Oi S.A.

Now the timing for this quarterly call is interesting. We have mostly completed several different milestones of our plan and now we start a new phase, which will be completely focused on execution.

We know and emphasize that the company's results are still in transition as we complete the key operations of our transformation. But this quarter marks a very important transition for us as well, which is the fact that fiber overtook copper in both revenues and users as our core offer for future growth, and this has been a milestone that we have been planning for since we launched the plan a few years back.

So now let's take a look at the key figures, starting with Page 2, which provides some of the highlights of the quarter. On Page 2, we can see that the operational execution continues unabated, and both residential and SME revenues were back to growth with some key plan milestones achieved.

As has been the case, since we launched the new strategy, fiber continues to deliver. And we can see here the total HPs getting to 12 million, new HPs in the second quarter alone of 1.5 million, and the total homes connected getting close to 2.8 million in the quarter with 366,000 new homes connected in the second quarter '21.

This still with a very high average take-up of 24%. So in terms of the key numbers for our plan, which are the fiber numbers, they continue to perform extremely well.

And even though overall revenues for the company had a small decline, the residential revenues moved up for the first time in many, many years. We see a 3.5% increase year-over-year in residential revenues.

And on the SME revenues, we see a 2.6% quarter-over-quarter growth as well, also pushed by fiber. On the financial side, we turned positive in net profit but had a decline in EBITDA year-over-year and a sequential increase, and cash levels continued to be managed to allow for the transition year of 2021.

And as for planned milestones, we had several significant ones, including the judicial confirmation of the BTG InfraCo proposal, the completion of 2 important financing rounds, the launch of the V·tal brand which is the new name of the InfraCo from now on. And finally, as of this week, the signature of the ANATEL arbitration term, which is very important for the future of our concession performance.

So turning to Page 3. Let's look at the fiber performance details.

In fiber, we set new records. In homes passed, we had strong ARPU growth, and we're keeping the pace in homes connected.

So pretty much on track in all metrics. On the homes passed, we hit a record quarter with over 500,000 homes passed per month.

This is a national record, and it puts us well on track to deliver the long-term guidance, which calls for over 30 million homes passed by 2024/2025. On the homes connected, we also have continued to present a very high number.

And in last quarter, the average per month was of 122,000 homes connected. This means that we continue to deliver the highest number of homes connected per month in the entire market ahead of every competitor in fiber.

And just to give you an idea, if we just consider the working days and 12 hours per day, this means 1 home connected every 9 seconds. It's a really impressive number, and we're very proud of that.

In fact, we're so proud that I would like to mention that exactly today, this morning, to be more precise, we have just reached the mark of 3 million homes connected in our customer base. So all in all, very strong performance, which continued since we launched the plan and started to make fiber the core of our plan and the focus of our plan from now on.

The ARPU also continues to grow, as we can see, and upselling has been an important driver of this ARPU growth. And in the second quarter, 9.6% of the fiber customer base had speeds over 400 megabits per second and 16% of the net additions were over 400 megabits per second.

This has led the ARPU to grow to BRL87, which is ahead of the plan when we first announced it. And in terms of fiber revenues, we have get through the number of BRL691 million in fiber revenues for the quarter, which puts us at an annualized fiber revenue number of close to BRL3 billion and growing.

So obviously, all of the metrics in fiber are doing extremely well. When we look at the residential market in the next page, including pretty much all of the revenues, we can see the power of the fiber recovery and how it is allowing us to compensate for the fact that structurally, copper and the legacy revenues is set to be in continuous decline.

So when we announced the focus on fiber, it was just a promise to replace the declining legacy revenues. Two years after announcement of the strategic plan, fiber now overtakes copper and delivers revenue turnaround in the residential segment.

We can see that the RGUs for the first time we see here that fiber RGUs are already higher than the legacy RGUs, both in voice and in broadband combined. And when we look at the residential revenue evolution, we see here that we have been steadily growing and reducing the declines up until last quarter when we pretty much tied with a 0 growth, and now we are back to growth in residential revenue with 3.5% of growth.

On the residential revenues, fiber now represents over 50% of our revenues and obviously will keep growing. And this, even with a 35% decline on copper revenues, which, as I mentioned, is a structural decline.

This will continue to happen. But now we're more than compensating this decline in copper revenues by the growth in our fiber revenues.

The decline of the legacy revenues, we must not forget is also a factor in B2B, and we can see that on the next page. On B2B, Oi Solutions revenues, which are the large corporates, remained stable sequentially, even though with a drop from last year, again, due to the legacy drops.

