1Q14 RESULTS PRESENTATION - NOS · 1Q14 RESULTS PRESENTATION Monthly Bill per Unique Corporate, SME...

08 May 2014

1Q14 RESULTS PRESENTATION

DISCLAIMER

This presentation contains forward looking information, including statements which constitute forward looking statements within the meaning of

the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and assumptions of our management

and on information available to management only as of the date such statements were made.

Forward-looking statements include

(a) information concerning strategy, possible or assumed future results of our operations, earnings, industry conditions, demand and pricing for our

products and other aspects of our business, possible or future payment of dividends and share buy back program; and

(b) statements that are preceded by, followed by or include the words “believes”, “expects”, “anticipates”, “intends”, “is confident”, “plans”,

“estimates”, “may”, “might”, “could”, “would”, and the negatives of such terms or similar expressions.

These statements are not guarantees of future performance and are subject to factors, risks and uncertainties that could cause the assumptions

and beliefs upon which the forwarding looking statements were based to substantially differ from the expectation predicted herein. These factors,

risks and uncertainties include, but are not limited to, changes in demand for the company’s services, technological changes, the effects of

competition, telecommunications sector conditions, changes in regulation and economic conditions. Further, certain forward looking statements are

based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from

the plans, strategy, objectives, expectations, estimates and intentions expressed or implied in such forward-looking statements. Additionally, some

of these statements refer to board proposals to be submitted to ZON OPTIMUS, SGPS, S.A. (“ZON OPTIMUS”) AGM and subject to (i) its approval

by ZON OPTIMUS’ shareholders, (ii) the market conditions and (iii) the ZON OPTIMUS’ financial and accounting position as revealed in the

financial statements approved by ZON OPTIMUS’ AGM.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new

information or future developments or to provide reasons why actual results may differ. You are cautioned not to place undue reliance on any

forward-looking statements.

ZON OPTIMUS is exempt from filing periodic reports with the United States Securities and Exchange Commission (“SEC”) pursuant to Rule 12g3-

2(b) under the Securities Exchange Act of 1934, as amended. The SEC file number for ZON OPTIMUS’ exemption is No. 82-5059. Under this

exemption, ZON OPTIMUS is required to post on its website English language translations, versions or summaries of certain information that it has

made or is required to make public in Portugal, has filed or is required to file with the regulated market Eurolist by Euronext Lisbon or has

distributed or is required to distribute to its security holders.

This presentation is not an offer to sell or a solicitation of an offer to buy any securities.

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1Q14 Highlights

• Merger process well underway with teams focused on ramping up commercial deployment and restructuring operations;

• Very strong growth in convergent residential base reaching 556 thousand RGUs;

• Post-paid mobile net adds of 129 thousand led by convergent bundles more than offset lower pre-paid subs driving net growth in mobile base of 1% yoy;

• 500 thousand IRIS customers with record quarterly net adds of 61 thousand;

• Imposed remedies still affecting fixed access customer base in 1Q14, driving lower average subscriber numbers yoy;

• Revenues declined by 4.1% to 337 million euros but core Telco wireline Residential revenues only down by 2.6%; EBITDA down by 5.9% yoy to 129.9 million euros, although increasing by 9.8% in comparison with the previous quarter;

• Sequential improvement in Net Income to 25 million euros, from negative 13 million euros in 4Q13 with lower restructuring/merger related costs.


3

1Q14 OPERATING REVIEW

4


212

556

45115

1Q13 2Q13 3Q13 4Q13 1Q14

Convergent RGUs Convergent Unique Customers

Acceleration in Convergence


Convergent RGUs and Unique Customers

[Thousands] • 343 thousand convergent RGU net adds in 1Q14

• 10% of fixed base convergent, just 5 months after ZON4i launch

• 5.1 RGUs sold per convergent sub

• 90% of ZON4i are upgrades from ZON fixed offers

• Only 54% previous IRIS subs

5

+343k

Leveraging strength in fixed market

Convergence driving post-paid mobile


Total and Post-Paid Mobile Net Adds

[Thousands]

8 14 15

58

129

(44)(58)

345

45

1Q13 2Q13 3Q13 4Q13 1Q14

Post-paid mobile net adds Total mobile net adds

Post-Paid Mobile Subscribers as % of Total Mobile

Subscribers [%]

