Investor Presentation • Jun 19, 2020
Investor Presentation
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Announcement | Lisbon | 16 June 2020
PHAROL, SGPS S.A. hereby informs on the 2020 first quarter results disclosed by Oi, S.A., as detailed in the company's document attached hereto.
Investor Relations | June 15, 2020
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This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and the applicable Brazilian regulations. Statements that are not historical facts, including statements regarding the beliefs and expectations of Oi S.A. – under Judicial Reorganization ("Oi" or "Company"), business strategies, future synergies, cost savings, future costs and future liquidity are forward-looking statements.
The words "anticipates", "intends", "believes", "estimates", "expects", "forecasts", "plans," "aims" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. There is no guarantee that the expected events, tendencies or expected results will actually occur. Such statements reflect the current views of the Company's management and are subject to a number of risks and uncertainties. These statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, corporate approvals, operational factors and other factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. All forward-looking statements attributable to the Company or its affiliates, or persons acting on their behalf, are expressly qualified in their entirety by the cautionary statements set forth in this notice. Undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made.
Except as required under the Brazilian and U.S. federal securities laws and the rules and regulations of the CVM, the SEC or other regulatory authorities in other applicable jurisdictions, the Company and its affiliates do not have any intention or obligation to update, revise or disclose any changes to any of the forward-looking statements herein in order to reflect current or future events or their developments, changes in assumptions or changes in other factors affecting the forward-looking statements herein. You are advised, however, to consult any further disclosures the Company makes on related subjects in reports and communications that the Company files with the CVM and the SEC.
HIGHLIGHTS – OI CONTINUED TO DEMONSTRATE SOLID EXECUTION OF ITS PLAN AT THE BEGINNING OF 2020, ALLOWING the company TO MOVE FORWARD WITH ITS LONG TERM STRATEGIC VISION
SIMPLIFICATION INITIATIVES GENERATING SAVINGS IN LINE WITH THE TARGET FOR THE YEAR
General Creditors Meeting (GCM) for Plan amendments and Company flexibility expected for AUGUST 2020
Market process for mobile sale in progress
STRUCTURAL SEPARATION for value maximization: INFRA CO and CLIENT CO
Full regulatory campaign in place for future PLC impact
Take-up %
modem WiFi UP para conectar a casa inteira
77
FTTH revenue growth remained strong, reaching 11.7% share of total residential net revenue. Decline in residential revenue reflects copper's divestment strategy
Pós Pré
1 – Involuntary churn | 2 - Excludes interconnection revenues and handset sales. | 3 – Ex – M2M
Corporate strategy positioning as a solutions integrator has been boosting ITC revenue. focus on leveraging the Wholesale infrastructure has started to generate positive results. B2b revenues impacted by confinement with reduced voice traffic
1 - Infrastructure rental revenue is classified as an opex reducer, essentially because its nature is not that of a telecom service revenue
| Estimated Impact 2020 |
Targets per selected metrics | ||
|---|---|---|---|
| Sales, Mktg & Customer Service |
→ Portfolio Simplification - Migration to Flat Rate Plans; → Reduction of legacy portfolio proactive selling actions; → Digital sales channel acceleration; → Automation and optimization of customer service and call center operations. |
R\$ 150 – 200 M |
75% 45% +54 pp +23 pp % Fiber in broadband % of residential base activations in flat rate |
| Process and Organization |
→ Ongoing process simplification project; → Dedicated focus on Transformation and Digital; Wholesale and Franchises → Thorough review of company's processes and implementation of centralized Automation initiative |
R\$ 100 – 150 M |
95% 25% +14 pp -17% Call Volume in Human % of digital invoices Customer Service |
| Business Support |
→ Implementation of CSC for common support functions across all companies → Holistic procurement program; → Back-office reduction through automation and BPO extension; → Energy Efficiency Initiatives with own generation. |
R\$ 150 – 300 M |
30% 0% -9% -2 pp Bad debt as % of revenues Energy cost per MWh |
| IT | → Interruption of IT legacy projects; → Development of New IT Stack for Fiber Operations; → Elevating Digital Initiative to company wide effort. |
R\$ 100 – 200 M |
90% 100% +26 pp -1 pp % of Agile IT projects % of repairs by FTTH customer base |
| Network and Operations |
→ Optimization and decommissioning of Legacy Networks (copper, DTH); → Accelerated costumer migration to fiber; → Capex and Opex readjustment as a consequence of reduction of legacy sales efforts. |
R\$ 150 – 200 M |
+37 pp -2.5 pp 50% 5% % of fiber technical support % of repeated technical calls through digital channels |
| 3Q19 1Q20 4Q20 Progress % |
capex in line with strategic plan, keeping focus on deploying fiber (hp's and HC's), refarming of 1.8GHz sites to 4G and 4.5G and reducing legacy investments
12
Debt (fair value)
+6,214 million Hedge Policy: With 99% of the debt maturing in the long term, the Company adopted a hedge policy for short-term payments. In 2020 specifically, it is using part of the proceeds from the sale of Unitel as natural cash flow hedge.
1- Pure Postpaid
14
In summary, Oi continues to execute on its strategic plan, working on multiple fronts of the company's transformation, looking to become the main fiber infrastructure provider in the country, serving all business segments (b2C, B2B and wholesale)
New General Creditors Meeting (GCM): Expectation to hold GCM in 60 days (call notice + legal period). Proposed plan amendments to bring company flexibility in order to accelerate the execution of its strategic plan and maximize value creation.
Market Process for Mobile Business sale in progress; Non-core assets sale in final stages
Structural Separation (Infra Co and Client Co) for Value Maximization: to accelerate fiber deployment and allow Oi's sustainable growth
June, 2020
phase 2 2019-2020
● Asset sales, funding and cash ● Strategic transition of the model ● Simplification and operational efficiency
● Future vision
● Reconfiguration of Oi for sustainability and value creation
● Consolidation of the new strategic model
● Preparing the company for return to growth
EBITDA (R\$ BN)
18
SIGNIFICANT CHANGES IN THE TECHNOLOGICAL AND CONSUMER ENVIRONMENT, COMBINED WITH THE DELAY IN UPDATING THE REGULATION, LED TO THE NEED TO EVOLVE THE STRATEGIC TRANSFORMATION PLAN
(1) Remaining 2 installments of USD 40 million each; (2): Real Estate in RJ and SC
20
Flexibility to Execute the Plan
(customers, employees, shareholders, creditors, partners, suppliers and society)
22
Notes: (1): Creation of an Associated Company to Oi Group; (2) IRU contract for the management and operation of the transport network of OI SA and Telemar;
New
Notes: (1) IRU contract for the management and operation of the transport network of OI SA and Telemar, (2) Governance - Board with 11 independent members and a management team with long-term incentives aligned with the value creation for the shareholders.
► It is the reorganization of the company, in 2 independent and complementary structures
Structure 1: An independent, neutral network company, focused on infrastructure
Structure 2: A service Company focused on customers
Enables each party to focus on its segment, operating more efficiently
Enables market expansion and growth, with more effective use of investments
Ability to attract more investors
Accelerate capex and network coverage
Serve multiple carriers
Establish a lighter customer structure, customer centric and digital first
(1) NetCo post-separation with private management. Therefore, there is no market valuation available | Source: Mckinsey
Shareholder value generation (example COMPANY L )
Company L Market Capitalization CZK Billions
+140% Built HPs until 2024
Initial investment period with high network expansion CAPEX, financed by an efficient capital structure 1
Followed by a high return phase, with reduced CAPEX and increasing EBITDA 2
Note (1): Projected Evolution I Source: Business Model under discussion within the scope of the Strategic Transformation Plan
Note: Projected Evolution I Source: Business Model under discussion within the scope of the Strategic Transformation Plan
| CUSTOMERS | Residential, business and corporate customers will benefit from the best quality of infrastructure, in geographic markets not yet served by fiber, and from the best experience of using the services |
|---|---|
| SECTOR | Large and small operators will have access to the robust and capilar infrastructure in an isonomic way, avoiding redundancy of investments, generating greater profitability and competitiveness |
| EMPLOYEES AND SUPPLIERS |
Employees and suppliers will have companies that are financially stronger and more focused on their specific area of expertise |
| CREDITORS AND SHAREHOLDERS |
Sustainable and growing company, increasing safety for all creditors and return to shareholders and investors |
| SOCIETY | Economic and social development through digital inclusion and greater economic efficiency of investment in infrastructure |
In order to implement this evolution of the business model, amendments to the JUDICIAL REORGANIZATION Plan and a new general creditors meeting will be necessary
REDUCES OPERATIONAL RISK AFTER TRANSACTIONS ARE COMPLETED
Elements of the active or passive transmission network not included
FTTH network, including equipment and operation.
