meeting with investors of september 2014
DESCRIPTION
TRANSCRIPT
Company’s Presentation
TIM Brasil
September, 2014
Visit our website and IR app:
www.tim.com.br/ir
AGENDA Macro & Industry Overview........5
Recent Results……………..………… 11
Network Evolution…………………. 19
Regulatory Update…………………. 23
Fixed Business…………………….…..27
Business Outlook…………….….…. 30
Historical Data & Others…….……34
TIM IR app
(English) TIM RI app
(Portuguese)
KNOWING TIM 3
KNOWING TIM BETTER
Gross Revenues (R$ Bln)
Customer base EoP (Million)
15,000 km fiber optical backbone
5,500 km fiber optical backhauling
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$30 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$3.9 billion invested in 2013
Sales
Network
Social &
Economic
GROWTH STRUCTURE
25 28
30
2011 2012 2013
4,7 5,0
5,2
2011 2012 2013
64 70
73
2011 2012 2013
EBITDA (R$ Bln)
Macro & Industry Overview
MACRO & INDUSTRY OVERVIEW 5
MACRO SCENARIO OUTLOOK
• Market consensus shows a softer growth.
• Telecom industry has shown resilience, specially in the mobile side, but it is not completely immune.
• Mobile sector will continue to benefit from fixed-mobile substitution, now also strong on data.
• Constrains of individuals budget points to an increase of mobile usage (low cost).
GDP Forecast (% YoY Growth)
Inflation Forecast (IPCA: 12 months)
Interest Rate Forecast FX Rate Forecast (R$/U$ - year average) (% Selic Target p.y. – year average)
Source: BaCen
5,9
6,4 6,2
6,0
2013a 2014e 2015e 2016e
8,2
11,0 11,8
10,0
2013a 2014e 2015e 2016e
2.20
2.40 2.50
2,18
2013a 2014e 2015e 2016e
2.30
1,30
1,70
2,60
2013a 2014e 2015e 2016e
TIM represents 30% of the industry mobile revenue* while has 27% of the market share
TIM
Source: Anatel and Players balance sheet
Vivo
Claro Oi
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
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 43 1.305
Net Adds 12M (000´s) 3.158 619 345 175 4.296
Net Revs FY13 (R$ Mln) 23.002 11.720 34.722
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) 27 189 220 230 667
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
Mobile Fixed Fixed BB Pay-TV Group
Customers 2Q14 (000´s) 51.081 17.023 6.567 887 75.558
Market share 2Q14 18,5% 37,2% 28,3% 4,7% ---
Net Adds 2Q14 (000´s) 502 -240 3 58 304
Net Adds 12M (000´s) 1.373 -1.307 17 - 16 48
Net Revs FY13 (R$ Mln) 9.290 19,132 28.422
6
The mobile segment represents 75% of the industry access growth
*Mobile revenue considers only the 4 major players
Fixed / Mobile Fixed BB Fixed BB/TV Fixed / Mobile
Fixed Mobile Fixec BB/TV Fixed Mobile
BRAZILIAN TELCOS X-RAY
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:
MACRO & INDUSTRY OVERVIEW 7
3%
37%
51%
91% With Telephone
Only mobile phone
Mobile and fixed phone
Fixed phone only
Salaries up to R$1.2k
Salaries up to R$3.1k
57 mln
32 mln
2 mln
81 mln
106 mln
23 mln
53% of pop.
70% of pop.
