3Q15 RESULTS RIO DE JANEIRO, NOVEMBER 12, 2015

Transcription

1 RESULTS RIO DE JANEIRO, NOVEMBER 12, 2015

2 IMPORTANT NOTICE This release contains forward-looking statements, according to the U.S. Private Securities Litigation Reform Act of Statements that are not historical facts, including statements about perspectives and expectations, are forward-looking statements. The words "anticipates", "believes", "estimates", "expects", "forecasts", "intends", "plans", and similar terms, when related to the Company or its management, indicate forward-looking statements. These statements reflect the current view of management and are subject to various risks and uncertainties. These statements are based on various assumptions and factors, including general economic, market, industry, and operational factors. Any changes to these assumptions or factors may lead to practical results different from current expectations. Excessive reliance should not be placed on those statements. Forward-looking statements relate only to the date they are made, and the Company is not obligated to update them as new information or future developments arise. AVISO Oi S.A. 1

3 Executive summary quarter Highlights Routine EBITDA of Brazilian operations reached R$ 1,740 million (+10.6% y.o.y.), as a result of the continued focus on cost efficiency and the strategy of profitability of the existing customer base. Oi reiterates guidance of routine EBITDA of R$ 7 to 7.4 billion and of an improvement in Operational Cash Flow of R$ 1.2 to 1.8 billion. Operating costs and expenses in Brazil amounted to R$ 4,775 million (-7.5% y.o.y.), a real gain of approximately 16% considering inflation of 9.5% in the 12- month period. The routine EBITDA margin of Brazilian operations was 26.7% (+3.4 pp y.o.y.) OCF (routine EBITDA minus Capex) of the Brazilian operations was R$ 790 million (+455% y.o.y.), due to increase of the routine EBITDA and the focus in a more efficient Capex allocation through initiatives such as contract renegotiations, sharing of infrastructure and network optimization projects. The Company invested R$ 950 million in the quarter, a decrease of 33.6% y.o.y., of which 85.6% was allocated to the network. As a result of the continued investment in infrastructure, Oi has been progressing substantially in improving the network and the customer experience: For example, in the last twelve months, the average speed in broadband increased by 25% (today, 53% of gross adds have speeds equal or higher than 10 Mbps), IP traffic grew 43% while ADSL congestion rate fell by 17%. Net customer revenues (excluding handset sales and revenues from network usage) reached R$ 6,066 million in Brazil (+0.9% y.o.y.), despite the unfavorable macroeconomic scenario. In Personal Mobility, net customer revenues in Brazil reached R$ 1,780 million, +8.1% y.o.y. and 1.3% q.o.q., the best performance of the market in both comparisons. Net service revenues (excludes only handset revenues) of Personal Mobility was R$ 1,997 million, +0.9% y.o.y. (second largest growth of the market) and +2.4% q.o.q. (the highest growth of the market). For both customer and service revenues from Personal Mobility, Oi was the only operator to consistently maintain a positive trend in the year-on-year growth over the last 5 quarters. Results from Personal Mobility were driven by 52.8% growth in data revenues (including VAS), recording the best performance of the market. The mix of data over service revenues reached 38.3% (+13 pp over the last twelve months), also presenting the best market evolution. ARPU in Residential segment reached R$ 79.5 (+8.3% y.o.y.). Net revenues of the segment totaled R$ 2,437 million (-0.6% y.o.y.), reinforcing the positive trend observed in recent quarters, due to focus on profitability combined with gross adds increase and stable churn rates. Net revenues in the Corporate/SMEs segment decreased by 3.5% y.o.y., affected by the macroeconomic environment. Cash generated by the Brazilian operations reached R$ 686 million in the quarter, after several quarters of cash consumption. Net debt increased to R$ 37,241 million (+7.5% q.o.q.), mainly impacted by financial results and by the temporary accounting effect of R$ 1.5 billion related to the mark-to-market of derivatives. In October, approximately R$ 1 billion of this accounting effect has been reverted. As part of the transformation plan, in early November Oi launched Oi Livre, an offer which has more data with no restrictions of usage and more minutes to call any operator anywhere in the country. This offer transforms the telecommunications model in the country by eliminating the community effect and reinforcing the Company s focus on data. Oi S.A. 1

