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Tele Norte Leste Participacoes SA (NYSE:TNE)

Q1 2009 Earnings Call

May 15, 2009 12:00 pm ET

Executives

Alex Zornig - Chief Financial Officer and Director of IR

Tarso Rebello Dias - Treasurer

Flavia Menezes de Oliveira - IR

Analysts

Peter Lyons - Oscar Gruss

Henry Cobbe - Nevsky

Valder Nogueira - Itau

Vera Trojan - Wellington Management

Operator

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to Oi’s Conference Call to Discuss the First Quarter 2009 Results of Oi and its direct and indirect subsidiaries. This event is also being broadcast simultaneously on the Internet via webcast, which can be accessed on the company’s IR website, www.oi.com.br/ir, together with the respective presentation and the earnings release.

We would like to inform you that during the company’s presentation all participants will only be able to listen to the call. We will then begin the Q&A session, when further instructions will be given. (Operator Instructions)

This conference call contains forward-looking statements that are subject to know and unknown risks and uncertainties that could cause the company’s actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made and the company is under no obligation to update them in light of new information or further developments.

I will now turn the conference over to Mr. Alex Zornig, Investor Relations Officer. Please, Mr. Alex, you may proceed.

Alex Zornig

Thank you. Good afternoon, everyone. Welcome to our first quarter 2009 results conference call. We’d like to remind you that this quarter the results include consolidated data for Invitel, the holding company of Brasil Telecom Participações and its subsidiaries. The slide presentation of today’s call is available at Oi’s and Brasil Telecom’s investor relation site, www.oi.com.br and www.brasiltelecom.com.br.

Joining me in the office today are also Tarso Rebello, Treasurer; Marco Schroeder, Controller; and Roberto Terziani, and his IR team.

Before beginning the analysis, it’s important to remind you that to facilitate the comparison among different periods and to better comprehend the company’s results, we are presenting the pro forma figures for the first quarter of 2008, which include the consolidated data for the Tele Norte Leste Participações and Brasil Telecom. In addition, the first quarter 2009 earnings analysis at this time refers exclusively to Tele Norte Leste Participações’ consolidated data.

On Slide Number One, we highlight some important achievements made during the first quarter. This quarter was certainly an important milestone for the company, when it was brought to a new operational level. With the Brasil Telecom’s acquisition concluded in January of this year, we became a nationwide operator for the most competitive service in the sector. We expand our revenue generating units or our customer base by 40%, and we boosted our annual net revenue to, approximately, R$30 billion, while EBITDA exceeds more than R$10 billion, consolidating Oi as the largest telecom service company in the country, and one of the 10 largest private companies in Brazil.

The market acknowledges the scope and importance of this new company, and is confident about management’s execution capacity. On April 16, for example, we placed a bond in the international market, amounting to $750 million. The demand for our bond was four times oversubscribed. The cost of 9.6% with a coupon of 9.5 is lower than some of the most recent placements made by U.S. companies, if we exclude the 75 base points new issue risk premium.

But until we consolidate these medium term goal of becoming a large scale company, we have some challenge to face in the short-term, such as, the integration with Brasil Telecom, which already start this quarter, should produce higher revenues and net cost savings for the company only during the second half of this year.

As expected in the first quarter, the cost and expense prevailed. Accomplished our task with the launch of mobile operations in October 2008, still brought the negative impact to the company’s result, a normal outcome in such case. But due to its success, we believe that by mid-2010, we will be able to reach the EBITDA breakeven.

Moving ahead, the operating results on Slide Two, we can see that at the end of the first quarter of 2009, the company’s revenue generating units reached almost 58 million, of which about 22 million are fixed lines in service, almost four million are broadband users, and approximately 32 million are mobile customers. Growth of 10.3 million users in the past 12 months reflects the strong performance of the mobile and fixed Broadband segments, with almost 10 million net additions and 600,000 users, respectively. With the launch of 3G operations, which until the end of first quarter was focused on selling mini-modems, it has become very important to analyze the fixed broadband service along with additions of 3G mini-modems, which add almost 187,000 users to the base in 12 months. This way the increase in broadband clients for the Oi Group through ADSL, cable, and 3G amounted to about 800,000, or 24% year-over-year.

