New York, April 2012 NEW MANAGEMENT
BOARD
CEO Francisco Valim
INTERNAL AUDIT Fabiano Castello
EXECUTIVE INNOVATION HUMAN COO PLANNING CFO LEGAL AND NEW RESOURCES James João de Deus Alex Zornig Eurico Teles BUSINESS Julio Fonseca Meaney Pedro Ripper Macedo VISION
• Evolution 2009-2011 • Growth Until 2008
Revenues Capex RGUs (R$ Billion) (R$ Billion) (Million)
30.0 28.7 7.3 45.6 56.1 27.2 3.8 3.7 41.7
2006 2007 2008 2006 2007 2008 2006 2007 2008 VISION
Until 2008 2009-2011
SÃO PAULO BRASIL FOCUS MARKET TELECOM ON CASHFLOW GENERATION VISION
Growth Platforms
SÃO PAULO BRASIL FOCUS MARKET TELECOM ON CASHFLOW Market GENERATION share - state: 15% Market share - city: 20%
Present in the country’s National footprint Adequate Debt Profile w/ biggest market extended maturity 2015 COMPETITIVE DIFFERENTIALS
BROAD INFRASTRUCTURE
GLOBAL NATIONAL REGIONAL LOCAL
• Present in all • Largest public WiFi 22.000 Km 115.000 Km Brazilian states and network in Brazil Globenet submarine National backbone +4.800 municipalities • Over 4.500 sites cables interconnecting Largest coverage area • 30.000 km of covered by satelite the Americas in Brazil metropolitan rings
One of the largest and most diversified Telecom networks in the world
Source: Oi, Anatel, Atlas Brasileiro de Telecomunicações 2011; Teleco; press COMPETITIVE DIFFERENTIALS SIGNIFICANTLY SUPERIOR TO THE COMPETITION
Oi has 6 thousand Municipalities Covered by Fixed Thousands of Km of Optic cellular towers Network by Operator Fibers by Operator connected to its Fiber 7x 3x 4.505 168 5x
Oi covers ~80% of 124 Brazilian households
51 34 644 134 118 Telefônica América GVT América Telefônica TIM Sources: ANATEL; Barclays Capital Equity Research; Móvel Móvel Obs: Km of Optic Fibers consider backbones and backhauls COMPETITIVE DIFFERENTIALS LEADERSHIP IN CONVERGENCE 10 years of experience in In Brazil, Oi pioneered convergent Telecom offers convergence that changed the market
2012: Oi strengthens 4play offer
2011: Oi launches Oi Internet Total
2007: Oi converges fixed and mobile to a single brand
2005: Oi consolidates position as convergent operator w/ Oi Conta Total Plan
2003: Oi launches 1st. convergent offer in Brazil, w/ Oi Family bundle PROVEN EXECUTION CAPACITY
Anticipation of universalization targets in 2001 Implementation of Broadband in 100% of urban public schools in Launch of Oi Mobile in regions I and II region 1, being the fourth entrant, reaching leadership in market National Broadband Plan share after 3 years encompasses 1,232 municipalities in 6 months Reaches 15% market and will reach 4,668 share in the State of SP municipalities by 2014 and 20% in the city of SP in 2 years Oi is in the right place BRAZIL’S IMPORTANCE IN THE WORLD ECONOMY GROWS AND TELECOM IS KEY TO FURTHER DEVELOPMENT OF THE COUNTRY
Where we were Where we are GDP, current prices, trillions of US$, 2007 GDP, current prices, trillions of US$, 2011 USA 14 USA 15.1 Japan 4.4 China 7 China 3.5 Japan 5.9 Germany 3.3 Germany 3.6 England 2.8 France 2.8 France 2.6 Brazil 2.5 Italy 2.1 England 2.5 Spain 1.4 Italy 2.2 Canada 1.4 Russia 1.9 Brazil 1.4 India 1.8 • Actual growth: ~17% • Exchange rate appreciation: ~20% Source: IMF - World Economic Outlook Database September 2011 TELECOM IS ONE OF THE SECTORS THAT INVESTED MOST AND HAD THE MOST SIGNIFICANT DEVELOPMENT IN THE PAST YEARS
Total Investment* Industry (2001 – 2010) R$ billion Telecommunications 293 Electric energy 280 Road construction 135 Sanitation 129 Railroad transportation 37 Airport system 13 Port system 9