4 Results Oi s Strategic Priorities Oi progresses towards its priorities Operational turnaround: cost transformation and network improvement EBITDA and OCF on track to deliver 2015 guidance*: Routine EBITDA R$ bn Routine EBITDA CAPEX improvement R$ bn Complete sale of PT Portugal Balance sheet: refinancing and reducing debt; and building a better regulatory environment Refinancing and debt payment: focus on improving debt profile Other asset disposals TAC: projects filed with ANATEL Discussion on Concession Terms Corporate governance: completion of migration to the highest standards, with no controlling shareholders Consolidation and market evolution Completion of TmarPart merger, resulting in dispersion of control Oi s new Board already acting New Bylaws already in place, reflecting Novo Mercado governance standards Completion of voluntary conversion of 2/3 of preferred into common shares Signing of a 7-month exclusivity agreement with LetterOne for potential transaction that enables the consolidation of the Brazilian telecommunications sector * Guidance for Brazilian operations. Oi S.A. 2

5 OPERATIONAL TURNAROUND Oi S.A. 3

6 Results Financial Highlights Greater EFFICIENCY in cost and investment supports EBITDA & OCF IMPROVEMENT TO DELIVER 2015 GUIDANCE Financial highlights R$ million Brazil Net Service Revenues 1 Residential Personal Mobility Customer 2 Corporate/SMEs 6,463 2,437 1,997 1,780 1,967 6,526 2,451 1,978 1,646 2,030 y.o.y -1.0% -0.6% +0.9% +8.1% -3.1% 9M15 19,588 7,387 6,006 5,336 5,986 9M14 19,991 7,522 6,053 4,998 6,193 y.o.y -2.0% -1.8% -0.8% +6.8% -3.3% Net Customer Revenues 2 6,066 6, % 18,400 18, % Routine OPEX 4,775 5, % 14,426 15, % Routine EBITDA 1,740 1, % 5,485 4, % Routine EBITDA Margin 26.7% 23.3% +3.4pp 27.5% 24.0% +3.6pp CAPEX 950 1, % 2,976 4, % Routine EBITDA Capex % 2, % Consolidated Reported EBITDA 2,178 2, % % 1 - Excludes handset revenues. 2 - Excludes revenues from handsets and network usage. Oi S.A. 4

7 Results Operational Highlights FOCUS on quality and PROFITABILITY OF THE EXISTING CUSTOMER BASE Operational highlights Thousand RGUs y.o.y q.o.q Total - Brazil 71,838 75, % 72, % Residential Fixed Line Broadband Pay TV Residential ARPU 16,524 10,217 5,136 1, ,401 11,128 5,241 1, % -8.2% -2.0% +13.4% +8.3% 16,791 10,440 5,167 1, % -2.1% -0.6% -1.1% +1.2% Personal Mobility Prepaid Postpaid 47,059 40,296 6,763 48,976 41,990 6, % -4.0% -3.2% 47,756 40,719 7, % -1.0% -3.9% Corporate/SMEs Fixed Line Broadband Mobile 7,602 4, ,424 8,004 4, , % -6.6% -4.6% -1.9% 7,778 4, , % -2.0% -1.6% -2.9% Public Telephones % % Oi S.A. 5

8 Results Brazil Revenues REVENUEs trend improvement in all segments DESPITE MACRO ENVIRONMENT Personal Mobility % y.o.y Net Revenues % y.o.y Service Revenues Customer Revenues 1 2 Residential % y.o.y Corporate / SMEs % y.o.y Excludes handset revenues. 2 - Excludes revenues from handsets and network usage. Oi S.A. 6

9 Results Personal Mobility (Brazil) IMPROVEMENT IN DATA CONSUMPTION DRIVES GROWTH IN BOTH RECHARGES AND ARPU 3G/4G handset penetration % of total base +19pp Postpaid gross ARPU (ex-mtr) Indexed +23.1% Personal mobility customer revenues R$ million +8.1% Voice Data 1,646 1,808 1,799 1,757 1,780 37% 39% 49% 54% 56% +52.8% Recharges¹ % y.o.y (Financial volume) % 34% 38% 40% 43% Data / Total Data revenues growth driven by smartphone penetration Increased base profitability as a result of better acquisition mix and higher data usage Continued recharge growth despite the poorer in the macroeconomic environment In, data revenues represented 38.3% of service revenues (+13 pp over the last 12 months) 1 - Recharges include the prepaid portion of fixed+prepaid offers (OVT). Oi S.A. 7