On Slide Three, we analyze the performance of the wireless segment, which grew nearly 45% in the past 12 months, exceeding the performance of the Brazilian market of approximately 22% in the same period. Considering the net addition in the mobile segment, 2.6 million accounts for the start-up in the Region III São Paulo in October, 1.4 million comes from Region II, and the rest comes from Region I, of which one million results from the acquisition of Amazônia Celular in April 2008.

By the end of the quarter, our domestic market share was almost 21%, a 3.3 percentage point increase over March 2008. We are able to maintain the leadership in Region I with a 31% market share. Region II market share was up to 15% and we already accounted for almost 7% of the São Paulo market after less than six months in operation.

It’s important to note, that the pre-paid segment has been the main source of growth, responsible for about 90% of the additions in the quarter and 87% of the additions in 12 month period, making up for 84% of the total client base at the end of March 2009. Such performance reflects the focus on selling the naked SIM card, a strategy that results in lower acquisition cost for clients. In addition, the unblocking of handset and the success of the Ligadores campaign contributed to higher sales in the pre-paid segment.

In the post-paid customer base, we again highlight the almost 80% increase in the Oi Conta Total plan year-over-year, accounting for net additions in excess of 500,000 in the period.

Moving ahead to the economic and financial results on Slide Four, consolidated gross revenue amounted R$11.2 billion, rising almost 8% comparing with the first quarter of 2008. In the wireline segment, gross revenue amounts to almost R$9 billion, 3.6% higher than in the first quarter of 2008.

The wireline segment added R$2.3 billion, growing 28% compared with the same period of 2008. In the wireline segment, revenues from network users and from data communication service more than offset the drop in revenues for local service and public telephone. In both case, there was a negative impact from fixed to mobile subscription derived from the promotions by mobile operators involving bonuses or minutes package for on-net calls. Growth of about 26% in data service is mainly a result of an increase of almost 65% in ADSL revenues influenced by expansion of the average Oi Velox user base.

In the wireless segment, Amazônia Celular accounted for about R$50 million of total growth, which equaled R$502 million. Amazônia Celular was not consolidated in the figures of the first quarter of 2008 as it was acquired only in April 2008. The remaining amount of approximately R$450 million reflect the greater average user base in all regions, I, II and III. The higher number of post-paid users, especially Oi Conta Total subscribers positive influence subscription revenues. On the other hand, the higher average base in the pre-paid segment result in increase of outgoing calls. In addition, we must highlight the growth in data and value-added service revenues as a result of growth in the number of short message, 3G, data subscription fees linked to additions to the Oi Ligadores campaign itself.

Consolidated operating expenses are detailed on Slide Five, showing growth of R$648 million in the last 12 months. However, in this quarter, we had costs that totaled R$490 and it makes it difficult to compare the two periods, which can be divided in two groups. One, the non-recurring items in the amount of R$185 million, and two, R$234 million in items that did not exist in the first quarter of 2008.

The first non-recurring items refers to basically several consultants expense for the purchase of Brasil Telecom, a non-cash impact for the end of deferrals for subsidized handsets sold to post-paid clients and expenses related to administrative restructuring and other expenses related to the Brasil Telecom’s integration process.

The non-comparable items result from; one, the consolidation of Amazônia Celular started in April; two, São Paulo mobile start-up in October; and three, the standardization of accounting principles used by Oi and BrT none of which were recorded in the first quarter of 2008, as they did not exist at that time.

Without these items, non-recurring and non-comparable consolidated cost would have grown R$229 million or just 5% compared to the first quarter of 2008. Mainly resulted from, one, higher spending on personnel fueled by the impact of the new call center legislation which were enforced in December 2008 as well as the integration of the call center at [inaudible]. Two, other operating expense increased due to higher Fistel fee expense as we have a larger customer base. And three, spending on third-party service increased driven by higher maintenance expense, higher commissions due to increase of customer base, and data processing, et cetera.