Source: PNAD 2012, CETIC.br ‘ TIC Domicílios 2013, Company estimates
Re-visiting Market Structure
Market Data Revenues Growth 2016 vs. 2012:
> 13 bln Reais on Mobile (+100%)
>7 bln Reais on Fixed (+35%)
Households Profile
Purchase Power
Average Cost
83 mi
2
1
3
Access Growth (users in mln) 4
Fixed
Mobile
2009 2010 2011 2012 2013 Jun/14
118.5
23.2
+ 5X
R$41.90
R$96.00 Fixed: Voice and Broadband
Entry level plan
Mobile: Voice and Data PTIM’s entry level plan
Widespread use of Social Media (Social Network Users in Brazil 2011-2017)
BRAZILIAN INTERNET USAGE BOOM Internet Penetration in South America (Internet users per 100 inhabitants)
Strong adoption of Instant Messaging (WhatApp mln users)
High Penetration of E-commerce (E-commerce revenues in Bln US$)
8.4
11.0
17.0
2010 2011 2012
Amazon lauched operations in Brazil
in Dec/12
83 mln Internet users – Brazil is the 5th largest nation in the world of
internet users 66%
60% 59% 56%
46% 44% 41% 37%
32% 32% 30% 24%
Arg Col Chi Uru Bra Ecu Vem Per Guy Sur Bol Par
56.1 66.2
78.3 88.3
97.8 104.2
110.0
2011 2012 2013 2014 2015 2016 2017
#2 in Facebook active users (76mln) only after US
#2 in Twitter users (41mln) only after US
2nd largest market outside US
40
38
32
31
25
17
13
11
3
India
Brazil
Mexico
Germany
Spain
UK
Argentina
Russia
France
28% of mobile users in Brazil use Instant Messaging
apps
Source: SocialBakers, e-Marketer, Semiocast, G1.com, Folha de São Paulo
MACRO & INDUSTRY OVERVIEW 8
465 mln worldwide users
List of selected countries as of
Feb/14
Mobile 23.0
12.8 9.3 19.3
4.8
Fixed+Data+Pay Tv
11.7
20.4 19.1
0.7
4.9
Total 34.7 33.2 28.4 19.9 4.8 4.9
LEVERAGING ON PURE MOBILE COMPETITIVE ADVANTAGE
Long Distance Leader
50% Market Share
2nd Overall
74.2 million customers
Prepaid Leader
29.2% Market Share
Source: Companies Releases, TIM estimates; CETIC jun’13; Akamai ; PNAD - IBGE
FMS Focus
A pure mobile approach is the most suitable strategy to capture both opportunities
Oi
Claro
Vivo
TIM
29,5% 29,6% 28,7% 28,8%
25,5% 26,9% 27,2% 26,9%
25,6% 24,6% 25,0% 24,9%
19,1% 18,7% 18,7% 18,5%
2Q11 2Q12 2Q13 2Q14
Customer Base Evolution (Market Share)
Entering in Data World Via Mobile (mln users)
Voice FMS: TIM, with no legacies, can only gain on the trend (R$ billion, Net Revenue per Group 2013)
2Q14 x 2Q11
-0.7 p.p
+1.4 p.p
-0.6p.p
-0.6 p.p
Source: ANATEL
Mobile
Fixed 4.1
14.6
33.1
52.5
94.8
11.4
13.8
16.3 19.1 20.9
2009 2010 2011 2012 2013
+83%
+23x
28%
26% 23%
16%
4% 4%
Vivo Claro Oi
TIM GVT Nextel
Revenue Share
MACRO & INDUSTRY OVERVIEW 9
-9,83% -15,36%
1,38%
2Q12 2Q13 2Q14
9,4 9,7
12m 2Q13 12m 2Q14
0,8 1,0
12m 2Q13 12m 2Q14
Organic EBITDA (% YoY; Not including assets sales; Mobile as TIM)
Broadband Quality (Brazil’s Average Speed;
Source: Akamai)
Fixed Incumbents
Mobile
4Q132.7 Mbps
ANATEL: >78% of fixed broadband connections are below 4Mbps
Fixed Incumbents
Mobile (only TIM)
Source: Anatel
Net Revenues (% YoY)
MACRO & INDUSTRY OVERVIEW 10
Brazil Ranks 83th in Average Speed per Country
STRATEGY PAYING OFF
VU-M Impact
Total Access Net Addition (EoP Million)
23,4
48,0
12m 2Q13 12m 2Q14
2,4 1,8
12m 2Q13 12m 2Q14
Mobile
Fixed
Voice Data
-8,51%
-0,30% -3,51%
2Q12 2Q13 2Q14
5,19% 3,76%
1,42%
2Q12 2Q13 2Q14
5,62% 4,35%
5,39%
2Q12 2Q13 2Q14
Users’ Preference for Mobile
41%
50%
51%
2009
2011
2012
% HH w/ mobile phones only (Source: PNAD
2012)
Recent Results
19 23 28
28% 32%
39%
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
HIGHLIGHTS 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
Data users (in mln) and % 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$1.6 bln in 2Q14
Net Revenues “Business Generated” (ex – incoming) grew by 7% YoY
Strong cost control: total opex dropped 7% YoY
EBITDA grew 8% YoY with margin gain
Data users reached 28 mln lines
Live TIM crossed 100 thousand customers milestone
+3 p.p. +5 p.p.