Guarantee of the execution of the investment plan
Sale Minimum price of R\$ 1Bn for 100% of the shares;
| Non-Financial Creditors |
Labor (Class I): Small Business (Class IV): Payment within 30 days after approved by the Linear payment of up to R\$ 35K (and waiver of any court, (limited to R\$ 50K per creditor); additional claim) within 90 days after approval; Remaining balance paid under current terms. Other creditors paid under current terms. |
|---|---|
| Financial Creditors |
Secured Creditors (Class II): Banks and ECAs (Class III): Oi Mobile Credits: Creditor has the prerogative to keep credits at Early settlement of credits, with a 60% discount, UPI Mobile Assets or to be prepaid in the financial settlement of payment in 3 installments (2022-24). Linked to the UPI Mobile Assets auction. asset sales and minimum volume of resources Oi SA Credits: Creditor has the prerogative to maintain its through the auctions; exposure either in Oi SA or associated companies, or to be Differentiated option for creditors who provide a prepaid in the settlement of the UPI Mobile Assets auction. new credit line. |
| Additional creditors |
Anatel: Contingencies: Suppliers, Bondholders, General Offering (Class III): Migration to a new legal rule for Payment of up to R\$ 3K Possibility of prepayment through the introduction addressing credits (adherence to (waiver of any additional of an optional mechanism for reverse auction of Law 13,988 and / or subsequent claim) within 90 days. repurchase with discount. legal provisions). |
| Bridge Operations |
Possibility of partially anticipating the proceeds from the sale of UPI Mobile Assets Flexibility for additional leverage guaranteed by the shares of Infra Co |
| Jr CLOSURE | Upon closing of UPI Mobile Assets Or before, if required by Oi and confirmed by the Judicial Reorganization Court |
| JUN 20 | AUG 20 | OCT 20 | 4Q20 | 1Q21 | 3Q21 | 4Q21 1T21 |
|---|---|---|---|---|---|---|
| Filing of Judicial Recovery Plan Amendment |
General Creditors Meeting |
Towers and Data Centers UPIs auctions |
Mobile Assets UPI auction Closing UPIs Towers and Data Centers |
UPI Infra Co auction |
Closing UPI Infra Co |
Closing UPI Mobile Assets |
32
Note:Timeline dependent on judicial, regulatory and competitive approvals
THIS MODEL ALLOWS FOR CONCILIATING STRONG GROWTH AND FINANCIAL SUSTAINABILITY FOR OI AND INFRA CO
IN ADDITION TO BENEFITS FOR CUSTOMERS AND THE INDUSTRY, THIS PLAN WILL GENERATE VALUE AND TRUST FOR EMPLOYEES, CREDITORS, SHAREHOLDERS, SUPPLIERS, AND FOR SOCIETY IN GENERAL
| R\$ million | |||
|---|---|---|---|
1 - Excludes handset and interconnection revenues;
+55 21 3131-2918
www.oi.com.br/ri
1 Investor Relations | June 15, 2020
| Earnings Release | June 15, 2020 |
|---|---|
| Conference Call | June 16, 2020 |
| in English | 10:00 a.m. (Brasília) / |
| 9:00 a.m. (NY) / 1:00 p.m. (UK) | |
| Webcast: click here | |
| Telephone: US: +1 (646) 843 6054 +55 (11) 2188-0155 | |
| Code: Oi | |
| Replay available until 6/4/2020: | |
| +55 (11) 2188-0400 | |
| Replay code: Oi | |
| Conference Call | June 16, 2020 |
| 10:00 a.m. (Brasília) / | |
| in Portuguese | 9:00 a.m. (NY) / 1:00 p.m. (UK) |
| SIMULTANEOUS | Webcast: click here |
| TRANSLATION | Telephone: +55 (11) 2188-0155 +1 646 843 6054 |
| Code: Oi | |
| Replay available until 6/4/2020: | |
| +55 (11) 2188-0400 | |
| Replay code: Oi |
This report contains the operating and financial performance of Oi S.A. – under Judicial Reorganization ("Oi S.A." or "Oi" or "Company") – and its subsidiaries for the first quarter of 2020.
General Creditors Meeting (GCM) for Plan amendments and Company flexibility expected for AUGUST 2020
Market process for mobile sale in progress
Structural separation for value maximization: infra co and client co
Full regulatory campaign in place for future PLC impact
Table 1 – Highlights
| in R\$ million or otherwise stated | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| Oi S.A. Consolidated | |||||
| Total Net Revenues | 4.749 | 5.130 | 4.914 | $-7.4%$ | $-3.4%$ |
| Routine EBITDA | 1.533 | 1.627 | 1.414 | $-5.8%$ | 8.4% |
| Routine EBITDA Margin [%] | 32.3% | 31.7% | 28.8% | 0.6 p.p. | 3.5 p.p. |
| Net Income [Loss] attributable to owners of the Company | $-6.280$ | 568 | $-2.263$ | $-1204.9%$ | n.m. |
| Net Debt | 18,131 | 10,107 | 15,927 | 79.4% | 13.8% |
| Available Cash | 6,310 | 6.267 | 2.300 | 0.7% | 174.4% |
| CAPEX | 1.794 | 1.725 | 1.991 | 4.0% | $-9.9%$ |
| in R\$ million or otherwise stated | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| BRAZIL | |||||
| Revenue Generating Units - ['000] | 52,654 | 56,623 | 53.428 | $-7.0%$ | $-1.4%$ |
| Residential | 12,068 | 14,336 | 12,659 | $-15.8%$ | $-4.7%$ |
| Personal Mobility | 33,946 | 34,894 | 34,006 | $-2.7%$ | $-0.2%$ |
| B 2 B | 6.481 | 6,774 | 6,591 | $-4.3%$ | $-1.7%$ |
| Public Telephones | 159 | 619 | 172 | $-74.3%$ | $-7.7%$ |
| Total Net Revenues | 4.700 | 5.086 | 4.862 | $-7.6%$ | $-3.3%$ |
| Net Service Revenues [1] | 4.678 | 5.038 | 4.828 | $-7.1%$ | $-3.1%$ |
| Residential | 1.654 | 1,880 | 1.724 | $-12.0%$ | $-4.0%$ |
| Personal Mobility | 1,681 | 1.699 | 1.743 | $-1.0%$ | $-3.6%$ |
| Customer [3] | 1.623 | 1.624 | 1.678 | 0.0% | $-3.2%$ |
| B 2 B | 1.317 | 1.417 | 1.333 | $-7.0%$ | $-1.2%$ |
| Net Customer Revenues [2] | 4.582 | 4.919 | 4.719 | $-6.9%$ | $-2.9%$ |
| Routine EBITDA | 1,481 | 1.616 | 1.452 | $-8.3%$ | 2.0% |
| Routine EBITDA Margin [%] | 31.5% | 31.8% | 29.9% | $-0.2 p.p.$ | 1.6 p.p. |
| CAPEX | 1,781 | 1.718 | 1,979 | 3.7% | $-10.0%$ |
| Routine EBITDA - CAPEX | $-299$ | $-102$ | $-526$ | 193.6% | $-43.1%$ |
(1) Excludes handset revenues.