Slide Number Six shows the consolidated adjusted EBITDA resulting from revenues and cost we already discussed, which amounted R$2.3 billion, or R$208 million lower than in the first quarter of 2008, with a recurring margin of 31.7 in the quarter. It must be noted, however, that from this reduction about R$52 million refers to items that were not part of last year’s figures, such as the São Paulo start-up, Amazônia Celular, higher provision for bad debt at Brasil Telecom due to the standardization of accounting principles used by Oi and additional expense related to the integration of Brasil Telecom as detailed on the previous slide. Without this effect on EBITDA, the reduction would have been R$156 million or 6%.

In addition, at Brasil Telecom holding and operating companies, the adjustment to Oi accounts practice result in a non-recurring negative impact of R$449 million. This amount did not impact the consolidated result of the new Oi, given that such adjustments were made on the date that control was acquired.

Moving to Slide Seven, we can see other items in the results. The year-over-year comparison shows net financial expenses higher by R$462 million, and depreciation higher by R$116 million, basically due to the starting of the amortization of the goodwill related to the purchase of Brasil Telecom.

Both items combined with EBITDA reduction previously explained result in a R$552 million reduction in net earnings on year-over-year basis, which amounted R$11 million. Higher net financial expense in the quarter results mainly from higher average net debt, higher borrowing cost at the end of last year, monetary variation in contingencies and other liabilities such as 3G license, as well as the new accounting principle related to swap operations pursuant to Law 11,638.

Slide Eight features the Company’s consolidated debt. By the end of the quarter, Oi’s consolidated total debt amounted to R$25.8 billion, R$5.3 billion more than in December 2008. The increase was driven by the consolidation of Brasil Telecom Participações and Invitel gross debt in the amount of R$5.9 billion.

Of the total debt, approximately 82% is in local currency, while the rest is in foreign exchange swaps and foreign currency debt. However, it must be noted that during the first quarter of 2009 the Company reduced its total debt exposure to foreign exchange fluctuations, falling from about seven to 2.2% making up less than $250 million.

For the quarter, the effective cost of debt including hedging operations was at the annual rate of 11.65% or equivalent to 97% of CDI. The net debt grew in the quarter by about R$9.4 billion, of which R$2.5 billion result from the consolidation of Brasil Telecom net debt, in addition to the disbursement made during the quarter, mainly due to the payment for the equity control of Brasil Telecom between Invitel shareholders in the amount of R$5.4 billion.

Therefore, the consolidated net debt in March 2009 was R$19.5 billion. Currently, net debt equals to 1.9 times adjusted consolidated EBITDA in the last 12 months. Borrowings made during the second quarter included a placement of bond in international market in the amount of $750 million with a maturity date of 10 years. And debentures in the domestic market will help to improve the Company’s debt profile vis-à-vis the amortization schedule as shown at this slide.

On Slide Nine, the new company’s consolidated CapEx amounted R$900 million, 12% higher than the same period in 2008. Of this total, CapEx for the wireless segment rose sharply, accounting for 42% of the total consolidated CapEx from 19% the first quarter of 2008.

The mobile start-up in São Paulo, which was not part of the CapEx for the first quarter of 2008, explain much of this increase. At that time, Oi’s mobile operation in São Paulo did not exist yet. CapEx for the Wireline segment decreased in the quarter when compared to the same year ago, given that in the first quarter of last year CapEx rose to expand broadband.

Consolidated CapEx accounted for 12% of the consolidated net revenue. It’s important to highlight that historically investments made during the first quarter are typically the smallest when compared to all quarters in the year. Thus, we raised the rate our CapEx guidance for 2009 of five to R$6 billion.

Before we move to Q&A section, we would like to update you on the start of the integration process with Brasil Telecom. At the end of April, Oi began introducing the Oi brand in Region II by launching the Ligadores campaign. The Company aimed to launch the brand in aggressive offer, showing customers that Oi has a different proposition. This was applied to Oi’s launch in Region I and in São Paulo. We could not be different in the case of Brasil Telecom’s region.

