Good morning, ladies and gentlemen. Thank you for standing by and welcome to Oi S.A.'s conference call to discuss the second quarter of 2019 results. 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/ri, together with the respective presentation. We would like to inform 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. Questions sent via webcast will be prioritized. In case you need any assistance during the conference, please request the operator's help by pressing star zero. We also would like to inform that the conference call will be conducted in English by the management of the company and the conference call in Portuguese will be conducted via simultaneous translation.
This conference call may contain some forward-looking statements that are subject to known and unknown risks and uncertainties that could cause such expectations to not materialize or 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 future developments. I will now turn the conference over to Mr. Carlos Brandão, CFO. Please, Mr. Carlos, you may proceed.
Good morning, everyone. Thank you for joining our conference call for the second quarter of 2019. I have here with me all the management and IR team. Let us begin our earnings conference call on slide three, showing the main highlights for this quarter. As the main pillar of our strategic plan, we accelerated even more the fiber deployment, and in July with 2.8 million Homes Passed with FTTH. Only in July, we deployed approximately 400,000 households with fiber. At this pace, we are on track to end 2019 with the target of 4.6 million Homes Passed with fiber. Additionally, the pace of connections keeps moving above our expectations. We ended July with 291,000 homes connected with FTTH, representing a 10.2% take-up on our base of Homes Passed. In the mobile segment, we posted another quarter with strong performance.
We had 33% share of postpaid net adds in this quarter, the largest share in the company's history, which came as a result of our acceleration of our commercial activity focused on simple offers and the prepaid to postpaid migration effort. Driven by the robust performance in net adds of the last quarters, we recorded 11.5% annual growth in postpaid revenues, reinforcing our view that personal mobility should record annual revenue growth in 2019. On the corporate segment, IT revenue grew 27% over the previous year. As we have been saying, due to its high added value, IT revenue will be the one of the main drivers to revert the B2B revenue trend. Moving on to slide four, let's discuss the residential segment. The annual decline is still significant, mainly because of the fall in corporate revenue. However, in the quarter-over-quarter comparison, we see a clear slowdown with 1.2% decline.
It is too early to assume any assumption for this year, but it is definitely positive news and reinforce our fiber growth strategy. To revert revenue trend, we are investing heavily to accelerate the expansion of our fiber footprint. The fiber results have been very encouraging and have been exceeding our expectations with a fast pace of growth. In July, we reached 2.8 million homes passed with fiber in 68 cities. Our penetration of homes connected achieved 291,000 clients, an equivalent of 10.2% take-up rate. On slide five, I will show some other positive fiber indicators. As already shown on the previous slide, we reached 2.5 million homes passed in the end of the second quarter and 2.8 million in July. Our estimate is to finish 2019 with 4.6 million homes passed and in 2021 with 16 million.
For the fiber-connected customer base, we expect to reach 15.2% take-up with 700,000 customers by the end of 2019, and for 2021, with 25% of fiber-connected customers over our homes passed base, the equivalent to 4 million customers with fiber. Naturally, we have a big execution challenge to reach these targets, but the granularity of our analysis has allowed us to be much more efficient, not only by prioritizing homes passed construction, but also in connecting these homes. As a result, the new clusters of homes passed deployed have been showing better connection results than older clusters. At the top right of the slide, we show that the homes passed deployed in October 2018 took 7 months to reach 8.1% take-up. The same take-up rate was achieved in just 2 months for the homes passed deployed in the April 2019.
These results show that we have been improving the efficiency of the capital allocation by controlling the execution in a very granular approach. Operating results have been very positive. Our gross adds grew 79% sequentially. Fiber churn is so far 50% smaller than copper churn and the ARPU 38% higher. The next chart is what best reinforces our strategy of placing fiber at the center of our strategy, and why this product has the potential to become a game changer for Oi. In the 68 cities where we already have 50 Mbps availability, our total base of residential customers, considering fiber and copper, already had reverted the trend, recording 1.3% growth from January to June this year. While in the cities where we have not reached with fiber, our base dropped by 6.1% in the same period.