(2) Excludes handset and network usage revenues.
As of January 1, 2019, the Company began adopting the IFRS 16 standards that came into effect then. The standard sets forth the principles for the recognition, measurement, presentation and disclosure of leases and requires tenants to account for all leases under a single model in the balance sheet.
Therefore, the sections of this document are presented considering the impacts of the adoption of IFRS 16.
Table 2 – Breakdown of Net Revenues
| Quarter | |||||||
|---|---|---|---|---|---|---|---|
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ | ||
| Consolidated Total Net Revenues | 4,749 | 5,130 | 4,914 | $-7.4%$ | $-3.4%$ | ||
| Brazil | 4,700 | 5.086 | 4.862 | $-7.6%$ | $-3.3%$ | ||
| Residential | 1,654 | 1,880 | 1,724 | $-12.0%$ | $-4.0%$ | ||
| Personal Mobility | 1.702 | 1.745 | $1, \overline{III}$ | $-2.5%$ | $-4.2%$ | ||
| B2B | 1,317 | 1,418 | 1,333 | $-7.1%$ | $-1.2%$ | ||
| Other services | 26 | 42 | 28 | $-37.9%$ | $-7.3%$ | ||
| International Operations | 49 | 44 | 51 | 11.1% | $-4.5%$ |
| Brazil | |||||
|---|---|---|---|---|---|
| Net Service Revenues | 4.678 | 5.038 | 4.828 | $-7.1%$ | $-3.1%$ |
| Net Customer Revenues | 4.582 | 4.919 | 4.719 | -6.9% | $-2.9%$ |
Consolidated net revenues totaled R\$ 4,749 million in 1Q20, down 7.4% from 1Q19 and 3.4% lower than in the previous quarter. Net revenues from Brazilian operations ("Brazil") came to R\$ 4,700 million in 1Q20 (-7.6% y.o.y. and -3.3% q.o.q.), while net revenues from international operations (Africa and East Timor) totaled R\$ 49 million (+11.1% y.o.y. and -4.5% q.o.q.).
Net revenues from Brazilian operations stood at R\$ 4,700 million in 1Q20, 7.6% lower than in 1Q19. Exposure to legacy services (cooper and DTH) in the Residential and B2B segments and the continued decline in voice traffic were the main factors that contributed to this result. On the other hand, this decline was partially offset by the rapid increase in FTTH revenues in the Residential segment, IT revenues in the Corporate segment and data revenues in the Personal Mobility segment, driven by substantial growth in the postpaid business.
Compared with 4Q19, net revenues fell 3.3%, affected by the same factors that impacted the annual comparison. Exposure to declining revenues in the fixed voice, copper broadband and prepaid businesses was partially offset by growth in services with rising revenues – fiber, IT and postpaid.
Total net service revenues, which exclude revenues from handset sales, stood at R\$ 4,678 million in 1Q20 (- 7.1% y.o.y. and -3.1% q.o.q.). Total net customer revenues, which exclude network usage and handset revenues, came to R\$ 4,582 million in the period (-6.9% y.o.y. and -2.9% q.o.q.).
1Q20 Earnings Release Table 3 – Net Revenues and RGUs of the Residential segment
| 1020 | 1019 | 4019 | YoY | QoQ | |
|---|---|---|---|---|---|
| Residential | |||||
| Net Revenues [R\$ million] | 1,654 | 1,880 | 1,724 | $-12.0%$ | $-4.0%$ |
| Copper | 1.058 | 1.427 | 1.181 | $-25.8%$ | $-10.4%$ |
| Copper Voice | 651 | 899 | 732 | $-27.6%$ | $-11.1%$ |
| Copper Broadband | 408 | 529 | 449 | $-22.9%$ | $-9.3%$ |
| DTH TV | 402 | 429 | 419 | $-6.4%$ | $-4.1%$ |
| Fiber | 194 | 24 | 124 | 711.8% | 56.8% |
| Revenue Generating Units [RGU] - ['000] | 12,068 | 14,336 | 12,659 | $-15.8%$ | $-4.7%$ |
| Copper | 9,058 | 12.549 | 10.078 | $-27.8%$ | $-10.1%$ |
| Fixed Line in Service | 5,887 | 7,915 | 6.482 | $-25.6%$ | $-9.2%$ |
| Fixed Broadband | 3,171 | 4.634 | 3.596 | $-31.6%$ | $-11.8%$ |
| DTH TV | 1.306 | 1.557 | 1.393 | $-16.1%$ | $-6.2%$ |
| Fiber | 1,704 | 230 | 1,188 | 639.9% | 43.5% |
| Fixed Line in Service | 792 | 89 | 523 | 787.7% | 51.3% |
| Fixed Broadband | 845 | 125 | 606 | 577.8% | 39.4% |
| IPTV | 67 | 16 | 59 | 309.6% | 15.1% |
| FTTH - Homes Connected [HC's] | 889 | 134 | 632 | 565.0% | 40.6% |
Residential net revenues totaled R\$ 1,654 million in 1Q20 (-12.0% y.o.y. and -4.0% q.o.q.). The Company has proactively reduced incentives for copper services, contributing to this decline. In addition, there is a natural downward trend in demand for copper voice and broadband services. The Company's strategy is to focus efforts and investments on the implementation of the Fiber Expansion Plan, which continues to be the main driver of the structural reversal of the segment's revenue trajectory.
The Company continued to accelerate investments in fiber in order to deliver high-speed broadband to our customers' homes and provide a better experience, pursuing the strategy designed to increase profitability in the segment. The fiber (FTTH) expansion project continues to present consistent results. At the end of 1Q20, the Company reached 5.6 million homes passed (HP) and 944 thousand homes connected (HC), of which 889 thousand were in the Residential segment, exceeding the mark of 1 million connected homes in April 2020.
Oi closed 1Q20 with 12,068 thousand RGUs in the Residential segment (-15.8% y.o.y. and -4.7% q.o.q.). The change in the profile of involuntary disconnections, with a reduction in the disconnection threshold from 120 to 90 days overdue as of 4Q19, which mainly affected copper services, continued to accelerate this decline in 1Q20. Regarding Fiber RGUs, despite the smaller base, we observed an upward curve of connections, ending 1Q20 with significant growth of 43.5% in just one quarter.
Residential ARPU was R\$ 81.0 in 1Q20 (+4.5% y.o.y. and +1.8% q.o.q.). The annual and sequential growth was driven by an increase in Broadband and Pay-TV ARPU in the period, benefiting from the change in the profile of involuntary disconnections, in addition to growth in Oi Fibra's ARPU.
1Q20 Earnings Release Oi closed 1Q20 with 5,887 thousand fixed line customers in the Residential segment (-25.6% y.o.y. and -9.2% q.o.q.). In the fixed line business, we see a continued decline in demand for fixed line services, which are increasingly being replaced by mobile services, especially data services. As a result, copper fixed line ARPU, considering interconnection revenues, fell 5.1% year on year and remained in line with 4Q19.
The Company has been reducing its focus on copper, both in voice and broadband, and prioritizing investments in the fiber project, which has a greater potential of value creation. With this strategy, revenues from legacy products are under even greater pressure.
Oi ended 1Q20 with 3,171 thousand fixed copper broadband RGUs in the Residential segment (-31.6% y.o.y. and -11.8% q.o.q.).
Intense competition from regional players who offer broadband services in small towns, outside major urban centers, added to reduction in the disconnection threshold from 120 to 90 days overdue were the main factors responsible for the decline in the customer base of copper services.
Most of the Company's current broadband base is composed of copper accesses (VDSL and ADSL). As mentioned earlier, Oi has been reducing proactive sales of the copper portfolio and intensifying the expansion and sales efforts focused on FTTH, accelerating expansion and migration of customers to fiber, the main driver of the resumption of growth, based on Oi's infrastructure competitive advantage.
