33% 42%
49% 56%
28.0% 27.9% 27.4%
30.1%
61.1 63.2
20% 30%
P1
26.7% 26.1%
28.4%
-22.9% -20.5%
-2.9%
2.6% 1Q14 2Q14 3Q14 4Q14
Innovative offers generating value: • Charging per day Infinity “dia”
• Controle WhatsApp
• Shared Data plans
RESULTS HIGHLIGHTS: A SOLID QTR TO CLOSE A SOLID YEAR
2
MTR cut impact still significant: ~R$372 million on EBITDA in 2014
75.7 million
customers
Customer Base
34
Data Acceleration
30%
Improving Profitability
Fixed
Turnaround on
EBITDA Margin
business
million users (+26% YoY)
Strong reduction of SMS business (-26% YoY in revenues)
Tougher macro environment: • GDP: +0.15%*
• Inflation: 6.4% in 2014
2014 Year Recap
New infrastructure approach: data centric
4G LTE auction: assured future positioning
Fixed corporate business turnaround completed
Live TIM: best in class fixed broadband
2 1
Dec/13 Dec/14
Prepaid (mln customers)
Control Plans (mln customers)
+3.4% YoY
Dec/13 Dec/14
+13.8% YoY
2Q13 4Q14
4G Market Share (%)
TIM
Gross Data Revenue Yearly Growth (ex-SMS) (% YoY)
1Q14 2Q14 3Q14 4Q14
EBITDA Margin (%)
1Q14 2Q14 3Q14 4Q14 2012 2013 2014
Net Revenues (Δ% YoY)
Source: Company and Anatel
P2
P3
2
*Central Bank consensus
+25 p.p
Solid financial results: Growth on EBITDA / EBIT / Net Income
Consistent growth on Business Generated revenues +6.3% (YoY)
EBITDA Growth:
4Q14 x 4Q13: +4.0% 2014 x 2013: +6.4%
2013 2014
2013 2014
-31%
Network & Interconnection Savings
Interconnection Cost (R$; % YoY)
Leased Lines Cost (R$; % YoY)
Relevant cost savings amid total data traffic growth of 39% in 2014 when compared to 2013
Regulatory price reductions and substitution of leased lines by own infrastructure
-10%
3.2
3.4
4Q13 4Q14
Equipping Customer Base
Handsets Sold (mln units)
% of smartphone sales among players in 4Q
+6.3% YoY Growth
+6.1% QoQ Growth
Source: Company and GFK Group
TIM 48%
P1 14%
P3 29%
P4 9%
Leading player in handset sales
Up 16 p.p. in 4Q14 vs. 4Q13
0.6%
0.5%
4Q13 4Q14
KEEPING THE FOCUS ON THE EXECUTION
3
Operational Efficiency
Fixed Business Progress
SAC (Subscriber Acquisition Cost) (R$; % YoY)
Bad Debt (% Bad debt over gross revenues)
SAC/ ARPU
24
21
4Q13 4Q14
-15%
1.3x 1.1x
-16%
Corporate Solutions New Sales (R$; % YoY)
Live TIM Ultra Broadband (customer base in thousand)
4Q13 4Q14
+39% 60
130
4Q13 4Q14
+2.2x
Solid Performance in Net Adds
Pre paid
1st in prepaid market share
+ 2.1 million clients in 2014
Post paid
25% of net share in December (ex M2M and broadband)
Control plans bases rose 14% YoY
2.5 GHz 2.1 GHz
1.8 GHz 850 MHz 700 MHz
radius (km)
0.458 0.61
INFRASTRUCTURE EVOLUTION… Innovative Coverage
4
Investment Profile
Site Densification
Cell coverage characteristics (Urban coverage simulation)
Capital allocation on innovative services:
Fiber (metropolitan + LD): expansion to ~55k Km in 2014
2G (voice)
3G+4G (data)
Number of 4G Sites Number of 3G Sites
4Q13 4Q14
1.9k
3.7k
4Q13 4Q14
9.1k
10.4k
Indoor coverage deployment
DAS (Distributed Antenna Systems) Solution
Femto Cells (corporate)
Wifi (consumers)
+92% +14%
R$3.9 bln Organic Capex +
R$2.9 bln (4G License & Clean up)
=
R$6.85 billion in 2014
Deployment in:
0.363 1.413 1.685