In addition to the offer, we will have more sales distribution channels, mostly in the small scale retail segments, such as newsstand and pharmacies, and a minimal recharge amount to R$1 instead of R$5 currently available at Brasil Telecom. The Company’s strategy is to gradually migrate Brasil Telecom’s whole portfolio of retail service to Oi offers.

As for the corporate segment, we finalized the first step of integration process of the products portfolio as well as the distribution channels of both companies, focusing on the commercial integration with new policies in addition to new price and offer.

As a result, we already are working on a unique approach to the national conglomerate, maximizing the appeal of Oi offers in the market. This means that the Company is more competitive and can be more aggressive in its offers, which will help us to consolidate as the leader in this segment including Region II.

Following the initial quick wins and implementation of unified corporate structure, we continue working to implement a single management model, have a single centralized center for administrative service, unified network operating and maintenance model, as well as converging the direct plan of technology.

Besides that, we are waiting formal approval from the CVM in order to launch the mandatory tender offer. We expect to have it concluded by mid-June. After the tender offer, we will begin to streamline Oi’s corporate structure with the corporate consolidation of the involved companies. We expect to conclude this process by the end of this year.

Now let’s finally move to your questions. Thank you very much.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Peter Lyons at Oscar Gruss.

Peter Lyons - Oscar Gruss

Hi, guys. My question is regarding the 185 million non-recurring operating expenses you mentioned. I believe 114 million of that is due to the handset deferral termination. If you could just give us a breakdown of the remaining 71 million of these non-recurring expenses, just so we have an idea looking forward how operating expenses might evolve? Thank you.

Alex Zornig

Yes, Peter. R$30 million relates to personnel expenses, it means that – because we had to lay off people. And R$43 million – R$45 million roughly is expenses relating to consulting and lawyers, things like that, regarding the acquisition of Brasil Telecom.

Peter Lyons - Oscar Gruss

Now I’m assuming some of these issues will not completely go away in the second quarter, but maybe in the third quarter?

Alex Zornig

I think you are right. The third quarter we won’t have any more – not material expense relating to the merger with Brasil Telecom. But in the second quarter you are right, we are going to have some of these expenses already yet.

Peter Lyons - Oscar Gruss

Okay. And my second question is with regards to the taxes and discounts as a percent of gross revenue. I noticed a really substantial increase over the fourth quarter ‘08 and the first quarter ‘08 on a pro forma basis. If you could just give us an idea what’s going into that increase at the top line before net revenues?

Alex Zornig

Yes. It’s mainly discounts on broadband on Region II that made that – to increase the discounts, okay, and a little bit from Region III in São Paulo.

Operator

Our next question comes from Henry Cobbe at Nevsky.

Henry Cobbe - Nevsky

Hi there. Thanks very much for the call. Could you just run through the treatment of the goodwill, arising on the deal, is it 9.54 billion of goodwill? And how long are you amortizing that over for the P&L, and how long are you amortizing it for the fiscal accounts?

Alex Zornig

Okay, Henry. It’s nine – so far the amount we reached is R$9.8 billion. And for accounting-wise we are going to amortize in 17 years, which is the period of the concession we have. For tax-wise, we are going to amortize in 10 years.

Henry Cobbe - Nevsky

Okay. And will that 9.8 billion increase when you do the mandatory tender offer?

Alex Zornig

I don’t think so because we almost finalized the appraisal of Brasil Telecom. And there was a big adjustment we made already to the goodwill. We don’t believe this number will change dramatically.

Henry Cobbe - Nevsky

Okay. And next question, just on the existing – former TNE mobile business, Oi, not the Brasil Telecom part. There are two dramatic shifts. One is that the acquisition costs, or handset subsidies and marketing expenses, has exploded for the first time. So are you going away from the naked SIM strategy in São Paulo? Are you also giving away handsets and that kind of thing? And also the free minutes has really hurt your cost of service which moved up to about 22% of sales. So what strategies, on-net strategies, are you launching to try and control that off-net cost?

