Strategic plan NY, june 6, 2016

Transcription

1 Strategic plan NY, june 6, 2016

2 Oi continues to progress on its strategic priorities Business transformation Transformation Plan is based on pillars of convergence, digitalization, austerity in costs and customer experience. Relaunch of brand with broader purpose. Increase in commercial activity driven by the launch of disruptive new offers (Oi Livre, Oi Mais, Oi Mais Empresas and Oi Total). Modernization and capacity expansion of network, supporting new launches and improving substantially customer experience. Cost efficiency projects. Focus on structural projects to improve service quality and strict cost control. Improvement of regulatory environment TAC: First set of projects in the final stages of ANATEL approval process. Three board members have already voted in favor. Concession: Ministry of Communications published ordinance with guidelines for ANATEL to execute the necessary adjustments to the current rules of the sector. Capital structure: optimization of liquidity and debt profile Engagement of PJT Partners as financial advisor and White & Case and Barbosa Müssnich Aragão as legal advisors, to assist Oi in evaluating financial and strategic alternatives to optimize its liquidity and debt profile. Signing of non-disclosure agreement with Moelis & Company, in the quality of advisor of a committee of bondholders, to initiate discussions on the terms of a potential debt restructuring. 1

3 MAIN trends IN THE TELECOM INDUSTRY Global trends Trends in Brazil Increased demand but problems with monetization... An industry with an outlook for growth due to increased demand for IP traffic, mobile data and the Internet of Things Increasing demand for CAPEX due to an exponential increase in the demand for data Profitability challenges due to a reduction in the top-line from traditional services, difficulty monetizing the new services and competition from OTTs...leading to operators focusing on efficiency and on digitizing their operations Growing focus on execution do more with less Reinforce the "Digital" component as an efficiency and innovation tool and to create new sources of revenue Acceleration in convergence and bundling, further induced by imbalances in market structures An industry with growing demand and utilization Profitability challenges and pressure on investments Consolidation moves, oriented around fixed-mobile and development of a national footprint The regulatory agenda could fundamentally change the economics of the industry (concession contract, TAC, wholesale regulation etc.) Oi competitors with greater investment capacity based on a stronger balance sheet. 2

4 THESE TRENDS IN BRASIL HAVE DIFFERENT IMPACTS ON THE VARIOUS BUSINESS SEGMENTS 2 3 TRENDS IN BRAZIL Profitability challenges and higher demand for investment Consolidation moves towards fixed-mobile and development of a national footprint Retail Residential Mobile 1 Accelerate the Opportunities to Industry with growing demand and utilization migration of fixed voice revenue to data and TV (bundles) increase revenue by migrating from voice to data Need to prioritize investments by technology in the areas with the highest returns (access mix) Optimize micro-pricing and client base management practices, increasing ARPU and volume Potential for capturing synergies of consolidation, improving overall capital structure. B2B Potential for exploring IoT opportunities and capturing growing demand for Data and IT/IS (managing the erosion of the legacy business) 4 The regulatory agenda could fundamentally change the economics of the industry (concession agreements, TAC, wholesale regulation, etc.) TAC (Conduct Adjustment Term) with potential increase in investment levels Reduction in obligations to customers with negative NPV Increase in SMP (Significant Market Power), with potential to review the product offer Significant reduction in revenue of the regulated wholesale market Potential for increasing the international and non-regulated areas of the wholesale business 3

5 THE PLAN AIMS TO RELAUNCH OI'S PROFITABLE GROWTH AND RECOVER ITS MARKET POSITION (1/2) Business Areas From To Retail Residential Different vision per product Integrated vision by household, with converging offers and value propositions (2P, 3P and 4P), exploring the advantages of Oi's fixed line customer base Retail mobile Growth limited by the community effect (on-net) Offer anchored on data bundles and universal voice services (all-net), breaking the market's current on-net structure and capturing Oi's fair share B2B SME's Traditional market position with a complex product offer and significant limitations in delivery capacity Anticipation of the move towards offering a flat rate with simplified delivery processes B2B Corporate Gradual reduction on the dependence of fixed voice with growth in data above market rate Leader in data with significant increase in revenue from IT/IS through evolution of the portfolio B2B Wholesale Increased weight of regulated domestic market Diversification of revenues streams through exploration of opportunities in the non-regulated market 4