28% 29% 29% 31%34%

1Q13 2Q13 3Q13 4Q13 1Q14

6

More than offsetting loss in personal mobile

• 129 thousand net adds in post-paid mobile

• Post-paid voice subscribers with even higher net adds of 147 thousand partially offset by a net decline in post-paid mobile broadband cards of 18 thousand

Record IRIS net adds to 500 thousand


IRIS Subscribers and Penetration of 3&4P

Customer Base [Thousands, %]

284 339 390 438 499

36%42%

48%54%

62%

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

1Q13 2Q13 3Q13 4Q13 1Q14

Total IRIS subs IRIS as % of 3&4P subs

• Best quarter ever of IRIS take up with 61 thousand net adds

• 62% of 3&4P customer base have IRIS

• Very high customer usage:

• 99% use Timewarp and Restart

• 75% use them every day, at least twice

7

Reinforcing competitive strength in Pay TV

Resilience in Residential and Mobile ARPU


ARPU per Unique Subscriber with Fixed Access

[Euros]

ARPU per Mobile Subscriber

[Euros]

37.0 36.6 36.5 36.537.4

1Q13 2Q13 3Q13 4Q13 1Q14

9.6 9.8 10.0

9.2 9.2

1Q13 2Q13 3Q13 4Q13 1Q14

8

Support from Convergence and post-paid mobile growth

1 million RGU milestone reached in Business


Business RGUs

[Thousands]

956 959 963 977 1,001

1Q13 2Q13 3Q13 4Q13 1Q14

• Pick-up in quarterly RGU net adds to 23.2 thousand with positive performance in mobile RGUs through convergence, up 18.6 thousand in 1Q14

• Corporate segment very successful in tendering for new customers supported by strong integrated value proposition

• Wholesale business posting positive yoy growth with important agreements captured

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• Solid growth in Customer Revenues in the Corporate segment, following the capture of some large Corporate telecom accounts

• Despite increased RGU upsell and cross-sell providing support, Customer Revenues in SMEs and SoHo segment under pressure due to market repricing and impact in ARPU per RGU

Average revenues in Business showing resilience


Monthly Bill per Unique Corporate, SME and SoHo

subscribers [Euros]

0 €

200 €

1Q13 2Q13 3Q13 4Q13 1Q14

Monthly Bill per unique sub Corporate

Monthly Bill per Unique sub SMEs and SoHos

ARPU per Business RGU

[Euros]

26.5 26.6 26.7 26.0 25.2

1Q13 2Q13 3Q13 4Q13 1Q14

10

Supported by increased Convergence

Easter and less blockbusters impact performance


• ZON OPTIMUS ticket sales fell by 10.6% due primarily to the fact that the Easter holidays, a seasonally strong period for movie going, was in 2Q this year, compared with 1Q in 2013. YTD April 2014 ticket sales are up by 2.3%

• First IMAX screen opened in June 2013 – spectators already reached 100 thousand

• In 1Q14, Audiovisuals revenues declined mostly due to a weaker quarter for homevideo and VoD revenues

• Of the top 10 box office hits, ZON OPTIMUS distributed 7, maintaining its significant leadership in market share

Cinema tickets sold and revenue

per ticket [Thousands, Euros]

1Q14 Performance of Gross

Revenues and Attendance [%]

Cinema Gross Revenues by

Distributor in 1Q14 [%]

1,784 1,758

2,413

1,9481,596

4.6 4.7 4.7 4.7 4.7

03

04

04

05

05

06

06

07

07

0

500

1000

1500

2000

2500

3000

1Q13 2Q13 3Q13 4Q13 1Q14

Tickets Sold Average Revenue Per Ticket

Source: ZON OPTIMUS, ICA. * Adjusted for the reopening of screens by another operator.