Alex Zornig

Yes. Regarding São Paulo, the question regarding São Paulo, the naked chip we will continue using the same strategy in São Paulo the way we are using in other regions, okay. This R$114 million of handset subsidies relates to Region I alone, because we are just equalizing the same criteria we have for Region II. So we are in line with Region II now. And the expense, sales expense went up, because we are rebranding Oi in the Region II. So we are rebuilding some of the sales channels we have. And also, we are – because we are in the start-up phase in São Paulo, of course, we are giving a little bit more commission to our sales partners than in a standard way when we have the São Paulo already established, okay.

Henry Cobbe - Nevsky

Okay.

Alex Zornig

Sorry, the naked SIM card is a country-wide strategy, okay.

Henry Cobbe - Nevsky

Okay. And very lastly, of the five, six billion CapEx that you mentioned, what would be the split between mobile and fixed?

Alex Zornig

Hold on. Let me get it here. Okay. For the year, the mobile is 42%. And for the fixed line, it’s 58%.

Henry Cobbe - Nevsky

Okay. And given your comments in the investor release about boosting up free cash flow to de-lever back to down two times net debt to EBITDA, are you considering – is there a downside risk to that CapEx, if the economy is slow? And what would be a rough idea for 2010 budget?

Alex Zornig

Well we don’t think that the CapEx for 2009 will decrease. We still believe we are going to reach five – between five to six. But I would say we are much closer to five than to six, okay. And why? Because we are building – we’re improving the quality of the infrastructure in Region II, so we need to complete that for us to be able to continue growing in 2010. For 2010, we didn’t prepare the budgets yet. But for sure, we don’t think we’ll be at the same five to six billion. It will be a little bit lower than what we spend this year.

Henry Cobbe - Nevsky

Okay.

Alex Zornig

Just to mention is that this R$5 billion CapEx is a little bit – the purchasing power is higher than if we spent five billion last year, because with the new company, and because of the economic crisis, that help us in this situation. We are able to acquire more, paying the same amount we paid last year.

Henry Cobbe - Nevsky

Okay. And last two questions. Is there any progress on a dividend policy? I think that’s it actually.

Alex Zornig

No progress.

Henry Cobbe - Nevsky

Okay...

Alex Zornig

Sorry. I’m not going to lie to you.

Henry Cobbe - Nevsky

Okay. Thanks very much, indeed.

Operator

The next question comes from Valder Nogueira at Itaú.

Valder Nogueira - Itau

Alex, just following up on the goodwill question. The change in the shareholder equity of Brasil Telecom that you promoted this quarter, does it increase the amount of goodwill that you will amortize?

Alex Zornig

Can you repeat? Sorry, Valder.

Valder Nogueira - Itau

Okay. You took a provision on these net worth of Brasil Telecom this quarter, or maybe retroactive to last year, does it increase the amount of goodwill that you will amortize arising from this acquisition?

Alex Zornig

It’s already in this amount, I explained to your colleague before.

Valder Nogueira - Itau

Okay. Thanks.

Operator

The next question comes from Peter Lyons at Oscar Gruss.

Peter Lyons - Oscar Gruss

Hi, guys. Just a follow-up question on the selling expenses at BrTP. You guys mentioned that there really wasn’t much in the first quarter in terms of selling activity at BrTP. Yet when I look at the income statement of BrTP, we see that selling expenses increased to R$417 million in the first quarter over 285 million in the fourth quarter. So if you could just explain to me what the selling expenses are going to, and what P&L is spending in Region II and how that should look going forward.

Alex Zornig

Yes. We – what happens to – what is the strategy we used for in the first quarter for Region II? The strategy was we are out of the media in Region II because we launched two weeks – one week ago, the new brand. We re-brand Brasil Telecom brand to Oi, okay. And – but besides that, the sales strategy and policies in Region II were completely different, the way we deal in the other two regions. So these expenses are the expenses building up the sales platform for us to be able now to launch the new brand, the new strategy, the new policies that we are going to do in the next three quarters, okay.