But we had some large contract wins with higher IT content, which will help future periods. And on the SME front, revenues were back to growth.

The number for Oi Soluções is impacted by both legacy voice and data, while fiber and IT keep growing. An example of the growth in IT solutions and IT revenues is in the security area with a nice 14% growth.

And as of last quarter, we did one of the largest contracts of the year for public security in the state of Bahia for over BRL650 million. This has allowed the security numbers to go up, almost up 15%.

On the SME segment, fiber has also helped to push the segment returning to growth, with a 17% penetration of fiber, and this has been growing steadily. This penetration was only 6% of revenues in last year.

So on the next page, we can then see our key mobile indicators. Even though mobile has been now classified as discontinued operations due to the sale process, mobile had some positive indicators last quarter, helping us maintain what we call a very good transition path until completion of the sale process.

The strong postpaid recovery on both net adds and revenues helped, even though we had a prepaid net add increasing, but still impacted in terms of overall revenue growth on prepaid. Revenues were slightly down due to prepaid only when -- while postpaid advanced.

And we can see this as we reached the leadership in the share of net adds for postpaid last quarter ahead of all other operators in Brazil. The recovery also started in net adds for prepaid even though the revenues were impacted due to smaller top-ups than the previous year, even with this recovery in the number of net adds.

Obviously, we expect this recovery to help us through the end of the year, maintaining, again, a very good balance of operations on the mobile numbers up until completion of the sale process. We talked about core and about mobile, but we should also talk about future revenues.

And in the next page, we can see that the future revenue starts to represent something which is a very good start point for us to achieve what we recently announced in our 2024 guidance. Our guidance points to 10% of revenues coming from more than connectivity in 2 to 3 years.

And we believe that our existing portfolio allows for a very solid start. It may not be very visible, but we have already over BRL100 million of revenues in new areas and some has just been launched or extended.

Based on our extensive list of assets, including customer base, national presence, proprietary field teams, sales networks and payment capabilities, we see a significant growth ahead of us for the new sources of revenue which, again, we expect to reach BRL1.5 billion in revenues by 2024. With all of these components, let's now look at the entire revenue feature on the next page, Page 8.

On Page 8, we see that the new Oi core revenue start to turn around based on the solid fiber and residential performance, growing after 7 years of decline and in spite of all the legacy impacts on B2B. Fiber and IT revenues already represent 35% of total.

And on the residential side, B2B is stable sequentially, but there is still a huge space for growth in other revenues in addition to the small growth we had on the residential revenues. On the discontinued operations, we have a small decline in mobile and DTH, but those have been within the range that we have been working with, especially considering that we are now in a transition year for those revenues.

Now for OpEx and EBITDA on the next page. We have doubled down our efforts on addressing costs, and our DCO 2.0 program is now in full execution.

And with this, OpEx remains stable. Savings across all areas have compensated for some of the costs, which are inflation-adjusted and the higher commercial activity that led to a marketing expansion.

The sequential EBITDA margin showed recovery even though we had a small decline year-over-year. Again, reductions in OpEx here occurred in most areas for a total of minus 4%, and we can see this happening across the board including bad debt, third-party expenses, network maintenance, contingencies, personnel, taxes and other.

The key components that help compensate on the plus side was the rent and insurance components, in particular, for telecom infrastructure, which went up given the inflation adjustments that occurred across the entire first half of the year. On the EBITDA, we have grew our EBITDA margin sequentially and have now get to close to the 30% again.

As for the cost reduction program, we announced last quarter a cost reduction program. In the next page, we can see the current estimates based on the fact that we already have over BRL1 million mapped and starting to be executed in many different fronts, most of them in connection with the simplification we expect for a company following our transitions during 2021.

This program of DCO 2.0 has mapped out over BRL1 billion in cost reduction in preparation for the lighter company in 2022. And it's worth remembering that most changes will be done by year-end due to the current transitions in both the mobile operations and on the infrastructure operations with V·tal, which are 2 operations that will be deconsolidated from our results by the beginning of next year.

But when we look at all of the mapped initiatives that we have ongoing, we can see that we have initiatives in pretty much all fronts of the company's sales, marketing, customer care, in reducing the size of our organization and our support activities, in simplifying our IT systems and processes and, obviously, in addressing all of the network and operations costs, in particular, with the simplification and the decommissioning of elements in our legacy networks for copper. On the next slide, we can see then the financing activities, investments and cash results.

