Pharol Sgps S.a. · EURONEXT:PHR
Pharol Sgps — Portugal Telecom SGPS — Corporate Update (October 2006)
28 slides from Pharol Sgps's corporate update, Oct 23, 2006
Slide 1: Portugal Telecom Post Retirement Benefits – 1H06
Portugal Telecom Post Retirement Benefits – 1H06 October 2006
Slide 2: Important Notices
Important Notices Investors are urged to read Portugal Telecom, SGPS, S.A.’s (“PT’s”) Solicitation/Recommendation Statement on Schedule 14D-9 when it is filed by PT with the U.S. Securities and Exchange Commission (the “SEC”), as it will contain important information. The Solicitation/Recommendation
Slide 3: Post Retirement Benefits Status report – June 2006
Post Retirement Benefits Status report – 30 June 2006 Investment policy 2004/05/06
Slide 4: Post Retirement Benefits
Post Retirement Benefits All of PT’s post retirement benefit plans have been closed to new participants since 1994 for pensions and 2000 for health care. Health care benefits are rendered to employees after retirement age. Post retirement benefits liabilities are recognised based on an actuarial stu
Slide 5: Pension plans
PT has 4 pension plans, initially sponsored by each of the companies that were merged into Portugal Telecom in 1994. Benefits assumed by PT Comunicações comprise: Pension and pension supplements; and Salaries to pre-retired and suspended employees. PT Comunicações created pension funds to cover its
Slide 6: Health Care
Health care benefits include expenses with health care services rendered to retired employees, pre-retired and suspended employees Serviço Nacional da Saúde (“SNS”) is committed to contribute a per employee amount in order to cover part of the expenses supported by PT Comunicações. Portuguese legisl
Slide 7: Pensions and Health Care Funds
The pensioners are the sole beneficiaries of the pension funds. Each post retirement benefit plan has its own fund (CGA, TLP, TDP, Marconi and Health Care obligations). Funds are managed by independent entities (Previsão, BPI, BES, PT Prestações) in accordance investment guidelines established by PT
Slide 8: Demographic Information - 2005
Demographic Information - 2005 Pensions Health Care Active employees Retired Pre-retired and suspended 54 57 68 69 44 44 Average Age 33,223 28,715* 27% 30% 27% 21% 46% 4 9% *Excludes relatives of the main beneficiary
Slide 9: Post Retirement Benefits Status report – June 2006
Post Retirement Benefits Status report – 30 June 2006 Investment policy 2004/05/06
Slide 10: Actuarial Assumptions - Definitions
Actuarial Assumptions - Definitions Discount rate. Represents the discounting factor of the PBO and should be defined based on yield rates of high rating corporate bonds with the same maturity of the liabilities. Expected return on assets. Represents the expected return of fund assets over the long
Slide 11: Actuarial Assumptions - PT
Dec 04 Dec 05 Jun 06 Discount rate for pensions and health care 5.75% 4.5% 5.0% Discount rate for salaries 4.0% 3.5% 4.25% Expected return on assets 6.0% 6.0% 6.0% Inflation 2.0% 2.0% 2.0% Salary growth rate 3.0% 3.0% 3.0% Pension growth rate 2.0% 2.0% 2.0% Health care expenses growth rate – short t
Slide 12: Actuarial Assumptions 2005 – Portugal
Actuarial Assumptions 2005 – Portugal *Information by Hewitt – “Hewitt Global Report”, September 2006 PT uses international mortality tables (UK) that have been adjusted to reflect the specific reality of PT’s beneficiaries. Historic mortality rates support tables used which were updated in 2004; PT
Slide 13: Actuarial Assumptions 2005 – International
Actuarial Assumptions 2005 – International *Information by Hewitt – “Hewitt Global Report”, September 2006 Telco 6 Telco 7 Bank 1 Utility Airline Eurozone* 4.00% 4.30% 4.0% and 4.85% 3.59% 5.00% 4.25% Health care expenses growth n.a. n.a. n.a. n.a. n.a. n.a. Salary growth 2.5% to 3.5% 2.25% 2.5% to
Slide 14: Commonly Used Mortality Tables
Commonly Used Mortality Tables MALE 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100 PERMF 2000 Pensioners PERMF 2000 Actives PERMF 2000 Experience GRMF95 PA(90)-3 TV 73/77 TV 88/90 FEMALE 0% 10% 20% 30% 40% 50% 60% 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84
Slide 15: Post Retirement Benefits – 1H06
