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Tele Norte Leste Partricipacoes SA (NYSE:TNE)

Q4 2009 Earnings Call Transcript

March 15, 2010 11:30 am ET

Executives

Alex Zornig – CFO and Director, IR

Paulo Mattos – Regulatory Affairs Director

Analysts

Michel Morin – Barclays Capital

Marshela Gonsalves [ph] – Credit Suisse

Rizwan Ali – Deutsche Bank

Christopher Buck – Barclays Capital

Henry Cobbe – Nevsky Capital

Nick Hoff [ph] – Spot Trading [ph]

Daniel Spilberg – Barclays Capital

Operator

Good morning, ladies and gentlemen, and thank you for standing by and welcome to Oi’s conference call to discuss the fourth quarter and year of 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 known and unknown risks and uncertainties that could cause the company’s actual results to differ materially from those expressed in such 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 future developments.

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

Alex Zornig

Thank you. Good morning everyone. Welcome to the conference call to present, analyze the results of Oi’s subsidiaries for the fourth quarter and full year 2009. Before we start I’d like to remind you that Oi’s financial statements as well as this presentation are already available at our investor relations website.

Together with me today are Claudia Bitinkur [ph], Marketing Director; Paulo Mattos, Regulatory Affairs Director; Tarso Rebello, Treasury Director; Mark Schroeder Controller; Roberto Terziani, and Biar Contrigo [ph] Investor Relations team. I’d like to take this opportunity to inform you that Biar who has worked at Oi’s Treasury department for seven years will join the Investor Relations team to replace Terziani, who after 11 years doing a competitive job at Oi will retire. Terziani will still remain with us for a few more months helping Biar and our IR team in this transaction process. He is going to – and Terziani is going to be Director of soccer team called – as one soccer team called Fluminacy [ph].

Moving now to the presentation, on slide two, we again, update you on the Oi and Brazil Telecom integration process which is freshly concluded. Since the first beginning we hope to reach 2010 with a new company completely restructure aiming to absorb synergies and consolidate the best commercial sponsors nationwide. Therefore, I would like to summarize that the network covering the entire country and all activities related to the conception, planning and operations at both companies are already integrated. Internal plans maintenance servicing region one and three will concentrate on a single supplier.

We have already concluded the concentration of a sterile plan to maintenance for Region II into already two suppliers. The network operating centers will consolidate into a single one which enables us and integrate region and management of Oi networks improving its quality and lowering maintenance expenses.

As relating to the marketing challenges, Oi adopted a single brand model for Region II, in April, the Oi brand. As a result in less than one month about 10,000 public telephones, 80 stores and kiosks, more than 700 authorized stores and roughly 1,000s sales counters were migrated.

A single model for sales on these traditional channels in Region II was created. The retail area was restructured to focus on the so-called small scale retail aiming to expand our distribution. These initiatives were followed by the expansion of the virtual recharge model. The portfolio of products and offers was virtually integrated starting with Oi Ligadores offer or our prepaid offer. After one month, this plan added more than 1 million new customers in Region II. In 2009, Oi launched the postpaid fixed and broadband offer, Oi Quanta Oi Fixo, Oi Velox and Oi Velox 3G.

The conversion product, Oi Conta Total, will be also launch in that region during the first half of 2010, since this is a more complex product, which requires additional system relate needs. As per the synergy cost, top management was concentrating in Rio de Janeiro under a single integrate model.

More than 30 initiatives aimed at reducing costs have been implemented successfully, including a) administrative restructuring, b) renegotiation of supplier contracts, c) utilization of the internal infrastructure instead hiring other telecom service providers, d) adoption of the strategy of selling naked SIM cards in Region II, which reduce the subscriber acquisition cost in that region.

From a corporate standpoint, many integration steps have been completed. In June, the mandatory tender offer for the acquisition of common shares of BRTO and BRTP for minority shareholders were conducted. In July, several intermediary holding companies were incorporate by BRTP and BRTO helping to simplify the corporate structure. In September, Brasil Telecom Participacoes was incorporated in its subsidiary Brasil Telecom SA. Through this corporate action all the shareholders of the holding company exchanged their stock for shares of the operating company. The next step will be the BRT’s minority shareholders vote of the new ratio to swap the BRT shares into TMAR. If the new ratio is approved we will have finalized all the steps previously announced.