2Q13 3Q13 4Q13 1Q14 2Q14
Jul/14 Jun/13
2Q12 2Q13 2Q14
• Photos sent: 50 mln
• Outgoing calls: 5 mln
• Data traffic: 26.7 TB Maracanã Stadium
RECENT RESULTS 12
CORE BUSINESS ANALYSIS & PERFORMANCE
MTR cut full impact in 2Q
Handset sales at a healthy level although reduced growth
World Cup impact on commercial activities
Mobile Service Net Revenues Analysis (% YoY)
EBITDA Performance (mln; %YoY)
June
2013
June
2014
No Holidays 1 National holiday
3 Brazil’s games (1/2 day holiday)
Up to 2 municipal holidays in main cities hosting games
Net revenues from MTR -18%
-28%
2.4
3.1 2.7
2Q12 2Q13 2Q14
Total units sold (mln)
(Local + LD + VAS)
Business Received
2Q13 2Q14
1,232
2Q13 2Q14
ReportedEBITDA Margin
1
2
3
+7%
24.9% 27.9%
EBITDA
1Q14 2Q14
-30%
Business Generated
+3% -1%
*MTR Impact
+16% +8%
1,331
Total
6 months (YoY)
+8%
-26%
+4% 0%
(Incoming MTR + SMS)
Ex-MTR Ex-MTR
*MTR Impact
Ex-MTR
~170 mln*
~96 mln*
1,427
RECENT RESULTS 13
118.5
23.2
2009 2010 2011 2012 2013 Jun/14
2Q13 2Q142Q13 2Q14
READY FOR DATA OPPORTUNITY
# Access Growth (users in mln)
Brazilian Broadband: Low Average Speed (Mbps)
Fixed
Data Experience is Mobile
Capturing Data Opportunity
Mobile
2.7 2.6
4Q13 1Q14
10.5
13.7 3.6 2.5
Sources: Anatel, Akamai - State of Internet
Source: IDC Tracker
Source: Anatel
# Total Market Equipment Sold (units in mln)
Smartphone & Tablet
Notebook & PC
1Q14 2Q14
SMS
Web
Content & Other
1,500
Data Gross Revenues Mix (R$ mln; %YoY)
+22%
+1% -8%
+29% +33%
+45% +72%
BOU: Bytes of Use (Megabytes)
Days of Use
2Q13 2Q14 2Q13 2Q14
+40% +30%
In May, >45% connections in Brazil were < 2Mbps
+ 5X
∆ %YoY ∆ %YoY
+20% 1,578
RECENT RESULTS 14
42%
28%
17%
2%
1%
-8%
21%
20%
19%
25%
29%
33%
36%
30%
33%
45%
72%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Content & Other Web SMS
Historical Change in Data Mix (%YoY)
-1%
+13% +7%
-1%
CAGR CAGR
CAGR
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
# 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$; % YoY)
118 mln 3.3 mln
RECENT RESULTS 15
v v
GO TO MARKET PROGRESS
Equipping Customer Base
% of smartphone sales among players in 2Q14
% of smart + webphone on TIM’s base in 2Q14
% of smartphone over new sales in 2Q14
Postpaid
o Reduce churn on postpaid o Attract dual SIM card users traffic o Renewed focus on corporate customers
o Leveraging on “pure mobile” distinctiveness o Expanding daily tariff scheme to new regions o Simplicity / Transparency
R$ 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
RECENT RESULTS 16
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
RECENT RESULTS 17
-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)
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$3 mln of LT Amazonas leasing adjustment
OFCF 6M13
LT Amazonas Leasing
+618 mln
RECENT RESULTS 18
Network Evolution
STRATEGY: INFRASTRUCTURE EVOLUTION
2016 MASSIVE LD BACKBONE
65,000 KM OF FIBER
2013 FIBER TO THE
AMAZON
46,000 KM OF FIBER BY YE13
Fiber to the site / Mobile Broadband Project Key to Data Growth
Targeting 38 cities in 2013,+100 cities till 2016.