6 THE PLAN AIMS TO RELAUNCH OI'S PROFITABLE GROWTH AND RECOVER ITS MARKET POSITION (2/2) Supporting Areas Network From Focused on eliminating historical problems of capacity and fails on network To Anticipating investment in areas of high potential risk and closing coverage gaps with other carriers Operations Customer Care / Service Quality Focus on sustaining the operational structure in a context where the network continues to deteriorate and Network Service Providers face significant challenges Focus on efficiency of traditional customer care services through addressing the key route causes Become a reference in quality and productivity by focusing on preventive measures to contain network deterioration and create a sustainable model for managing the field force Step-change in the quality of service through the mass expansion of digital channels, first call resolution and remote resolution of technical problems IT Restricting activities to maintenance of existing services Development of specific structural projects focused on customer experience and commercial and operational efficiency Regulatory Reactive approach of regulators with strong levels of conflict Active promoter of regulatory framework, oriented to business sustainability and infrastructure development 5

7 MARKET PENETRATION PROJECTIOnSINDICATE GROWTH OPPORTUNITIES IN MAIN SEGMENTS Brasil América Latina Broad Band % 88,4% 90,5% 92,5% 94,2% América do Norte Bundles % 44,9% 40,3% 47,0% 42,3% 49,1% 44,1% 50,9% 45,7% ,2% 54,5% 53,9% 52,9% 32,8% 34,9% 36,8% 38,0% 26,7% 28,9% 31,0% 32,3% TV % 83,3% 46,5% 81,9% 47,8% 80,6% 49,4% 79,3% 50,7% 31,2% 31,2% 32,0% 33,0% Source: Broad Band - Analysys Mason, April 2016; TV - IHS Technology, April

8 IN THE SECOND HALF OF 2014 WAS CREATED THE TRANSFORMATION OFFICE, DEDICATED FULL TIME TO IMPLEMENT INITIATIVES THAT SEEK FOR PRODUCTIVITY AND OPERATIONAL EFFICIENCY GAINS Continuous creation of initiatives Control and rigorous operational performance Weekly routines OPEX reduction and CAPEX optimization Increase operational productivity Prioritize IT spending Aggressive cut in SG & A Prioritize / review spending decisions in weekly committees Improve working capital Reviewing major contracts and payment decisions Accelerate charges and prepayment Optimize inventory levels and waste / redundancy (eg. Costumer equipment) Improve customer profitability Price adjustment Sales portfolio simplification Optimize channel mix, prioritizing the best quality and cost Optimize HR Simplify organizational structure Reduce overtime costs and on call Capture synergies with intragroup companies FOCUS ON CASH FLOW GENERATION 7

9 IN 2015 FOCUS HAS SHIFTED FROM SHORT-TERM COST CUTTING TO MID-TERM TRANSFORMATION INITIATIVES WITH GREAT OPPORTUNITIES REMAIN Before Jun 2015 Stage 1 Quick wins and focus on cash generation July 2015 onwards Stage 2 Structural initiatives Structural initiatives - Stage 2 Front office / Back office optimization Contracts renegotiation Rationalize discretionary spending Selective Capex allocation Selective price increase Sales channel optimization Outsource handset operation Headcount & org. structure Process and organizational efficiency Commercial and operational productivity Transversal improvement initiatives Improved customer experience Productivity and efficiency improvement in field services operations Improve technical remote resolution rate Increase collections and revenue assurance efficiency Convergence / multi-skill in sales and customer care operations 8

10 STRATEGIC GUIDELINES FOR DIGITAL IN DIGITAL CHANNELS E-COMMERCE E-CARE Offer agile channels, with the best user experience and excelling in its simplification and facilitation of the life of the customers Being the most efficient sales channel regarding the relation volume-cost-quality, with exclusive offers and best purchasing experience Being the service channel preferred by customers, offering a better experience and maximizing the offer of 100% digital services DIGITAL EXPERIENCE Offering the users the best content and user experience in digital channels, maximizing the business results MIGRATION STRATEGY Designing a coordinated strategy for the effective migration of interactions to digital channels and leveraging customer behavior insights at the point of sales and during relationship IT/ SUPPORT AREAS Implementing a new layer of services, ensuring availability of platforms and structuring an agile process supporting the challenges of online channels and ensuring time to market 9