The Residential DTH TV base ended the quarter with 1,306 thousand RGUs (-16.1% y.o.y. and -6.2% q.o.q.).
Oi recorded pay-TV net disconnections of 251 thousand RGUs compared with 1Q19 and 87 thousand RGUs compared with 4Q19. Oi TV's penetration in households with an Oi fixed line reached 22.2% in 1Q20 (+2.5 p.p. y.o.y. and +0.7 p.p. q.o.q.). Pay-TV ARPU rose 9.3% over 1Q19 and 2.7% over 4Q19.
Pay-TV net revenues fell 6.4% from 1Q19 and 4.1% from 4Q19. This result reflected the Company's strategy of allocating more resources to accelerate investments in fiber, including the offering of IPTV services.
In 1Q20, the Company continued to invest in the expansion of fiber, closing the quarter with 5.6 million homes passed with fiber (HP). The Company added another 1 million HP to its base in 1Q20, a monthly average of over 340 thousand HP. Oi continues to pursue the goals in its 2019 strategic plan and intends to reach 16 million homes passed by the end of 2021.
Oi closed 1Q20 with around 944 thousand homes connected (HC) to fiber and a take-up rate of 16.8%. Oi Fibra was present in 112 municipalities at the end of 1Q20 and 116 municipalities at the end of April. In April 2020, we reached 5.99 million HP and surpassed the mark of 1 million HC, increasing the take-up rate to 17.4%. This process of exploring FTTH opportunities has proven to be effective. The Company once again recorded a positive result in 1Q20. FTTH net adds totaled 269 thousand customers, more than the other Brazilian players
and U.S. players who offered FTTH in the same period. In April, Oi acquired 97 thousand new FTTH customers, the highest number since the beginning of the Fiber project.
1Q20 Earnings Release The company follows the evolution of fiber deployment and has been improving its marketing and sales actions since the beginning of the project and the results can be seen based on the take up of installed cohorts. The first cohorts are from October 2018 and January 2019 and reached a take-up of 15% and 18%, respectively, in March 2020. The cohorts from April 2019 and July 2019 reached a take-up of 21.5% and 20.5 % at the end of the same period. The most current cohorts (October, November and December 2019) had an even better take-up and already reached 15% after 4 months of installation and 17% after 6 months. The 2020 vintages have an average take-up of more than 8% at the end of the first month and almost 13% after 3 months of installation. The monitoring of these indicators is crucial when evaluating investments in FTTH.
Thanks to the strategy of accelerating FTTH sales, Oi continued to sell IPTV and Voice services via fiber. Approximately 86% of our residential customers had two or more FTTH products (Broadband, TV and Voice) at the end of 1Q20, up from 68% at the end of 1Q19. In April 2020, this percentage reached 87%. Fiber ARPU was R\$ 84.5 in 1Q20, up 16.8% from R\$ 72.3 in 1Q19 and 2.7% from R\$ 82.3 in 4Q19. The strategy of selling bundles is still in progress and has shown satisfactory results.
Fiber revenues reached R\$ 205 million in 1Q20, of which R\$ 194 million from residential customers and R\$ 11 million from small enterprises (B2B). Oi recorded impressive annual growth of 700.8%, of which 711.8% referred to residential customers. Compared to 4Q19, Fiber revenues increased R\$ 73 million, or 55%, of which R\$ 70 million, or 57%, referred to residential customers. Fiber revenues have helped to partially offset the decline in copper revenues. During the first quarter 2020, fiber revenues accounted for 11.7% of total residential revenues, up from 1.3% in 1Q19.
In the 81 first cities in which the FTTH strategy was implemented and already show consistent results for comparison purposes, total broadband revenues (Fiber and copper) grew 12% year on year, while in the other cities, these revenues fell 14% in the annual comparison.
Despite the still substantially smaller base, the annual growth in fiber revenues in 1Q20 already offsets the decline in copper broadband and DTH TV revenues in the same period. Copper broadband revenues fell R\$ 121 million in the annual comparison and DTH TV revenues fell R\$ 27 million in the same period, while Fiber revenues increased R\$ 170 million in the same period.
It is worth mentioning that, since the beginning of the pandemic, with social isolation and the need for homeoffice, we have experienced a significant increase in demand for our broadband services, specifically, the services provided by our FTTH network, both from residential customers and B2B, by establishing remote work operations based on COVID-19.
The Company's strategic focus continues to be on leveraging its leadership in fiber and infrastructure, maximizing value across all business segments. Oi currently has over 388 thousand kilometers of fiber in the country.
1Q20 Earnings Release Table 4 – Net Revenues and RGUs of the Personal Mobility segment
| 1020 | 1019 | 4019 | YoY | QoQ | |
|---|---|---|---|---|---|
| Personal Mobility | |||||
| Net Revenues [R\$ million] | 1.702 | 1.745 | 1.777 | $-2.5%$ | $-4.2%$ |
| Service | 1.681 | 1,699 | 1.743 | $-1.0%$ | $-3.6%$ |
| Customer [1] | 1,623 | 1.624 | 1.678 | 0.0% | $-3.2%$ |
| Prepaid | 681 | 781 | 760 | $-12.8%$ | $-10.3%$ |
| Postpaid | 930 | 829 | 907 | 12.2% | 2.6% |
| Other | 12 | 14 | 11 | $-14.6%$ | 7.2% |
| Network Usage | 57 | 75 | 65 | $-23.3%$ | $-12.4%$ |
| Sales of handsets, SIM cards and others | 21 | 46 | 34 | $-54.1%$ | $-37.5%$ |
| Revenue Generating Units [RGU] - ['000] | 33.946 | 34,894 | 34,006 | $-2.7%$ | $-0.2%$ |
| Prepaid Plans | 24,163 | 26,780 | 24,479 | $-9.8%$ | $-1.3%$ |
| Postpaid Plans [2] | 9.784 | 8.114 | 9.527 | 20.6% | 2.7% |
(1) Excludes handset and network usage revenues.
(2) Includes postpaid plans, Oi Controle, bundled mobile services and 3G (mini-modem).
Personal Mobility net revenues totaled R\$ 1,702 million in 1Q20, 2.5% lower than in 1Q19. This reduction was driven by a more challenging scenario in the prepaid segment after the beginning of the quarantine, with the closure of stores and a decrease in recharge outlets, partially offset by growth in the postpaid customer base, driven by simpler and more assertive regional offers and migration of the prepaid customer base. Compared to 4Q19, Personal Mobility net revenues dropped 4.2%, reflecting lower interconnection tariffs, in addition to the reasons mentioned earlier.
As seen in previous quarters, following the downward market trend, our prepaid revenues declined, due to the slow economic recovery, high unemployment rates, lower interconnection tariffs and migration from voice to data. In 1Q20, we also noticed deterioration at the end of March caused by the COVID-19 pandemic and the beginning of social isolation, which culminated in the closure of stores and recharge outlets, as well as restricted people's movement. In addition, the Company has continued the migration of prepaid customers to more attractive postpaid offers, with higher ARPU, thus simultaneously increasing the postpaid customer base and reducing the number of prepaid users. As a result, the postpaid customer base grew 20.6% over 1Q19 and 2.7% over 4Q19.
The positive performance of postpaid products was due to the strategy of converting prepaid customers, combined with Oi's new offering portfolio, which is significantly simpler and more aligned with the market trend of migration from voice to data services. The launch of the new portfolio was supported by continued investments in 4G and 4.5G, which increased the network's traffic capacity, leading to improved usage performance and, consequently, a substantial improvement in the customer experience.
Customer revenues, which exclude interconnection and handset revenues, totaled R\$ 1,623 million in 1Q20, in line with 1Q19 and 3.2% lower than in 4Q19.
1Q20 Earnings Release Network usage revenues totaled R\$ 57 million in 1Q20 (-23.3% y.o.y. and -12.4% q.o.q.). The annual comparison was impacted by a decline in MTR tariffs. Handset revenues totaled R\$ 21 million, a decline of R\$ 25 million from 1Q19 and R\$ 13 million from 4Q19, impacted by store closures due to COVID-19.
