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Oi S A : Audio Transcript 3Q21

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Videoconference Transcript

Results 3Q21 OI (OIBR3 e OIBR4 BZ)

11/11/2021 at 12h

Marcelo Ferreira, OI: Good afternoon, ladies and gentlemen, and thanks for waiting. Be welcome to Oi’s videoconference, to discuss 2021 third quarter results. The event will take place in English, with simultaneous translation into Portuguese. Please be informed that this video conference is being recorded and it will be available later the company’s IR website. During the company’s presentation all participants will be with their microphones disabled. To get in line, in order to ask questions, please click on the Q&A icon at the bottom of your screen and write your name and Company. After the presentation, we will begin the Q&A section. So now I would like to pass the floor to Mr. Rodrigo Abreu, Oi’s CEO. Please Rodrigo, you can proceed.

Rodrigo Abreu, CEO: Thank you, Marcelo, and good morning, everybody. Welcome to our call or good afternoon, depending on where you are, and this call comes is one of the first calls after we have shifted our focus primarily from doing extraordinary operations to focus on the execution of the several pillars of the plan we announced by the middle of the year. In particular, with a focus in addition to completing the M&A operations, which will soon be behind us in maintaining our fiber performance and then streamlining the new Oi to a new cost structure. We believe that quarter after quarter from now on, it will be possible to see the operating results of our strategy in the metrics that we share, as well as will start to recognize the mid to long-term potential results on our financial plan, as we make it happen and we know that we need to bring the consistency, so, all of you can understand what’s going on and what is the future potential of the company.

So, let’s start by taking a look at the key figures for Q3, starting with page 2. So, if we can move on to page 2, we see that again, we believe operational execution is on track. Fiber continues to keep a strong base, residential has confirmed a very solid turnaround. And we also had declining costs and margin expansion. So, on the first figure there, you can see that it has been approximately two years since we started the fiber project, and the fiber results continue to deliver quarter after quarter. We have a lead HP addition, homes past additions on the last ten quarters in Brazil, and today we have reached the 14 million homes past literally today we have reached 14 million homes past, but we close Q3 with

13.5 billion homes past, 1.4 million, new homes past. And we also have been leading the net additions for homes connected in seven, out of the last eight quarters and we closed last quarter with 3.2 million homes connected at the clip of over three hundred and twenty homes connected in the third quarter. This is an average take up of 24%, so significant performance that continues unabated since the beginning of the project, and due to this we can see that residential revenues continue going to growth trend, and it confirms that fiber has now left copper behind, and we can present a 2.4% year-over-year, increase in residential revenues, including both copper broadband and copper voice compared to fiber. So, two of them going down, one going up, and this has helped us to post positive

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Videoconference Transcript

Results 3Q21 OI (OIBR3 e OIBR4 BZ)

11/11/2021 at 12h

results on a year-over-year basis. And if we look at the segment that we expected to catch up, which was the small and medium Enterprise segment, revenues have been going up as well on this segment for fiber 6.5% up on a year. Over a year’s time. So very good except from where we were, it had been presenting positive results, but now we confirm that the positive review will stay. On the financial side, the positive highlight here is that EBITDA has again turned positive, both on a quarter over quarter as well as on a year- over-year metric. And if we look at the cash levels, obviously we continue to manage cash very carefully. We know that there are several components to the cash equation here, including significant consumption to maintain our expansion, but also some cash in some for all the funding activity that we had in anticipation of the transition that we’re going to have with the closing over to most important transactions. And if we look at EBITDA, the other positive highlight is that in addition to having some EBITDA growth, both a quarter over quarter and year over year, we also had some margin expansion. For the plan, Milestone, so, finally, we had some very important milestones regarding the regulatory and competitive approvals of the Company’s largest operations. And those were the approval of the partial sale of Infraco by CADE. So, CADE has completely approved this operation now, and we’re waiting for the ANATEL approval. We also had the ANATEL technical report recommending the approval of the mobile UPI, as well as a CADE is generally superintendency, which is a kin to the technical group at CADE recommending approval of the mobile UPI as well. And both approvals are now going to the respective boards. So now, turning to page three, let’s start as usual by looking at the fiber performance in a little bit more detail. On fiber, despite coming from a very strong performance that we maintain the trends and now we can see it solid on the plan metrics and not probably the largest highlight here is that the annualized revenue is already above BRL 3 billion, BRL 3.2 billion to be more precise. We see that the homes passed (HP) continues to accelerate. We are now, as I mentioned above, 14 million HP as of today. And the HP per month has maintained pretty much the same level almost 500,000 homes passed for a month as we had in the last quarter. If you look at the homes connected, we continue to be the leaders in homes connected for early on track to be at the 3.5 million homes connected mark by year-end and are keeping our long-term targets unabated. We’re looking at 2024 targets as we have mentioned already a few times above 8 million homes connected. So, maintaining a significant CAGR since the beginning of the project, the CAGR has been very, very consistent. Obviously now, we’re still showing very large CAGR numbers from last year above 100%, but we expect to maintain and above 30% CAGR until 2024. And this is happening with ARPU growing again. Upselling continues to play a role in boosting ARPU, and the 3Q over 10% of a fiber customer base. I had speeds above 400 megabits per second and we said in the past that this will be a key factor in moving ARPU up, it would be selling more for more and obviously this is