With the completion of the financing initiatives for 2021, this allows for sustained fiber investments during this transition period to be completed with cash-in from strategic M&As by the fourth quarter this year, first quarter 2022. On CapEx, the focus on fiber remains stronger than ever.

And we should remember that most of these investments will move to V·tal next year. We achieved in the second quarter a metric of 70% of all investments coming from fiber, even though we are still investing 11% of the CapEx in legacy operations such as copper, which, obviously, we are striving to reduce given the transition of copper and the legacy businesses in connection with all of the concession activities.

On the cash flow, the cash-in for the V·tal debentures and obviously the operations of the quarter, brought cash through the end of the quarter to BRL3.4 billion level, which is consistent to the levels that we had planned for during 2021. Remembering that for the full picture, it's important to consider that we will have additional cash-ins, both coming from the divestment program as well as from the funding refinancing operations that we have just completed in the beginning of Q3.

And this will bring us an additional cash-in coming from mobile, coming from InfraCo, coming from the mobile bridge loan and coming from the refinancing of the bonds that we issued last year. In addition to the operating and financial results, it's also important to talk about the additional milestones achieved, and we can see this on next page.

As of last week, we have announced 1 important milestone, which was the launch of the V·tal brand. And more than just launching the brand for our new infrastructure operation, which will have its control sold to BTG upon completion of all of the regulatory and competitive approvals that we expect by the end of this year, this means and marks the start of an independent operation, so to speak, of the V·tal and InfraCo operations with a separate governance and already operating as a neutral network.

This will allow us to make this transition periods ahead of time so that when the operation is finally approved and can be closed, we have pretty much everything up and running. And also, as of this week, another very important milestone in our plan took shape, which is the signature of the arbitral term with ANATEL.

And we have to remember that for addressing all of our concession issues, we have 2 major fronts in addition to all of the operational fronts of reducing costs and simplifying the operation. And the 2 main fronts are: one, working on the migration of the concession to an authorization.

This is a process that's still ongoing, given the regulatory discussions and definitions that are still going on. And an arbitration that the company opens against ANATEL for several issues related to the task of the concession.

This arbitration is a key component in addressing the cost in the future of the legacy operation, and it comprises 4 key areas ranging from the lack of sustainability of the concession to several events that led to financial economic imbalance of the concession to the balances owed to the PGMU programs in the past years, and finally, for some approvals for investment in regulatory assets that will need to be compensated given that they're not going to be fully amortized. This arbitration commitment was approved by ANATEL's Board of Directors on August 10.

We expect the signature of other terms to take place between today and tomorrow. And this means that the scope of the arbitration was fully accepted by ANATEL.

And now the proceedings will be carried out by the CCI arbitration chamber following the term signature. The arbitration will also be critical in addressing the migration discussions in a process that we expect will be carried out until the end of 2022 or potentially beginning of 2023.

So how we're executing this transformation in addition to all of the operational results and milestones achieved, it's also important. And as a last step, let's talk about our ESG commitments and a view on how employee engagement is working around all of our transformation initiatives.

So on next slide, on Slide 13, we can see that the transformation agenda continues to be sustained by renewed ESG commitment and very high employee engagement. On the ESG front, we have established a new ESG Commission, and we now have objective KPIs monitored company-wide and entering into all the company targets.

On 2020, we have published already our Annual Sustainability Report and also the social balance of Oi Futuro, which happens to be our key initiative in terms of the S in our commitments of ESG. And also, we expect, with all of our actions to have an expected improvement in the MSCI ESG rating in the third quarter 2021.

Finally, we had the Council for Six Sigma Certification as the first company in Brazil to receive the certification for internal employee program. So pretty much moving forward in all ESG metrics.

But especially in how we are engaging the team to transform the company this quarter brought additional good news. Our engagement research in the transformation of Oi had now 2 waves of surveys conducted.

The last wave was conducted in June with over 6,600 participants, and we have a general satisfaction index of close to 97%. This is one of the highest engagement index in all of the industries in Brazil.

And as we can see from all of the metrics here, we can see that pretty much all of the pillars of our survey have produced a very good result of engagement, including transparency and alignment, respectful and healthy environment, leadership, attitudes for transformation and agile mindset. And for us, the key question that we provided in this wave of research was I feel engaged in contributing to the transformation, which had an astounding 96.9% number.

