Tim web presentation 3 q12-eng
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1) TIM reported strong growth in the third quarter of 2012, with total net revenues increasing 8.0% year-over-year and EBITDA growing 7.5%. 2) Key highlights included solid growth in data revenues and customers, as well as recovery in postpaid subscriber additions following the sales ban earlier in the year. 3) However, recent events such as the dropped call report and tax issues created challenges for TIM's image and reputation that may impact performance going forward if not adequately addressed.
Tim web presentation 3 q12-eng
- 2. Q3 in Few Quarter’s Highlight Total Net Revenues (R$ Billion) Revenue Growth Solid data growth MTR cut impact +8.0% +11.0% 19.1% (Revenues +35% Provisioning of 8.0% 7.0% YoY) advertisement 4.7 13.7 4.4 12.4 Smart/webphone credit loss (R$16 sales pick-up mln) 1Q12 2Q12 3Q12 3Q11 3Q12 9M11 9M12 Sales resilience in Provisioning for spite of sales ban administrative EBITDA procedures MOU at record established (R$ Billion) level of 139 between 2007/09 3.63 R$ 42mln Organic EBITDA Live TIM up and (R$26 mln) 1.24 R$ 42mln +7.5% +8.6% Growth running Intelig fixed 12.6% 6.0% 7.5% Postpaid human at business +3.8% 1.20 3.58 1.2 24% YoY growth performance 1.16 1.1 +7.3% 3.34 1Q12 2Q12 3Q12 3Q11 3Q12 9M11 9M12 Frost Abrasca Sullivan Prize of Institutional Best Value Investor Practices Creation “Best IR Team” Award A tough quarter, but TIM is managing to recover 2
- 3. Reality Check: Recent Events Overshadowing Fundamentals Sales Ban Drop Call Report Tax Issue Contingences Impacts: Impacts: Event: Event: Reduction in gross Damage on image 2006 corporate Allegation of low adds during the period restructuring (TIM provisioning for Status: Nordeste + TIM Small economic contingencies Two independent Maxitel) was impacts questioned by Federal Impacts: consultants firms Damage on image concluded that the rate Tax Bureau in 2011 Damage on image Status: of dropped calls on Impacts: Status: 3/8/12 showed no Ban lifted on 3rd of anomalies Damage on image No impact on financial August Status: Anatel’s final decision Accrual based on Anatel is measuring the is expected by the end Under discussion at internal and evolution of the plan. of the year. administrative level of independent external tax bureau. opinion expert, following IFRS rules. There are precedents Back to fundamentals Customer Total Data Users Homes Passed Base Traffic (unique) (households) (users) (minutes) Customer Total Data HP ready Base Traffic Users to sell +17% +28.3% +34% +2X 69.4 Mln 28.7 Bln 20 Mln 440k Community FMS Internet for Tim Fiber Sep11 Sep12 Sep11 Sep12 Sep11 Aug12 Sep11 Aug12 Expansion (Voice) everybody Fixed BB 3
- 4. Regulatory Update PGMC MTR • Access to fixed operators networks (SMP concept): • Defined glide path in 2013: Unbundling and Bitstream of copper networks. For 2013, it should be confirmed the glide path already Access regulation to transmission networks at speeds determined (cut of ~9.5% in February). up to 25 Mbps. • Cost model: • Infrastructure sharing: Analysis is expected to be concluded by Anatel in 2013 Opportunity to share the passive infrastructure (duct, and its implementation is being discussed among conduits and