Oi closed 1Q20 with 33,946 thousand RGUs in Personal Mobility, falling 2.7% from 1Q19, with 948 thousand net disconnections, resulting from 2,617 thousand disconnections in the prepaid segment, which were partially offset by 1,670 thousand additions in the postpaid segment. The number of additions was in line with 4Q19, with a decline of 1.3% in the prepaid segment and an increase of 2.7% in the postpaid segment.
Oi's total mobile customer base (Personal Mobility + B2B) stood at 36,665 thousand RGUs in 1Q20, of which 2,719 thousand in the B2B segment.
The prepaid customer base closed 1Q20 with 24,163 thousand RGUs, down 9.8% from 1Q19, mainly due to (i) the policy of disconnection of inactive customers; (ii) the migration of customers from the prepaid to the postpaid segment; (iii) the trend of consolidation of SIM cards in the market.
Recharge volume decreased 5.3% from 1Q19 and 7.7% from 4Q19. The number of customers making recharges fell 13.1% from 1Q19 and 9.3% from 4Q19, mainly due to (i) a decline in the prepaid market; (ii) high unemployment rates, which have a direct impact on prepaid revenues; and (iii) the closure of stores and other recharge outlets due to COVID-19.
This had a negative impact on revenues (including long distance revenues) of 12.8% compared to 1Q19 and 10.3% compared to the previous quarter. Prepaid ARPU dropped 2.9% from 1Q19 and 6.5% from 4Q19.
Oi closed the quarter with 9,784 thousand RGUs in the postpaid segment (+20.6% y.o.y. and +2.7% q.o.q.), due to more competitive offerings and the strategy of encouraging prepaid customers to migrate to postpaid plans. Gross adds grew 11.5% over 1Q19, but fell 12.7% from 4Q19, resulting in net adds of 1,670 thousand RGUs in 1Q20 compared to 1Q19. The segment accounted for 28.8% of the total Personal Mobility base.
The positive physical results were reflected in revenues (including long-distance revenues), which climbed 12.2% over 1Q19 and 2.6% over 4Q19. Regional offerings, simplification, innovation, more aggressive sales and the refarming of the 1.8 GHz frequency range for 4G and 4.5G were the main drivers enabling the positive results of the postpaid segment, in addition to the strategy of accelerating the migration of customers from the prepaid to the postpaid segment.
Oi's 2G coverage reached 3,498 municipalities (93% of the country's urban population) in 1Q20, while 3G coverage reached 1,650 municipalities, or 82% of the Brazilian urban population.
4G access reached 1,023 municipalities, or 75% of the Brazilian urban population. In addition, 4.5G coverage reached 54 municipalities, serving around 20% of the urban population.
Oi has been working in partnership with other operators to share the network in order to maximize investments and reduce costs, while working to consistently improve the quality of services and customer experience.
1Q20 Earnings Release Mobile ARPU stood at R\$ 16.2 in 1Q20 (+0.5% y.o.y. and -2.5% q.o.q.).
| 1020 | 1019 | 4019 | YoY | QoQ | |
|---|---|---|---|---|---|
| B2B | |||||
| Net Revenues [R\$ million] | 1.317 | 1.418 | 1.333 | $-7.1%$ | $-1.2%$ |
| Corporate | 777 | 862 | 812 | $-9.9%$ | $-4.4%$ |
| IT | 138 | 100 | 126 | 38.0% | 9.6% |
| Data | 349 | 410 | 366 | $-14.8%$ | $-4.5%$ |
| Other | 289 | 352 | 320 | $-17.8%$ | $-9.7%$ |
| Wholesale | 274 | 256 | 246 | 6.9% | 11.1% |
| Small Enterprises | 267 | 300 | 275 | $-11.2%$ | $-2.8%$ |
| Fiber | 11 | 1 | 8 | 648.1% | 30.8% |
| Other | 256 | 299 | 266 | $-14.4%$ | $-3.9%$ |
| Revenue Generating Units [RGU] - ['000] | 6,481 | 6,774 | 6,591 | $-4.3%$ | $-1.7%$ |
| Corporate | 4.439 | 4,523 | 4,506 | $-1.8%$ | $-1.5%$ |
| Wholesale | 284 | 291 | 291 | $-2.3%$ | $-2.4%$ |
| Small Enterprises | 1,758 | 1,960 | 1,794 | $-10.3%$ | $-2.0%$ |
| Fiber | 92 | 15 | 69 | 511.0% | 33.1% |
| Other | 1,666 | 1.945 | 1.725 | $-14.4%$ | $-3.4%$ |
Net revenues from the B2B segment totaled R\$ 1,317 million in 1Q20 (-7.1% y.o.y. and -1.2% q.o.q.). The segment was affected by a decline in Corporate legacy services mainly due to a reduction in voice traffic, intensified with the containment and Home Office policy, implemented by companies to contain COVID-19, and the cuts in the regulated fixed-to-mobile (VC) and interconnection (MTR) tariffs. In addition, revenues from the Small Enterprises segment also decreased in the quarter mainly due to the high exposure to copper service revenues. . There was, however, an increase in Wholesale net revenues (+6.9% y.o.y. and +11.1% q.o.q.) and growth in IT revenues (+38.0% y.o.y. and +9.6% q.o.q.), partially offsetting the drop in revenues in the quarter, but highlighting the focus of the sustainable growth strategy of the B2B segment.
The Company closed 1Q20 with 6,481 thousand RGUs in the segment (-4.3% y.o.y. and -1.7% q.o.q.).
With the launch of the new brand "Oi Soluções" for the Corporate segment in December 2019, Oi intends to integrate and provide digital solutions for Telecommunications and IT (Information Technology) with a customized and consulting positioning. The Company offers a comprehensive portfolio of ICT (Information and Communication Technology) solutions, impacting customers throughout the value chain in the areas of Cloud
1Q20 Earnings Release & Data Center, IoT (Internet of Things), Big Data & Analytics, Cybersecurity, Data and Voice Connectivity, and Management, in order to help generate new revenues and reduce expenses. The Company currently has 57 thousand customers in the public and private sectors, served by more than 1.5 thousand executives.
In the portfolio that already had the services of Oi WIFI 3.0+, Oi GIS (Integrated Services Management), Telepresenças Oi and Marketing Analytics Oi, Oi Gestão 360º was added in this first quarter (allows the operator to manage connectivity, IT, security and business for the client), Smart Cloud 4.0 (Infrastructure as a Service (IaaS), in hybrid cloud format, enabling the development of an edge architecture, focusing on IoT and video solutions), and Oi Smart Office 4.0 (solution for companies working in the home office system, composed of collaboration, connectivity and cloud computing platforms).
Net revenues from the Corporate segment totaled R\$ 777 million in 1Q20 (-9.9% y.o.y. and -4.4% q.o.q.), with a decline in the Data and Other lines, which represent the legacy services offered by the Company. Thanks to its focus on IT services, the Company recorded an increase in IT revenues of 38% over 1Q19 and 9.6% over 4Q19. The segment recorded a decline in RGUs, with a customer base reduction of 1.8% compared to 1Q19 and 1.5% compared to 4Q19.
The Company aims to be the main national provider of transmission and transportation network and facilitator of the 5G infrastructure in this segment in Brazil. This will enable a revenue mix focused on non-regulated revenues, in areas such as IP connections, Fiber To The City (FTTC), Fiber To The ISP (FTTISP) and Fiber To The Tower (FTTT), that rely on Oi's extensive and non-replicable infrastructure, enabling the provision of superior quality services to telecommunications providers, internet providers and infrastructure companies involved in the supply chain of these services.
In 1Q20, Oi signed a memorandum of understanding for the joint operation of Mob Telecom's fiber broadband projects. This pilot project was launched under the franchise model, which can be expanded, with the goal of increasing non-regulated revenues and reducing opex and capex.
