ENCONTRO COM A TIM São Paulo - 04/08/2014 ENCONTRO COM A TIM São Paulo - 04/08/2014
MEETING WITH TIM Brasília - 08/19/2014
GLOBAL OVERVIEW
Source: Merrill Lynch - Global Wireless Matrix 2Q14 (data refers to 1Q14) | Top 5 + Brazil
The Brazilian market is becoming mature but there is still room for monetazing user and the main opportunity is in data.
Customer Base Ranking (Mln)
Service Revenues Ranking (U$ Bln)
1,254
905
339
278
268
China
India
EUA
Brasil
Indonésia
188
141
67
28
25
EUA
China
Japão
Brasil
Reino Unido
54
50
46
43
41
8
Canadá
EUA
Suiça
Noruega
Japão
Brasil
68%
63%
56%
48%
47%
29%
Japão
Coréia
Austrália
Austria
Argentina
Brasil
179%
170%
159%
158%
156%
140%
Finlândia
Rússia
Portugal
Austria
Singapura
Brasil
76%
75%
74%
70%
69%
27%
Finlândia
Coréia
Dinamarca
Japão
Noruega
Brasil
4th 4th
Data / ARPU Ranking (%)
30th
Mobile Penetration Ranking (%)
13th
ARPU Ranking (U$)
35th
Smartphone Penetration Ranking (%)
29th
2
US
Brazil
Indonesia
US
Japan
Brazil
UK
China
Japan
Korea
Australia
Austria
Argentina
Brazil
Finland
Russia
Brazil
Singapore
Canada
US
Switzerland
Norway
Japan
Brazil
Finland
Korea
Japan
Norway
Brazil
TIM
Mobile Fixed Fixed BB Pay-TV Group
Customers 2Q14 (000´s) 74,203 665 121 n.d. 74,989
Market share 2Q14 26.9% 1.5% 0.5% n.d. ---
Net Adds 2Q14 (000´s) 286 - 19 n.d. 305
Net Adds 12M (000´s) 2,008 31 61 n.d. 2,100
Net Revs FY13 (R$ Mln) 19,264 657 19,921
Fixed / Mobile Fixed BB
Vivo
Fixed BB/TV Fixed / Mobile
Mobile Fixed Fixed BB Pay-TV Group
Customers 2Q14 (000´s) 79,357 11,035 4,370 688 95,450
Market share 2Q14 28.8% 24.1% 18.8% 3.6% ---
Net Adds 2Q14 (000´s) 892 333 36 91 1,352
Net Adds 12M (000´s) 3,158 619 345 175 4,297
Net Revs FY13 (R$ Mln) 23,002 11,720 34,722
Fixed Mobile Fixed BB/TV
Mobile Fixed Fixed BB Pay-TV Group
Customers 2Q14 (000´s) 68,776 11,289 7,045 10,106 97,216
Market share 2Q14 24.9% 24.7% 30.3% 53.3% ---
Net Adds 2Q14 (000´s) 27 189 220 230 666
Net Adds 12M (000´s) 2,303 1,133 905 1,121 5,462
Net Revs FY13 (R$ Mln) 12,773 20,424 33,197
Fixed Mobile
Mobile Fixed Fixed BB Pay-TV Group
Customers 2Q14 (000´s) 51,081 17,023 6,567 867 75,538
Market share 2Q14 18.5% 37.2% 28.3% 4.7% ---
Net Adds 2Q14 (000´s) 502 -240 3 39 304
Net Adds 12M (000´s) 1,373 -1,307 17 - 35 48
Net Revs FY13 (R$ Mln) 9,290 19,132 28,422
Claro Oi
BRAZILIAN TELCOS X-RAY
Source: Companies Releases and Anatel
3
MARKET STRUCTURE CHANGING TOWARDS DATA USAGE
60% 36.8 mln
40% 24.5 mln
44% 16.2 mln
24% 8.8 mln
32% 11.8 mln
(40%)
(60%)
61.3 Mln
Possess Internet connection
Does NOT Possess Internet connection
Other
Lack of coverage
Too Expensive
53% of active connection base has currently a speed below 2Mbps
Total Households Households which does NOT possess
Households with internet connection and breakdown for households without internet connection:
3%
37%
51%
91% With Telephone
Only mobile phone
Mobile and fixed phone
Households profile
Fixed phone only
Purchase power
Salaries up to R$1.2k
Salaries up to R$3.1k
Consumption
People that access Internet (10 years or +)
57 mln
32 mln
2 mln
81 mln
106 mln
23 mln
Households with internet connection (%; CETIC jun’13)
53% of pop.
70% of pop.