towers). operators and the regulator. • M-M interconnection: Discussion over the adoption of Partial Bill & Keep for mobile-mobile relations between SMP and non-SMP. 4G QUALITY • 2.5 GHz: • Improvement Plan: Contract is signed, 10% paid in 4Q12, 90% to be paid in Focus on the improvement of customer care and 2Q13 (License value: R$ 382 mln). network. Suppliers are defined: Huawei, Nokia-Siemens and Ericsson. • Anatel quarterly assessment: Based on follow-up monthly meetings • Future of 700 MHz Auction : Ongoing discussion among Anatel, mobile carriers and • Indication of the integrality of the new quality rules broadcasters on digital dividend. - new broadband indicators start to be informed of November/ 2012. 4
- 5. Operations 5+
- 6. Sales Growth Rebound Gross Adds - Customer Base (Weekly; ‘000 lines) Back on track Gross adds come back Prepaid resilient growth Sales Ban Effect Postpaid acceleration on W14 W16 W18 W20 W22 W24 W26 W28 W30 W32 W34 W36 W38 W40 human lines (ex-M2M) Trendline Sales Force Focus on Efficiency Strong sales channel force (Points of sale EoP) (R$; months) SAC/ +12.6% 2.3 ARPU QoQ Mass 1.8 Efficient growth approach ~300k 55 1.7 Channel 36 34 +16.2% QoQ SAC Own Stores 115 -34% -7% 3Q10 3Q11 3Q12 6
- 7. Operation Remains Solid Customer Base Total Market Share Growth (Million lines) (% of total lines) +1.7 +0.5 Δ YoY +3.1 Δ% +4.9 3Q 30.1% 30.2% 30.1% 29.7% +3.7 67.2 68.9 69.4 29.5% 29.5% 29.5% 29.5% 29.8% 29.6% 29.7% Vivo +2.7 64.1 59.2 9.7 10.0 10.3 +1.6 +19% 640 290 55.5 9.3 52.8 8.7 bps 26.5% 26.8% 26.9% bps 7.7 8.0 Post 25.4% 25.3% 25.5% 25.4% 25.4% 25.5% 26.0% 26.8% 54.8 57.6 58.9 59.1 +8.6 +17% Paid 45.1 47.5 50.6 25.1% 25.1% 25.6% 25.3% Claro 24.5% 24.9% 24.6% 24.6% 24.0% 24.5% Largest 23.7% Prepaid 20.4% 20.1% Base 19.5% 19.4% 19.7% 19.1% 18.8% 18.8% 1stin yearly 18.5% 18.7% 18.7% Oi growth for 9 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 consecutive Net Adds (000) quarters Post Paid 223 317 632 655 348 348 261 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Pre Paid 1,598 2,359 3,053 4,219 2,786 1,308 274 Source: Anatel Handset Sales Market Share Postpaid Base Analysis (ex-M2M) (% of handset revenues 1H12) (Million lines) -280k in 3Q12 (M2M Δ% YoY disconnection effect) 3Q 10.4 10.3 Operators 10.0 10.2 +19% 7% Leading the handset market. 9.8 9.9 9.4 9.5 9.7 57% Total 9.3 26% 31% Even being the only player with “No 8.9 9.1 postpaid 9.0 43% 8.7 8.6 8.9 Subsidies” approach. base +24% Open Market 37% Driving data usage growth Human lines 541k Net Adds in 3Q12 postpaid P1 TIM P3 P4 base Sep 11 Mar 12 Sep 12 Dec 11 Jun 12 Source: Company estimates Source: Anatel 7
- 8. Consumers Complains: Good position at Anatel and Procons IDA – Index of Attendance (last reported by Anatel) (Points) 98.55 99.15 99.40 100.00 99.90 98.65 98.10 97.40 97.90 97.70 96.95 96.75 95.20 95.05 94.50 93.70 94.00 98.00 94.00 93,95 97.00 96.70 TIM 91.05 95.30 95.10 90.85 90.30 93.80 89.85 91.00 92.65 87.90 92.80 88.10 91.35 86,35 86.55 86.65 88.80 88.30 89.35 87.20 86.40 85.80 86.20 84.80 85.00 83.90 83.30 84.85 74.84 77.25 jul/11 aug/11 sep/11 oct/11 nov/11 dec/11 jan/12 feb/12 mar/12 apr/12 may/12 jun/12 jul/12 Source: Anatel Volume of claims at Consumer’s Protection Agency (Procon) Procon Demands (# Quarterly claims) (% of total) 21.179 19.245 TIM 18.560 16.013 15% 13.696 24% 11.788 12.348 10.687 10.508 18% 9.664 9.592 9.344 8.601 8.811 8.740 7.693 7.591 8.229 7.112 7.376 TIM 43% 6.032 7.416 6.286 7.166 7.422 6.673 6.229 6.533 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Source: SINDEC data base. Represents 45% of total Procons (17/10/12) Source: SINDEC P1 TIM P3 P4 8