Wholesale net revenues totaled R\$ 274 million in 1Q20 (+6.9% y.o.y. and +11.1% q.o.q.). Non-regulated revenues dropped 3.1%, or R\$ 5 million, from 4Q19, offset by an increase of 40.8%, or R\$ 63 million, in regulated revenues over 4Q19. Part of this variation (R\$ 43 million) was due to the recognition of credits from a RAN Sharing agreement entered into with TIM in 2018.
For the Small Enterprises segment, the Company has been adopting the same strategy used in the B2C segment, given their market similarities. Oi continues to market regional offerings and intensify its commercial actions together with the "Network Reuse" approach for FTTH. The decline in net revenues (-11.2% y.o.y. and - 2.8% q.o.q.), together with the 10.3% reduction in RGUs in the Group's annual comparison are related to high exposure to copper revenues in this segment.
1Q20 Earnings Release Table 6 – Breakdown of Routine Operating Costs and Expenses
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| Routine Operating Costs and Expenses | |||||
| Brazil | 3.218 | 3.470 | 3.410 | $-7.3%$ | $-5.6%$ |
| Personnel | 597 | 594 | 699 | 0.5% | $-14.6%$ |
| Interconnection | 111 | 136 | 135 | $-18.3%$ | $-18.1%$ |
| Third-Party Services | 1.414 | 1.487 | 1,480 | $-4.9%$ | $-4.5%$ |
| Network Maintenance Service | 234 | 275 | 232 | $-14.7%$ | 1.2% |
| Handset Costs/Other [COGS] | 21 | 48 | 34 | $-56.7%$ | $-40.2%$ |
| Marketing | 70 | 71 | 162 | $-1.3%$ | $-56.6%$ |
| Rent and Insurance | 581 | 661 | 562 | $-12.1%$ | 3.3% |
| Provision for Contingencies | 25 | 59 | 30 | $-58.3%$ | $-18.4%$ |
| Provision for Bad Debt | 139 | 137 | 61 | 1.1% | 126.9% |
| Taxes and Other Expenses [Revenues] | 27 | 3 | 13 | 882.6% | 110.9% |
| International Operations | $-3$ | 32 | 89 | $-107.9%$ | $-102.9%$ |
| Routine OPEX | 3,216 | 3.503 | 3.499 | $-8.2%$ | $-8.1%$ |
Consolidated routine opex, including international operations, totaled R\$ 3,216 million in 1Q20 (-8.2% y.o.y. and -8.1% q.o.q.).
Routine opex from Brazilian operations amounted to R\$ 3,218 million in 1Q20 (-7.3% y.o.y. and -5.6% q.o.q.). Considering inflation (IPCA) of 3.30% in the last 12 months, this result corresponded to a year-on-year decrease of 10.22% in real terms.
As part of its strategic plan, the Company has been working on five macro fronts to reduce costs and simplify operations: (i) Sales, Marketing and Service; (ii) Processes and Organization; (iii) Business Support; (iv) IT; and (v) Network and Field Operations. The actions resulting from the work on these fronts started to be implemented in 2019, and the financial impacts should be more relevant throughout 2020.
Personnel expenses totaled R\$ 597 million in 1Q20, in line with 1Q19 (+0.5%) and 14.6% lower than in 4Q19. The sequential decline was mainly due to the recognition of provisions for variable compensation in 4Q19.
Interconnection costs in Brazilian operations amounted to R\$ 111 million in 1Q20 (-18.3% y.o.y. and -18.1% q.o.q.), mainly due to a reduction in regulated tariffs.
1Q20 Earnings Release Costs and expenses related to third-party services in Brazilian operations totaled R\$ 1,414 million in 1Q20 (-4.9% y.o.y. and -4.5% q.o.q.). Content Acquisition, Customer Relations, Billing, Sales, Electricity and General Expenses are recorded in this line. This result reflects company actions as acceleration of digital sales channels, automation and optimization of Customer Service and Call Center operations and expenses reduction from IT projects focused on legacy products.
Network maintenance service costs and expenses in Brazilian operations totaled R\$ 234 million in 1Q20, in line with 4Q19 and 14.7% lower than in 1Q19. This reduction occurred, mainly as a result of the expansion of the Fiber project and the migration of customers from Cooper to FTTH, reducing the cost of maintaining legacy networks, and lower expenses with TUP, as a result of the approval of the PGMU.
Handset costs in Brazilian operations amounted to R\$ 21 million in 1Q20 (-56.7% y.o.y. and -40.2% q.o.q.), mainly due to a reduction in the number of handsets sold.
Marketing expenses reached R\$ 70 million in 1Q20, virtually in line with 1Q19 and 56.6% lower than in 4Q19. The quarter-on-quarter decline reflected seasonal effects, mainly due to the Black Friday and Christmas campaigns in the previous quarter.
Rent and insurance expenses in Brazilian operations totaled R\$ 581 million in 1Q20, down 12.1% from 1Q19, mainly due to lower costs as a result of renegotiations with concessionaires and suppliers throughout 2019. In the sequential comparison, rent and insurance expenses increased 3.3%, due to higher tower, equipment and pole rental costs, partially offset by lower property and satellite rental costs.
The provision for contingencies in Brazilian operations totaled R\$ 25 million in 1Q20, a reduction of 58.3%, or R\$ 35 million, compared to 1Q19 and 18.4%, or R\$ 6 million, compared to 4Q19, mainly due to a decline in the number of new legal proceedings, especially in the labor, civil consumer and civil strategic spheres.
The provision for bad debt totaled R\$ 139 million in 1Q20, in line with 1Q19 and 126.9% higher than in 4Q19, mainly due to the credits recovery of governments in the corporate segment in 4Q19.
1Q20 Earnings Release Table 7 – EBITDA and EBITDA margin
| 1020 | 1019 | 4019 | YoY | QoQ | |
|---|---|---|---|---|---|
| 0i S.A. | |||||
| Routine EBITDA [R\$ million] | 1.533 | 1.627 | 1.414 | $-5.8%$ | 8.4% |
| Brazil | 1,481 | 1,616 | 1,452 | $-8.3%$ | 2.0% |
| International Operations | 52 | 12 | -38 | $-336.1%$ | 235.4% |
| Routine EBITDA Margin [%] | 32.3% | 31.7% | 28.8% | 0.6 p.p. | 3.5 p.p. |
| Brazil | 31.5% | 31.8% | 29.9% | $-0.2 p.p.$ | 1.6 p.p. |
| International Operations | 105.2% | 26.8% | $-74.2%$ | 78.4 p.p. | 179.4 p.p. |
| Non-routine Items [R\$ million] | 367 | 987 | $-117$ | n.m. | n.m. |
| EBITDA [R\$ million] | 1.899 | 2.615 | 1.298 | $-27.4%$ | 46.4% |
| Brazil | 1,566 | 2,603 | 1.336 | $-39.8%$ | 17.2% |
| International Operations | 333 | 12 | $-38$ | 2720.8% | $-975.7%$ |
| EBITDA Margin [%] | 40.0% | 51.0% | 26.4% | $-11.0 p.p.$ | 13.6 p.p. |
Consolidated routine EBITDA totaled R\$ 1,533 million in 1Q20 (-5.8% y.o.y. and +8.4% q.o.q.).
Routine EBITDA from Brazilian operations totaled R\$ 1,481 million in 1Q20 (-8.3% y.o.y. and + 2.0% q.o.q.). The routine EBITDA margin from Brazilian operations was 31.5%, in line with 1Q19 and 1.6 p.p. higher than in 4Q19.
Routine EBITDA from international operations (Africa and East Timor) came to R\$ 52 million in 1Q20, versus R\$ 12 million in 1Q19 and -R\$ 38 million in 4Q19.
Non-routine items totaled R\$ 367 million in 1Q20 and refer to (i) an R\$ 85 million gain from the sale of real estate properties and (ii) a R\$ 282 million gain from the sale of PT Ventures, in international operations.