10 Results Personal Mobility (Brazil) Oi leads market transformation for all-net model, eliminating the community effect, and expands data offer to use freely Targets Improve revenues and market share Consolidate customers with prepaid multi-sim card Increase share in postpaid segment Project developed over more than 10 months Extensive research program indicated customer needs for more freedom: to surf the internet with no data usage restrictions to speak to any operator at any location It includes all offers of prepaid, Controle and postpaid Media campaign started on October 30 Oi Livre per week R$ / week 400 MB to use as you wish 75 minutes for any operator Value proposal Much more data to use freely Simplicity with no tricks Minutes to call any operator anywhere in the country All in a single SIM card ARPU increase by consolidation of recharges in Oi s prepaid and Controle SIM cards and by postpaid mix improvement Oi S.A. 8

11 Results Residential (Brazil) Improvement in gross adds reverting net adds trend and higher base PROFITABILITY support revenues recovery Net adds Thousand ARPU Indexed Fixed % Residential ARPU R$ +8.3% +1.2% % Broadband % Improved sales quality 215 Better mix of customer and high-end offers TV Continuous increase in broadband speed (+25% y.o.y) Increase in gross adds with stable churn rates -48 Oi S.A. 9

12 Results Residential (Brazil) Launch of oi play platform and new broadband speeds (VDsl) reinforce oi's positioning IN RESIDENTIAL SEGMENT Segment priorities New broadband portfolio Offer Price* Resumption of commercial activity; Pro-consumer approach via offer simplification; Delivering growing demand of data through new broadband speeds; Evolution of TV product, including non-linear content, as a competitive advantage. Oi Play launch Speeds of 20, 25 and 35 Mega Simplified offer, no price step Available in more than 500 cities 35 Mb Extension of Oi TV content to multi-devices. R$ Up to 25 Mb R$ Up to 15 Mb R$ Up to 10 Mb R$ Up to 2Mb R$ * Reference of the municipality of Rio de Janeiro Live programming and non-linear content: more than 30 channels and 13,000 titles available. A single website bringing together all content while optimizing the customer browsing experience. Apply to all Oi TV customers. Oi S.A. 10

13 Results Corporate / SMEs (Brazil) B2B FACES CHALLENGES IN MACROECONOMIC ENVIRONMENT BUT IMPROVES QUALITY OF ITS REVENUES Non-voice revenues % of Corporate revenues Corporate: less voice services dependency +4,0pp Non-traditional services 1,2 Indexed. Revenues +17.8% TI VAS Channel mix % of Gross Local SMEs: focus on quality and profitability Remote Churn rate Fixed+BB+Mobile Disconnections as a % of the base -12% Average time of repair Fixed+BB Hours -68% Average time of installation Fixed+BB Days -45% Above-average market growth in data revenues (+5.6% YTD vs 2014) Focus on profitability through data and VAS (Network Security, Cloud Services, Managed Services, etc) Growth on IT and other non-traditional services to reduce dependency on voice End of handset subsidies Upgrading customer services without use of additional investments Reduction in the in-person channels optimizing sales cost Focus on improving services quality Portfolio simplification and end of handset subsidies 1 - IT = Cloud, ICT and Datacenter services; VAS = Managed Services, Security Solutions and Special Projects 2 - figures excludes FIFA contract revenues Oi S.A. 11

14 Results Operating Costs and Expenses (Brazil) Strict COST control despite high inflation, ENERGY AND Fx Routine operating costs and expenses R$ million Brazilian operations Inflation in the period: +9.5% 5, % , ,775 MTR tariffs cut Lease back from assets sold Handset costs Personnel Interconnection (traffic) Third-party services Network maint. Marketing Rent & insurance Other 15, , % ,426 9M14 MTR tariffs cut Lease back from assets sold Handset costs Personnel Interconnection Third-party Network Marketing Rent & services maint. insurance (traffic) Other 9M15 Oi S.A. 12

15 Results Operational Turnaround Transversal and structuring projects start generating positive results Launch of Forum of Quality focusing on customer experience Process optimization to reduce revenues leakage Forum of Quality Initiative Impact Marketing and sales Customer service Customer Experience Field operations Billing and collection Downgrades Customers downgrade requests are treated with by a specialized unit reducing ARPU losses Revenue retention R$ +16% Impact Rate Calls/Customer Average time to repair Hours -7% -13% Complaints Revision of processes and adherence control, ensuring that the correct amount is attributed when the bill is contested Value returned to the customer R$ -40% Jul-15 Sep-15 Jul-15 Sep-15 Oi S.A. 13