Rio de Janeiro Curitiba Brasília Manaus Natal São Luís
51%
87%
49%
13%
2013 2014
Band 850 MHz 900 MHz 1800 MHz
2100 MHz
2500 MHz
700 MHz
Possible Technologies
2G/3G 2G/3G 2G/4G 3G 4G 4G
Efficient Use of Spectrum Portfolio
Wifi and Small Cells
> 100% YoY
Fistel exemption
approved in Jan/15
Mobile Broadband Evolution (cities)
The 125 cities of the MBB project
represent 50% of the total network
traffic 39
53
66
83
125
4Q13
1Q14
2Q14
3Q14
4Q14
3,093
3,013
2,930
2,845
TIM P4 P3 P1
…UNDERSCORING QUALITY IMPROVEMENT
5
Source: Anatel
Source: Company’s survey of national satisfaction
TIM
P1 P3 P4
Customers Satisfaction
¹ Voice Network (repair and call completion) ² Data Network: Estimated by TIM and composed by a subset group of Additional Services complaint
Total Demands at Consumer’s Protection Agency (Procon) (Per economic group, in thousands)
Source: SENACON/MJ
10.6 14.0
23.6 27.2
42.2 46.3
21.4
28.0
4Q13 1Q14 2Q14 3Q14 4Q14
TIM
P1
P3
P4
Data Evolution
Data Accessibility Ranking (3G) in SP
4G Sites in State Capital Cities
Anatel
Average Satisfaction with Coverage and Quality of Calls (score assigned by the customer)
Least claimed company at
Procon
7.80 7.80
Nov-12 May-13 Nov-13 May-14 Nov-14
Network Complaints (number of complaints)
Voice network¹
Data network²
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Voice network 2014 vs. 2013
-27%
Data network 2014 vs. 2013
-11%
Anatel Metrics
Customers Demands
Source: Anatel
Access
Anatel
Access
Access
Access
Access
99.24%
98.93%
99.20%
99.57%
98.88%
6
OFFER STRATEGY EVOLUTION CONTINUES
Data Customer Base (as % of total base)
Smartphone Penetration (% of smartphones over customer base)
14.9%
29.4%
49.5%
2012 2013 2014
Smartphone sales over 80% in 4Q14
Data ARPU (% YoY Growth)
18%
20% 21%
25%
1Q14 2Q14 3Q14 4Q14
Beyond Connectivity on Data
Controle WhatsApp
Data centric offer with no voice obligations
Data Package and WhatsaApp included in monthly fee
Differentiation among peers, with positive impact on postpaid performance
Data Revenues Penetration (% Gross VAS Revs / Gross Mobile Service Revs )
25.2%
27.2%
28.7%
30.9%
1Q14
2Q14
3Q14
4Q14
INFINITY TURBO 7 INFINITY “DIA”
6
+7.2 p.p
Protecting Core Revenue
+35 p.p.
R$ 0.75 DAILY OFFER
SHARED INTERNET PLANS
Offer Innovation Strong Data Progress
Leveraging on simplicity, transparency and convenience
30.3%
36.4%
44.6%
2012 2013 2014
1Q14 2Q14 3Q14 4Q14
RESHAPING THE BUSINESS Different Revenue Profile
Improving Profitability
Mobile Service Net Revenues (% YoY)
Mix of Gross Data Revenues (% YoY)
2013 2014
SMS
Web
Content & Others
+29% +39%
+45% +80%
+33%
+72%
+47%
+82%
1,500 1,578 1,677 1,862
Mobile First Margin* (Δ YoY)
Service EBITDA (R$ mln; % YoY)
Service EBITDA Margin (% YoY)
35%
38%
4Q13 4Q14
+2.8 p.p.
1,534
1,598
4Q13 4Q14
+4.2%
4Q13 4Q14
+4.5 p.p.
FY 2014 growth: +5.2 p.p. FY 2014 growth: +3.0 p.p. FY 2014 growth: +6.9%
+1.2% -19% -8.2% -24%
(Voice & Other)
(Data & SMS)
(Incoming MTR + SMS)
Gross Data Revenues Growth (% YoY of growth)
20%
22%
23%
28%
1Q14
2Q14
3Q14
4Q14
7
Excluding handset business
* Mobile First Margin = Business Generated less costs related to the service.
