Oi SA Executive Insights: Infrastructure, Debt Profile

On Tuesday, Oi SA ADR (NYSE:OIBR) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Sean Glickenhaus – HSBC: Two questions, first is on the regulatory front, I wanted to see how we should think about the impact of the 30% price cuts for the wholesaling of fixed infrastructure, how we should — is that for the whole country, and how it impacts your business, and second if we could just get some more clarity on mobile data, I didn’t find anything on data as a percentage of personal service revenues so any clarity on that would be great?

Unidentified Company Representative: The way we did the infrastructure cost – potential cost reduction is this is something that we are working with our different competitors to be able to offer that, even though it have a reduction in cost we also think that there is an opportunity for us to have even more clients as opposed to have competitive networks being developed. So, we are not sure that this is going to represent a reduction in revenue in the long run, so we really think that this is something that we are still analyzing how it is going to develop but we do not have a clear view as it being a negative to our revenues in the short run even. On the second question you are asking about data and mobile data, it is part of the overall mobile strategy in terms of revenue and cost but I don’t know exactly what is the question regarding the usage of data, the usage has been growing and we think that is one of the opportunities that we have moving forward.

Sean Glickenhaus – HSBC: Just wanted to get a clarity on, let’s say, data as a percentage of service revenues for personal mobile just so we can try to break that down in terms of forecast a little better?

Unidentified Company Representative: Yeah, we are not disclosing that information. We think that is a strategic information and we think we should not disclose that at this point.

Sean Glickenhaus – HSBC: Understandable. And on the fixed infrastructure, does that include fiber by the way, that price cut?

Unidentified Company Representative: It does include fiber in a sense but it’s more what we call here in Brazil, EILD, which stands for a typical connection that has clear parameters and that is what they are trying to address with this new piece of regulation. But like I said, I think there are potential upsides and downsides, and we are not clear as to what the impact will be.

Debt Profile

Matt Burns – Asset Capital Management: I just have two questions. You guys have made some cash distributions after the end of the quarter, including the dividend post restructuring, that R$2 billion dividend, and withdrawal rights, what is the current pro forma net debt-to-EBITDA at this point given those changes? Then my second question is on the investment reserves. After the distribution of the R$2 billion in dividends, what does the current investment reserve balance stand at?

Alex Waldemar Zornig – CFO: If I understood your question, you are saying, in April, how was the current year debt profile? Okay, after the payment of dividend, our debt profile will be 2.1 times EBITDA. Did I answer you?

Matt Burns – Asset Capital Management: I guess I was under the impression that you guys had – after the restructuring, there was R$750 million – or there was a R$1.5 billion dividend payment, of which about 50% was paid out and there was the R$2 billion and then there was about R$2 billion in withdrawal rates paid out. I guess how does that get from 2 to 2.1 is it close to 2.5 times now?

Alex Waldemar Zornig – CFO: Well for us it’s 2.1 because another and you generate cash also in the period, okay. So, our net debt just to give you an information, our net debt by the end of April, although we are closing the April now is around R$13 billion and — our cash is R$13 billion. So, it’s 32 less 13, 19. 19 divided by 8.8, 2.60 to be exact. Did you follow me?

Matt Burns – Asset Capital Management: Yes. But does that include the R$2 billion dividend payment as well?

Alex Waldemar Zornig – CFO: Look all-in.

Matt Burns – Asset Capital Management: So that includes the R$2 billion dividend payment as well as the withdrawal rates?

Alex Waldemar Zornig – CFO: Yes, it includes everything.

Matt Burns – Asset Capital Management: Then on the investment reserve how much is left at this point after I think R$1 billion was used in the R$2 billion dividend distribution, what remains on the investment reserves. What’s the current balance?

Alex Waldemar Zornig – CFO: Sorry, your line was cut what was your question?

Matt Burns – Asset Capital Management: Sorry, the investment reserve, what’s the current balance?

Alex Waldemar Zornig – CFO: I don’t know we’ll send you later the information and we’re talking about March okay.

Matt Burns – Asset Capital Management: Okay.

Alex Waldemar Zornig – CFO: I can only give you March figures. So, March figures it would be – it’s in the CBM ready system and then we’ll inform you later on.