Source: PNAD 2012, CETIC.br ‘ TIC Domicílios 2013, Company estimates
Yes
No
24.3 mln of households
83 mln 49% of pop.
Fixed
Mobile 21%
74%
40%
60%
Re-visiting Market Structure
Market Data Revenues Growth 2016 vs. 2012:
> 13 bln Reais on Mobile (+100%)
>7 bln Reais on Fixed (+35%)
4
KNOWING TIM BETTER
Gross Revenues (R$ Bln)
Customer base EoP (Million)
1998 2013 1998 2Q14
15,000 km fiber optical backbone
5,500 km fiber optical backhauling
Organic Growth
Growth Via
Acquisition
Brazilian Law
“Nível” 1 “Nível” 2
Legal Requirements
Demand for transparency and
disclosures
Highest level of Corporate
Governance
Requirement of protection for
minority shareholders
100% Tag Along
Equal dividends rights
One single class of shares
Strict disclosure policy
Statutory Audit Committee:
• Report to Board of Directors
• Oversight Financial reporting
• Analyze anonymous complaints
Unique Telco company listed on the Novo Mercado
Corporate Governance
TIM: A Huge Brazilian Company Presence in Brazil since 1998.
16th largest Private Company in Brazil (source: Exame Magazine - 2013).
Approximately R$27 billion of Market Capitalization.
74.2 million customers (27% Share)
The 2nd Player - Market and rev. share
More than 383,000 points of sales
More than 165 own stores
15 Customer Care Centers (16k attendants)
~13,100 Antennas
3,429 cities covered
95% of urban pop. covered
50,000 km of optical fiber network
~12,480 employees
23,000 indirect jobs
R$10.4 billion in taxes payments in 2013
R$3.9 billion invested in 2013
Sales
Network
Social &
Economic
74.2
29.6
Growth Structure
5
26k
100k
Postpaid segment grew by 7% and postpaid mix over customer base reached 16.5%, while SAC/ARPU remained below 2 months
19% 22%
27%
2Q12 2Q13 2Q14
2nd QUARTER HIGHLIGHTS
6
Operational
2Q13 2Q14
+7% YoY
Data as % of revenues
Net Revenues: Usage (local + long distance) + VAS
Total OPEX (Δ% YoY) 11%
9%
2%
-3% -7%
EBITDA Margin
27% 25%
28%
2Q12 2Q13 2Q14
% of total customer base
15.8%
16.5%
2Q13 2Q14
Mix of postpaid over total base
World Cup Figures (in the Stadiums)
Live TIM customer base
Financial
Gross Data Revenue growth at solid pace: R$1.6 bln in 2Q14
Net Revenues “Business Generated” (ex – incoming) grew by 7% YoY
Strong cost control: total opex dropped 7% YoY
EBITDA grew 8% YoY with margin gain
28% 32%
39%
Data users reached 29 mln lines
Live TIM crossed 100 thousand customers milestone
+3 p.p. +5 p.p.
2Q13 3Q13 4Q13 1Q14 2Q14
Jul/14 Jun/13
2Q12 2Q13 2Q14
• Photos sent: 50 mln
• Outgoing calls: 5 mln
• Data traffic: 26.7 TB Maracanã Stadium
CORE BUSINESS ANALYSIS & PERFORMANCE
MTR cut full impact in 2Q
Handset sales at a healthy level although reduced growth
World Cup impact on commercial activities
Mobile Service Net Revenues Analysis (% YoY)
EBITDA Performance (mln; %YoY)
June
2013
June
2014
No Holidays 1 National holiday
3 Brazil’s games (1/2 day holiday)
Up to 2 municipal holidays in main cities hosting games
Net revenues from MTR -18%
-28%
2.4
3.1 2.7
2Q12 2Q13 2Q14
Total units sold (mln)
(Local + LD + VAS)
Business Received
2Q13 2Q14
1,232
2Q13 2Q14
ReportedEBITDA Margin
1
2
3
+7%
24.9% 27.9%
EBITDA
7
1Q14 2Q14
-30%
Business Generated
+3% -1%
*MTR Impact
+16% +8%
1,331
Total
6 months (YoY)
+8%
-26%
+4% 0%
(Incoming MTR + SMS)
Ex-MTR Ex-MTR
*MTR Impact
Ex-MTR
~170 mln*
~96 mln*
1,427
118.5
23.2
