand that fiber allows us to deliver a superior quality of service in the TV offer that we have with if you like up to nine TVs that we can serve if indeed most of them in HD without any significant constrains. So I think maybe when we meet in our Technology Day which is we have scheduled for the 29th and 30th of October, we will share with you a lot more detailed information in that regard and maybe by then we will have more data points…

Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.