Waterway system 3 * Present Value Source: IPEA and Oi’s analysis THE TELECOM INDUSTRY IN BRAZIL MAINTAINS A STRONG GROWTH TREND FOR THE UPCOMING YEARS
Accesses to service Millions of subscribers +7% CAGR CAGR 412 07-11 11-15 (+3%) 25% 14% +16% 314 20% 12% x CAGR Brazil (+3%) 2% 1% (y) CAGR Mature Markets² 173 19% 7% TV Broadband Fixed Mobile¹ 1 Includes data on mobile 2007 2011 2015E 2 USA as the reference Source: Anatel, Pyramid THERE IS POTENTIAL TO INCREASE PENETRATION AND INTEGRATION OF TELECOM SERVICES IN BRAZIL
Mobile Fixed voice 77% penetration 125% penetration - Lines/ Lines/homes 70% population 88% 121% 106% 100% 137%
Broadband Pay TV penetration 30% penetration 23% Accesses/ 42% Subscribers/ homes homes 48% 75% 87% 82% 61% Source: Anatel, Pyramid THROUGH THE NATIONAL BROADBAND PLAN, OI WILL PARTICIPATE IN THE INCLUSION OF MORE THAN 16 MILLION HOMES IN BROADBAND
16.8
3.2 35.0 Oi’s focus: 53 IPEA study for 15.0 million inhabitants the NBbP
2010 Regions III Region I and II 2014
Source: IPEA, IBGE, staff’s analysis Homes to benefit from broadband under the National Broadband Plan at R$ 35 OI BELIVES IN BRAZIL’S FUTURE AND HAS ALREADY INCLUDED MILLIONS OF STUDENTS IN THE DIGITAL WORLD
Schools and students covered by Oi 100% of urban public schools of the elementary and high school levels in Regions I and II +50,000 schools
~30 million students
78% of students in Brazil’s public system
Source: INEP, IBGE, staff’’s analysis UNIQUE POSITION HARD TO BE REPLICATED
• Unique last mile capillarity to meet growing demand in Brazilian social mobility NATIONWIDE PRESENCE + FULL BUNDLE • Company in the best position to take advantage on governmental digital inclusion programs • North and Northeast regions grew 14% and 15% in past 3 years (Brazil grew 10%): Oi has a lidership position in the regions that grow the most
Only company able to offer bundles across the entire country*
* Except SP B2C OI RANKS AMONG BRAZIL’S 10 LARGEST COMPANIES
Receita Líquida 2011 (R$ bilhões) Net Revenues in 2011 (R$ billion) Petrobras 244 Vale 103 JBS 62 Ultrapar 49 Pão de Açucar 47 Gerdau 35 Braskem 33 Vivo 29 28 Ambev 27 Fonte: Oi OI IS ONE OF BRAZIL’S MOST VALUABLE BRANDS
Ranking Brand 1 Bradesco 2 Banco Itaú 3 Banco do Brasil 4 Petrobras 5 Vivo 6 7 Santander 8 Walmart 9 Casas Bahia 10 Caixa
Fonte: Brandfinance CORPORATE SIMPLIFICATION
1 listed company • 3 listed companies • 2 share classes • 7 share classes • Capital structure improvement • Complex capital structure •
Common Preferred TNL • TNLP3 • TNLP4 TmarPart 56.4% TmarPart - Direct Direct • TMAR3 12.0% 38.8% TMAR • TMAR5 controllers controllers • TMAR6 Free-float 31.6% Free-float 61.2% BRT • BRTO3 • OIBR3 • BRTO4 OI S.A. • OIBR4 * Considering PT, AG, LF, Previ, BNDES, Funcef, Petros; Capital Social ex-treasury CORPORATE GOVERNANCE WITH CLEAR ROLES
GENERAL SHAREHOLDERS’ MEETING
FISCAL COMMITTEE
BOARD OF FINANCE COMMITTEE DIRECTORS ENGINEERING AND NETWORKS, TECHNOLOGY AND INNOVATION AND SERVICE OFFERS COMMITTEE
HR / COMPENSATION COMMITTEE CEO RISKS/ CONTIINGENCIES COMMITTEE
DISCLOSURE COMMITTEE
INTERNAL AUDIT MANAGEMENT EXTERNAL AUDIT The growth platform, competitive differentials, corporate simplification and the current governance model are pillars for Oi’s new growth and investment cycle 2012-2015 ESTRATEGIC PLAN FRAMEWORK
PREFERRED by Customers
Sustainable PROFITABILITY QUALITY Services
SIMPLE for Customers
Total PRESENCE INNOVATIVE COMPLETE Solution