-9.2%-10.6%

-12.3% -12.5%

Gross Revenue Attendance

ZON OPTIMUS Market*

ZON OPTIMUS

68.2%Columbia12.8%

Big Picture 2

12.1%

Pris3.1%

Others3.8%

11

ZON OPTIMUS Cinema and Audiovisuals performance ahead of the market

Good operating results in 1Q14

• Continued strong operational and financial performance in ZAP

• Increased presence with expansion of sales channels – total of 28 own stores in Angola and 7 in Mozambique. Latest additions in Zaire province and Lunda Norte in Angola and Nampula in Mozambique

• Significant increase in financial contribution to ZON OPTIMUS net results – ZON OPTIMUS’ stake in equity in affiliate companies grew to 3.9 million euros in 1Q14 compared with 1.1 million euros in 1Q13

ZAP continues to perform very well


12

1Q14 FINANCIAL REVIEW


13

Total Revenues

Consolidated Operating Revenues

[Millions of Euros]


351.9337.3

1Q13 1Q14

(4.1)%

14

Telco Revenues

Telco Operating Revenues

[Millions of Euros]

Telco Revenue Segments

[Millions of Euros]


336.6 341.9 342.9 337.3323.5

1Q13 2Q13 3Q13 4Q13 1Q14

(3.9)%

(6.5)%

+2.4%

0

50

100

150

200

1Q13 2Q13 3Q13 4Q13 1Q14

Consumer Business

15

• OPEX fell by 3.0% in 1Q14 to 207.5 million euros and posted a decline of 12.8% in comparison with 4Q13

Cost focus

Consolidated Operating Costs

[Millions of Euros]


213.8

207.5

1Q13 1Q14

(3.0)%

16

Cost focus

Operating Costs

[Millions of Euros]

W&S Direct Costs Commercial Costs Other Op. Costs


23.3 21.0

1Q13 1Q14

(9.5)% 97.7 96.7

1Q13 1Q14

19.3 22.7

1Q13 1Q14

(1.0)%

+17.6%

73.6 67.0

1Q13 1Q14

(9.0)%

Operating Costs

(millions of euros) 1Q14 Δ % Drivers

Other Operating Costs 67.0 (9.0%)

Other Operating Costs fell by 9% yoy to 67 million euros due to a combination of effects with the most relevant impacts due to a

decline in Supplies and External Services and a reduction in the level of provisions. License related costs, included in this

aggregate, increased by 22.5% in 1Q14 to 5.7 million euros which is mostly explained by a 0.75 million euros increase in spectrum

fee and a 0.6 million euros quarterly charge related with the cinema tax imposed on television operators

Commercial Costs 22.7 17.6%

Commercial Costs increased by 17.6% in 1Q14 to 22.7 million euros although they were 31.6% lower than in 4Q13 which is always

a period of strong commercial activity in the build-up to Christmas. The yoy increase was mainly driven by a higher level of

handset sales and commissions due to the increased commercial push

W&S 21.0 (9.5%)

Wages and Salaries fell by 9.5% to 21.0 million euros in 1Q14 as a result mainly of a lower average level of headcount at the telco

division in comparison with 1Q13, down by 11%. The majority of the projected headcount optimization resulting from the merger

process has already occurred and this will continue to be reflected in yoy savings in this cost line

Direct Costs 96.7 (1.0%)

Direct Costs recorded a 1% decline to 96.7 million euros, which reflects a combination of significantly lower yoy programming and

capacity related costs of 8% and 18% respectively due to savings already achieved with the merger, namely the integration of

previous OPTIMUS Pay TV and fixed customers onto the ZON OPTIMUS fixed network and an increase in traffic costs of 16% due

to the greater level of mass calling services and increased payments related with advertising revenue sharing models in place

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• The Group EBITDA margin declined by 0.7pp yoy to 38.5% in 1Q14, posting a 5.3 p.p. increase in comparison with 4Q13, with the decrease in revenues and service margins not being offset by OPEX reduction

• Including the contribution from the 30% stake in ZAP, Consolidated EBITDA would have fallen 3.9% yoy in 1Q14 to 135.3 million euros

• EBITDA from the Audiovisuals and Cinema divisions grew by 36.3% yoy to 9.5 million euros in 1Q14

EBITDA


138.0129.9

39.2%38.5%

30%

32%

34%

36%

38%

40%

42%

30

50

70

90

110

130

150

1Q13 1Q14

18

131.1120.4

38.9%37.2%

20%

25%

30%

35%

40%

45%

50%

-10

10

30

50

70

90

110

130

150

1Q13 1Q14

Group EBITDA

[Millions of Euros]

(5.9)% (8.1)%

Telco EBITDA

[Millions of Euros]

1.3

0.40.7

1.5

4.9

1Q13 2Q13 3Q13 4Q13 1Q14

Net Income Net Income

[Millions of Euros]