Peter Lyons - Oscar Gruss

Okay.

Alex Zornig

Also, there was an increase on the bad debt provision on the mobile, because – I don’t know if you read one of our press release regarding the adjustment – the equalizations of accounting principles between Oi and Brasil Telecom.

Peter Lyons - Oscar Gruss

Right.

Alex Zornig

Therefore, we increased the PBD, or the provision for bad debt, on Brasil Telecom in order to be in comply with Oi’s accounting policy. So that’s another reason for the increase on sales expenses.

Peter Lyons - Oscar Gruss

Got it.

Alex Zornig

Okay?

Peter Lyons - Oscar Gruss

So looking forward, we can expect a similar sales level relative to operating revenue in Region II?

Alex Zornig

Yes.

Operator

Our next question comes from Henry Cobbe at Nevsky.

Henry Cobbe - Nevsky

Hi there. Could you give us a bit of an update on the synergy targets that you mentioned after the fourth quarter call?

Alex Zornig

Well. I mentioned R$600 million, if I am not wrong, in that call, and I said that this is already net of the expenses, because in order for to save expenses, you need to spend before to save after. We are in line with that expectation and it’s important to mention that the R$600 million is for the whole year. And also, as I explained in the other call, we spent the first four, five months in the year in order to get the savings. We expect to get the savings in the following seven months of the year.

Henry Cobbe - Nevsky

Okay. And, very lastly, when – on the mobile segment, the low tax benefit, you had some very strong improvements in EBITDA margins over the last – I don’t know – eight quarters, and obviously, with the São Paulo launch, it has taken a big hit. How quickly do you expect it to get back towards the high 20s?

Alex Zornig

I think, beginning of next year, São Paulo will be in breakeven, and we believe that is where we are going to be there.

Operator

(Operator Instructions) Our next question comes from Vera Trojan of Wellington Management.

Vera Trojan - Wellington Management

Yes. My question is to get some clarity on the statement you made at the end of your presentation, when you said you wanted to streamline Oi’s corporate structure by year end. Could you explain what you mean by that, and does that extend to looking at your various share classes as well?

Alex Zornig

Okay. As you know, Vera, we have a tender offer that will be due by middle of June, and therefore, after that we are going to restructure the Brasil Telecom companies. We have several companies between Telemar and Tele [inaudible] II, to reach – the operating company of Brasil Telecom. So we are going to merge several companies in – because in order to reduce the layers of companies of that. So we are going to – after this tender offer – we are going to make the structure much more central. And we expect to finalize everything by end of December this year. Did I answer you?

Alex Zornig

Vera?

Vera Trojan - Wellington Management

Yes. But again, maybe you could give some detail as to what you mean by getting rid of different layers, and how the corporate structure will look when you’re done, and what will be the listed share?

Alex Zornig

Okay. At the end of day, we are going to have TMAR holding 100% of Brasil Telecom operating company shares, and Telemar, TMAR will be listed in New York Stock Exchange. So that’s what the goal we are going to reach. Today, Telemar, TMAR is not listed in New York, and you have – and several layers – we have I think six layers up from TMAR to reach Brasil Telecom operating company. So what we’re going to do – We are going to merger these several holding companies. These all pure holding companies, we’ve got in there. And then we are going to list TMAR shares and TMAR will have 100% stake in Brasil Telecom operation.

Vera Trojan - Wellington Management

Okay. Thank you.

Operator

The next question comes from Peter Lyons at Oscar Gruss.

Peter Lyons - Oscar Gruss

Hi, guys. My last question is regarding the – I guess, decision by Anatel expected regarding the 2.5 gigahertz spectrum, and whether or not they’ll renew the MMDS licenses. If you could just give us an idea of where you guys stand in terms of – how you think this spectrum should be allocated, and what we might expect over the next couple years in terms of the spectrum requirements for increasing 3G services and everything along those lines? Thank you.