Excellence in Fidelization w/ Higher participation Efficient hands- IT build up Stability and offers 2, 3 and in high-end on management projects Customer easiness in 4P segments contact broadband access TEAM TARGETS
PEOPLE NETWORK CULTURE BRAND IT Alliance w/ Integrated and Broad and of excellence acknowledged differentiated THIRD committed updated PARTIES CHANGE IN APPROACH FROM PRODUCT TO SEGMENT
PRODUCT SEGMENTS FIXED MOBILE VOICE
CORPORATE RESIDENTIAL PERSONAL MOBILITY AND BUSINESS
Leverage largest Increase Maintain leadership residential customer competitiveness to position in the base in Brazil attend fair share of segment and enter the market new markets (SP & IT) BROADBAND PAY TV WE HAVE A NEW GENERATION NETWORK
• >70% of Velox customers are linked to IP DSLAMs • >15% of Internet access traffic is cached by Oi • >35% of interstate fixed and mobile voice traffic is NGN (IP) • >80% of backbone network traffic is IP traffic • IMS control and optic transmission at 100 Gbps already in operation DEVELOPING A SUPERIOR TECHNOLOGICAL PLATAFORM
BSS/OSS SDP Service SMS MMS VMAIL IN
NGN Control TDM Control IMS 7IP MSS SSw MSC TDM Sw Control
IP Transport TDM Transport Backbone OLT AGW DSL SGSN
Copper/ FTTx DSL Radio/Sat Access
WiFi 3G 2G DEVELOPING A SUPERIOR TECHNOLOGICAL PLATAFORM
BSS/OSS SDP Launch VoIP to scale in all Servicesegments VoIP SMS MMS VMAIL IN OTT
Expand local caching to NGN Control TDM Control IMS IPTV 7IP ~25% of internet content MSS SSw MSC TDM Sw Control
Expand optic backbone to IP Transport TDMTransport supportBackbone data traffic increase OLT AGW DSL SGSN Expand mobile customer’ s QoE Copper/ FTTx DSL Radio/Sat ImplementAccess FTTN for 1.5 M addtonal Velox customers 4G WiFi 3G 2G Exceed 2.5 M homespassed w/ Femto FTTH and launch IPTV WE ARE EXPERIENCING MAJOR PARADIGM CHANGES
BROADBAND DEVICES SERVICES Connectivity everywhere w/ More powerful and more Services and content higher speeds affordable devices migrating to the “cloud” • 1/5 of the world population • ~1 billion 3G subscribers in • Smartphone sales exceed participates in virtual the world in 2Q11 or 17% those of mobile phones communities in 2015 of total mobile subscribers (Europe and USA) • YouTube and NetFlix (+35% in one year) • >15 billion devices connected responsible for ~50% of traffic • IP traffic grew eightfold in in networks in 2015 – twice the in the USA the last 5 years world population
Source: Oi, Cisco, Delloite, KPCB Internet Trends (2011) THESE PARADIGM CHANGES REDUCE TRADITIONAL TELECOM FRONTIERS, CREATING NEW COMPETITORS
Internet IT Over the top
TelecomTelecom
Media Financial services HOWEVER IT ALSO BRINGS OPPORTUNITIES AND WE ARE ALREADY CAPTURING THEM
Internet IT Over the top
TelecomTelecom (2012)
(2011) (2012)
(2011)
FEMTOCELL LTE Media (2012) Financial services FIBRA IPTV (2012) (2009 ) (2012)
(2011) REGULATORY FRAMEWORK POSITIVE EFFECTS
Law 12,485 National broadband plan Broadband in (previously Bill 29 and Senate schools Bill 116) • Universalization of • The Brazilian Senate has • Digital inclusion of more broadband (R$ 35) to than 30 million students approved changes to the accelerate internet Cable TV Law, to allow penetration • Coverage of more than incumbent operators to enter 50,000 schools into or increase their activities • Great opportunity for bundling • Creating million of future in the Cable TV market potential new customers
16% of sales are of higher aggregate value-added products • Broadband ≥ 2 mega • Fixed Voice REGULATORY FRAMEWORK
