UPDATE 1-Brazil's Oi cuts dividend, scraps forecasts after surprise loss
* Growing payrolls, debt costs trigger $54 mln loss
New CEO throws out three-year turnaround targets
* Annual dividend to shrink by 75 percent or more
(Updates with share performance, executive comments)
By Alberto Alerigi and Brad Haynes
SAO PAULO, Aug 14 (Reuters) - Brazil's Grupo Oi SA slashed its dividend and scrapped performance forecasts after an unexpected net loss, sending shares tumbling on fresh doubts about the beleaguered telecom.
Oi posted a second-quarter net loss of 124 million reais ($54 million) on Wednesday due to weak sales growth, expanding payrolls and mounting debts. The result fell sharply from profit of 347 million reais a year ago and missed an expected profit of 316 million reais in a Reuters poll.
Shares of Oi fell as much as 11 percent in early trading, underscoring challenges ahead for new Chief Executive Zeinal Bava, who has rushed to restore profitability and protect cash flow since taking over in June.
Oi will now pay annual dividends of 500 million reais or less through 2016, executives told analysts on a conference call, down from 2 billion reais under prior policy.
Last year, the company laid out the generous dividend policy and aggressive three-year targets for a turnaround under former CEO Francisco Valim - aims that analysts described as irreconcilable with weak cash flow and a rising debt load.
Oi's strategy will be more "rational" going forward, Bava said, promising to generate more free cash by cutting costs, increasing revenue and cutting investments. He maintained plans to invest 6 billion reais this year.
A spike in salaries and increased provisions for delinquent subscriber accounts drove up operating costs 10 percent in the second quarter, while a stagnant mobile unit led to revenue growth of just 2 percent.
Bava promised to halve provisions for delinquent accounts and increase the productivity of employees in the field by 20 percent to 40 percent.
The sale of international fiber-optic unit GlobeNet to investment bank Grupo BTG Pactual SA should bolster Oi's cash position by 1.2 billion reais in November or December, management said.
Oi's net debt, equal to gross debt minus cash, rose 25 percent from a year earlier to 29.5 billion reais in June.
Rising interest rates and a weaker local currency drove up debt-servicing costs in the second quarter, leading to a net financial loss of 871 million reais.
Earnings before interest, taxes, depreciation and amortization also fell 16 percent from a year earlier to 1.797 billion reais, missing a forecast of 2.223 billion reais.
($1 = 2.30 Brazilian reais)
(Editing by Todd Benson and Chris Reese)