- 9. Marketing 9+
- 10. Customer Sentiment • Reinforcing position of Preference and Rejection of customers transparency Transparency • Offer w/ no Tricks (%) • Clear communication Preference ∆ Pref x Rej 32 31 • Anatel plan on track 30 28 28 29 28 28 23 22 25 27 Player 1: 19 Quality • Network development 21 22 • Caring effectiveness 21 Rejection 14 Player 3: 2 Relevant • Unlimited 15 15 15 15 Player 4: -8 • Convenient 13 11 11 11 10 11 10 9 9 9 Innovation • Innovative May Oct May Nov Jun Nov Jul Nov Jun Nov May Nov May Aug Source: Ipsos 06 06 07 07 08 08 09 09 10 10 11 11 12 12 Research TIM Quality Portal www.tim.com.br/qualidade Anatel Plan Disclosure Real coverage Monitoring: footprint • Network Improvement New and planned • Quality KPI’s antennas • Network Incidents and Alerts Wi-Fi hotspots 10
- 11. Mobile as the Universalization Driver Fixed ARPU of ~R$50 TIM’s total traffic growth Mobile Data accesses vs. Mobile ARPU of of 28.3% YoY to 28.7 reached 51 mln (+3.2x ~R$19 billion vs. 1Q11) CB growth Mobile x Fixed TIM MOU reaccelerating Data users customer base (Million lines) (Minutes) (Million lines) 1 2 3 258 +7% 139 51 ~25X Mobile 131 130 121 ~6X 126 127 19 Fixed Fixed 10 ~2X 39 ~43 Mobile 2 2007 3Q12 3Q11 4Q11 1Q12 2Q12 3Q12 2008 3Q12 Source: Anatel and Company`s estimates Source: Anatel and Company`s estimates Customer Total Data Base Traffic Users Community FMS Internet for 1 2 3 Expansion (Voice) everybody Mobile services are the driver of growth and universalization for the sector 11
- 12. Sustainable Usage Growth Prepaid Postpaid (Minutes; Units) (Minutes, %) +3% +15% MOU MOU Human +12% Postpaid Churn Top Up -1.74 p.p. Volume 3Q11 3Q12 3Q11 3Q12 ARPU (R$) ARPU Recover in a QoQ Comparison. +3.5% QoQ Strict Churn Policy. Human Postpaid Growth (ex-M2M). 3Q11 4Q11 1Q12 2Q12 3Q12 12
- 13. Internet Continuous Take-Up: Handset + Offer Products Net Reveneus Smart/Web phone Penetration (R$ Million) (% over total base of lines) 622 39.0% +28% 35.2% 485 31.1% 26.6% 19.5% 15.4% 12.6% VAS Gross Revenues (R$ Billion; % of Gross Mobile Services Revenues) 3Q11 3Q12 % sales of 72% 71% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 web/smart 1.12 +35% phones 0.83 SMS unique users growth Data users (Daily unique users) (Million monthly unique users) ~20 +34% 3Q11 3Q12 ~15 +3X 15.7% 19.4% + 370 bps 3Q11 3Q12 3G coverage 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 (% of urban 59% 69% pop.) 13
- 14. Financials 14+