11 Residential : RETAIL STRATEGY IN LINE WITH GLOBAL AND BRAZILIAN TRENDS, SUPPORTED BY 3 COMMON AXES: CONVERGENCE, DATA, AND PRO-CONSUMER POSITIONING Strategy Main Initiatives Aspirations Promote bundles, with integrated 2P, 3P, and 4P offers, including a TV offer differentiated via value proposition with non-linear content, seeking to: Protect the client base and increase commercial aggressiveness by accelerating focus on bundles Launch of client portfolio of bundles (Oi Total) in order to address all segment of the market Differentiation of the customer experience through providing joint installation and service Fostering the migration of voice to data and TV, without detriment to the revenue baseline Household ARPU (R$) +23% Fixed Monthly Churn -0,2 pp Reinforce competitive positioning Boost efficiency gains along the sales and delivery chain Protect residential client base Optimization of the offers combining conversion and prices for each customer, ensuring maximum penetration of services per household Aggressive introduction of "big data" logic to optimize conversion rates of Next-Best-Action Addressing the speed gap vs. competition by optimizing CAPEX Segmentation of households according to market potential (income and penetration) Selective expansion of fiber, prioritizing areas with high income Differentiation of Oi's value proposition by reinforcing the TV product Broadband Monthly Churn -0,3 pp TV Monthly Churn -0,9 pp Focus on the development of a pipeline of functionalities focusing on offering: (i) TV Everywhere and (ii) non-linear contents and experience

12 MOBILE: RETAIL STRATEGY IN LINE WITH GLOBAL AND BRAZILIAN TRENDS, SUPPORTED BY 3 COMMON AXES: CONVERGENCE, DATA, AnDCONSUMER FRIENDLY POSITIONING Strategy Change the market logic to all-net, and differentiate offers through data with a view to: Break current market structure (on-net logic) and foster chip consolidation Increase ARPUs and mobile data penetration in all mobile offers Main Initiatives Recapture market share with bundled all-net offers and promoting migration from voice to data Evolution of entire portfolio of offers to all-net, reinforcing data offerings Protection of voice revenue by exploring mobile voice and data bundles Repositioning of Oi in mobility, assuming a consumer oriented position Leverage the relationship Oi has with its residential customers to promote the penetration of its mobile products in competitors customers Replication of the rationale of an all-net/data offer for convergent fixedmobile bundles Promotion of penetration in Oi homes through offers of pre and post services via Oi Total Increase ARPU by using micro-pricing practices based on big data to increase profitability, reduce churn and increase the penetration of data services Refinement of statistical models, leveraging real time campaigns (ACM) and NBA Exploring new customer contact channels via mobile and web Aspirations Postpaid Market Share (%) +1,3 pp (1) Prepaid ARPU (R$) +15% (1) Postpaid ARPU (R$) +32% (1) Does not include interconnection and long distance calls revenue. Increase VAS revenue by leveraging the demand for applications

13 SUMMARY OF SME S PRIORITIES Strategy Main Initiatives Aspirations Restructure the portfolio with flat-fee offers to ensure both competitive compared to the competition and transparent to customers Restructuring the portfolio, implementing the concept of offer simplicity Launch of offers with flat-fee concept, ensuring both simplicity for the customer and that Oi is competitive and protecting its voice ARPU Definition of BTL offers, ensuring an optimum balance between degradation of the customer base ARPU and migration to the new portfolio Simplified selling processes and recovery of gross in all channels Broadband Churn (%) -0,5 pp Leverage the new portfolio to test new channels (digital, commercial partnerships), and rampup current channels (based on needs) Implementation of the new portfolio in all channels Leveraging the simplicity of the new portfolio to prioritize lower cost and higher quality channels (e.g. web), and to explore new channels (e.g. trade partners) Increased focus on digital channels (proprietary and partner), and evaluation of the scope of own stores and the possibility of covering the SME segment Mobile Churn (%) -0,9 pp Improve the customer experience, leveraging increased simplicity in service and e-care