16 Results EBITDA and OCF (EBITDA CAPEX) IMPROVEMENTS IN EBITDA AND OCF IN LINE TO DELIVER 2015 GUIDANCE Proforma EBITDA 1 R$ million 1,698 1,573 1,836 1,689 2,011 1,928 1,947 1,816 1, % 1,740 5,279 4,923 9M14 5,810 5,485 9M15 Brazil Other +11.4% Proforma EBITDA minus CAPEX 1 R$ million % 1, ,732 2,509 Brazil Other +177% Proforma CAPEX R$ milion 9M14 9M15 1,470 4,170 Cost efficiency 1,431 1,108 1,056 1, ,069 1, % 4,018 3, % 2,976 Improved profitability of customer base Control and efficiency in capital allocation 9M14 9M routine Oi S.A. 14

17 Results Oi s Infrastructure CONTRACTs RENEGOTIATION, 2G 3G MIGRATION PLAN, NETWORK SHARING AND ADJUSTMENTs in OFFERS ensure CAPEX OPTIMIZATION WITH QUALITY IMPROVEMENT Renegotiations and network efficiency Contractual renegotiations of mobile Core and Access Traffic cost MoU -32% Mbyte -32% Opportunities for improvement in sharing R$ (MM) 4G Ran Sharing with Tim R$ -45% Consistent improvement in customer experience SMP8 Data connection rate % 99% 98% G to 3G customer migration # of clients 2014/2017 (Only Oi) 2014/2017 (RAN Sharing) Sep/14 Mar/15 Target Values Sep/15 2G -49% -65% Potential improvement of 2G/3G coverage through network sharing agreements with Tim Cities SMP9 Data drop rate % 3G/4G +253% Only voice With data 2G 3G +75% +30% 5% +156% Current Future Current Future Sep/14 Mar/15 Source: ANATEL and Company s data 0.3% Sep/15 Oi S.A. 15

18 Results Oi s Infrastructure Measures to EXPAND TRANSPORT NETWORK support data TRAFFIC INCREASE AND IMPROVE QUALITY OF CUSTOMERS EXPERIENCE Contracts renegotiation Transport network expansion Increasing data traffic Quality improvement Expansion of Oi s national backbone R$ / Mbps (TX) Modernization of IP network R$ / Mbps (IP) OTN 100G New optical backbone 91% completed Average bandwidth Mbps / user ADSL congestion % congestion -40% -25% +45% -17% 81% completed Former Current Agreement Agreement Former Current Agreement Agreement Jan/15 Jun/15 Sep/15 Dec/15 Projetado Sep/14 Mar/15 Sep/15 Sep/14 Mar/15 Sep/15 Fiber swap Strategy of fiber swap R$ / km -83% Atual Single Edge New IP router network 88% completed IP traffic Tbps +43% ADSL subscribers (>= 10 Mbps) +28% +40% R$ 69% completed Own built Swap Jan/15 Jun/15 Sep/15 Dec/15 Sep/14 Mar/15 Sep/15 Oi S.A. 16

19 BALANCE SHEET Oi S.A. 17

20 Results Indebtedness debt payment and Refinancing to focus on improving debt profile Change in gross debt R$ million FX variation impact on gross debt is hedged by gains from cash in foreign currency Foreign currency debt fully hedged R$ million Debt profile by index after hedge 51,280 4, ,308 1,519 4,475 53,656 4,026 IPCA 47,067 13,521 TJLP 3% 1,519 48,111 33,602 6% Fixed 29% Gross debt Derivatives Amortizations Interest Impact from MTM of derivatives Impact of FX variation on debt + hedging result gross debt Impact of FX variation on Cash Debt increased R$ billion in the quarter (+4.6%), mainly due to: MTM effect of derivatives FX variation on portion of gross debt hedged with cash in foreign currency. This impact is offset in the net debt since it is compensated by the FX variation on cash (natural hedge). Accounting and temporary effect from mismatch between mark-to-market and accrual of derivatives, which are contracted to hedge debt denominated in foreign currency. Mark-to-market and accrual of derivatives converge at the maturity of the contracts. 1 - Includes amortization of principal and interest on debt and receipt of derivatives Gross debt ex FX and MTM effects Cash in foreign currency -56 Exposure Accounting impact of mark-to-market of derivatives is temporary and has no impact on cash nor on results Mismatch between MTM and accrual of derivatives is measured every quarter, with no significant impact in previous quarters. In, the atypical volatility in the interest rate on dollar traded at BM&FBovespa (cupom cambial) resulted in a negative accounting impact of R$ 1.5 billion in the calculation of MTM. In October, around R$ 1 billion of this effect was already reverted. R$ million CDI 62% Oct/15 Note: Details of the mark-to-market (MTM) calculation is at the end of the presentation as a back up. Oi S.A. 18