On slide three, we will begin by analyzing Oi’s consolidated operating performance. It is worth noting that the figures report for the fourth quarter and the year 2008 are pro forma to facilitate comparison between the two periods. As you know, 2009 was a very unusual year, although the integration actions that have been implement since mid 2009 began showing positive results, this process also brought significant non-recurring costs.

Also, we decided to adopt the Oi product portfolio at both companies which was conducted in two stages starting from the simplest offers to the most complex ones, benefiting the most from each campaign. As a result, it did not make sense for the company to invest in marketing for old Brazil Telecom products and offers which not only influenced sales and revenues at region two, especially those under fixed and broadband segments.

Lastly, certain products that used to be sold at region were phased off such as Pluri, the old Brazil Telecom convergent offer. In addition to cleanup of the fixed mobile broadband base, the latter as a result of the Pluri disconnection. Still we entered 2009 with almost 62 million revenue generate units, 2% up in the quarter and 11% up from 2008. At the end of December, the group had 21.3 million fixed line in service, 36.1 million mobile customers, 4.2 million broadband users and 234,000 TV subscribers.

In the fourth quarter of 2009, 1.3 million customers were added, reaching almost 6 million in the whole year. The video service via DTH technology was launched in July in Rio de Janeiro and in spite these small investment in marketing it proved to be successful. In December 2009, this service was available in five states. In addition to the video the wireless and broadband segments continues to be the engines of growth as seen on slide four next.

In the mobile segment, we highlight the performance in Region III, São Paulo is still boosted by the start-up phase as well as in Region II following the launch of the Oi portfolio there. Those two regions accounted for 55% and 25% of the total mobile additions of the company respectively. At the end of 2009, Oi had a 21% national market share including 28% in Region I, 16 in Region II and 12% in Region III after 15 months of its launch. Of the 36 million mobile customers 84% were prepaid, 12% were postpaid and 4% had controlled plan.

Our convergent products Oi Conta Total had more than 1.4 million mobile customers, or almost 40% of the postpaid user base in Region I, the only area where the product is currently available. Oi’s broadband service consider fix and mobile users and in 2009 with 4.7 million users of which 741,000 new users were added in the year and a 130,000 in the quarter. Our 3G Oi Velox had 470,000 customers in December 2009.

On slide five next, we would start analyze the financial results. Consolidated gross revenue amount to about R$11.7 billion in the fourth quarter of 2009, reaching R$46 billion in 2009. Wireless and data communication service performed strongly, combined these represent almost 41% of total revenues. In the fixed segment, it's important to mention the positive performance of network users in the quarter, which is explained by the increase of calls and in a fixed network due to the bonus offer by the other mobile operators.

The increase in data revenue in the quarter and in the year, mainly as a result of the more robust Oi Velox user base. In the mobile segment we highlight all revenues items, which were benefit by the higher average user base and increase in the data service, both in 3G and SMS. Consolidate net revenue in the quarter amount to about R$7.5 billion, reaching R$30 billion in the year basically unchanged compare to 2008.

Next on slide number six, we highlight the increase in operating expenses, which equal about R$5.5 billion in the quarter amounting R$22.6 billion in the year. As I mentioned earlier, last year was unusual as the company have several non-recurring expense, such as those linked to the integration process with Brasil Telecom, the amortization of deferred assets related to the subsidies for postpaid handsets with no cash impact, other non-recurring expense relate to an asset and the judicial deposit write-down as well as the reorganization of call center position among others.

The non-recurring expense in the quarter reached R$305 million adding R$1 billion in 2009. It is worth noting that as a result of the accounting practices relate to the consolidation, it was necessary to reflect at TMAR consolidate and TNE consolidate the effect on minority stakeholders related to the continuous provisions done at Brasil Telecom during 2009.