From 2-8 to +100 Mbps.
LTE Ready.
Macro coverage fine tuning.
Focus on IP infrastructure, caching, peering.
INTELIG 15,000KM
2009 INTELIG
ACQUISITION
New backbone routes- Increasing resilience.
82% urban population
2013 2014 2015 2016
95% urban population
#NodeB / eNodeB (3G + 4G)
# BTS (2G)
2012 2013 2014e 2015e 2016e
New Sites Including
Small Cell.
POP MW
POP MW POP MW
POP MW
BSC-RNC Site
POP MW
2013 2014 2015 2016
LTE* 3G 2G
Fiber base Infrastructure
Backhauling Evolution Increased Coverage and Access Capacity
(# new elements)
Capex Evolution Towards Data (% of total Capex)
Small Cell Approach (# new elements)
NETWORK EVOLUTION 20
2Q13 2Q14
o Brasília o Curitiba o Rio de Janeiro
4Q13 2Q14
4Q13 1Q14 2Q14
INFRASTRUCTURE FOCUSED IN DATA
COVERAGE
Homogeneous Access Upgrade In all relevant areas Site densification Small cell / Wi-Fi
CAPACITY
Higher speed 4G roll out Mobile broadband
project acceleration Backhauling
infrastructure
AVAILABILITY
Always available Fine tunning Fiber rings /
redundance Resilience
DATA CENTRIC
APPROACH
TIM’s Infrastructure Strategy Network in Numbers
Number of 3G & 4G Sites
Number of Wi-Fi & Small Cell
~11.3 ~11.0
~13.1
Number of sites with fiber (FTTS)
Cities in mobile BB project
+3.5x 53 66
1Q14 2Q14
+13 cities
BioSite: New approach to coverage
Patent pending
+47%
1
2
3
After
Before
o New frequency at 900 MHz in SP
o Better indoor coverage
o Addressing capacity requirement
Completed actions
Initiating in:
NETWORK EVOLUTION 21
Capex Evolution (R$ mln)
Capex per Technology (R$ mln)
Fiber to the site expansion to ~100 cities Benchmark: Anatel Plan for 2012-2014 (R$ bln)
3G
2G
3G
2G
3G
4G
2011
~R$3,800 R$2,983
2014e
5.9 4.8 4.6
2.1
5.0
3.5 2.6
3.4
TIM Claro Vivo Oi
10.9
+31% +52% +98%
Copper
(2-8Mbps)
Before FTTS After FTTS
Metro Ring
Own Fiber
(300 Mbps)
From Copper
To Fiber based
Wi-Fi small cell approach
Total Capex
2,836
2,983
3,386
3,871
2011
2012
2013 19%
17%
20%
% over sales
2010
18% CAGR
11%
Source: 5th monitoring cycle of mobile telecom improvements plan released by Anatel on Feb/14
8.3
7.2
5.5
Actual from 2012 to Oct/13 Forecasted to Nov/13 until 2014 end
CAPEX ANALYSIS
NETWORK EVOLUTION 22
Regulatory Update
0.36 0.32
0.24
0.16
0.10 0.06
0.03 0.02
2012 2013 2014 2015 2016 2017 2018 2019
Auction expected for September
License period: 15 + 15 years
No additional obligation. Network and Spectrum sharing
opportunities
Switch off plan starting at the beginning of 2016
Minimum prices and clean-up costs not yet defined
4G Auction RFP
Leased line (EILD) reference price reduction, in 2016, from
~20% until ~80%
Establish regulated reference prices to leased lines speed up to
34 Mbps
On preliminary ‘static’ simulation show relevant OPEX reduction
MTR New Glide Path (R$)
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
REGULATORY UPDATE 24
30/Sep Auction
Format indicates soft competition: the spectrum will
be auctioned in four blocks of 10 MHz + 10 MHz;
No additional obligations (“naked auction”), synergies
with 2.5GHz auction obligations will be subject to
backhaul requirements;
Authorization for spectrum sharing in cities with pop.