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Videoconference Transcript

Results 3Q21 OI (OIBR3 e OIBR4 BZ)

11/11/2021 at 12h

happening and now 19% of our net additions are already above the 400 megabits per second. This is 3% p.p. over the last quarter so priests had significant performance over there. And when we look at the revenues again, we can see that it was a 100% increase from last year, but the good news here is also that it grew both on residential as well as on the B2B side. So, as we speak about residential, let’s move to the next page where we can see that fiber has now left copper behind for good. The solid residential turnaround in page four, as you can see, is confirmed, and when we look at both the number of RGUs

  • the Revenue Generating Units -, as well as the revenue numbers, the revenue growth numbers we see that fiber is now the dominant force for us in residential on the RGUs Fiber already represent almost 60% of the mix compared to 30% of the mix last year. So, it’s just phenomenal growth here, and on the residential revenue the same happened here and now we move the fiber to be already significantly above the copper revenues, as we have mentioned in the last quarter. Last quarter was the quarter where the transition happened where the crossover between the two curves happened and not only it happened, but it continued to accelerate, and we see that this is a long-term trend now. With that We see that the fiber now represents almost 60% in one year, even with a 36% decline in copper revenues again. We knew that this was expected, we knew that we had to plan around the erosion of the legacy customer base and legacy revenues this is as I mentioned, many times a structural segment issue. It’s not a performance issue, it’s just structurally, people are moving away from fixed voice and legacy broadband. And obviously, we had to do something to replace that, and fiber is the answer. With that we are maintaining, then a very positive growth trend, as you can see here, in the left-hand side at the bottom of the left-hand side and the residential revolution, which has been coming consistently from negative double-digit territory then stabilizing, and then now presenting positive growth which we expect will be maintained. And when we talk about the decline of legacy revenues, we know that this impacts not only the residential segment, but also B2B as we can see in the next page. But in B2B, we know that we have been compensating this partially by fiber but also partially by the growth in the ICT components. And on the ICT components, we know that this is part of our long-term strategy, we need the ICT components to make up for the declining legacy, both voice and data revenue in point-to-point solutions. Those will be migrating to fiber and not cheap solutions as well, but while this happens, we have to sustain the revenue and ICT is helping us do just that. Obviously, this represents a small sequential drop, but In reality, this is happening on the verge of ICT revenue growing and data and Legacy Revenues going down. We still maintain our long-term guidance of having Oi Soluções Revenue stable with the around 2.6 billion, and all we know that in order to do that, Oi Soluções has been winning and deploying very significant complete ICT projects, including both IT solutions as well as communication solutions, which can illustrate the strategy becoming

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Videoconference Transcript

Results 3Q21 OI (OIBR3 e OIBR4 BZ)

11/11/2021 at 12h

a full solutions provider. And here we present some examples of significant recent projects. We have mentioned one about the video police contract with the government of Bahia. We have implemented digital Palace for the São Paulo government, including IOT security video, monitoring energy efficiency, and automation solutions. We have done one of the largest switching resale projects with Banco do Brasil, to complement all our communication services and this has been expanded as we speak to multiple of our large B2B clients. On the SME Segment, fiber had another strong growth quarter, and this led the segment to grow both on a quarter over quarter as well as on a year-over-year basis. And we see here that this is significant, and it comes on the verge of expanding the home past coverage in synergy with the growth of residential Homes Passed, and this has led fiber to represent already 25% of the segment revenues. Next, let’s see again, the results on mobile and we know that mobile performance is important for us until we close the operation at the beginning of next year and our mobile performance continues to maintain a good transition back. And this is in reality Back to Sequential Revenue growth supported by a strong post-pay performance and also some sequential improvement on prepaid. When we look at mobile customer revenues, we see that sequentially, revenues were up the order of recorder in particular due to another very strong postpaid order. We can see that postpaid revenues start growing almost five percent both on a quarter over quarter as well as on a year-over-year basis, and this has led us to actually be on the forefront of revenue growth overall, revenue growth for mobile service revenues on a sequential basis. And this is important not only because it maintains the value of our mobile operation and it helped us do a good transition path, in terms of bringing cash into the company until we finally closed the mobile sale operation on the first quarter of next year. When we look at the other revenue components are next page and I’m talking here about new revenues, they also presented positive results and growth. And we know that although the new revenues are still small on a grand scale. They not only are growing fast but have the capacity to grow even faster. The new revenues are coming from more the connectivity as we have highlighted that, it’s part of our plan. And if we look at the portfolio, our portfolio keeps expanding rapidly, both with offers that already developed itself or in white labels as well as in partnerships offers and this is both for offers that are active now, and soon to be launched this number of offers have been multiplying. We have not only the traditional offers that we have been putting a lot of effort and emphasis on such as though expert which is the technical solutions, service software for home. Also, the Oi Place, which is our Marketplace, Oi play, which is our content aggregation play. And then you can see that we have a host of other solutions, including the SMB space, the education and health space. The financial services space and we are trying to bring some innovation here, in particular in some of the areas where we’re just launching our solutions. We in the financial services space, we have launched an initial solution with