It should be noted that routine EBITDA considers the effects of adopting IFRS 16. For comparison purposes, routine EBITDA from Brazilian operations, disregarding the impacts of IFRS 16 in 1Q20 would be R\$ 1,046 million.
| Table 8 – Capex | 1Q20 Earnings Release |
|---|---|
| ----------------- | ----------------------- |
| 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|
| 1,781 | 1,718 | 1,979 | 3.7% | $-10.0%$ |
| 1,073 | 575 | 883 | 86.7% | 21.5% |
| 276 | 513 | 441 | $-46.3%$ | $-37.5%$ |
| 18 | 92 | 60 | $-80.2%$ | $-69.5%$ |
| 261 | 328 | 368 | $-20.3%$ | $-29.0%$ |
| 153 | 210 | 227 | $-27.2%$ | $-32.7%$ |
| 13 | 7 | 12 | 77.2% | 6.2% |
| 1,794 | 1,725 | 1,991 | 4.0% | $-9.9%$ |
(1) Includes Fiber + Wholesale.
The Company's consolidated capex, including international operations, totaled R\$ 1,794 million in 1Q20 (+4.0% y.o.y. and -9.9% q.o.q.). Capex in Brazilian operations amounted to R\$ 1,781 million in 1Q20 (+3.7% y.o.y. and -10.0% q.o.q.).
The breakdown of investments by product shows that Oi has been allocating most of its funds to compliance with its Strategic Plan, focusing on the expansion of FTTH, bringing high-speed broadband to the customers' homes.
1Q20 Earnings Release Table 9 - Operational Cash Flow
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| 0i S.A. | |||||
| Routine EBITDA | 1,533 | 1.627 | 1.414 | $-5.8%$ | 8.4% |
| Capex | 1,794 | 1.725 | 1.991 | 4.0% | $-9.9%$ |
| Routine Operational Cash Flow [EBITDA - Capex) |
$-261$ | $-98$ | $-577$ | 167.4% | $-54.7%$ |
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| 0i S.A. | |||||
| Routine EBITDA | 1,481 | 1.616 | 1,452 | $-8.3%$ | 2.0% |
| Capex | 1,781 | 1,718 | 1,979 | 3.7% | $-10.0%$ |
| Routine Operational Cash Flow [EBITDA - Capex) |
$-299$ | $-102$ | $-526$ | 193.6% | $-43.1%$ |
Consolidated routine operational cash flow (routine EBITDA minus capex) was negative by R\$ 261 million in 1Q20, while routine operational cash flow in Brazilian operations was negative by R\$ 299 million, mainly due to the continued acceleration of investments and lower revenues, which impacted EBITDA, as mentioned in the Revenues and Capex sections.
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| Depreciation and Amortization | |||||
| Total | 1,711 | 1.690 | 1.703 | 1.3M | 0.5% |
Depreciation and amortization expenses totaled R\$ 1,711 million in 1Q20, 1.3% higher than in 1Q19 and in line with 4Q19.
Table 12 – Financial Result (Oi S.A. Consolidated)
| R\$ million | 1020 | 1019 | 4019 |
|---|---|---|---|
| Oi S.A. Consolidated | |||
| Net Interest (on fin. investments and loans and financing) | $-492$ | $-300$ | $-363$ |
| Amortization of fair value adjustment | $-578$ | $-215$ | $-197$ |
| Net FX Result (on fin. investments and loans and financing) | $-2.657$ | -96 | 259 |
| Other Financial Income / Expenses | $-2.749$ | 410 | $-1,857$ |
| Net Financial Income [Expenses] | $-6.476$ | $-202$ | $-2,158$ |
Oi S.A. recorded a consolidated net financial expense of R\$ 6,476 million in 1Q20, versus an expense of R\$ 2,158 million in 4Q19 and an expense of R\$ 202 million in 1Q19.
In 1Q20, the increase in financial expenses was mainly due to the negative impact of the sharp depreciation of the real in 1Q20, reflecting the effects of the advance of COVID-19, which achieved a global reach in the period. The "Net FX Result" line was a financial expense in the quarter, due to the sharp 29.0% depreciation of the real against the U.S. dollar in 1Q20, versus a 3.2% appreciation in the previous quarter.
The item "Other Financial Income/Expenses" also showed an increase in expenses, mainly due to the exchange rate variation on onerous liabilities (contracts for data transmission by submarine cables and satellites), in the total amount of R\$ 1.7 billion in 1Q20. These higher expenses, in this line, were partially offset by lower monetary restatements on contingencies, compared to the previous quarter.
The "Net Interest" line increased due to interest on the new debentures issued in January this year, partially offset by lower interest on debts indexed to the CDI rate and TJLP long-term interest rate in the period. Finally, the "Amortization of Fair Value Adjustment" line was also impacted by the depreciation of the real against the U.S. dollar in the quarter.
The annual comparison, in turn, shows a consolidated net financial expense of R\$ 202 million in 1Q19, explained by a very stable behavior of the Brazilian currency against the U.S. dollar. In 1Q19, the real depreciated only 0.6% against the U.S. dollar, with little impact on the portion of debt linked to foreign currency in the "Net FX Result" line. The 1Q19 favorable results benefitted from the "Other Financial Expenses/Income" line, which recorded income of R\$ 410 million in the period, mainly due to the monetary restatement of PIS/COFINS credits on ICMS in the amount of R\$ 1,025 million.
1Q20 Earnings Release Table 13 – Net Earnings (Loss) (Oi S.A. Consolidated)
| R\$ million | 1020 | 1019 | 4019 | YoY | QoQ |
|---|---|---|---|---|---|
| Net Earnings [Loss] | |||||
| Earnings before interest and taxes [EBIT] | 188 | 925 | $-405$ | n.m. | n.m. |
| Financial Results | $-6.476$ | $-202$ | $-2.158$ | n.m. | 200.0% |
| Income Tax and Social Contribution | 34 | $-44$ | 282 | n.m. | n.m. |
| Net Income [Loss] from Continuing Operations | $-6.254$ | 679 | $-2.281$ | $-1021.4%$ | 174.2% |
| Consolidated Net Income [Loss] | $-6.254$ | 679 | $-2.281$ | $-1021.4%$ | 174.2% |
| attributable to owners of the Company | $-6.280$ | 568 | $-2.263$ | $-1204.9%$ | 177.5% |
| attributable to non-controlling interests | 26 | 110 | $-18$ | n.m. | $-244.2%$ |
The Company's operating earnings (loss) before the financial result and taxes (EBIT) came to earnings of R\$ 188 million, versus earnings of R\$ 925 million in 1Q19 and a loss of R\$ 405 million in 4Q19. Oi recorded a net financial loss of R\$ 6,476 million, strongly affected by the impacts of the FX variation, as mentioned in the Financial Results section. The Company also recorded a positive result of R\$ 34 million in the "Income Tax and Social Contribution" line, giving a consolidated net loss of R\$ 6,254 million.
| R\$ Million | Mar/20 | Mar/19 | Dec/19 | % Gross Debt |
|---|---|---|---|---|
| Debt | ||||
| Short Term | 179 | 118 | 326 | 0.7% |
| Long Term | 24,262 | 16.256 | 17,900 | 99.3% |
| Total Debt | 24.441 | 16,373 | 18.227 | 100.0% |
| Local Currency Exposure | 8,905 | 7.894 | 8.705 | 36.4% |
| Foreign Currency Exposure | 15,536 | 8,491 | 9.521 | 63.6% |
| Swaps | $\bf{0}$ | $-12$ | 0 | 0.0% |
| [-] Cash | $-6.310$ | $-6.267$ | $-2.300$ | $-25.8%$ |
| $\left[-\right]$ Net Debt | 18,131 | 10.107 | 15,927 | 74.2% |
Oi S.A. ended 1Q20 with consolidated gross debt of R\$ 24,441 million, R\$ 6,214 million, or 34.1%, more than in 4Q19 and R\$ 8,068 million, or 49.3%, more than in 1Q19. The increase in both the annual and sequential comparisons was mainly due to the sharp depreciation of the real against the U.S. dollar in both periods (- 29.0% and -33.4%, respectively), as a result of the strong market deterioration caused by the new coronavirus pandemic, which achieved a global reach in the period. Added to this are the usual effects of interest accrual and the amortization of the present value adjustment, which contributed to increasing debt with every passing quarter. Finally, the issuance of private debentures totaling approximately R\$ 2,500 million contributed to increasing debt, as provided for in the Judicial Reorganization Plan.