<100k.
73
3 M
Hz
4
1st Round: Cap of 10 + 10 MHz
2nd Round: Cap of 20 + 20 MHz (in case of no bidders)
5 6
2 3 1
70
8 M
Hz
71
8 M
Hz
72
8 M
Hz
73
8 M
Hz
74
8 M
Hz
4
5 6
2 3 1
76
3 M
Hz
77
3 M
Hz
78
3 M
Hz
79
3 M
Hz
80
3 M
Hz
9
71
3 M
Hz
71
8 M
Hz
72
3 M
Hz
72
8 M
Hz
73
8 M
Hz
70
8 M
Hz
74
3 M
Hz
74
8 M
Hz
78
8 M
Hz
76
8 M
Hz
77
3 M
Hz
77
8 M
Hz
78
3 M
Hz
79
3 M
Hz
76
3 M
Hz
79
8 M
Hz
80
3 M
Hz
10 11 12 7 8 13 14
17 18
15 16 10 11 12 7 8
13 14 9
Auction details
Costs & Payment method
Minimum prices: R$1.9bi + R$0.9 (EAD*) per block;
License payment in up to six installments (36, 48, 60,
72, 84 and 96 months) preceded by a 10% down
payment;
Readjustment: IGPDI +1% per month;
Reimbursement values will be defined in the BID
terms and will be administrated by an independent
third party;
Channel repositioning, filters, TV converter, and other
mitigation techniques will be subject to
reimbursement.
Regional Blocks:
Conclusion of the Digitalization Plan
Auction Public Consultation
Band allocation Res. Anatel 625/13
Nov/13 Jan Feb 2015 2018
Analog TV switch off period
Mar Apr May Jun Jul Aug Sep
Conclusion of the Digitalization Plan
Interference tests
Public consultation bid and interference
Bid notice Interference Resolution Digitalization Plan
700MHZ AUCTION
o Block 5 or 15 and 16 CTBC Region 106 cities or 1 mln users
o Block 6 or 17 and 18 SERCOMTEL Region 2 cities or 67k users
o Block 4 or 13 and 14 Represents 98% of the population, equals to national
REGULATORY UPDATE 25
*Entity for Administration of TV and RTV Channel Relocation and Digitalization Process
Vivo
Claro
Oi
TIM
Source: ANATEL
4G Market Share on 2500Mhz (%; thd users)
2500 MHZ auction results
Spectrum Characteristics
5800 Mhz 2100 Mhz
850 Mhz
700 Mhz
< 700 Mhz
BTS Range (km)
0 2 4 6 8 10
Numbers of BTS
20 15 10 7 5 2
Band W
Band X
Band V1
Band V2
2500 MHZ rural coverage obligations
X band
W band
V2 band
V1 band
Roadmap
Presidential Decree Nº 5820/06
Rules to the Digital TV migration
2006 2012
ANATEL’s Resolution Creation of a study group to define the future and the
atribution of the band
2013
Ordinance Nº 14/13 Premises to 700 Mhz destination on the SMP
2015 2018
Shutting down Period
Feb/Apr 2013 - Subrange Atribution CP Nov/13 Res. Nº 625/2013 – Atribution of the Subrange
Paid ~R$0.3 bln
Paid ~R$1 bln
Paid ~R$0.8 bln
Paid ~R$0.3 bln
4G DETAILS
TIM
1,281
990
655
334
3.3 mln
47%
39%
20%
30%
21% 20%
12%
10%
2Q13 3Q13 4Q13 1Q14 2Q14
REGULATORY UPDATE 26
Fixed Business
2Q13 3Q13 4Q13 1Q14 2Q14
TIM SOLUÇÕES CORPORATIVAS: PLAN MOVING FORWARD IN Q2 Turnaround Plan on Fixed Business
2013 2012
-
2014
New sales revenues (R$; 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%
FIXED BUSINESS 28
+34%
11.5
18.3
24.5
2Q13 0 1Q14 2Q14
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$119.90
Source: Netflix July 2014
Netflix Broadband Ranking (Average streaming speed representation)
31%
Positive Neutral Negative
Internet buzz
FIXED BROADBAND: LIVE TIM
New Offers