19

27.5

25.3

1Q13 1Q14

(8.2)%

(millions of euros) 1Q14 Δ % Drivers

Income Taxes (7.3) (3.2%) Income Tax provision amounted to 7.3 million euros in 1Q14, representing a 3.2% decline in comparison with 1Q13

Net Financial Expenses (15.2) (9.1%)Net Financial Expenses fell by 9.1% to 15.2 million euros in 1Q14 compared with 16.7 million euros in 1Q13 as a result of the lower

average level of gross debt and the lower average cost of the new debt contracted in 4Q13

Equity in Earnings of Affiliate Companies, Net 4.9 277.5%

Equity in affiliate companies posted another very positive increase in contribution growing to 4.9 million euros in 1Q14 compared with

1.3 million in 1Q13, on the back of the very strong financial contribution of the international JV, ZAP, and also of the contribution of

SportTV which revereded from a negative Net Income in 1Q13

Other Expenses (2.8) n.a.Other Expenses of 2.8 million euros were significantly lower in 1Q14 than in 4Q13 and a significant part relates to non-recurrent

merger related costs. New brand will only be launched in 2Q14

D&A (83.9) (3.7)% D&A posted a yoy decline of 3.7% to 83.9 million euros, with no material change compared with previous periods

Equity in Earnings of Affiliate Companies

[Millions of Euros]

+2.8x

• Recurrent Telco CAPEX in 1Q14 was 45.1 million euros, down by 11.1% yoy and representing 13.9% of Telco Operating Revenues, which compares with 15.1% in 1Q13

• Total CAPEX posted a decline of 6.4% to 56.7 million euros

• CAPEX will trend higher as the new network deployment and integration projects start to materialize in the coming quarters

Total CAPEX declined by 6.4% yoy

Total CAPEX

[Millions of Euros]

Recurrent Telco CAPEX, % of Telco Revenues

[Millions of Euros, %]


20

50.7 45.1

7.97.6

2.03.9

60.556.7

1Q13 1Q14

Recurrent Telco Audiovisuals and Cinema Non-Recurrent

(6.4)%

50.745.1

15.1% 13.9%

00%

05%

10%

15%

20%

25%

30%

00

10

20

30

40

50

60

1Q13 1Q14

(11.1)%

Free Cash Flow

• Improving quarterly trend of EBITDA – Recurrent CAPEX

• YoY decline of Free Cash Flow impacted by cash payments related to the restructuring / merger process

EBITDA – Recurrent CAPEX

[Millions of Euros]


21

79.474.7

79.8

41.2

77.1

1Q13 2Q13 3Q13 4Q13 1Q14

Free Cash Flow

[Millions of Euros]

(2.9)%

23.5

(42.1)

37.6

11.3 14.3

1Q13 2Q13 3Q13 4Q13 1Q14

(39.2)%

Solid Capital Structure, deleveraging to 1.7x Net Financial Debt / EBITDA

• Net Financial Debt of 923.4 million euros at the end of 1Q14

• Total liquidity position of 346.6 million euros, including unused credit facilities of 320 million euros

• Funded until 1Q15

• Net Financial Debt / EBITDA of 1.7x

• Average cost of debt of 5.37% at the end of 1Q14

• 1.8 years average maturity

Change in Net Financial Debt

[Millions of Euros]


22

923.4

1.7

8.0

1.1

13.8

3.9

35.7

77.1

939.7

1Q14

Other Items

Cash RestructuringPayments

Income Taxes Paid

Net Interest Paid

Long Term Contracts

Non-Cash Items andWorking Capital

EBITDA-RecurrentCAPEX

FY13

Wrap-up

• Integration process going well and commercial ramp-up accelerating fast; New brand and positioning to be launched during 2Q14;

• Still in early months of strategy execution and well on track to deliver market share growth targets, with strategic operating levers being put in place;

• Very strong performance in convergence, a key pillar for consolidating growth targets;

• Continuous focus on benchmark efficiency and cost control.


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Contacts

José Pedro Pereira da Costa CFO Maria João Carrapato Head of Investor Relations [email protected] ZON OPTIMUS Rua Ator António Silva, 9 1600-404 Lisboa, Portugal Tel.: +351 21 782 47 25 Fax: +351 21 782 47 35


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mailto:[email protected]



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