So we have the entire company engaged in delivering what we have promised for our transformation. So in closing, on the next slide, we again highlight that this is a transition year, but we highlight that we are hitting all of our key milestones as planned.

And now we can dedicate full focus on the execution. We know that there's still several milestones in front of us, in particular, on the operational transformation and the cost reduction for the company.

But we see us focusing entirely on that in anticipation for a substantially transformed company in 2022. We already overcome the challenge of the judicial recovery, the challenge of all of the M&A activities, structural M&A activities that needed to be conducted.

We are overcoming and have closed all of the funding routes and the funding challenges that we have since we entered into the RJ. And now the full focus is on execution and operational improvement while building the new Oi.

So with that, let's close this first part of the presentation and then move on to the Q&A.

I have two. The first is a clarification on the CapEx of V·tal.

So you mentioned that it's a BRL30 billion investments into 2025. Does this include past investments?

Or how does that reconciliate with the evaluation study, which at least if we sum here, the CapEx, it would be around BRL20 billion? Was this revised?

Or -- I guess that's the first question. And the second question is regarding the competitive environment on the deployment of fiber.

I wanted to understand if -- are you overlapping fiber of some of the other competitors, especially in larger SPs? And are they doing that?

How is that game taking place? Or each player is going to a different region, different cities and with limited overlap?

These are my questions.

Thank you, Marcelo. So on the CapEx front, no, the BRL30 billion does not include the past investments.

Our past investments, obviously, have been all made by Oi and are part of the past results. The BRL30 billion actually speaks to several years of high investments to build all the balance to more than 32 million homes passed.

And in addition, obviously, to other investments that V·tal we will plan to make in the future. When we look at the reconciliation with the valuation, obviously, this is a separate discussion because what we have added so far is the growth potential of the company, but we believe that the valuation of the company will increase significantly over the next 2 to 3 years.

So the V·tal numbers in terms of expected investments, obviously, let's remember that V·tal once the transaction is closed and BTG takes on the control of the company at the end of this year, we believe, V·tal will be a private company. So this doesn't mean any guidance.

But it means an expectation of investments. And it was based on the starting point of over BRL20 million that we have provided added by additional investments that the company will likely make to address other opportunities in the market as well.

But just -- if we just look at the overall HP number, the homes passed number and obviously some of the infrastructure for homes connected as well, these numbers can go north of what we're doing currently. And as we look at our numbers as a whole, we're talking about over BRL5 billion in investments already this year for fiber alone.

So it's, again, just an expectation of investments for V·tal when it becomes private. And obviously, it represents the size of the opportunity that both ourselves and now BTG see in the future for V·tal.

As far as the competitive landscape, obviously, there is some overlap. We know that, in particular, in the largest cities, there is some overlap.

But let me tell you that we believe that the overlap is minimized as far as new areas because, obviously, we have been always giving preference to areas where there is no fiber builds already. But it's inevitable to have some overlaps in particular in the areas that are the largest cities.

But what we believe is that there is space for pretty much everybody and that the overlap overall will be minimal. It tends to be a larger overlap at the beginning and then it tends to die down, especially when we look at the overall number of cities that we expect to cover with fiber.

And just V·tal announcement show that the potential for a number of cities covered with fiber is over 2,000 cities in Brazil. Now Oi by consequence of the current status of V·tal cover close to 200 cities, so there's still a lot of deals to take place.

As far as the competition with the large ISPs and the small ISPs, again, we see some overlap by existing, in particular with the large ISPs. The small ISPs, the overlap so far has been minimal.

And in areas where there is this overlap, in particular, we have been emphasizing our superior quality. Both of the fiber deployment itself as well as all of the transmission infrastructure and all of the support infrastructure, including transmission, data and network management, which is on the backside of that.

In particular, in some areas where we see competition directly with the small ISPs, we have been faced with cases where even though "everybody" calls the new deployments fiber, we have being seeing cases where we are competing directly with the extension of Ethernet cables, of a mix of fiber and Internet, of a mix of fiber and copper. So there is still ample space for the pure fiber, the 100% fiber deployments to take place.

And we don't believe this is going to increase substantially in the future, especially because of the fact of launching V·tal. V·tal will be an open neutral network.

It is already operating as a neutral network. And as that, we expect that V·tal will also serve ISPs, both large and small, in addition, obviously, to the large key areas.

And we have taken a measure of that by the recent contracts that V·tal had signed. Obviously, we have some nondisclosure component in all the contracts that V·tal has been signing.