126 neighborhoods:
43 neighborhoods in SP
83 neighborhoods in RJ
Quality Experience
609
804
1,069 1,138
1,220
2Q13 3Q13 4Q13 1Q14 2Q14
8%
31%
21%
51%
72%
18% 2nd
3rd
4th
5th
6th
1st
Source: Gauge 1Q14
Source: Company
+113% 26k
100k
Jul/14 Jun/13
Market average
FIXED BUSINESS 29
Business Outlook
Accelerated Network Evolution for Data
KEEPING THE STRATEGIC FOCUS ON THE 2nd HALF Consolidating Recent Offers & Innovative Services
Strong Institutional Position
“Porta Azul” (Blue Door)
Evolving the Structure for the New Challenges
• Streamlining organization
• Adding new talent
• Stronger segment focus
o Consumer
o Corporate
o Residential
• 4G auction participation
• Leadership position
• Presence in dialogue with relevant institutions
4G 700MHz
Small Cells
BioSite Mobile
Fixed
VAS
TIM Protect
CONTENT
New Positioning
DATA CENTRIC APPROACH
Coverage
1
2
3
Capacity
Availability
BUSINESS OUTLOOK 31
21.3
27.5
2012 2013 2016e 2012 2013 2016e
+xx%
OFFER EVOLUTION
136 148
>170
2012 2013 2016e
18% 21%
>40%
VAS Gross Revs.
VAS/Revs. 30% 37% >50%
43%
55%
>75%
2012 2013 2016
+xx% +29%
+22%
Smart/Web phone Penetration (% over total base of lines)
Voice MOU (minutes)
Data Users (% of Data Users in CB; million users)
VAS Revenue Growth (% of Mobile Services Gross Revenues; R$ mln)
BUSINESS OUTLOOK 32
TIM PART: 2014-2016 GUIDANCE
Total Net Revenues
EBITDA
CAPEX
18,764 19,921
2012 2013 2014e 2015e 2016e
5,012 5,207
2012 2013 2014e 2015e 2016e
R$ million
R$ million
626
3,139
3,871
3,487
384
2012 2013 2014e 2015e 2016e
R$ million
Infrastructure
Others/Licenses
3,765
Guidance
2013-2016 CAGR:
Mid Single Digit Growth
2013-2016 CAGR:
Mid Single Digit Growth
Total CAPEX 2014-2016:
~R$11 billion*
*Does not consider 4G licenses (700Mhz).
BUSINESS OUTLOOK 33
Historical Data & Others
RECENT TOWERS DEALS
HISTORICAL DATA & OTHERS 35
QUARTERLY HISTORICAL DATA (R$ THOUSAND)
HISTORICAL DATA & OTHERS 36
Quarter
R$ Thousand
Description 1Q13 2Q13 3Q13 4Q13 1Q14 2Q142Q14 vs.
2Q13 (% YoY)
Gross Revenues 7,024,216 7,413,009 7,539,627 7,684,901 7,043,065 7,162,503 -3.4%
Gross Revenues Telecommunications Services 6,125,517 6,136,654 6,312,149 6,490,893 6,180,443 6,014,599 -2.0%
Telecommunications Services - Mobile 5,831,734 5,852,094 6,054,713 6,254,887 5,958,845 5,793,628 -1.0%
Usage and Monthly fee 2,694,316 2,777,176 2,884,968 2,953,344 2,801,736 2,751,247 -0.9%
Value added services - VAS 1,245,483 1,291,470 1,362,498 1,454,202 1,499,538 1,577,565 22.2%
Long distance 830,331 830,045 832,558 840,030 814,990 771,408 -7.1%
Interconnection 1,005,954 893,936 919,536 941,325 775,304 627,616 -29.8%
Others 55,649 59,466 55,153 65,985 67,277 65,792 10.6%
Telecommunications Services - Fixed 293,783 284,560 257,437 236,007 221,599 220,971 -22.3%
Gross Revenues Handset sales 898,699 1,276,354 1,227,478 1,194,008 862,622 1,147,904 -10.1%
Net Revenues 4,710,715 4,944,141 5,083,159 5,183,276 4,702,224 4,774,732 -3.4%
Adjusted Net Revenues 4,710,715 4,988,050 5,083,159 5,183,276 4,702,224 4,774,732 -4.3%