Even when this effect affect consolidate costs and expense, there was no cash impacts or on the border line. The effect in 2009 consolidate costs and expense is also non-recurring and amount to R$1.6 billion. It's clearly the non-recurring effect of 2009. The operator expenses would have reason, less than 2% from 2008, mainly due to the startup in São Paulo, which reach until October 2008 was in a pre-operational phase.

And till, the only marketing cost in that state had been already accounted for the results. Considering the same base for comparison purpose, that is excluding non-recurring costs and those related to São Paulo operations, operating expense would have declined about 4% in 2009 an evidence of the initial results of the synergies already obtained from the merger between Oi and Brasil Telecom.

On slide seven, we present the consolidated recurring EBITDA which in this quarter amount to R$2.4 billion, reaching almost R$10 billion in 2009 with margins of 31.4% and 33% respectively. It must be noted that the impact on EBITDA quarter stems from higher spending on the mobile operations in São Paulo mostly related to the plant maintenance, sales and marketing expense. We still expect that the operations in Region III will reach the EBITDA breakeven beginning of the second quarter.

On slide eight, we present the remaining items of the result. Financial expense grew in the quarter due to the groups’ higher than net debt. Financial expense also rose in the year mostly due to the lower financial revenue and a cash investment volume decrease. Depreciation and amortization rose on the year due to the stock of the amortization of goodwill related to the acquisition of Brasil Telecom.

In the fourth quarter and in the year, the company post a negative net result because of non-recurring expense explained before. The negative impact of São Paulo start-up and the possibility to physically use the goodwill from acquisition of Brasil Telecom during most part of 2009. In this case, the company could not obtain tax savings as a result of the amortization of goodwill while it was still at a holding company.

Slide nine features the company’s debt profile. December 2009 consolidated gross debt amounts to almost R$30 billion and net debt equals to about R$22 billion or 2.2 times 2009 recurring EBITDA. The dividend disbursement to TMAR and TNE share holds in October explain approximately R$750 million increase in net debt in the quarter. At the yearend only about R$236 million or less than 1% of gross debt was exposed to foreign exchange fluctuation. The effective cost of debt stood at 10.6% or 107% of CDI rate at the end of the year.

CapEx expenditure is detailed on slide 10. In the year CapEx had more than R$5 billion of which R$2 billion were invested in the last quarter. CapEx in 2009 accounts for 17% of that revenue in this year. The reduction for more than R$7 billion in 2008 stems from the fact that the 2G and 3G licenses were registered in that year as well as investments for the introduction of number portability and São Paulo startup.

Of the total CapEx for 2009, approximately 7%, 8% were direct growth business, of which 48% was investment in mobile segment and 30% in data communication service. For another quarter investments in the mobile segment were focused on the expansion on improving the network. In the fixed segment, CapEx was mainly direct in broadband and communication systems.

Before we move to Q&A, I’d like to make some comments on what we expect for 2010. In general in 2010 we will be focused on improving our margin and boosting profitability and cash flow. Although there will be different approach considering particularities in each of the region. For Region II and III the customer base growth will still be important, particularly in Region III focus will be given to postpaid segment. In Region II we will encourage the migration of customers from BrTO’s portfolio over to the new Oi portfolio in every segment. In Region I where we are leaders, the focus will be given to increase customer profitability.

The company will focus on increasing ARPU for its existing clients. In the fixed segment the company will keep defending its current user base. In broadband Oi will seek to grow as much as it did in 2009 and we will continue with its product to invest in fiber optic and strategies with the goal of increasing the supply of higher speed. TV subscription via DTH technology was recently launched successfully, since one of the main objectives of goals of this product at the moment is to defend our fixed line and service base.

2010 Oi will have a large aggressive approach and then attempt to understand what this product adds to the fixed business. 2010 in the coming years Oi will be focused on generating cash and reducing leverage. These reductions will be managed alight over the Brazilian macroeconomic scenario and the company's cash generation.

We aim to reach a net debt to EBITDA ratio of 1.7 times by the end of 2012. And for CapEx after incurring huge and important investment in the last two years, in 2010 we will focus at growth and increasing broadband speed. In terms of synergies, we still respect R$1 billion in annual OpEx cost savings for 2010 considering the combined operation of both companies.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Michel Morin from Barclays Capital. Please go ahead.