21 Results Indebtedness Solid LIQUIDITY POSITION to meet short-term obligations Liquidity R$ million Gross debt amortization schedule R$ million 1, ,132 Average debt maturity: 3.7 years 53,656 1,500 19,403 16, ,958 6,899 20,132 8,960 Cash 1,083 11,354 Cash BNB Revol. in R$ Revol. in USD ECAs in USD/EUR Liquidity position Liquidity position Gross debt onwards Oi S.A. 19

22 Results Net Debt Variation Operating cash flow improved substantially; NET DEBT impacted by FINANCIAL RESULTs and accounting impact of derivatives Change in net debt R$ million Operating cash flow Accounting and temporary effect: mismatch between MTM and accrual of derivatives converge at the maturity of the contracts 1,519 37,241 34,644 1, million ,958 1,763 Impact from MTM Routine EBITDA Capex WC Judicial deposits + taxes 3T15 Financial results Accounting impact from MTM of derivatives Net Debt Oi S.A. 20

23 CORPORATE GOVERNANCE Oi S.A. 21

24 Results Corporate Governance New CORPORATE GOVERNANCE: pulverized capital, independent BOARD and new BY-LAWS reflecting requisits of novo mercado Execution of the Exchange of Rio Forte Commercial Papers ANATEL approval on alternative structure EGM called on Aug 1 st Extraordinary Shareholder Meeting (EGM) to approve the alternative structure Sep 1 st Oct CorpCo share registration at SEC Pending approval from SEC to the 2013 PT SGPS 20F generated a need to explore alternative structures O i s Board of Directors approved alternative structure: Voluntary conversion from preferred to common shares Changes on Oi s By-Laws to incorporate the Novo Mercado requirements Announcement of Oi s new Board Completion of the conversion of 2/3 of preferred shares into common shares Post-conversion share capital (ex-treasury) Common: 519,751,658 Preferred: 155,915,486 Oi S.A. 22

25 Results Oi s Strategic Priorities Wrap-up: Oi progresses towards its priorities Operational turnaround: cost transformation and network improvement EBITDA and OCF on track to deliver 2015 guidance*: Routine EBITDA R$ bn Routine EBITDA CAPEX improvement R$ bn Complete sale of PT Portugal Balance sheet: refinancing and reducing debt; and building a better regulatory environment Refinancing and debt payment: focus on improving debt profile Other asset disposals TAC: projects filed with ANATEL Discussion on Concession Terms Corporate governance: completion of migration to the highest standards, with no controlling shareholders Consolidation and market evolution Completion of TmarPart merger, resulting in dispersion of control Oi s new Board already acting New Bylaws already in place, reflecting Novo Mercado governance standards Completion of voluntary conversion of 2/3 of preferred into common shares Signing of a 7-month exclusivity agreement with LetterOne for potential transaction that enables the consolidation of the Brazilian telecommunications sector * Guidance for Brazilian operations. Oi S.A. 23

26 Back up Oi S.A. 24

27 Mark-to-market calculation For accounting purposes, debt denominated in foreign currency is recorded in the balance sheet by the exchange rate as of the closing day of the balance, while the derivatives hired to cover these loans are recorded at fair value (MTM). To calculate the MTM of derivatives, the interest rate on dollar traded at BM&FBovespa (cupom cambial) is used as discount factor. In, there was an atypical volatility in the cupom cambial curve for derivatives hired by Oi, moving up by about 284 basis points, resulting in a negative accounting impact of R$ 1.5 billion in the calculation of MTM. This accounting effect is temporary and reflects the mismatch between MTM and accrual of derivatives that converge at the end of the contracts. This mismatch is measured every quarter, with no significant impact in previous quarters. In October, for instance, approximately R$ 1 billion of this effect was already reverted. This effect has no impact on cash nor on P&L. As the company adopts hedge accounting, this accounting effect is recorded directly in the shareholders equity. Oi S.A. 25

28 RESULTS RIO DE JANEIRO, NOVEMBER 12, 2015 Oi S.A.