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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
2
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$1.6 bln in 2Q14
Net Revenues “Business Generated” (ex – incoming) grew by 7% YoY
Strong cost control: total opex dropped 7% YoY
EBITDA grew 8% YoY with margin gain
28% 32%
39%
Data users reached 29 mln lines
Live TIM crossed 100 thousand customers milestone
+3 p.p. +5 p.p.
2Q13 3Q13 4Q13 1Q14 2Q14
Jul/14 Jun/13
2Q12 2Q13 2Q14
• Photos sent: 50 mln
• Outgoing calls: 5 mln
• Data traffic: 26.7 TB Maracanã Stadium
CORE BUSINESS ANALYSIS & PERFORMANCE
MTR cut full impact in 2Q
Handset sales at a healthy level although reduced growth
World Cup impact on commercial activities
Mobile Service Net Revenues Analysis (% YoY)
EBITDA Performance (mln; %YoY)
June
2013
June
2014
No Holidays 1 National holiday
3 Brazil’s games (1/2 day holiday)
Up to 2 municipal holidays in main cities hosting games
Net revenues from MTR -18%
-28%
2.4
3.1 2.7
2Q12 2Q13 2Q14
Total units sold (mln)
(Local + LD + VAS)
Business Received
2Q13 2Q14
1,232
2Q13 2Q14
ReportedEBITDA Margin
1
2
3
+7%
24.9% 27.9%
EBITDA
3
1Q14 2Q14
-30%
Business Generated
+3% -1%
*MTR Impact
+16% +8%
1,331
Total
6 months (YoY)
+8%
-26%
+4% 0%
(Incoming MTR + SMS)
Ex-MTR Ex-MTR
*MTR Impact
Ex-MTR
~170 mln*
~96 mln*
1,427
118.5
23.2
2009 2010 2011 2012 2013 Jun/14
2Q13 2Q142Q13 2Q14
READY FOR DATA OPPORTUNITY
4
# Access Growth (users in mln)
Brazilian Broadband: Low Average Speed (Mbps)
WSJ: “Brazil - The Social Media Capital of the Universe”
Fixed
Data Experience is Mobile Capturing Data Opportunity
Mobile
2.7 2.6
4Q13 1Q14
#2 in Facebook
#2 in Twitter
2nd largest market
#2 in WhatsApp
10.5
13.7 3.6 2.5
Sources: SocialBakers, e-Marketer, Semiocast, G1.com, Newspaper ‘Folha de São Paulo’
Sources: Anatel, Akamai - State of Internet
Source: IDC Tracker
Source: Anatel
# Total Market Equipment Sold (units in mln)
Smartphone & Tablet
Notebook & PC
1Q14 2Q14
SMS
Web
Content & Other
1,500
Data Gross Revenues Mix (R$ 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
2Q13 2Q14
o Brasília o Curitiba o Rio de Janeiro
4Q13 2Q14
4Q13 1Q14 2Q14
INFRASTRUCTURE FOCUSED IN DATA
5
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:
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
6
# 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$; % YoY)
118 mln 3.3 mln
v v
GO TO MARKET PROGRESS
7
Equipping Customer Base
% of smartphone sales among players in 2Q14
% of smart + webphone on TIM’s base in 2Q14
% of smartphone over new sales in 2Q14
Postpaid
o Reduce churn on postpaid o Attract dual SIM card users traffic o Renewed focus on corporate customers
o Leveraging on “pure mobile” distinctiveness o Expanding daily tariff scheme to new regions o Simplicity / Transparency
R$ 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
0.36 0.32
0.24
0.16
0.10 0.06
0.03 0.02
2012 2013 2014 2015 2016 2017 2018 2019
Auction expected for September
License period: 15 + 15 years
No additional obligation. Network and Spectrum sharing
opportunities
Switch off plan starting at the beginning of 2016
Minimum prices and clean-up costs not yet defined
4G Auction RFP
Leased line (EILD) reference price reduction, in 2016, from
~20% until ~80%
Establish regulated reference prices to leased lines speed up to
34 Mbps
On preliminary ‘static’ simulation show relevant OPEX reduction
MTR New Glide Path (R$)
Leased Lines - EILD
New parameters established
New MTR and EILD Analysis
Source: Anatel
Source: ANATEL, Commissioners Meeting on July 17th
Main measures until July, 2014
Cancelation within 48 hours, without human assistance
In case of dropped call, companies must call customer back
Minimum of 30 days for prepaid credits to expire
ANATEL's new costumer care policy - RGC
Source: ANATEL Resolution 632/2014, GEX Meeting on July 17th
REGULATORY UPDATE
TIM has been working to improve transparency and caring
8
2Q13 3Q13 4Q13 1Q14 2Q14
TIM SOLUÇÕES CORPORATIVAS: PLAN MOVING FORWARD IN Q2
9
Turnaround Plan on Fixed Business
2013 2012
-
2014
New sales revenues (R$; 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
10
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$119.90
Source: Netflix July 2014
Netflix Broadband Ranking (Average streaming speed representation)
31%
Positive Neutral Negative
Internet buzz
FIXED BROADBAND: LIVE TIM
New Offers
126 neighborhoods:
43 neighborhoods in SP
83 neighborhoods in RJ
Quality Experience
609
804
1,069 1,138
1,220
2Q13 3Q13 4Q13 1Q14 2Q14
8%
31%
21%
51%
72%
18% 2nd
3rd
4th
5th
6th
1st
Source: Gauge 1Q14
Source: Company
+113%
10
26k
100k
Jul/14 Jun/13
Market average
4,065
Tho
usa
nd
s
2Q13 2Q14
3,985
170 Tho
usa
nd
s
96
2Q13 2Q14
+2.2%
FINANCIAL RESULTS ANALYSIS (1/2) Service Net Revenues (R$ 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
11
-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)
12
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
13
New Positioning
DATA CENTRIC APPROACH
Coverage
1
2
3
Capacity
Availability