Michel Morin – Barclays Capital

Yes, good morning, everyone. Alex, I was wondering why are you so focused on the CapEx reduction and the debt reduction level. It seems as an outsider, anyway, that the current debt levels are really not an exaggeration, they are not too high perhaps and yet when we look at the quality metrics, it seems like you are lagging your peers. When we look at mobile growth it seems that you are lagging there as well, and I think you have made some comments that you are not looking to grow too aggressively in the pay TV despite pretty good success so far. So, I am little bit puzzled as to why the focus on CapEx touch and deleveraging this year? Thank you.

Alex Zornig

Okay, Mike, your first. We are lagging on mobile net ads on region I but we are lagging because we want to lag, because our focus on mobile growth in region I is to – as I mentioned is to improve our margins. So, we are not going to do crazy things like some of our competitors just because we want to be ahead on the net ads. We want to have good customers, not any customers.

Michel Morin – Barclays Capital

Okay.

Alex Zornig

In region III and II, on the other hand, we need to grow market share and there, we are going to be more aggressive, and therefore you will see for the São Paulo 60% of the net ads last year was for Oi and we will continue to focus on growth in both regions. And in terms of your comment that 2.2 is not big enough for a couple of our sites? You are right, if we are in the country that we have civilized interest rates.

Michel Morin – Barclays Capital

Okay.

Alex Zornig

In a country that you would never know next morning you wake up and then the Central Bank had increased its interest rates to 14% it’s not good to have a leverage of that size, okay. So that’s why we believe that 1.7 and 1.8 is a feasible and reasonable and protective ratio in a country like Brazil. And regarding the quality, you are right; we are lagging in some of our – to be honest in the mobile sub just one competitor.

The other two are in the same standard of us. And every time you merge two big companies like we did, qualities effect. And now in 2010 one of our mantras, as I would like to say, is to improve our quality perception and it’s not difficult because we don’t need CapEx to do that. We need to change process or improve process. So the CapEx for quality is – because we are not being penalized by infrastructure quality, it’s much more. We have two billing systems, we have three backup systems, things like that, and the call centers are different, and therefore is just a question of process, not CapEx.

Michel Morin – Barclays Capital

Right, okay. And on the DTH, I don’t know if you can address that also, it seems that you are doing very well, but yet you are not looking to focus on it too much.

Alex Zornig

Now we are going to focus. The only difference there we launched DTH TV for protecting our fixed line base. We will continue to be aggressive but protecting our fixed line base. We don’t want to use the DTH TV for a new business. First, because this – if it’s a new business, it is going to affect negatively our EBITDA for the next two years. And that’s why we want to include DTH as a fourth or fifth product in our bundling in order to protect our fixed line base.

Michel Morin – Barclays Capital

Got it.

Alex Zornig

So we can choose to be aggressive but focusing on protecting the fixed line base, not just to generate the new customer – a new product.

Michel Morin – Barclays Capital

Okay, great, thank you.

Alex Zornig

Thank you.

Operator

Thank you. Our next question comes from Marshela Gonsalves [ph] from Credit Suisse. Please go ahead.

Marshela Gonsalves – Credit Suisse

Hi, thanks. My question is about data revenues in the mobile services revenues. Your data revenues grew pretty strong in the fourth quarter, we should expect this going forward or there is no recurring item in the mobile data revenues, or is there any campaign that could affect your mobile data revenues going forward? And if you could give more details on that that would be helpful.

Alex Zornig

My answer to that Marshela is that, yes you will see our growth in mobile revenue be high, but again as I explained to Mike before, on Region I to increase margins; and Region III and II to be aggressive to increase the base, okay. And it's important, for example, São Paulo we ended the last year with 12.3% market share, and this market share is growing every quarter. So you will see the growth in our revenue because São Paulo now has six million customers, and in beginning of last year we have less than two million customers. So these revenues, and also a very important ratio, 64% of our prepaid customers in São Paulo are recharging every month, so it’s a very big ratio, very high ratio.