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Videoconference Transcript

Results 3Q21 OI (OIBR3 e OIBR4 BZ)

11/11/2021 at 12h

toys app. We will continually bring some innovative solutions here with partners soon to be announced on the education and house space. The same thing is happening here. We are just launching a solution, for instance, with the help of some partners including Accenture and which we will guarantee up to whomever is taking those educational solutions courses access to the labor Marketplace as soon as those courses are completed. So, we’re doing some innovative things here. We know that there’s still a lot to be done here, but when we look at the results, the results are coming. When we look at the new revenues from last year to this year. It was almost a 54% growth, and in annualized terms it means that we are already almost reaching 100 million revenues every year, with those new revenue streams. And the growth for some of them has been phenomenal. In the case of Oi Play, we have 4X growth in the case of Oi Expert, we almost doubled the business, and we maintain then the guidance of having new services, reach and the revenue target between 1 and 1.5 billion in 2024, this contributing to the company becoming more than just the connectivity company. So now, last look at the current Revenue Mix, considering all segments on page 8 and we see here that the new Revenue Mix is improving, not only fast but also consistently sustained by obviously the solid fiber performance as we mentioned which combined with ICT any revenues already represent more than 40% of the new weight total revenues. We know that we still have to do the turnaround on total revenues considering that the legacy revenues are still a significant impact on the total. But when we look at the sequential Revenue growth, it is coming. And when we look at the percentage of the core revenues that is represented by fiber plus ICT, this percentage has been increasing consistently as well, and we are now already above 40%. This means a 73 percent year-over-year increase in core revenues, while we know that Legacy Revenues continue to go down. On the discontinued revenues which include mobile and BTH the good news here, obviously, all we need to maximize those as much as possible, until the close of the operations. We see that we went back to sequential growth, almost 6% sequential growth on these continued revenues. And on the verge of that, if we move on to the next page, on page 9, we also have good indicators on Opex and EBITDA. As you know, we have been doubling down our efforts on addressing costs in the company and results are coming in multiple areas, which led us to EBITDA growth on the verge of Opex reduction. On the Opex front, we can see here that our Opex had a 6% reduction, which is very insignificant even in the face of very significant inflationary pressure. And this is due to our DCO efforts or drastic cost out efforts, which is producing results in pretty much all the areas inverting the cost curve from the previous quarter, even amidst a very difficult macro environment in Brazil. This led us to a significant growth in routine EBITDA and margin expansion from 29 less orders to 32 percent this quarter, which is growth even considering the last year quarter, the 3Q2020, which was at the 31%. A DCO cost Reduction Program is now covering pretty

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Disclaimer

Oi SA em Recuperação Judicial published this content on 16 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2021 14:16:08 UTC.

Publicnow 2021

Analyst Recommendations on OI S.A.

Sales 2021 17 702 M
3 260 M
3 260 M
Net income 2021 -6 945 M
-1 279 M
-1 279 M
Net Debt 2021 17 136 M
3 155 M
3 155 M
P/E ratio 2021 -1,34x
Yield 2021
Capitalization 5 808 M
1 064 M
1 070 M
EV / Sales 2021 1,30x
EV / Sales 2022 1,75x
Nbr of Employees 13 305
Free-Float 89,8%



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Oi S.A. Technical Analysis Chart | MarketScreener

Technical analysis trends OI S.A.

Short Term Mid-Term Long Term
Trends Neutral Bearish Bearish



Income Statement Evolution

Sell

Buy

Mean consensus OUTPERFORM
Number of Analysts 1
Last Close Price
1,56 BRL
Average target price
2,30 BRL
Spread / Average Target 47,4%

1st jan. Capi. (M$)
OI S.A. -44.68% 1 064




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