Pharol Sgps S.a. · EURONEXT:PHR
Pharol Sgps — Portugal Telecom SGPS — Merger or Acquisition (October 2013)
38 slides from Pharol Sgps's merger presentation, Oct 2, 2013
Slide 1: Consolidation of the industrial alliance between Oi and Portugal Telecom
Cons olidation of the industrial alliance between Oi and Portugal Telecom London, 2 October 2013
Slide 2: Important Notice
IMPORTANT NOTICE In the context of the recently announced intention by Portugal Telecom SGPS (“PT”), Oi S.A (“Oi”), Telemar Participações S.A. (“TPart”), AG Telecom (“AG Tel.”) and LF Telecom (“LF Tel.”), to combine PT and Oi, PT and Oi have distributed this document for the sole purpose of providin
Slide 3: Important Notice
IMPORTANT NOTICE This communication does not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. This communication contains information with r
Slide 4: Consolidation of the industrial alliance
CONSOLIDATION OF THE INDUSTRIAL ALLIANCE Merger of Oi, Portugal Telecom and Oi Holding Companies (AG Tel, LF Tel and Tpart) into a corporation (“CorpCo”) to be listed on Novo Mercado, NYSE Euronext and NYSE 1 Natural fulfillment of the industrial alliance established in 2010 to create an entity with
Slide 5: Over 100 million customers across geographies
OVER 100 MILLION CUSTOMERS ACROSS GEOGRAPHIES Note: Above customer figures as at 2Q13 Public telephones. International operations: Unitel (9,304k customers), MTC (2,200k), Timor Telecom (618k), CVT (433k), CST (135k) and other businesses in Portugal % yoy growth for combined group. Operational highl
Slide 6: Global scale and enhanced diversification
PT figures as of 4Q12, converted at current exchange rate, EurBRL = 3.018 ( as at30September 2013). Calculated as EBITDA less Capex. % breakdown based on EuroBRL= 3.018 (as at30 September 2013) Assumes Africa/Asia included in Personal segment. Wholesale & Other segment including VAS. GLOBAL SCALE AN
Slide 7: Highlights
HIGHLIGHTS Natural fulfillment of the industrial alliance 2 Attractive operational benefits 3 Merger of Oi, PT and Oi Holdings 1 Combination into a single listed entity Simplification of shareholding structure Highest standard of corporate governance Migration to Novo Mercado One class of shares and
Slide 8: Highlights (cont.)
HIGHLIGHTS (CONT.) Attractive financial and scale benefits 4 Oi and PT have 100 million customers Combined revenues, opex and capex of R$ 37.5 billion, R$ 24.7 billion and R$ 8.6 billion, respectively R$ 5.5 billion estimated synergies (NPV) Operating synergies of c. R$ 3.3 billion Financial synergi
Slide 9: Description of the Transaction
DESCRIPTION OF THE TRANSACTION
Slide 10: Simplified shareholder structure with Novo Mercado listing
Complex structure with ON and PN shares As part of the transaction, PT SGPS, TPart, AG Tel., LF Tel. and Oi S.A. are combined PT shareholders to hold c. 38.1%(1) (2) of CorpCo Migration to Novo Mercado and listing on BMF Bovespa and NYSE Euronext and NYSE PT LF Tel. AG Tel. TPart Oi Oi Free Float PT
Slide 11: Key transaction terms
All steps of the transaction are fully inter-conditional KEY TRANSACTION TERMS Combination of Oi and Portugal Telecom Cash capital increase Combination through a capital increase at Oi PT will contribute in kind its assets and liabilities (excluding its direct and indirect holdings in Oi) for Oi sha
Slide 12: Consideration for Oi and PT shareholders
CONSIDERATION FOR OI AND PT SHAREHOLDERS For each PT share: 0.6330 shares in CorpCo; plus €2.2911 equivalent in CorpCo shares at same price as R$ 8 billion target cash capital increase Core Brazilian shareholders will receive 116 million shares in CorpCo as a result of the transaction TPart sharehol
Slide 13: Governance and timetable