14 SUMMARY OF CORPORATE AND WHOLESALE PRIORITIES Strategy Focus on IT/IS data services by growing the portfolio (e.g. home office, IoT, security and management VAS), and by reinforcing sales capabilities, reducing the company's dependence on voice revenue Improve the customer experience by simplifying and automating the delivery chain and convergence in after-sales services (IT and telecom) Mitigate regulatory impact on the regulated area's and focus on non-regulated services Main Initiatives Corporate: Focus on selling data (connectivity, VAS, security and management) and IT/IS solutions, thus reducing dependence on voice Capture of opportunities in IT/IS by growing the portfolio and reinforcing the IT sales coverage Launch of the home-office business, leveraging the need of corporate customers to save costs in the current economic environment Increase the number of IoT solutions by combining IT and telecom products and services "Bundled" solutions (create product portfolios focused on productivity (e.g. sales force, fleet management)) Maintain minimal capacity levels in the datacenters Simplification and automation of the corporate customer delivery chain with new technologies (GPON, Single Edge, IP, EDD, etc.). Wholesale: Declassification of SMP status (Significant Market Power) in EILD Migration to high speed data, leveraging increased demand and service expansion Aspirations Data Revenue (R$MM) +18% IT Revenue (R$MM) +64% # of IT customers +80% Wholesale Revenue/Total Revenue 5,8% 5,6%

15 STRATEGY AND ASPIRATION OF THE OPERATIONS AREA REGARDING CUSTOMER SERVICE AND INFRASTRUCTURE Strategy Main Initiatives Aspirations Evolve the Operations area to make it a reference in productivity and efficiency, delivering a high quality service level to Oi customers Aspiration Operational efficiency Establish a sustainable model to manage field services focusing on planning, control and productivity in line with the best players Limit network degradation through effort on repairs and higher focus on prevention Develop a robust and stable model for Network Service Providers Effectiveness (%) 66% +22% 80% Productivity-Activ./technic./day Reduce network degradation Increase productivity by improving scheduling effectiveness Quality Improve delivery quality in all departments (e.g., reduction of backlog, higher adherence to schedules, higher success rate on first visits to customers) Ensure high level availability of network Quality (% repetitions) 24% 19% Repairs on schedule (fixed) % 60% 80%

16 OI s INFRASTRUCTURE 330,000 Km of Fiber Present in all Brazilian states and in 5,477 municipalities More than 12 million connected homes with voice and/or internet 7x more municipalities with fixed network than the 2nd operator Around 45 million homes passed with copper network Coverage of 2G / 3G and 4G and more than 2 million Wi-Fi hotspots More than 4.7k municipalities with broadband (>70% of population / >95% if ex-sp) >2x more km of Fiber than the 2nd operator More than 2k municipalities with 4P (HDTV-DTH, Voice, Mobile, Broadband) (>60% of population) 15

17 OI S STRATEGY FOR RECOVERY THE QUALITY OF SERVICE INCLUDED CONTRACTS RENEGOTIATION AND SHARING Contractual renegotiations of mobile Core and Access Contractual renegotiations of Transport Network Sharing Strategy MoU Traffic cost R$ Mbyte -32% -32% National Backbone R$ / Mbps (TX) -40% R$ Fiber Swap R$ / km -83% Former Agreement Current Agreement Own built Swap License Cost R$ IP Network R$ / Mbps (IP) 4G Ran Sharing with TIM R$ Subscriber Data Base -77% Data -86% -25% -45% R$ (MM) Former Agreement Current Agreement 2014/2017 (Only Oi) 2014/2017 (RAN Sharing) 16