Marshela Gonsalves – Credit Suisse

Okay. Thanks. And about long distance in Brazil Telecom long distance code, do you plan to handle just go back to Anatel soon or you could be able to keep the codes even after the acquisition?

Alex Zornig

Okay. I want to pass this to my colleague Paulo from regulatory to answer.

Paulo Mattos

Hi. Well it’s important to clarify first that this is the first time in Brazil that we have the same economic group with two concessions. So, according to Brazilian law and regulations, we have the right to keep each code – one code by concession, and in this way one code by region. So, we are confident that Anatel will allow us to keep the two codes.

Marshela Gonsalves – Credit Suisse

Okay. Perfect. Thank you very much for your answers.

Alex Zornig

Thank you.

Operator

Thank you. Our next question comes from Rizwan Ali from Deutsche Bank. Please go ahead.

Rizwan Ali – Deutsche Bank

Good morning. I just want to go through the accounting of your provisions and, of course, you took R$200 million in provisions related to the BRT Rio Grande suit court case in the fourth quarter and it is my understanding that the whole provision would be about R$1.3 billion, so can you just walk us through exactly how you took provisions, whether would you be taking more of it in the first quarter this year?

Alex Zornig

Which currency are you talking about Reais or?

Rizwan Ali – Deutsche Bank

Reais.

Alex Zornig

The total provision – balanced provision at the end of 2009 for the – I will talk about tax is R$2.6 billion, okay. That’s the total amount at the end of 2009. From this 2.6, 2.3 billion were booked at this year. In the first half of 2009, we had 449 million and the second half of – the first quarter of 2009 we booked at 449 million. The second quarter we booked 1.6 billion, and the last two quarters we booked the difference, okay. And, so, I don’t know, did I answer –

Rizwan Ali – Deutsche Bank

Thanks. I am talking about the provisions related to the Rio Grande suit court case?

Alex Zornig

Yes.

Rizwan Ali – Deutsche Bank

So you think 2.6 billion is total in 2009 right?

Alex Zornig

Not at all. The balance at the end of 2009 is 2.6, and we booked it in 2009, 2.3. We start 2009 with R$339 million, okay.

Rizwan Ali – Deutsche Bank

Okay. So didn’t you announce that in the fourth quarter you take R$1.29 billion charge?

Alex Zornig

No. What we said is that we found out additional necessity to book R$1.2 billion additional charge. But as our auditors had told us that we need to go back to June 2009 and adjust June 2009 for the remaining balance. So the R$2.3 billion, only R$209 million was booked in the last quarter of 2009.

Rizwan Ali – Deutsche Bank

Okay. And where did it show up in the income statement?

Alex Zornig

It shows up as other expenses in the EBITDA.

Rizwan Ali – Deutsche Bank

Okay. So now you are up to 2.6 billion?

Alex Zornig

Yes. 2.664.

Rizwan Ali – Deutsche Bank

Okay. And the auditors were supposed to confirm this amount?

Alex Zornig

They confirmed already.

Rizwan Ali – Deutsche Bank

Okay, so basically it was increased, I think originally it was 2.5 and then they – did they increase it to 2.664?

Alex Zornig

No, no, no. 2.5 was our relevant effect that we issue in January 14. We say that we estimate 2.5 the additional provision on top of the beginning balance in the end of 2008, okay. Now this 2.5 you can say 2.3 billion.

Rizwan Ali – Deutsche Bank

Okay. Now, then and you also mentioned this amount of about R$200 million, extraordinary charge, is this related to –?

Alex Zornig

Yes, related to the same issue. I know it's confuse. The total amount of the balance, the ending balance of provision is R$2.6 billion.

Rizwan Ali – Deutsche Bank

Okay.

Alex Zornig

We start 2009 with R$300 million. So the net amount or the net charge was R$2.3 billion, is split by quarters. And in the last quarter of this – from the R$2.3 billion, we booked R$200 million. The remaining was R$2.1 billion was booked backwards to June and September as our auditors told us to do so.

Rizwan Ali – Deutsche Bank

And you did that in the fourth quarter, you kind of jacked up previously?

Alex Zornig

In that fourth quarter, yes.