Net Revenues on Services 4,086,662 4,065,311 4,206,773 4,342,314 4,099,640 3,984,519 -2.0%
Adjusted Net Revenues on Services 4,086,662 4,109,220 4,206,773 4,342,314 4,099,640 3,984,519 -3.0%
Net Revenues on Products 624,053 878,830 876,386 840,963 602,584 790,214 -10.1%
Operating Expenses (3,486,942) (3,711,943) (3,831,158) (3,684,504) (3,384,936) (3,443,836) -7.2%
Personnel expenses (200,579) (200,623) (211,985) (218,688) (227,767) (229,822) 14.6%
Selling & marketing expenses (946,656) (973,227) (1,035,454) (982,561) (980,196) (1,025,703) 5.4%
Network & interconnection (1,352,476) (1,321,534) (1,344,279) (1,294,011) (1,194,478) (1,010,578) -23.5%
General & administrative (159,075) (152,075) (155,809) (157,766) (149,852) (178,396) 17.3%
Cost Of Goods Sold (655,634) (912,158) (906,944) (876,105) (645,844) (828,012) -9.2%
Bad Debt (72,631) (67,720) (55,534) (44,167) (76,103) (77,152) 13.9%
Other operational revenues (expenses) (99,891) (84,605) (121,152) (111,205) (110,695) (94,173) 11.3%
EBITDA 1,223,773 1,232,198 1,252,001 1,498,773 1,317,288 1,330,896 8.0%
EBITDA Margin 26.0% 24.9% 24.6% 28.9% 28.0% 27.9% 295 bps
Adjusted EBITDA 1,223,773 1,262,852 1,252,001 1,498,773 1,317,288 1,330,896 5.4%
Adjusted EBITDA Margin 26.0% 25.3% 24.6% 28.9% 28.0% 27.9% 256 bps
Depreciation & amortization (679,439) (671,297) (694,075) (723,061) (730,313) (757,072) 12.8%
Depreciation (364,335) (373,258) (376,195) (388,709) (401,829) (407,479) 9.2%
Amortization (315,103) (298,039) (317,880) (334,352) (328,484) (349,594) 17.3%
EBIT 544,335 560,901 557,926 775,712 586,975 573,824 2.3%
EBIT Margin 11.6% 11.3% 11.0% 15.0% 12.5% 12.0% 67 bps
Net Financial Results (71,085) (40,881) (90,237) (100,517) (35,834) (72,706) 77.9%
Financial expenses (167,024) (152,110) (209,124) (221,442) (177,911) (256,616) 68.7%
Net exchange variance (731) 2,034 (4,279) (1,435) (1,403) (560) -127.5%
Financial income 96,670 109,195 123,165 122,360 143,479 184,469 68.9%
Income before taxes 473,250 520,020 467,689 675,195 551,141 501,117 -3.6%
Income tax and social contribution (167,183) (134,462) (152,674) (176,221) (179,008) (135,504) 0.8%
Net Income 306,067 385,558 315,015 498,974 372,132 365,614 -5.2%
Adjusted Net Income 306,067 405,790 315,015 498,974 372,132 365,614 -9.9%
ANNUAL HISTORICAL DATA (R$ THOUSAND)
HISTORICAL DATA & OTHERS 37
Year
R$ Thousand
Description 2012 2013 2014 (YTD)
Gross Revenues 27,755,813 29,661,753 14,205,568
Gross Revenues Telecommunications Services 24,350,086 25,065,214 12,195,042
Telecommunications Services - Mobile 22,879,828 23,993,427 11,752,472
Usage and Monthly fee 11,086,671 11,309,804 5,552,984
Value added services - VAS 4,404,832 5,353,653 3,077,103
Long distance 3,217,921 3,332,965 1,586,398
Interconnection 3,969,138 3,760,751 1,402,920
Others 201,264 236,254 133,069
Telecommunications Services - Fixed 1,470,259 1,071,787 442,570
Gross Revenues Handset sales 3,405,726 4,596,539 2,010,526