GOVERNANCE AND TIMETABLE Newly appointed Board of Directors with an initial term of 3 years Chairman: José Mauro Mettrau Carneiro da Cunha Vice-chairman: Henrique Manuel Fusco Granadeiro Board members: Alexandre Jereissati Legey, Amílcar Morais Pires, Fernando Magalhães Portella, Fernando Marques do
Slide 14: Portugal Telecom - Proven track record
PORTUGAL TELECOM - PROVEN TRACK RECORD
Slide 15: Successful delivery of technological transformation
SUCCESSFUL DELIVERY OF TECHNOLOGICAL TRANSFORMATION >90% of population covered with 4G-LTE at the end of 2012 4G-LTE network is a quality reference Best 2G and 3G national coverage 1.6 million homes passed with 890,000km of fibre 46% of the population covered with fibre, which represents approximate
Slide 16: Leading convergence strategy
LEADING CONVERGENCE STRATEGY 1 Million RGUs 25% 28% 0% 10% 18% 40% are new RGUs Clear market leader with 53% market share vs. main competitor 37.6% 40.4% 19.0% 26.0% 32.8% M4O RGUs Indexed August May 11 January 2013 M4O customers %. 2Q13 4 SIM cards 3 SIM cards 2 SIM cards 1,270 2Q12 1,157 2Q11 2Q10
Slide 17: Mobile leadership in Portugal
MOBILE LEADERSHIP IN PORTUGAL +1.8% PT estimate Based on weighted average of Telefónica, Vodafone and Deutsche Telekom for their domestic operations (respectively Spain, UK and Germany) Average Peers(2) Active SIM cards and market shares Thousand. % Postpaid market share(1) % Data revenues % of serv
Slide 18: Efficient organisation
EFFICIENT ORGANISATION Programming costs per customer declined 7.3% y.o.y in 1H13 and will tend to benefit from further content renegotiation Wages and salaries to benefit from curtailment programme against a backdrop of continued efficiency gains Maintenance and customer support costs benefiting fr
Slide 19: PT is well positioned to create value
PT IS WELL POSITIONED TO CREATE VALUE PT has demonstrated best-in-class execution in a difficult market environment and is well positioned to take advantage of its leading market position and technology investment Delivered superior performance despite difficult macro environment Continued customer
Slide 20: Oi - Unique footprint in a growth market
OI – UNIQUE FOOTPRINT IN A GROWTH MARKET
Slide 21: Fixed-mobile footprint provides a competitive advantage
FIXED-MOBILE FOOTPRINT PROVIDES A COMPETITIVE ADVANTAGE National Regional Local 115,000km national backbone Increasing coverage in Brazil Present in all Brazilian states and over 4,800 municipalities Growth in next decade skewed towards emerging clusters 230,000km of fibre 2G/3G and 4G-LTE coverage,
Slide 22: Strong demographics underpin demand
STRONG DEMOGRAPHICS UNDERPIN DEMAND Rising middle class with higher purchasing power Higher employment Average income growth (2006-2011) of 8.9% Source: Teleco, IBGE, Cetelem BGN / Ipsos. 15% 34% 51% 22% 53% 25% AB Class C Class DE Class AB Class C Class DE Class 2005 2010 Change in demographics % o
Slide 23: Growth opportunity driven by convergence and mobility
GROWTH OPPORTUNITY DRIVEN BY CONVERGENCE AND MOBILITY AM PA AP RR AC RO MT MS TO GO DF BA SE AL PE PB RN CE MA PI MG ES RJ SP PR RS SC Northern Region Pop.: 12.55 MS Fixed: 69% MS Broadband: 49% MS Mobile: 14% Mid-West Region Pop.: 18.19 MS Fixed: 66% MS Broadband: 51% MS Mobile: 17% Ceará Region Po
Slide 24: Four key priorities
FOUR KEY PRIORITIES Consolidation of business model and growth Lower unit costs and capex Asset Sales Focus on Cash flow Customers 1 Culture 3 Operational excellence with focus on improving productivity Teamwork, regional empowerment and intelligence with increased accountability Data analytics In-d
Slide 25: Customer needs shape commercial operations
CUSTOMER NEEDS SHAPE COMMERCIAL OPERATIONS Residential: convergence & bundling Business services Mobile postpaid Mobile prepaid Low end: attractive entry offers, focusing on costs Value for money: customer in search of Internet speed, bundles and Premium TV High end: differentiation products and ser