18 ENABLING NETWORK EXPANSION RESULTING IN TRAFFIC INCREASE AND BETTER QUALITY OF EXPERIENCE FOR OUR CLIENTS Data Traffic 2G/3G/4G, TBytes Network Congestion (%) 3G Data -58,9% ADSL -35,2% +53.6% Dez/14 Jun/15 Jan/16 dez/14 jan/16 dez/14 jan/16 IP Traffic Tbps Data Access 2G/3G/4G +3,0pp SMP8 Data Connection 2G/3G 99,24% 99,40% +51.6% 98% Dez/14 Jun/15 Jan/16 Dez/14 jun/15 Jan/16 Dez/14 Jun/15 Jan/16 ADSL Average Bandwidth Mbps / User Voice Access 2G/3G +0,3pp SMP9 Data Drop 2G/3G 5% Dez/14 Jun/ % Jan/16 Dez/14 jun/15 Jan/16 0,98% Dez/14 Jun/15 Jan/16 0,30% Source: ANATEL and Oi 17

19 VISION AND ASPIRATION FOR OI NETWORK, SUSTAINING THE QUALITY OF THE NETWORK IN 2016 TO ENABLE THE BEGINNING OF SERVICE COVERAGE GROWTH Strategy Main Initiatives Aspirations Evolve Oi network infrastructure to ensure access speed and capacity similar to those of the market by 2018 in a context of growing demand Aspiration Leverage the extension of the current core network, securing its decongestion and capacity to support the growing demand Expand the mobile coverage to levels close to competitors Recover fixed access network, focusing on critical region Upgrade of the mobile network Expansion of the coverage and density of 3G network (+192% cities, from 24% to 68% municipalities) Expansion of the coverage and density of 4G network (almost 8x + cities, from 2% to 14% municipalities) Expansion of core network (5x) to support data traffic growth Bet on network sharing synergies to foster coverage Upgrade of the fixed access network Expansion of shortenings/vdsl Expansion of FTTH and focus on condos GPON for B2B customers with reutilization of fibers Reutilization of fiber in new urban developments and condos Network requalification and backbone expansion Optical fiber in all states and capitals Extension of transmission capacity in the interior Replacement of routes saturated by IP radios VDSL RGU 1k ports FTTH (1k HP) G Municipalities Covered G Municipalities Covered IP Backbone capacity (Terabps) 3,3 8,

20 IT: CURRENT OI S SYSTEMIC REALITY CREATES SEVERAL TYPES OF IMPACTS IN THE DIFFERENT BUSINESS AREAS CRM AS-IS Mobile Landline Broandband DTH Fiber STC SAC Siebel 8 Time to market impacting the launch of new offers Sales Order Mgmt Inventory Siebel 6.3 SISGEN STC SAC OM Velox Granite OMS Objectel SINN OM Netwin Absence of standard functionalities by stack Activation SIS Ativação Móvel SIS Falhas MASC SIS Ativação Fixa ASAP Dados SIS Ativação Fixa WFM Billing Receivables Arbor SISRAF SFA SAG Click SISRAF SFA SAG SINN OM Arbor Different processes by stack adding complexity and difficulties to capture synergies Collections ICS SCB SCB ICS Lack of holistic vision of business indicators 19

21 IT: TRANSFORMATION REQUIRES SIGNIFICANT INVESTMENT AND RESOURCE ALLOCATION AND SHOULD BE DELIVERED PROGRESSIVELY OVER TIME Different approaches being used: (1) Direct e (2) Phased Today Intermediate Definitive Direct Approach: Implement the final vision (Ex. CRM Cloud) Phased Approach: Consolidate in existing platform and afterwards implement final vision (ex. Programa Unifica) 20

22 IT: OI IS STARTING IT ARCHITECTURE TRANSFORMATION IN 2016, AIMING COST REDUCTION, CONVERGENCY AND BETTER QUALITY OF EXPERIENCE FOR OUR COSTUMERS Current IT Architecture - Convergent Offer (Bundle) and Mobile Systems Stack unification: 2016+: Convergent CRM, TV Systems Stack and Fixed & Broadband Systems Stack unification 1 Convergence 1 Convergence Convergent CRM (Backoffice) Convergent Offer rollout (Fixed + Broadband + TV + Mobile) Convergent CRM (Customer Single view 360º) New Convergent Offerings (Fiber to the Home) 2 - Experience for customers TV work order booking Fixed and Broadband multiskill installation 2 - Experience for customers Convergent single order booking & installation Evolution Digital: +Agility, +Integration 3 Unification Mobile systems stack unification 57 systems decommission 3 Unification Fixed & Broadband Systems Stack Unification ~60 systems decommission 21

