Oi Will Reverse Cash-Burn Problem in Third Quarter, CEO Says

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  • Phone operator had 41% less cash and equivalents last quarter
  • Bankrupt carrier also showing operational improvements

Oi SA is taking steps to improve operations and reverse a cash drain that’s plagued the bankrupt phone operator and saddled investors with losses amid Brazil’s biggest-ever bankruptcy.

These efforts will start to bear fruit soon as Oi continues its debt-restructuring plans, Chief Executive Officer Marco Schroeder said during a conference call Thursday.

“We see some very positive operational progress that will have an impact in the next quarters,” he said.

Schroeder’s comments seemed to appease investors after the company posted second-quarter results that reflected tough times for Brazil’s most indebted phone operator, as customer defections, higher costs to service debt and cash burn took a heavy toll on the bottom line. The company reported a 22 percent drop in earnings from operations before interest, tax, depreciation and amortization and a 3.8 percent decline in revenue -- both below analysts’ estimates.

The preferred shares rose as much as 2.6 percent to 2.38 reais during the conference call Thursday, and were trading at 2.34 reais at 1:15 p.m. in Sao Paulo.

Oi’s second-quarter results underscore the challenges confronting Schroeder as he tries to show both earnings and subscriber growth following a long saga of mergers and leadership changes.

“We obviously saw an impact on revenue, due to the economic contraction, especially in the prepaid mobile phone segment, which is closely related to unemployment rates, as well as in the business-to-business segment,” Schroeder said during the call.

Facing restless investors and bondholders amid a difficult economic situation in Brazil, Schroeder has set an ambitious goal of tripling the number customers who subscribe to multiple Oi services by the end of 2016. Under his plan, the carrier also aims to boost network investments by 25 percent this year.

The quarterly report is Schroeder’s first since taking over in June, when the company failed to reach a restructuring agreement with creditors covering about $20 billion of debt and filed for bankruptcy protection.

For more on Oi’s bankruptcy proceedings, click here.

Despite stepping up marketing spending, Oi lost both wireless and broadband customers in the second quarter as Brazilians reel from the worst recession in at least a century.

Oi spent 131 million reais in marketing in the second quarter, a 44 percent increase from a year earlier, in a bid to convince Brazilians that business is as usual during the bankruptcy proceedings. In March, Oi changed its logo and introduced a package of mobile, landline, broadband and pay-TV services -- called Oi Total.

Schroeder said Oi has about 430,000 Oi Total subscribers and aims to reach 1 million this year. The company is also offering apps to help customers recharge prepaid phones and manage their accounts. The results indicate that Oi’s new marketing push, while costly, may take time to show tangible results.

  • Oi had 4.85 billion reais in cash and cash equivalents by the end of June, a steep drop from 8.29 billion reais in the first quarter. The company attributed the cash burn to 1.79 billion reais in debt-service costs and 650 million reais for the last installment of a 3G spectrum-license payment. Chief Financial Officer Flavio Nicolay Guimaraes said an additional 100 million reais were related to the cost of a program to lay off employees.
  • Net debt, including cash and cash equivalents, rose 1.3 percent from last quarter to 41.4 billion reais.
  • Operational EBITDA of 1.52 billion reais trailed the 1.8 billion reais average estimate compiled by Bloomberg.
  • Revenue dropped to 6.52 billion reais, compared with an average projection of 6.62 billion reais.
  • Oi’s mobile-phone base shrank 0.4 percent from last quarter to 45.3 million subscribers, while the number of residential broadband customers fell 0.1 percent. The company lost 37,000 business clients in the period.
  • Consolidated net loss was 656 million reais.