Business Received
Business Generated
-30%
+6.3%
2014
+4.8%
-34%
2014
4Q14
4Q14
2013 2014
3.4
3.3
2.9
Live TIM
GVT
NET
4Q13 4Q14
ACCELERATING FIXED BUSINESS PERFORMANCE
8 8
2014 business remodeling recap:
Customer base management
Multiservice network launch
Sales team reorganization
Brand repositioning
Re-designed service portfolio
Fixed + mobile integration for corporate clients
2013 2014
+3.5x
EBITDA Net Revenues (with intercompany)
Revenues from New Sales (YoY)
Outstanding product performance… (ISP speed ranking - Mbps)
…with solid operational and financial results
60
130
4Q13 4Q14
Customer Base (000 users)
+2.2x
ARPU (R$; YoY%)
+24%
New Line Payback (months)
21
14
4Q13 4Q14
1
15.9
8.9
8.8
Live TIM
NET
GVT
37
21
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1
1,490
2,194
1,069
1,503
4Q13 4Q14
Coverage (000 Households)
+41%
Addressable Households
Homes passed
+1.0%
2013 2014
+2.7x
-33%
5,168
167
Tho
usa
nd
s
1,558
97 1,499 123 -64 1,558
Tho
usa
nd
s
5,183 5,168 157 -307 4 132
Tho
usa
nd
s
+13.5%
9
FINANCIAL RESULTS ANALYSIS (1/2)
MTR Exposure
1,655
28.9%
35.3%
30.1%
38.1%
EBITDA Margin
Service EBITDA Margin
EBITDA (R$ mln; % YoY)
Reported EBITDA 4Q13
Reported EBITDA 4Q14
Δ Opex/ Others
Traffic/Data Δ Contribution
Margin
‘Pro forma’ EBITDA in 4Q14
+10.4%
+4.0%
Ex-MTR
MTR Impact
+3.5% +3.1% ΔYoY
Revenue Exposure (as % of net service revenues)
EBITDA Exposure (as % of EBITDA)
~ 25%
~ 12%
4Q10 4Q11 4Q12 4Q13 4Q14
~ 32%
~18%
4Q10 4Q11 4Q12 4Q13 4Q14
Reported Revenue
4Q13
Reported Revenue
4Q14
‘Pro forma’ Revenue 4Q14
Δ Others Δ Business Received
Δ Business Generated
Δ Products Revenue
5,335
+2.9%
- 0.3%
Ex-MTR
Δ % YoY +4.8% -33.9% +2.6% +16%
MTR Impact
9
5,207
5,538
5,910
2013 2014
372
+6.4%
MTR Impact
660
2013 2014
16,325
MTR Impact
-2.3%
Net Revenues Net Service Revenues (R$ mln, % YoY)
16,985 16,701
+1.7%
(R$ mln, % YoY)
700MHz Acquisition Capex
1,274
Tho
usa
nd
s
306 372
386 366
315 348
499 460
2013 2014
FINANCIAL RESULTS ANALYSIS (2/2) Net Income Evolution (R$ mln; % YoY)
Net Debt (R$ mln)
10
EBITDA 2014
Debt Cash Net cash
2013 2014
Debt Cash Net debt
Cash Flow - 12 months (R$ mln; R$ YoY)
Net debt/EBITDA 12M: 0.23x
Organic CAPEX
Organic Δ WC Organic OFCF 2014
Reported OFCF 2014
LT Amazonas Leasing
6,507 5,233
2Q
1Q
+10.6%
% YoY
3Q
1,506 1,546
+21.6%
-5.2%
-7.7% 4Q
Considering R$1.7 bln 4G pymt
*Organic figures excludes the 700MHz frequency acquisition and LT Amazonas leasing effect
700MHz Acquisition Effect on Δ WC
+2.7% FY
4,867 5,288
-421
Cash Flow - 12 months (R$ mln; R$ YoY)
Composed by: + NPV of the 700MHz clean up cost + Warranty Insurance + Monetary Adjustments
5.538
-2,923
-3,928
-96 1,514 182
1,181
-45
32.0%
34.9%
2012 2013 2014 2015e
Delivering important operational and financial results
Strong market positioning for growth
Renewed culture of innovation, quality and caring
Staying power and commitment with long term, with recognized
institutional leadership
Best governance in the industry: Novo Mercado MBB (cities)
CONCLUSIONS
11
New industrial plan to be presented on February 20, 2015
Changing Business Profile Focus on Execution Improving Profitability
Infrastructure Leveraging Growth
Revenue profile changing
Pre-paid data as key source of growth
TIM strategically well positioned with data focus on “big middle”
Business Generated Net Revenues Keeping costs under control, amid macroeconomic pressure
Keeping innovative offers:
• Infinity Day, Data Shared Plans, Controle Whatsapp plan, TIMmusic by Deezer, TIM Multibank (2015), Blue Box (2015)
Fixed turnaround completed: back to growth in 2015
Live TIM: from optionality to reality
TIM: A Solid Player
Building the Future
Tower sale
Big data analysis for Capex allocation
Investing Efficiently
4G LTE in 700MHz and 1,800MHz
EBITDA growth in 2014: +6.4% YoY
Margins expansion through opex savings and new revenues sources
(Voice & Other)
(Data & SMS)
Service EBITDA Margin (%; YoY)
+3.0 p.p.
2013 2014
39
125
Mobile broadband project
+86
2013 2014
74% 69% 64%
26% 31% 36%