Post Retirement Benefits – 1H06 [Euro Millions] Unfunded corresponds to the NPV of future payments related to post retirement benefits. Liabilities relating to retired employees, computed based on ISP rules, are fully funded. Approximately 59% of total liabilities are funded. 3,058.1 892.7 (2,208.6)
Slide 16: Liabilities (PBO) – 1H06
Liabilities (PBO) – 1H06 [Euro Millions] Employers’ Payments 31.12.05 Service Cost Employees’ Contributions 30. 06.06 Curtailment Employer’s payments include salaries paid to pre-retired and suspended employees and curtailment. Funds’ payments related to pensions paid to pensioners. Prior years gain
Slide 17: Funds – 1H06
Funds – 1H06 [Euro Millions] Funds’ Payments 31.12.05 Actual Return 30. 06.06 Employer’s Contribution PT’s contributions include €30mn related to regular contributions, €15mn related to 2005 curtailments and €300mn related to an extraordinary contribution to the health care fund (PT Prestações). Emp
Slide 18: Unfunded – 1H06
Unfunded – 1H06 [Euro Millions] Payments 31.12.05 Regular PRBs Contributions 30. 06.06 Curtailment 2,635.9 1,990.4 38.6 25.0 (100.3) (346.8) (14.6) (247.3) Prior Years Gains Actuarial Gains
Slide 19: Actuarial Losses – 1H06
Actuarial Losses* – 1H06 [Euro Millions] 31.12.05 Asset Return** 30. 06.06 Following the increase in long term yields, the discount rate assumptions were reviewed as of 30 June 2006, from a weighted average of 4.3% as at 31 December 2005 to 4.86% as at 30 June 2006. The impact of this change was a r
Slide 20: Post Retirement Benefit Costs (PRBs) – 1H05 vs 1H06
Post Retirement Benefit Costs (PRBs) – 1H05 vs 1H06 [Euro Millions] Decrease in Interest Cost mainly related to the decrease in the discount rate. Increase in Expected Return on Assets related to the increase in fund assets during 2005 and to the additional contribution of €300mn to PT Prestações. I
Slide 21: Post Retirement Benefits Status report – June 2006
Post Retirement Benefits Status report – 30 June 2006 Investment policy 2004/05/06
Slide 22: Diversification
Diversification Shares - Europe Shares - US Large Cap Shares - US Small & Mid Cap Shares - Japan Shares - Pacific ex-Japan Private Equity Absolute Return Real Estate Commodities Inflation-Linked Bonds Fixed Return - Euro Fixed Return - US Cash MSCI Europe S&P 500 Russel 2500 US MSCI Japan MSCI Pacif
Slide 23: Stable Strategic Asset Allocation and Disciplined Rebalancing
Stable Strategic Asset Allocation and Disciplined Rebalancing Investment Policy Guidelines (%) 6.0 Strategic Assets 100.0 Total ex- Strategic Assets 2.0 Cash 8.5 17.0 10.0 7.5 12.5 6.0 4.0 2.5 5.0 5.0 10.0 10.0 Total Fixed Return - US Fixed Return - Euro Inflation-Linked Bonds Commodities Real Estat
Slide 24: Lower Exposure to Currency Fluctuations
Hedging of all currency exposure of the aggregated position of Previsão and realized with the global custodian Use of short term forwards (3 months), with systematic rolling Capital retention oriented – asset allocation without trade objectivesLow transaction volumes Cost reductions – use of less ex
Slide 25: Specialized Instruments by Asset Class
Objective: use simple and cost efficient instruments Specialized by asset class Vehicles : passives (index-tracking) – cost cutting actives (discretionary mandates) – use of top-tier managers in order to obtain a return higher than the benchmark All managers have a proven track record Asset managers
Slide 26: Cost Control
Pension Fund had a total expense ratio (TER) lower than 35bp in 2005 Clear definition and monitoring of TER target for each instrument Decrease of turn-over and commissions: Centralized asset allocation Quarterly rebalancing, without tactical allocation Aggregated currency hedging with more competit
Slide 27: Return on Pension Funds
Return on Pension Funds 8.1% 8.1% 8.4% 4.3% 3.4% 0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 2003 2004 2005 2006 YTD Return National Average Actuarial Assumption (6%) 1.0%
Slide 28: Signature
www.telecom.pt SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: October 23, 2006 PORTUGAL TELECOM, SGPS, S.A. By: /s/ Nuno Prego Nuno Prego Investo
Portugal Telecom SGPS — Corporate Update (October 2006) on 6ix