2009 2010 2011 2012 2013 Jun/14
2Q13 2Q142Q13 2Q14
READY FOR DATA OPPORTUNITY
8
# Access Growth (users in mln)
Brazilian Broadband: Low Average Speed (Mbps)
WSJ: “Brazil - The Social Media Capital of the Universe”
Fixed
Data Experience is Mobile Capturing Data Opportunity
Mobile
2.7 2.6
4Q13 1Q14
#2 in Facebook
#2 in Twitter
2nd largest market
#2 in WhatsApp
10.5
13.7 3.6 2.5
Sources: SocialBakers, e-Marketer, Semiocast, G1.com, Newspaper ‘Folha de São Paulo’
Sources: Anatel, Akamai - State of Internet
Source: IDC Tracker
Source: Anatel
# Total Market Equipment Sold (units in mln)
Smartphone & Tablet
Notebook & PC
1Q14 2Q14
SMS
Web
Content & Other
1,500
Data Gross Revenues Mix (R$ mln; %YoY)
+22%
+1% -8%
+29% +33%
+45% +72%
BOU: Bytes of Use (Megabytes)
Days of Use
Data Users (# mln users)
23 29
2Q13 2Q14
+24%
2Q13 2Q14 2Q13 2Q14
+40% +30%
In May, >45% connections in Brazil were < 2Mbps
+ 5X
∆ %YoY ∆ %YoY
+20% 1,578
v v
GO TO MARKET PROGRESS
9
Equipping Customer Base
% of smartphone sales among players in 2Q14
% of smart + webphone on TIM’s base in 2Q14
% of smartphone over new sales in 2Q14
Postpaid
o Reduce churn on postpaid o Attract dual SIM card users traffic o Renewed focus on corporate customers
o Leveraging on “pure mobile” distinctiveness o Expanding daily tariff scheme to new regions o Simplicity / Transparency
R$ 7 weekly service package
R$ 0.75 daily offer
Prepaid
35%
50% 62%
2Q12 2Q13 2Q14
39%
57% 71%
2Q12 2Q13 2Q14
41%
23%
28%
9%
P3
P2
P1
TIM
Managing customer base… To Infinity and beyond…
Penetration of smart + webphones drives data usage growth Source: GFK Group Source: Company Source: Company
75.7 76.2 79.4
68.9 72.2
74.2
63.0
66.5 68.8
47.8 49.7 51.1
47%
39%
20%
30%
21%
20%
12% 10%
2Q13 2Q14
23% 24%
24% 26%
40%
35%
11% 14%
2Q13 2Q142Q13 2Q14
CUSTOMER BASE EVOLUTION
10
# 1 player in prepaid
Strong growth in ‘Controle’ postpaid base
Austere disconnection policy
2Q12 2Q13
TIM
Source: ANATEL
2Q14
Vivo
Claro
Oi
4G Market Share (%; thd users)
3G Market Share (%; mln users)
28.9
30.2
41.5
16.2
Source: ANATEL
TIM TIM
1,281
990
655
334
Customer Base (mln)
Source: ANATEL
+8.4%
Source: Company
Prepaid Recharge (R$; % YoY)
118 mln 3.3 mln
2Q13 2Q14
o Brasília o Curitiba o Rio de Janeiro
4Q13 2Q14
4Q13 1Q14 2Q14
INFRASTRUCTURE FOCUSED IN DATA
11
COVERAGE
Homogeneous Access Upgrade In all relevant areas Site densification Small cell / Wi-Fi
CAPACITY
Higher speed 4G roll out Mobile broadband
project acceleration Backhauling
infrastructure
AVAILABILITY
Always available Fine tunning Fiber rings /
redundance Resilience
DATA CENTRIC
APPROACH
TIM’s Infrastructure Strategy Network in Numbers
Number of 3G & 4G Sites
Number of Wi-Fi & Small Cell
~11.3 ~11.0
~13.1
Number of sites with fiber (FTTS)
Cities in mobile BB project
+3.5x 53 66
1Q14 2Q14
+13 cities
BioSite: New approach to coverage
Patent pending
+47%
1
2
3
After
Before
o New frequency at 900 MHz in SP
o Better indoor coverage
o Addressing capacity requirement
Completed actions
Initiating in:
2Q13 3Q13 4Q13 1Q14 2Q14
TIM SOLUÇÕES CORPORATIVAS: PLAN MOVING FORWARD IN Q2
12
Turnaround Plan on Fixed Business
2013 2012
-
2014
New sales revenues (R$; YoY)
Financial performance
Governance / Efficiency
Business development
Quality and Process
Activation time
(days)
Operational Improvements Paying Off
+
Segment EBITDA-CAPEX
Source: Company