Rizwan Ali – Deutsche Bank

Okay, so in some way you kind of restated your previous three quarters’ results?

Alex Zornig

Yes, we restated already into CVM. It’s just an accounting issue; it’s not cash or whatever.

Rizwan Ali – Deutsche Bank

Yes, now in terms of your exchange ratios, the new exchange ratios will now be based on 2.664 billion charge?

Alex Zornig

Will be based on 2.3, because we had talked about only the amount booked in 2009.

Rizwan Ali – Deutsche Bank

Okay. And can you update us on exactly where that process is now, you’ve hired CSFB, I believe, minority shareholder group has hired some other bank?

Alex Zornig

I cannot mention about this, this is results call reason, but you will know soon the next steps. Okay?

Rizwan Ali – Deutsche Bank

Okay, thank you very much.

Operator

Thank you. Our next question comes from Christopher Buck from Barclays Capital. Please go ahead.

Christopher Buck – Barclays Capital

Good morning. I am wondering if you can update us on the financing plans for this year, there were some mention of a possible agreement with China in the past, and I am wondering if you could also comment on the possibility of issuing US$ denominated debt or do you just plan to issue locally this year?

Alex Zornig

Christopher, we are looking for both, okay. We are going to issue a debenture in the beginning of April, local debenture of R$3 billion. So, our strategy is to along the tenors, our average tenor is four years and two months, and the idea is along that for longer and cheaper. And therefore we are looking for any opportunity in Brazil or outside Brazil. I am flying with Mark, shareholder next week to China to sign two agreements, two loan agreements. One for CapEx and other one for working capital, long-term $400 million each.

Christopher Buck – Barclays Capital

Okay, great. And I am also wondering if you can comment on the possible cash outflows regarding the legal contingencies, and when we might receive some more about that, more information?

Alex Zornig

Legal contingencies you are talking about the Brasil Telecom one?

Christopher Buck – Barclays Capital

Yes

Alex Zornig

The Brasil Telecom one, there is no cash in fact because we have already deposited R$5 billion on the asset side. So, the cash is already out, because in Brazil the way the judicial system works is that okay, you can discuss the issue but you need to deposit here because the judicial area of Brazil doesn’t want to run credit risks and therefore they ask for the money upfront. So, if we lose this R$2.6 billion, there will be no cash impact on Brasil Telecom or Oi’s financial status because its already deposited, the cash is already in a escrow account with the judicial area – with the judicial power in Brazil, okay.

Christopher Buck – Barclays Capital

Okay. So, you won't have to replenish those reserves once it really happens?

Alex Zornig

No. I said no.

Christopher Buck – Barclays Capital

Okay. Okay, because it seems like there was an extra 1.3 that got announced relatively recently, and so that won't impact the amount in the reserve deposit?

Alex Zornig

That will not the impact in the amount on cash on the reserve deposit, it's already deposited there.

Christopher Buck – Barclays Capital

Okay great. Thanks very much.

Operator

Our next question comes from Henry Cobbe from Nevsky Capital. Please go ahead.

Henry Cobbe – Nevsky Capital

Hi, there. Just on that point, if you did have to pay out the $2.6 billion from the escrow account, would you actually be able to return any of the $5 billion change to $2.4 billion change that you have or is that to cover interest cost?

Second question, what was your estimate of EBITDA for the mobile business excluding São Paulo?

Alex Zornig

Okay. Henry, the first question, yes, if we are able to settle the case by R$2.6 billion, the change 2.4 will come back to our cash surplus, okay.

Henry Cobbe – Nevsky Capital

Okay.

Alex Zornig

Just for you to lower our excitement, it’s going to take another five years for that to happen, okay.

Henry Cobbe – Nevsky Capital

So that will cover the interest cost?

Alex Zornig

Yes, Brazil – by the way both sides are restated every month by interest, okay. So the assets and the liabilities. But in Brazil, unfortunately the judicial system is not as fast as you can imagine. And regarding the EBITDA, you asked the EBITDA of São Paulo?

Henry Cobbe – Nevsky Capital

The mobile business excluding Oi's mobile business excluding São Paulo?