Additionally, for the fifth consecutive month, our fiber is in the first place in the Netflix ranking, and our advantage for the second place is increasing. Another indicator that reinforces the superior quality of our product compared to the competition. Moving on to slide six, I will give more color on our mobile segment results. As I said in the previous slide, we posted a postpaid net add share of 33% in this quarter, the highest in the company history. The combination of the acceleration of our commercial activity, a simpler and more straightforward portfolio of offerings, and our effort to migrate prepaid customers to postpaid offers, were the main drivers responsible for this strong result. As a consequence of this consistent performance in the postpaid segment, we are seeing, one, a solid and steady growth of our postpaid customer base.
Two, the consolidation of the revenue growth trend of this product, which reached 11.5% in the annual comparison. Three, the improvement of the revenue mix, which since last quarter has a higher rate of postpaid and control compared to prepaid. In the prepaid segment, the positive news is that even in a shrinking market, we have managed to grow market share, which means we still have a lot of opportunity to work with our prepaid customer base for postpaid migration, especially in the northern and northeast regions of the country, where we have high market share and where the migration process is not as advanced as in the rest of the country. As a result, our mobile revenue is relatively stable in year-over-year. With an upward trend, reinforcing our view that by the end of this year, we will see an annual revenue growth.
Let's talk about B2B results on slide seven. As we show in the chart, following the positive trend of the last quarter, the sequential evolution of B2B total revenue presented a stabilization this quarter. When we look at the annual comparison, the evaluation is still a decline due to the great exposure to the traditional revenues in the segment, such as data and fixed voice, but the trend is clearly improving consistently. Our efforts are to change the composition of this mix, increasing the share of higher value-added revenues and reducing the exposure to revenues with declining trend. The results have been encouraging. Our IT revenue has grown 27% year-over-year and already represents 12% of the corporate totals revenue.
Since this is a service with high potential for value generation, IT will be one of the main drivers for growth in this segment and one of the factors responsible for the downward trend improvement in B2B. Another important segment is wholesale, which through fiber expansion and exploration of our unique infrastructure, has enormous potential to become the main national transport network provider and the infrastructure enabler for 5G in Brazil. Moving to slide eight. The OPEX and EBITDA slide reflects a summary of what we have presented so far. We are accelerating our commercial activity, which naturally puts pressure over sales and marketing expense. These are good expense as they have been supporting the deceleration of the revenue decline in the period, providing a stabilization of the consolidated revenue in the sequential comparison and supporting fiber's accelerated growth.
However, even with this commercial acceleration, the company managed to reduce costs. The results provided by digital transformation and operational efficiency played a key role in this process. As a result, the company's EBITDA of BRL 1.2 billion in this quarter is in line with the guidance for 2019. On slide nine, we talk about digitalization as another important tool in Oi's transformation process focused on cost efficiency and customer experience. Oi's digital transformation process is gradual and had its first initiative in 2016 with isolated products in specific areas. In 2017, with the creation of the company's digital area, the first deliveries of apps and functions such as Minha Oi and Técnico Virtual began to produce significant results in terms of better experience to our customers and cost reductions for the company.
In 2018, we expanded the digital transformation to all areas of the company, upgrading and enhancing existing functionalities and developing new ones, such as Joice, our recently launched assistant of artificial intelligence and machine learning for digital service channels. From 2020 onwards, we will start a fully digital enterprise, both in-house with cross-functional teams, process simplification, agile and flexible IT systems as out of the company. With simpler products producing a better experience for our customers. With these actions, we expect to expand the results shown in the table on the right of the slide. Capture efficiency gains by providing the best experience for our customer and drastically reducing our operating costs. Moving on to slide 10. We accelerated investment in the second quarter, growing 20% sequentially and 50% year-over-year. This acceleration enabled us to reach the 2.8 million Homes Passed mark in July.
In order to reach the 4.6 million homes passed planned by the end of the year, we will need to build, in average, 350,000 HPs per month from August to December. This is the pace that we have been practicing since June, which means that we are on track to deliver the target. We are evaluating the possibility of accelerating even more our investments, reaching, at the end of this year, a CapEx between BRL 7 billion and BRL 7.5 billion. Moving on to slide 11. Let's discuss the cash and debt balance. The company consumed BRL 1.9 billion cash in this quarter, of which BRL 700 million were from timely payments of Anatel fees, and the remaining was mostly from the operation and the faster pace of investments.