Alex Zornig

Hey, Peter. This is very technical for me. I’m going to pass your question to my colleague, Flavia. She is from the regulatory area, and she will answer you.

Flavia Menezes de Oliveira

We expect Anatel to bid the Wi-Fi business was stopped a year and a half ago, but that’s the only thing we are expecting for this year in the structure. So...

Peter Lyons - Oscar Gruss

For WiMAX.

Flavia Menezes de Oliveira

Yes, for WiMAX.

Peter Lyons - Oscar Gruss

Now, if there’s an auction, are you guys interested in participating for WiMAX?

Flavia Menezes de Oliveira

We are not sure that there is going to be the auction, okay?

Peter Lyons - Oscar Gruss

You’re not sure?

Flavia Menezes de Oliveira

Yeah, but it’s in the agenda. So, it might come. We’re expecting it to come to Anatel’s agenda this year. And if it’s open, of course, we are going to think about it and see the terms and how to participate.

Operator

The next question comes from Henry Cobbe at Nevsky.

Henry Cobbe - Nevsky

Hi, just following up on the restructuring. You mentioned you will be looking to list Telemar shares. Are you are referring to the TMAR3 and TMAR5 equivalents in the U.S.?

Alex Zornig

Just TMAR5.

Henry Cobbe - Nevsky

Just TMAR5.

Alex Zornig

Yes.

Henry Cobbe - Nevsky

Okay. And will that be new shares or existing shares?

Alex Zornig

Both.

Henry Cobbe - Nevsky

So you’d be raising finance?

Tarso Rebello Dias

This is Tarso. Just because of the mergers, BrT Oi shareholders are going to be swapped through TMAR shares. So in that process, we’re going to have to offer TMAR5 shares to all existing BrT shareholders. So that’s why we need to list TMAR and to offer new shares.

Henry Cobbe - Nevsky

Okay. This refers to the exchange ratios that were announced last year?

Tarso Rebello Dias

Exactly. Because, remember we bought part of the shares by cash, but part of the preferred shares were not paid in cash, so they’re going to be swapped through TMAR shares.

Henry Cobbe - Nevsky

And so the new TMAR5 from the exchange ratio of the former BRT3 that will be listed in the U.S.?

Tarso Rebello Dias

Yes.

Henry Cobbe - Nevsky

And what’s the advantage of having a dual listing of both TMAR and TNLP in the U.S.?

Tarso Rebello Dias

This is not an auction. I mean, we need to have TMAR listed because BrT, the two companies are currently listed. So because they’re going to be 100% incorporated, these shares, we need to offer the same rights to existing shareholders. So that’s why we need to list TMAR. The two companies are going to survive, I mean TNE and TMAR. So that’s why we are going to have both companies listed.

Henry Cobbe - Nevsky

Are there any plans to collapse the TMAR TNLP structure at some stage?

Tarso Rebello Dias

No. Not at the moment.

Tarso Rebello Dias

Yeah.

Operator

(Operator Instructions) Since there seems to be no further questions, I would like to turn the floor over to Mr. Alex Zornig for his final remarks.

Alex Zornig

Thank you. Before closing this call, I would like to emphasize our main goals for this year. First, the integration of the two companies Oi and Brasil Telecom, and it’s not just in the cost side, we are currently rebranding process in the Region II. The goal is to relaunch the products and step-up to the end of the year.

As I already mentioned, the first product that was launched recently was the Ligadores offer before Mother’s Day here in Brazil. So far, we sold 400,000 new phones in the Region II with a brand Oi. We are talking about 10 days. Second, the continuation of growth, especially having the mobile and broadband as the main drivers. And third, focus on cash generation aiming to reduce our leverage ratios.

Once more, I would like to thank you for attending this conference call. Our IR team is at your disposal for further clarification. Feel free to contact us. Have a good day.

Operator

This concludes Oi’s conference call. You may now disconnect and have a good day.

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Source: Tele Norte Leste Participacoes SA Q1 2009 Earnings Call Transcript
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