Alex Zornig

Is around – excluding São Paulo is around R$2.2 billion.

Henry Cobbe – Nevsky Capital

Does that include or exclude Brazilian telecom mobile business?

Alex Zornig

No, that includes Brazil Telecom mobile business and excludes São Paulo charge.

Henry Cobbe – Nevsky Capital

Okay. And presumably there are – all the one-off comps were the fixed line business – mobile business is that right?

Alex Zornig

Yes.

Henry Cobbe – Nevsky Capital

Okay. And what was the employee numbers at the end of the year?

Alex Zornig

29,000 including the call center – the Brazil Telecom call center 29,300.

Henry Cobbe – Nevsky Capital

29,300 and okay. And on dividends I mean, this is it seems like a generous dividend, is there any kind of policy that’s going to articulated or are you planning to articulate a policy?

Alex Zornig

Well, no policy for a while. But you can say that this – the dividends that we are proposing for this year it’s a type of policy we’ll propose for the following years as long as we have enough profit to distribute.

Henry Cobbe – Nevsky Capital

Okay, so is that the same that you wouldn’t pay less than the R$3 ounce a day, is it like the flow?

Alex Zornig

Yes.

Henry Cobbe – Nevsky Capital

Okay, that’s right, I think. Thank you very much.

Alex Zornig

Thank you. Bye.

Operator

Our next question comes from Nick Hoff [ph] from Spot Trading [ph]. Please go ahead.

Nick Hoff – Spot Trading

Yes, thank you. Just a little one – another point on dividend announcement. There is a bit of discrepancy that I see in your two press releases. The one in English claims that you declared a – are you going to submit the board R$1.13 dividend where as the Portuguese press release indicates a R$3.13 dividend, I was wondering if you can clarify that for me? Please.

Alex Zornig

There is a Portuguese version.

Nick Hoff – Spot Trading

Okay.

Alex Zornig

There was a mistake in the English version, sorry about that.

Nick Hoff – Spot Trading

Okay. And could you also clarify – this is just a normal dividend; this is not a special dividend? As in the past, I see you did pay a 3.13 special cash dividend. I am just trying to clarify that these are two different things?

Alex Zornig

Well, if you think about that demand it’s reporting a loss. We can say this is special dividend because we are paying out from now profit reserve.

Nick Hoff – Spot Trading

I am sorry, you said, you cannot call this as a special dividend?

Alex Zornig

I would say it is. We can call this as a special dividend because we are paying out from our accumulated profit reserve.

Nick Hoff – Spot Trading

I see.

Alex Zornig

This, we are going to report a loss and therefore if I am paying dividend we call a special dividend because it’s out from our call it reserves.

Nick Hoff – Spot Trading

I see, okay, thank you.

Operator

Our next question comes from Daniel Spilberg from Barclays Capital. Please go ahead.

Daniel Spilberg – Barclays Capital

Hi, good morning. In the dividend side, you just announced the R$3.13 per share dividend, when do you expect to pay those dividends?

Alex Zornig

In April – end of April, beginning of May 2010.

Daniel Spilberg – Barclays Capital

Okay, thank you. And my second question is about – in the first quarter you will anniversary the Brasil Telecom acquisition, does that mean that in the first quarter the non-recurring items will disappear?

Alex Zornig

Yes.

Daniel Spilberg – Barclays Capital

Okay, so that should equal to recurring into direct that then?

Alex Zornig

Yes, we still don’t have any (inaudible).

Daniel Spilberg – Barclays Capital

Okay, thank you very much.

Operator

Our next question comes from Peter Lyons from Oscar Gruss. Please go ahead.

Peter Lyons – Oscar Gruss

Hi, guys. My question was answered, thank you.

Operator

Thank you. Our next question is a follow-up from Michel Morin from Barclays Capital. Please go ahead. Mr. Morin, is you phone line on mute, we are unable to hear to you.

Michel Morin – Barclays Capital

My question has been answered also, thank you.

Operator

Thank you. Our next question comes as a follow up from Henry Cobbe from Nevsky Capital. Please go ahead.