On the debt side, the variation was BRL 495 million, with an exchange variation having a positive effect in offsetting part of the impact of interest and fair value amortization. Naturally, the cash position and the cash consumption rate create an additional execution challenge for the CapEx plan. This is the telecom cycle. In the first moment, we have an acceleration of investments. In the second stage, there is a commercial acceleration when we have the increase of expenses. Gradually, we move to stage 3 with top-line growth and EBITDA improvement. The company is looking closely at the cash, and we are very confident that the execution of the sale of non-core asset portfolio will generate the necessary funding to keep up with the investment schedule in order not to lose time to market. Moving on to slide 12.
In summary, second quarter results is in line with the company's strategic pillars, which we presented to the market one month ago. Fiber is, as I said, the core of our strategy. This is where the consumer of the telecom market is heading. Data consumption will only be provided with excellence by operators with a robust transmission network and fiber capillarity. This is precisely our greatest competitive advantage, our unreplicable fiber network. We have already started to accelerate our investment plan to potentialize this competitive advantage and maximize value creation.
Fiber will play a key role in the company, serving all areas in a cross way, whether in residential with FTTH offering broadband, IPTV, and voice-over IP, or in the wholesale by positioning the company as the largest national infrastructure provider and 5G enabler in the country, and also in the corporate by providing connectivity capillarity to become a digital solutions integrator. The technological inversion from copper to fiber will allow us to reverse the revenue trend with substantial margin improvement, given its significant lower maintenance cost and churn rates. Another important strategic pillar is mobility, which with its excellent recent results, has helped to fund the implementation of the CapEx plan. As presented today, our postpaid revenue has been steadily increasing over the past few quarters, and we still have a lot of opportunity to work our prepaid base, migrating customers to postpaid, increasing our product loyalty and ARPU.
The growth challenge in mobile is due to our limited investment capacity. Thus, the expansion of our mobile coverage will be rational and selective, prioritizing areas where we have high market share to defend our postpaid base and incentivize prepaid migration through frequency refarming of 1.8 giga to 4G and 4.5G. In addition, we will leverage existing capacity to grow in areas that we have low occupancy. With this strategy, we expect to keep improving mobile performance. Besides that, naturally, in parallel, we are exploring all strategic options that could maximize shareholders' value. The third transformational pillar is cost efficiency. The migration to a fiber-centric business model, underpinned by the digital transformation, will enable the company to simplify operating process, improve efficiency, and consequently, to reduce structural costs significantly and improve customer experience. Finally, the cash pillar.
In order to fund this strategy, we will divest non-core assets and release cash from non-operational actions. On the non-core, we are already working on a portfolio of assets which contains Unitel, mobile towers, data centers, non-strategic fiber in São Paulo, and real estate. In parallel, we have already started to use our recently recognized tax credits of fiscal fines over ICMS. The combination of these initiatives, together with the capital increase of BRL 4 billion at the beginning of the year, have the potential to raise BRL 12.5 billion-BRL 14.5 billion of funding to execute this strategy, which will enable the company to come back to growth with sustainability, maximizing value creation. With this summary, I end the presentation of the earnings results, thanking everyone, our shareholders, employees, customers, suppliers, and the stakeholders for their support, commitment, and dedication throughout this process of reconstruction of the new Oi.
We will now begin the question and answer session.
Ladies and gentlemen, we will now begin the Q&A session for investors and analysts. Remember that questions should be asked in English, and those questions sent via webcast will be prioritized. If you would like to ask a question by the telephone, please dial star one. If at any point your question has been answered, you may remove your question from the queue by pressing the pound key.
Starting with two questions that I will answer in a block from the webcast platform. First question is: Does the company already have an estimated date for the sale of Unitel? The second question is: The company burned BRL 2 billion in cash this quarter, ending June with BRL 4.2 billion in cash. What is the company's strategy in the event of a short-term delay in asset sales to maintain CapEx investments? Starting with specifically Unitel, we have announced in the plan, one month ago, that we expected to close this deal in the fourth quarter of this year. We are fully on track in this process. We are in a very advanced stage in the negotiation, and we are very confident that we will deliver a good enough information for the market as we expected and as we guided.