At the end of 1Q20, the portion of debt exposed in foreign currency represented 63.6% of fair value debt. The consolidated average term of debt remained at around 10 years in 1Q20.
The Company closed 1Q20 with a consolidated cash position of R\$ 6,310 million, an increase of 174.4% over December 2019 and 0.7% over March 2019. As a result, net debt totaled R\$ 18,131 million in 1Q20, 13.8% higher than in 4Q19, mainly due to higher gross debt in the period. The increase in cash occurred mainly due to the receipt of the first installments of the sale of PT Ventures totaling US\$ 1 billion, of which US\$ 841 million had already been received by the end of the quarter, also in accordance with the Company's Strategic Plan. Such receipt, together with the proceeds of the debentures, contributed to strengthening the cash position, an essential step to enable the high level of investments set forth in the Strategic Plan.
| 4019 Cash Position | 2.300 |
|---|---|
| Routine EBITDA | 1.481 |
| IFRS16 | -435 |
| Capex | $-1.781$ |
| Working capital | $-563$ |
| Judicial Deposits + Taxes | 214 |
| Financial operations | 2.509 |
| Payments to Creditors JR | $-807$ |
| Non Core | 3.393 |
| 1020 Cash Position | 6,310 |
The Company closed 1Q20 with a cash position of R\$ 6,310 million, increasing R\$ 4,010 million in the quarter, mainly due to (i) an inflow of R\$ 3.3 billion equivalent to part of the proceeds from the sale of the interest in Unitel and (ii) net proceeds of R\$ 2.5 billion from a private debenture issue. In addition, the sale of the Botafogo property, totaling R\$ 121 million, was completed, continuing the project to sell non-core assets, in line with the Company's Judicial Reorganization Plan and the Strategic Plan.
In 1Q20, working capital was negatively impacted by capex payments, which have been increasing, due to the fiber expansion plan.
Under the "Payment to Creditors - JR" line, Oi paid R\$ 350 million in interest on the Bond and R\$ 457 million to partner suppliers, as set forth in the Judicial Reorganization Plan.
| RS MILLION | |||
|---|---|---|---|
| Gross Debt Breakdown - 1020 | Face Value | Fair Value Adjustment |
Fair Value |
| BNDES | 4.024 | 4.024 | |
| Local Banks | 9.254 | [4, 373] | 4,881 |
| ECAs | 8.714 | [5, 248] | 3,466 |
| Qualified Bonds | 8.751 | [928] | 7.823 |
| Facility "Non Qualified" | 473 | [163] | 310 |
| General Offering | 5,605 | [4,906] | 698 |
| Private Debenture [Bridge Loan] | 3.276 | 3.276 | |
| Other | [37] | [37] | |
| Total Gross Debt | 40,059 | [15, 618] | 24,441 |
| 1Q20 Earnings Release | ||
|---|---|---|
| 1Q20 Earnings Release | ||
|---|---|---|
| TOTAL LIABILITIES | 73,947 | 71.892 | 77.790 | |
|---|---|---|---|---|
| Current | 11.523 | 11.836 | 12,012 | |
| Suppliers | 4.952 | 5.594 | 5.640 | |
| Leases | 1.612 | 1.510 | 1.422 | |
| Loans and Financing | 179 | 326 | 129 | |
| Financial Instruments | $\mathbf{0}$ | 0 | ||
| Payroll and Related Accruals | 815 | 853 | 910 | |
| Provisions | 529 | 548 | 534 | |
| Pavable Taxes | 65 | 67 | 51 | |
| Other Taxes | 1.434 | 887 | 1.363 | |
| Dividends Payable | 6 | 6 | 6 | |
| Liabilities associated to held-for-sale assets | 162 | 494 | 472 | |
| Authorizations and Concessions Payable | 80 | 59 | 120 | |
| Other Accounts Payable | 1,689 | 1,492 | 1.365 | |
| Non-Current Liabilities | 50.826 | 42.259 | 38,347 | |
| Suppliers | 3.167 | 3.293 | 3.238 | |
| Leases | 7,189 | 6.640 | 6,675 | |
| Loans and Financing | 24.262 | 17,900 | 16,256 | |
| Other Taxes | 1.221 | 1.224 | 634 | |
| Contingency Provisions | 4,870 | 4.704 | 4.081 | |
| Pension Fund Provision | 652 | 633 | 593 | |
| Other Accounts Payable | 9,466 | 7.865 | 6,871 | |
| Shareholders' Equity | 11,598 | 17.797 | 27,430 |
The main tables in this Earnings Release will be available in Excel format in the "Financial Information/Quarterly Reports" section of the Company's website (http://www.oi.com.br/ri).
Definitions of the terms used in this Earnings Release are available in the Glossary section of the Company's website: https://www.oi.com.br/ri/conteudo\_en.asp?idioma=1&conta=44&tipo=44334
1Q20 Earnings Release CVM INSTRUCTION 358, ART. 12: Direct or indirect controlling shareholders and shareholders who elect members of the Board of Directors or the Fiscal Council, and any other individual or legal entity, or group of persons, acting as a group or representing the same interests, that attains a direct or indirect interest representing five percent (5%) or more of a type or class of shares of the capital of a publicly held company must notify the Brazilian Securities and Exchange Commission (CVM) and the Company of the fact, in accordance with the above article.
Oi recommends that its shareholders comply with the terms of article 12 of CVM Instruction 358, but it takes no responsibility for the disclosure or otherwise of acquisitions or disposals by third parties of interests corresponding to 5% or more of any type or class of its shares, or of rights over those shares or other securities that it has issued.
| Capital | Treasury | Free-Float 1 | |
|---|---|---|---|
| Common | 5.796.477.760 | 30.595 | 5.796.444.654 |
| Preferred | 157.727.241 | 1,811,755 | 155,915,481 |
| Total | 5,954,205,001 | 1.842.350 | 5,952,360,135 |
Shareholding position as of 3/31/2020
(1) Outstanding shares do not consider shares held in treasury or shares held by members of the Board of Directors and the Executive Board.
Rio de Janeiro, June 15, 2020. This report includes consolidated financial and operating data for Oi S.A. - Under Judicial Reorganization ("Oi S.A." or "Oi" or "Company") and its direct and indirect subsidiaries as of March 31, 2020. In compliance with CVM instructions, the data are presented in accordance with International Financial Reporting Standards (IFRS). Due to the seasonality of the telecom sector in its quarterly results, the Company will focus on comparing its financial results with the same period of the previous year.
This report contains projections and/or estimates of future events. The projections contained herein were compiled with due care, taking into account the current situation, based on work in progress and the corresponding estimates. The use of terms such as "projects", "estimates", "anticipates", "expects", "plans", "hopes" and so on is intended to indicate possible trends and forward-looking statements which, clearly, involve uncertainty and risk, so that future results may differ from current expectations. 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 that differ from current expectations. Excessive reliance should not be placed on these statements.
Forward-looking statements relate only to the date on which they are made, and the Company is not obliged to update them as new information or future developments arise. Oi takes no responsibility for transactions carried out or investment decisions taken on the basis of these projections or estimates. The financial information contained herein is unaudited and may therefore differ from the final results.
Marcelo Ferreira +55 (21) 3131-1314 [email protected] Bruno Nader +55 (21) 3131-1629 [email protected]
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