Net Revenues (with intercompany)
2013 2014
Business Priorities
4Q13 1Q14 2Q14 Plan
Phases
Highlights
Financial sanitization
Infrastructure reinforcement
Market repositioning
o Positive EBITDA
o Cost efficiency
o Customer base
management
o New business unit
organization
o IT renewal plan
o Multiservice network
launch
o New branding
o New offers and
product launch
o Restructured sales
force
2H14
Showing results
o Sales growth
o Revenue
rebound
Business remodeling driving stable fixed revenues QoQ
+19x
2Q13 2Q14
-80%
+34%
11.5
18.3
24.5
2Q13 0 1Q14 2Q14
13
Gaining more traction
Addressable HH (000 HH)
Gross Adds (000 users)
Customer Base (000 users)
May/2014
o Live TIM Extreme 1Gbps for R$1,999.90
o Live TIM Blue Box release: optional TV approach
Jul/2014
New speed: 70Mbps for R$119.90
Source: Netflix July 2014
Netflix Broadband Ranking (Average streaming speed representation)
31%
Positive Neutral Negative
Internet buzz
FIXED BROADBAND: LIVE TIM
New Offers
126 neighborhoods:
43 neighborhoods in SP
83 neighborhoods in RJ
Quality Experience
609
804
1,069 1,138
1,220
2Q13 3Q13 4Q13 1Q14 2Q14
8%
31%
21%
51%
72%
18% 2nd
3rd
4th
5th
6th
1st
Source: Gauge 1Q14
Source: Company
+113%
13
26k
100k
Jul/14 Jun/13
Market average
4,065
Tho
usa
nd
s
2Q13 2Q14
3,985
170 Tho
usa
nd
s
96
2Q13 2Q14
+2.2%
FINANCIAL RESULTS ANALYSIS (1/2) Service Net Revenues (R$ mln; % YoY)
EBITDA (R$ mln; % YoY)
Reported Revenue
2Q13
Reported Revenue
2Q14
3,985 1,232
Reported EBITDA 2Q13
Reported EBITDA 2Q14
+186 -87
Δ Opex/ Others
Traffic/Data Δ Contribution Margin
24.9%
31.1%
1,331
27.9%
34.4%
EBITDA Margin
Service EBITDA Margin
+5.8% +4.4%
Efficient Cost Control
Interconnection (Δ% YoY)
Leased Lines Cost (Δ% YoY)
% Bad Debt/Sales (% over gross revenues)
Net Services Revenues Exposure
EBITDA Exposure
MTR Impact
-2.0%
~ 25%
~ 12%
2Q10 2Q11 2Q12 2Q13 2Q14
~ 35%
~18%
2Q10 2Q11 2Q12 2Q13 2Q14
MTR Impact
+15.8%
+8.0%
-31.3%
-10%
~1% ~1%
2Q13 2Q14
MTR Exposure
1,427
‘Pro forma’ EBITDA in 2Q14
4,155
‘Pro forma’ Revenue in 2Q14
stable
+208 -253 -36
ΔYoY +6.9% -29.6% -20.5%
Δ Others Δ Business Incoming
Δ Business Generated
ΔYoY
14
-1,227
2,648
-609
-1,654*
-1,786
182
+41%
FINANCIAL RESULTS ANALYSIS (2/2) Net Income - 6 months (R$ mln; % YoY)
Net Debt (R$ mln; % YoY)
15
EBITDA
692
738
6M13 6M14
+6.7%
>94% towards infrastructure
6M13 6M14
R$1,657 mln R$1,593 mln
2G
3G
4G 2G
3G
4G
1,984
4,521
2,537
Tho
usa
nd
s
Debt Cash Net debt
Jun/13
Jun/14
1,031
6,356 5,325
1,749 1,749
Tho
usa
nd
s
4,607 3,576
Debt Cash Net debt
+110% -48%
Investments
Cash Flow - 6 months (R$ mln; R$ YoY)
YoY
Net debt/EBITDA 12M: 0.19x
New BNDES Loan
CAPEX Δ WC OFCF 6M14
*Considering R$3 mln of LT Amazonas leasing adjustment
OFCF 6M13
LT Amazonas Leasing
+618 mln
Accelerated Network Evolution for Data
KEEPING THE STRATEGIC FOCUS ON THE 2nd HALF Consolidating Recent Offers & Innovative Services
Strong Institutional Position
“Porta Azul” (Blue Door)
Evolving the Structure for the New Challenges
• Streamlining organization
• Adding new talent
• Stronger segment focus
o Consumer
o Corporate
o Residential
• 4G auction participation
• Leadership position
• Presence in dialogue with relevant institutions
4G 700MHz
Small Cells
BioSite Mobile
Fixed
VAS
TIM Protect
CONTENT
16
New Positioning
DATA CENTRIC APPROACH
Coverage
1
2
3
Capacity
Availability