Slide 26: Implementation of improvement in engineering, operations and IT
IMPLEMENTATION OF IMPROVEMENT IN ENGINEERING, OPERATIONS AND IT Control and management tools (geo-referencing, performance metrics) Leverage experience in the deployment of new technologies (IPTV, LTE, IMS, IPv6, among others) Technology roadmap with prioritisation (2G vs. 3G vs. 4G, DSL vs. fibre,
Slide 27: Initiatives to improve cash flow
INITIATIVES TO IMPROVE CASH FLOW Quality of sales Reduced bad debt Investment optimisation Churn reduction
Slide 28: Strategic vision
STRATEGIC VISION
Slide 29: Strategic vision for the combined Oi and PT
STRATEGIC VISION FOR THE COMBINED OI AND PT Attractive markets of operation Brazil: High growth prospects Portugal: Geared for economic recovery CorpCo to deliver top line growth Consolidate business model in Brazil around convergent offers and mobility Leverage on PT’s leadership in technology and
Slide 30: Attractive markets of operation
ATTRACTIVE MARKETS OF OPERATION Growth potential in Brazil PT has successfully delivered on execution Source: Company results presentations, BofAML Wireless Matrix, BofAML European Telecoms Matrix, Screen Digest. (1) Penetration as of 2012. (2) Mobile market share corresponds to postpaid mobile mark
Slide 31: Consolidate business model around convergence and mobility
Incremental Innovation CONSOLIDATE BUSINESS MODEL AROUND CONVERGENCE AND MOBILITY Convergence Innovation Next generation networks Cloud >90% 4G-LTE coverage #1 European fibre infrastructure One of the largest and most energy efficient data centres in the world 115,000km national backbone (largest co
Slide 32: Relevant management expertise
RELEVANT MANAGEMENT EXPERTISE Convergence Next generation networks Operational excellence Strong track record of cost cutting throughout the cycle NGN network rollout completed: more capex efficiencies #2 operator in Europe to launch 4P Strong success / leadership MEO consumer brand of choice 4G-LTE
Slide 33: Action plan in place to deliver short term efficiency gains
ACTION PLAN IN PLACE TO DELIVER SHORT TERM EFFICIENCY GAINS 1 IT platform Implement best practice IT architecture to improve time to market and reduce costs Commitment to Achieve Operational Excellence Area of Focus 2 Field force Improve installation time, productivity, redo rates and prevent custom
Slide 34: Financial profile
FINANCIAL PROFILE
Slide 35: Scale and diversification
SCALE AND DIVERSIFICATION >100 million customers c. 260 million population under coverage Regional diversification: Brazil, Portugal, Africa/Asia Product and customer diversification Combined Financial Profile Pro-Forma 2012, R$bn(1) 34% 11% % Margin(2) 30.0% 4.7% 32.9% 32.4% 1.0 0.2 OpFCF 4.2 0.5 8
Slide 36: Improved financial flexibility
IMPROVED FINANCIAL FLEXIBILITY Minimum R$ 7 billion cash capital increase with a target of R$ 8 billion to reduce the leverage of the group Commitment to deleveraging Improve FCF profile Impact of efficiencies Positive impact of synergies Improved cash management with centralised treasury Pro forma
Slide 37: Sizeable synergy potential
SIZEABLE SYNERGY POTENTIAL 192 261 69 Run Rate (R$million)(3) Total synergies 5.5 Financial synergies 2.2 Operational synergies 3.3 Capex synergies 1.2 Opex synergies 2.1 Procurement opex 11.6 Procurement capex 11.6 IT/Network Opex 6.7 IT/Network Capex 3.0 Other opex 16.1 Other capex 11.8 Organisati
Slide 38: Conclusion
CONCLUSION Attractive growth prospects in diversified footprint with reduced execution risk Growth in Brazil Leverage investments already made in Portugal Improved time to market to crystallize growth opportunities in Brazil Synergies and efficiency gains to underpin FCF improvement Improved balance
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