NEUTRAL EFFECTS Mobile termination rates
• Approved in November 2011, Anatel set nominal cuts of 18%, 12%, and 10% in three years
Rural Coverage 4G Auction Oi WAS SUCCESSFULL IN IMPROVING ITS DEBT PROFILE
DEBT PROFILE AVERAGE DEBT MATURITY
2009 2011 2009 Average maturity: 2.7 years Total debt R$ 30 bn R$ 30 bn
Net debt R$ 21.9 bn R$ 16.3 bn 8.6 Actual cost 107% of CDI 96% of CDI 5.6 5 Currency 4 4.1 (after-hedge) 2.6
2010 2011 2012 2013 2014 >2014 9993% 99% 2011 BRL Foreign BRL Foreign Average maturity: 4.5 years Index 6% 29%
21% 20% 12 73% 51% 4.6 4.1 3.2 3.6 2.3 CDI Other TJLP CDI Other TJLP 2012 2013 2014 2015 2016 >2016 Oi SET UP A GUIDANCE POLICY TO ALIGN MARKET EXPECTATIONS WITH THE COMPANY’S STRATEGIC PLAN
GUIDANCE POLICY
Broad and simultaneous to all Publishing via Material Fact Minimum period of 12 months stakeholders
Transparency of original Parameters preserved to assure Guidance to be published: assumptions, encompassing information consistency - Residential, personal mobile and issues related to the market, B2B RGUs macroeconomics, and - Net Revenues, EBITDA, Capex regulatory and sectorial matters and Net Debt GROWTH PLAN WITH SUSTAINABLE PROFITABILITY AND RESUMPTION OF INVESTMENTS
NET REVENUES EBITDA CAPEX R$ Bn.
+10% -5% +4% 38.6
29.5 28.9 +14% 27.9 -15% 12.8 10.3 8.8 8.8 6.0 6.0 5.0 3.1
2010 2011 2012 2015 2010 2011 2012 2015 2010 2011 2012 2015
CAGR 35% 31% 30% 33% 11% 18% 21% 16%
% of net revenues Source: Oi STRONG GROWTH OF CUSTOMER BASE BY 2015
Millions of RGUs +13% p.y. 106.8 CAGR% +9% +8% 12 - 15 p.y. p.y. 74.9 69.7 64.0 67.8 14% Personal Mobile 45.8 37.8 43.3
Residential 25.7 9% 19.2 18.6 19.8 13.3 7.1 7.8 9.3 13% 2010 2011 2012 2015 B2B DIVIDEND POLICY WITH ITS DIVIDEND POLICY, OI IMPROVES ITS CASHFLOW FORECAST
Dividend evolution Covenants R$ Billion TOTAL FIXED AMOUNT OF R$ 8 BIL • 3.0 times the Net Debt/EBITDA ratio 3 • Net Debt includes dividend 2 2 payment in current fiscal year 1 • EBITDA calculated in fiscal year 2012E 2013E 2014E 2015E prior to dividend payment
20% 13% 13%
Dividend Yield*
*Calculation considering closing on April 13th and weighted average of common and preferred shares, excluding treasury shares LEVERAGE SUSTAINED BY OI’S CAPACITY TO MANAGE AND OPTIMIZE DEBT
Net Debt/ EBITDA Temporary increase of leverage:
18.7 16.3 24.9 28.4 • Corporate Reorganization (withdrawal rights and bonus) 2.8x • Capex Plan 2.2x • Dividend Policy 1.9x 1.8x • Strategic Plan costs impacting EBITDA in the short term • Expectation of decrease in leverage in the medium term with improvement of margins and increase of EBITDA
2010 2011 2012 2015 Current average term is 4.5 years, w/ interest Net Debt rate estimated at 11% p.y., without non-core business RECOVERY OF ALL PERFORMANCE MATRIX
Net Revenues(R$ Bn) EBITDA 33% 38.6 12.8 31% 27.9 8.8 2011 2015 2011 2015 RGUs (Mn) Indebtedness 106.8 2.8
69.7 1.9 2.2 2011 2015 2011 2012 2015 Oi NOW BEGINS A NEW GROWTH AND INVESTMENT CYCLE WITH SUSTAINABLE VALUE CREATION
Corporate simplification Oi’s differential is the aligned interests of all market’s largest and most shareholders integrated Telecom network, in addition to experience
We have a strong and Oi brand incorporates consistent plan for the next innovation DNA and 4 years boosts its competitiveness
There is a single objective Investment in expansion throughout the company and quality will reach R$ 24 and transparent targets billion in the period 2012/2015