On the second question, I would say that it is no surprise on that since we have announced it since the beginning of the plan that we are investing more than a bit of the company. We expect to have this cash burn, and it's in line with our plan. We are fully on track with all the assets that we have announced in our strategic review in July. We are fully confident that we are with everything on track to deliver the funding for the investments. On top of that, as we had in the plan, we have other alternatives that we are also analyzing thoroughly, such as issuing secured debt, a capital raise, and vendor financing. It's all part of the judicial recovery plan, and it's part of the company's agenda to analyze and to discuss.
Mr. Guilherme Aguiar from Bradesco would like to ask a question.
Good morning. Thanks for taking my questions. My first one is related to your FTTH project. We have seen the acceleration in the expansion and also a good progress in your take-up rate. We were just wondering what are your main strategies to lead to this acceleration in take-up? How is the competition with small providers in the cities where you have entered in fiber? In summary, what type of contribution can you expect from fiber over the next 12 to 24 months?
Hi, Guilherme. Thanks for the question. I'll ask Bernardo Ganske here, who is leading the commercial activities on the fiber projects to answer to you.
Hi, Guilherme. Thanks for the question. The competition in the fiber segment is very intense. However, we are competing against ISPs mainly in some of the areas that we are deploying our network. The result of this competition usually is given our strength in the brand and given our commercial activity, quality of the network, and the speed that we're offering to the customers. We are achieving very good take-up rates when we compete against those ISPs. The competition in the major cities, and especially in vertical areas, is more intense, and that's why we are prioritizing in our expansion suburban areas, non-vertical areas where typically we compete against ISPs.
Okay. Thanks for the answer. My second question is related to your OpEx. We have seen a deceleration in the pace of declines from your recurring OpEx. We understand that there is a target in your strategic plan to reach savings over the next period. We were just wondering if there is any more granularity you could provide us in terms of where these savings will come from in terms of how much each front you have outlined can contribute to cutting your OpEx.
Very good question. Thank you for this one, Guilherme, again. In the very short term, as you can see, we are with some pressures on the commercial OPEX in order to deliver the service that we are now engaging to increase our subscriber base. In the near term, as we have announced in the plan, we have a very ambitious cost takeout program that we expect to provide more colors in the next quarter.
Okay. Thanks for taking the questions.
Mr. Daniel Federle from Credit Suisse would like to ask a question.
Hi, good morning, everyone. My first question is regarding the CapEx. We saw the plan of accelerating the deployment of fiber to the home, but I think you guys mentioned only a little on the consequence on the CapEx side. Should we assume that the BRL 7 billion continues to be the guidance from the company? That's the first question. The second question, we start to see this recovery on the revenue trends on a quarter-over-quarter term. However, I remember that the guidance from the company was to see revenue growth moving up to the positive territory only in 2021. Any update on these fronts, maybe we can get more positive on revenue trends overall. Thank you.
Thank you, Daniel. Regarding the CapEx, this year we expect to reach more than BRL 7 billion, as we have communicated previously at the beginning of the call. We are targeting around BRL 7.5 billion this year. Next year, we are still planning something like BRL 7 billion. We are discussing internally. Yes, this year we expect an increase to around BRL 7.5 billion. I guess Bernardo will help me with the question regarding the revenues.
Yeah. In regards to the revenue trends, two different views. On the mobile side, basically, we've achieved more than half of our revenues on the mobile side on post-paid and hybrid plans. That's helping us a lot because those two products are growing, and prepaid is declining. On the mobile side, we can see a consistent trend moving forward to stabilize and even grow our revenue. On the residential side, what we see is a deceleration of the downwards trend, and that's mainly because of our fiber progression. Fiber revenues are starting to reduce the speed of decline of the residential revenues. That is something that will take some time, and that's why we are committing to an overall growth in the residential segment only after the fiber has achieved a significant amount in our revenue stream.
Right now, fiber is helping us to reduce the declining trend of residential, but we'll still see some bumps in this residential revenues, given that we are in the process of transitioning our revenue streams from copper to fiber.
Perfect. Thank you very much.
Thank you, Daniel.