But suffice to say that we have been signing contracts with ISPs and, in some cases, including end-to-end deployment of fiber. So it's not only for the transmission.

It's not only for backbone capacity or backhaul capacity, but it's also for a capacity that goes all the way to the consumer homes. And this marks a new mode of operation for the company, and we expect that this will also disencourage, in many areas, duplication of fiber, given that we are bringing fiber at the very high quality and at a competitive price, we believe.

So yes, again, some overlap. But no, we don't believe that this is going to be an issue in the future.

I have two as well. The first one is on V·tal.

How are you guys seeing the current demand from clients other than Oi for V·tal services? And the second one is on -- regarding mobile segment and how are you seeing competitive environment on this front?

Thank you, Andre [ph]. Just to clarify, your first question was on demand.

It was kind of hard to hear you.

Yes. It's regarding demand for V·tal services from clients other than Oi.

Okay. Okay.

No. And expanding on what I mentioned already in connection with the last response, we did see a start of demand from other carriers from other clients, calls from other ISPs towards V·tal services for all services, as I mentioned, not only for transmission and backbone services but also for FTTH services.

And so we have already closed over 10 contracts with both the large and small ISPs across the board. And let's remember that this started to happen even before we launched the brand, even before we announced that the operations are now fully separate from Oi, including a separate governance that makes sure that Oi commercial site doesn't have access to any of the contracts that are taking place with the ISPs or any of the projections that are taking place via ISPs, making this a true neutral network operation.

So yes, demand has been picking up. In addition to the contracts that we have already signed for FTTH, we also have a lot of contracts for backhaul/backbone capacity, data capacity.

And obviously, we have a number of ISPs that rely on V·tal infrastructure, in particular for backbone and backhaul, and this obviously will continue. We believe that the amount of traffic will only increase and the demand for V·tal's connections in backhaul/backbone will only increase from now on.

And with that, we have been seeing the commercial traction getting up to speed. And actually, we're very confident that this will be the case even more than what is currently happening when we have the company fully separated by the beginning of next year.

As far as mobile, the mobile market has been showing a competitive dynamic, which resembles what has been happening in the past. We believe that there is not a super aggressive competition, even though its strong competition has always been the case.

We don't believe that it has been a predatory competition which doesn't make sense. It's just a regular competition.

And obviously, by our side, what we have been doing is we have been focusing on maintaining the good performance of our postpaid adds, in particular to bring in new additional revenue. We have been very successful with that.

There was a period at the end of last year in which the performance of net adds dropped following all of the pandemic events. But at the beginning -- end of the last year, beginning of this year, we resumed on the very good performance on the net adds for postpaid.

And now we're trying to do the same on prepaid. Prepaid has become an area of very strong competition.

So every player has launched aggressive plans. It's, again, not predatory competition, but it's a very aggressive competition.

What we have been doing is reformulating some of our plans as well. And with that, we have been showing also very interesting positive moves in adds of prepaid in the last quarter in particular.

And so we expect that this can help us move through the end of the year and up to completion of the transaction with a very positive performance.

Just wanted to ask you, would M&A make sense for V·tal's expansion? Like if you find some interesting networks already deployed, would it make sense?

And would this be included in this BRL30 billion investment?

Well, most likely, Marcelo, it will make sense. But again, this is an answer that should be provided by the new controlling shareholder when it takes hold of the company at the start of next year.

But it could make sense that there were some analysis of if this will make sense or not. But there is one important aspect that needs to be considered.

V·tal will be a neutral company, will be a neutral network company. And as such, it will not carry on any activities that touch directly the end customers.

So this means that the potential M&A for infrastructure will be focused on infrastructure and not necessarily on achieving -- on acquiring homes connected subscribers, so to speak. And it may be the case that there is a space for additional compositions.

But obviously, it's something that any company should plan for and analyze the market to understand if it makes sense to acquire areas or to grow organic EBITDA. Again, it's something that will need to be analyzed by the new shareholders, and we still have some time to be looking at that in the future.

Well, thank you again for being with us in our second quarter call. And just highlighting what we have previously mentioned, we believe that this is a very strong transition year for the company.

We believe that now the focus is fully on execution. We believe we have achieved all of our milestones.

And with that, we believe we are on track to the transformation that we have announced to the market a while ago, and we expect it to be completed by the beginning of next year. So lots of work ahead of us.

but the company is fully engaged, as you saw from the presentation. The management is fully committed, and obviously, the Board is also fully committed.

So let's talk again about our progress in the call for next quarter.