23 IT: STRATEGIC VISION OF THE IT AREA IN Strategy Commercial capacity / customer experience Customer service supported by integrated applications platforms allowing for a 360º customer vision Sales Customer care automated through use of systems that prioritize new products for the business Operational efficiency Automation and integration of operational processes among regions (R1 and R2) allowing for the reduction of back offices and operational risk Be a reference in terms of IT spend benchmarks, optimizing spend with the aim of maximizing transformational projects Main Initiatives New commercial capacity Multiplay and Oi TV Convergence and consolidation of applications Unified CRM Order management Network inventory Business intelligence / Digital Unification of R1/R2 processes Consolidate line for mobile and fixed Consolidate path for fixed and Velox, including processes and systems Optimization of IT spend Discontinue applications and infrastructure with low/no utilization Optimize datacenters Service delivery and quality Be a reference in delivery capacity in terms of time and cost with projects that are key for business development. (e.g. unified CRM, Order Management) Excellence in delivery quality (e.g., systems availability) and effectiveness in the resolution of operational incidents Revision of providers and contracts New delivery to business models (e.g., Agile) Improvement of monitoring and indicators Workforce Management 22

24 STRATEGIC VISION FOR CUSTOMER SERVICE IN Strategy Customer experience Ensure compliance of promises made to customers Quickly and effectively solve client problem, especially in key moments of attrition Support customer care with tools (big data/statistics) that enable the anticipation of risk moments Operational effectiveness Optimize delivery chain through operational performance levels in all areas Ensure identification and continuous action upon root causes Foster effective (first time right) and digital (automated) relationship with clients, transforming systems and processes Main Initiatives Develop initiatives aimed at sustained decrease of complaints through Mitigation and resolution of root causes of call rate and ANATEL Segmentation of customer care according to risk factors (ANATEL propensity, open DBs, etc.) and value (ARPU, time on base, etc.) EP Competition Model incorporating the quality / satisfaction perceived by customer and productivity IPCC platform with pre-routing of calls, prioritizing attendants with better customer satisfaction track record Extend operations productivity improvement effort to back office (CRM) Stimulate remote failure resolution to improve quality, customer satisfaction and reduce field operation costs Enlarge scope of services offered by electronic channels (e.g., prepaid bill statement at Minha Oi) Enlarge scope of bill review process Aspirations Contact Rate 0,30 0,23 Remote resolution (%) 56% 59% ARU resolution rate (%) 54% 57%

25 MACRO ASSUMPTIONS IPCA % 9,7% 6,5% 4,8% 4,8% Average Exchange Rate BRL/USD 3,39 4,13 4,04 4, CDI % 14,3% 12,5% 11,2% 10,1% Average Exchange Rate BRL/EUR 3,75 4,38 4,23 4,

26 Financial statements Financial highlights Actual Budget Business Plan R$Million FY Q16 2Q16 3Q16 4Q16 FY 2017 FY 2018 Net Revenues Routine OPEX (19.211) (4.857) (4.877) (4.899) (4.737) (19.723) (20.019) Routine EBITDA Capex (4.048) (1.514) (1.277) (1.264) (1.203) (5.178) (5.100) Routine EBITDA - Capex G and 4G Licenses (557) - (632) - (3) (4) (4) Changes in Working Capital (1.673) (1.023) (385) (73) (27) (1.035) (857) Operating Cash Flow 952 ( 956) ( 646) Taxes and Legal (1.736) (311) (324) (279) (315) (1.231) (1.337) Dividends / JCP (268) 0 (35) - (35) (70) (70) Pre-Financing Cash Flow ( Ex. Non Core) ( ) ( ) ( ) Non Core / Regulatory (219) (50) (200) (83) Pre-Financing Cash Flow ( Post Non Core) ( ) ( ) ( )