Mr. Andre Baggio from JP Morgan would like to ask a question.
Hi, good morning, everyone. For this year, we are seeing EBITDA going down by 20%, but going forward, you have a guidance of growing EBITDA very quickly, 15%-20%. What gives you the confidence that you can increase EBITDA at these levels? We have seen in the past Oi promising a lot of EBITDA growth with the different management, including the restructuring not long time ago, and we never saw this Oi delivering. Why this time would be different?
Thank you for the question, Baggio. Specifically regarding our expectations on EBITDA, there is some confidence to answer your question. As part of the strategic review, we are now decelerating business lines with poor margins such as copper and such as DTH, in exchange to business lines with high margins such as FTTH and wholesale. That will be an important driver for EBITDA growth in the short term. On top of that, we have the cost takeout initiatives that I said previously that we expect to provide more colors to the market in the first quarter. In a nutshell, that's the main responsibles for our expectations to the growth of our EBITDA without significant growth in revenues.
Just to follow on to this point, I understand that fiber has higher margins, which is great. Still, even the copper has maybe lower but still positive contribution. Isn't it going to be a burden that when you see that the copper declining over time, so that fiber will have to grow a lot just to compensate the decline in fiber in the next one, two years or so before fiber becomes a significantly prevalent technology for Oi.
Yes, exactly. That's exactly what we did when we revisited our strategic plan. We are increasing our targets for Homes Passed in 60%. We are now targeting 60 million Homes Passed by the end of 2021, with a huge acceleration in the penetration of these homes. That's where we are very confident to have these results in exchange for the copper declines that is a natural trend in this business.
Okay, thanks a lot. Good luck with the plan.
Thank you. Bye.
Mr. Marcelo Santos from JPMorgan would like to ask a question.
Hi. Good morning, and thanks for taking my question. My question is regarding lower expenses with payphones. I think in the release, you mentioned that you saw a sequential decline in network maintenance costs, because of the new PGMU and lower expenses. Have we already reached the run rate for the savings, or do you have further savings on payphones that we should expect in the coming quarters?
Thank you for the question, Marcelo. No, actually, in the first half of this year, we have some costs to decommission this public phone network. We expect to start to capture the gains in the second half and on a fully basis only next year.
Perfect. Thank you very much.
Thank you.
We have a question from the Portuguese conference. Ms. Barbara Halberstadt from Bank of America would like to ask a question. Ms. Barbara would like to ask a question.
Alô?
Alô, Barbara?
Alô. Obrigada pela pergunta. A minha dúvida é com relação aos valores da Unitel para serem recebidos, com a expectativa agora no quarto tri. A gente tinha uma expectativa de um valor um pouco acima do que foi comentado no plano estratégico para a venda do ativo. Eu queria saber se tem alguma atualização com relação ao valuation. Essa seria minha primeira pergunta.
Actually, when we announced the plan, we didn't segment it. That's not a public information. Unfortunately, I cannot give you more details on how we are and where we are in the negotiation process and the valuation, because that's a very sensitive information for the process.
Mr. Carlos Sequeira from BTG Pactual would like to ask a question.
Hi, Brandão and team. Thank you very much for taking my question. Good morning. Thanks for taking my question. Going back to the cash burn that we saw in the quarter, one of the items that pressured cash flows were working capital, right? It was a hit of BRL 400 million. Can you give us an idea of what happened in the quarter and how we should look at working capital going forward, please? Thank you.
Oh, yes. Hi, Carlos. Thank you for the question. Regarding our this quarter impacts on working capital, we have some components that affected these results. One of these is our acceleration of the CapEx by the end of last year. Now we are starting to have this impacting negatively in the working capital specifically. On the other hand, we have the annual payment of the variable compensation of our workforce that takes typically in the second quarter of this year. We expect improvement in working capital for the next quarters.
Okay, thank you. Thanks, Brandão.
Thank you.
Thank you. I would like to turn the floor over to the company for the final remarks.
I would like again to thank you very much for participating in the call and supporting the company. I expect to have you all in the third quarter results in November when we will communicate to the market. Thank you very much.
This concludes Oi S.A.'s conference call. We would like to thank you for your participation. Have a good day.