Henry Cobbe – Nevsky Capital

Sorry, just to be clear. Are you saying that, I mean looking for 2010, we assume there is no more level of net profits to replenish your accumulated profits and reserve, so are you saying that kind of the three way level is a sustainable level and that you’ll have to maintain that as a flow?

Alex Zornig

Yes.

Henry Cobbe – Nevsky Capital

Okay. Thank you.

Operator

Thank for the question, Mr. Cobbe.

Henry Cobbe – Nevsky Capital

None. Thank you.

Operator

(Operator Instructions) Our next question is a follow-up from Rizwan Ali from Deutsche Bank. Please go ahead.

Rizwan Ali – Deutsche Bank

Alex, we were told earlier in the year, early middle of last year that there will be some tax reversals in the fourth quarter to even out the entire year in terms of tax provisions and payments, and of course we didn’t see that in the fourth quarter. Can you just explain why that was the case?

Alex Zornig

Rizwan, you said that in 2008 we have a tax reversal?

Rizwan Ali – Deutsche Bank

No, 2009. We were told that there will be a tax reversal in the fourth quarter.

Alex Zornig

No, no. I know what I mean – what happened is, I said that we have the tax effects, duper the fact that we have before the third quarter, we have loss in the holding company and profit – tax losses in the holding company and profit in the operating company. Therefore, I could as in Brazil you don’t have corporate tax relief. We could not offset the losses with the profit. After we merged all the holding companies this negatively affect disappeared and now they are all in the same basked. From now on these affect disappear. The problem is it disappeared from the date that I merger, not backwards.

Rizwan Ali – Deutsche Bank

Okay.

Alex Zornig

I think that’s the clarification, okay.

Rizwan Ali – Deutsche Bank

And, one other question, if I may. Of course, dividends you’re paying pretty large, why not buy back shares or you think shares are not all that attractive at these levels?

Alex Zornig

My suggestion that you ask them so the Tele Norte Leste Participacoes [ph] conference call.

Rizwan Ali – Deutsche Bank

Okay, I thought it was both, right?

Alex Zornig

No, I manage TNE below. This is a decision that should be taken by the controlling shareholders, and I don’t know, okay.

Rizwan Ali – Deutsche Bank

But you do make recommendations as to better it should be a share buyback or a dividend, right?

Alex Zornig

I don’t know, I cannot answer that.

Rizwan Ali – Deutsche Bank

Okay. Thank you.

Operator

Thank you. Our next question is a follow-up from Henry Cobbe from Nevsky Capital. Please go ahead.

Henry Cobbe – Nevsky Capital

Hi, sorry, just to clarify. When you are referring to the dividend policy, are we just referring to TNLP or is it do you choose whether you might pay it off from TMAR level or do you always upstream the cash from TMAR to TNLP and then pay it out from TNLP level?

Alex Zornig

It's for the whole group but it's important to mention that this year TMAR doesn’t have accumulated profit reserves to pay dividends. So these dividends will be paid out only from TNE up.

Henry Cobbe – Nevsky Capital

But next year for you to approve and TMAR does has some profits.

Alex Zornig

As long as we have profit in TMAR, yes, they will be paid out from TMAR to TNE because otherwise I will leverage TNE to pay dividends, that’s not good.

Henry Cobbe – Nevsky Capital

Yes, but then will TNE always pass-through any dividends that get upstreams to TNE shareholders?

Alex Zornig

That’s not only the policy we reuse.

Henry Cobbe – Nevsky Capital

Okay. So if you payout R$3 in TMAR, we think that’s R$3 in TNLP, you don’t sit on the cash as the whole to that level?

Alex Zornig

Exactly.

Henry Cobbe – Nevsky Capital

Understood. Okay. Thank you.

Operator

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

Alex Zornig

Thank you again for participating in our conference call. I’d like to take this opportunity to reiterate that our IR team is always available to clarify any other doubts you may have. Have a good day. Thank you.

Operator

Thank you. This concludes Oi’s conference call for today. You may disconnect and have a great day.

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Source: Tele Norte Leste Partricipacoes SA Q4 2009 Earnings Call Transcript
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