- 15. Consistent EBITDA and Net Income Growth EBITDA Evolution (R$ Million) 16 mln of provision on advertising credit +7.5% 26 mln of provision on Anatel administrative procedures established between 2007/09 +45 +73 -155 +214 -89 1,244 -42 1,202 1,157 26.3% 26.5% EBITDA Margin 25.5% 32.0% 32.7% Service EBITDA Margin 31.0% EBITDA Services Handset Marketing Network Pers./G&A Adj. EBITDA Non- Rep. EBITDA 3Q11 Revenues Margin and Sales and ITX and others 3Q12 recurring 3Q12 ∆YoY +5.5% -39.6% -7.2% +13.0% +21.9% +3.8% From EBITDA to Net Income (R$ Million) 1,202 16 + 26 = 42.1 mln – provisions 9.1 mln – monetary adjustments for the administrative procedures -657 545 -29 -198 369 318 EBITDA Depreciation/ EBIT Net Financial Taxes and Net Income Adj. Net 3Q12 Amortization Result Others 3Q12 Income 3Q12 ∆YoY +3.8% +1.9% +6.3% -52.9% +47% +0.4% +16.6% 15
- 16. Analysis on Efficiency & Cash Position Handset Capitalized Subsidy Bad Debt Trend Leased Lines, Traffic and ITX Costs (R$ Million) (as % of Gross Revenues) (Compound Growth Rate - Quarterly) Efficiency Approach Remains Traffic 1.34% 64 1.14% 0.95% 6.4% Leased Lines costs 1.2% ITX costs 0 0 0.6% (ex-SMS) 3Q10 3Q11 3Q12 3Q10 3Q11 3Q12 3Q11 4Q11 1Q12 2Q12 3Q12 Capex OFCF Net Debt (R$ Million) (R$ Million) (R$ Million – EBITDA trailing 12m) % for Infrastructure Improving Cash ΔOFCF R$144mln YoY 91% 92% ΔEBITDA-CAPEX= R$126mln Generation 77% ΔWC R$17mln 2,079 853 +21% 827 1,458 1,550 772 684 604 526 3Q10 3Q11 3Q12 3Q10 3Q11 3Q12 3Q10 3Q11 3Q12 OFCF/ Net DEBT/ 16.4% 15.6% 17.5% 0.5x 0.3x 0.3x Net Rev. EBITDA 16
- 17. TIM Fiber Update 17+
- 18. Live TIM: Up & Running MSANs Homes Passed Ready to Sell Optical Backbone 440k Network 2 network 220k Construction 1 3 2Q12 3Q12 Buildings authorized Building’s connected MSANs installed 5,700 7,101 2,100 3,026 214 405 2Q12 3Q12 2Q12 3Q12 2Q12 3Q12 Market Demand Quality of Service (Units) (Mbps) Download Upload 35 37 20 21 Market Average 1.8 0.4 Demand and Speed Quality of Market Live TIM Live TIM Service Average (nominal) (delivered) Blogger Richardmax: “Live Tim, so far, is the only one to fulfill its promises, moreover above Website the promises, because the 35Mb hired tests 120.5k Registration are always above 37, and uploads are always spiking 20. “ Specialist Blogger @ http://richardmax.rmax.com.br/ 18
- 19. Live TIM: Speeding-Up with the New Offer New Offer: Shaking the Broadband Market Sales (Average weekly sales) After Before Promo Promo ~5X Sep/12 Oct/12 Business Model Proving Itself Coverage Capex MSANs per Home Passed Network Roll Out ~R$2k (‘000 Households) Optical Total Capex Network ~R$80 ~590 per Sub Addressable TIM ~R$5k Market Int. Bench.* Fiber (Homes passed) ~6X Installation Capex ~R$700 per Sub >100 ~R$800 TIM Int. Bench.* Fiber ~R$300 May/12 Dec/12 TIM Int. Bench.* *International Benchmarking Fiber 19
- 20. Conclusions & Outlook 20+
- 21. Conclusions & Outlook Quality Improvement “Commitment with Anatel” Voice Capacity Data Capacity FTTS (Fiber to the Site) (‘000 TRXs) (‘000 channel elements) (‘000 Km Fiber) 95% 115% 96% Done in Done in Done in 328 205 3Q12 3Q12 3Q12 157 +136% 29 38 +30% 139 +31% 2011 3Q12 2012 2011 3Q12 2012 2011 3Q12 2012 Business Fundamentals Remain Solid Customer Base Growth MOU (FMS on Play) Data Revenues Accelerating TIM Fiber Network Roll-Out (Millions) (Minutes) (R$ Billion; % Gross Mob. Serv. Rev.) (‘000 Households) 19% ~590 16% 13% 139 1.1 69.4 130 0.8 59.2 0.6 46.9 123 ~6X Addressable >100 Market (Homes passed) 3Q10 3Q11 3Q12 3Q10 3Q11 3Q12 3Q10 3Q11 3Q12 May/12 Dec/12 Innovative approach 2012 guidance Better regulatory Tax easing Outlook unchanged commitment environment policy 21