Net Revenues 18,763,947 19,921,291 9,476,957
Adjusted Net Revenues 18,763,947 19,965,200 9,476,957
Net Revenues on Services 16,419,958 16,701,059 8,084,159
Adjusted Net Revenues on Services 16,419,958 16,744,969 8,084,159
Net Revenues on Products 2,343,989 3,220,232 1,392,798
Operating Expenses (13,751,989) (14,714,546) (6,828,772)
Personnel expenses (729,032) (831,876) (457,589)
Selling & marketing expenses (3,841,852) (3,937,899) (2,005,899)
Network & interconnection (5,353,476) (5,312,301) (2,205,056)
General & administrative (551,393) (624,725) (328,248)
Cost Of Goods Sold (2,604,978) (3,350,841) (1,473,856)
Bad Debt (250,972) (240,051) (153,256)
Other operational revenues (expenses) (420,286) (416,853) (204,868)
EBITDA 5,011,958 5,206,744 2,648,184
EBITDA Margin 26.7% 26.1% 27.9%
Adjusted EBITDA 5,054,088 5,237,399 2,648,184
Adjusted EBITDA Margin 26.9% 26.2% 27.9%
Depreciation & amortization (2,688,588) (2,767,871) (1,487,386)
Depreciation (1,458,563) (1,502,498) (809,308)
Amortization (1,230,025) (1,265,374) (678,078)
EBIT 2,323,370 2,438,873 1,160,799
EBIT Margin 12.4% 12.2% 12.2%
Net Financial Results (169,890) (302,720) (108,541)
Financial expenses (644,754) (749,700) (434,527)
Net exchange variance (4,151) (4,410) (1,962)
Financial income 479,015 451,391 327,949
Income before taxes 2,153,480 2,136,153 1,052,258
Income tax and social contribution (704,592) (630,539) (314,512)
Net Income 1,448,888 1,505,614 737,746
Adjusted Net Income 1,500,143 1,525,845 737,746
HISTORICAL DATA: OPERATIONAL & FINANCIAL RATIOS
ROA: NOPLAT/Avg. Total Assets. Calculation considers organic Net Income and EBITDA
HISTORICAL DATA & OTHERS 38
Year
Description 2012 2013 2014
Brazilian Wireless Subscriber Base (000`s) 261,808 271,100 275,707
Estimated Total Penetration 132.8% 136.45% 136.1%
Municipalities Served (GSM) 3,383 3,404 3,427
Market Share 26.88% 27.09% 26.91%
Total Lines (000's) 70,376 73,431 74,203
Pre-paid Lines (000's) 59,658 61,146 61,963
Post-paid Lines (000's) 10,718 12,285 12,239
Gross Additions (000's) 38,408 39,627 18,612
Net Additions (000's) 6,293 3,055 772
Churn 47.5% 50.9% 24.2%
Total ARPU 19.1 18.6 17.6
Total MOU 136 148 139
SAC 29 28 29
Handsets Sold (000's) 10,227 12,511 5,400
CAPEX (R$ Mn) 3,765 3,871 1,472
Employees 11,650 12,167 12,225
Stock Performance (base 100)*
TIM Celular S.A. Intelig
100%
TIM Brasil Serv. e Part. S.A. Free Float
Telecom Italia International N.V.
Telecom Italia
100%
TIM Participações S.A.
ON: 33% (805,662,701) ON: 67% (1,611,969,946)
100% 100%
STRUCTURE AND STOCK PERFORMANCE
*Last price as of 02/14/2014 HISTORICAL DATA 39
HISTORICAL DATA & OTHERS 39
-10%
00%
10%
20%
30%
40%
50%
60%
TIMP3 Ibovespa TSU
Cofins PIS/ PASEP ICMS Fistel Fust/
FUNTEL
TotalTotal Fust/ FUNTEL
PIS/ PASEP
ICMS Cofins Fistel
% Gross Revenues
TELCOS’ TAX BURDEN & HIGH INVESTMENTS
3% ~1%
28%
~5% 1.5% ~39%
32% of Revenues
Taxation represents almost 40% of companies gross revenues.
Tax Burden Composition Telecom Industry Tax Payments1 (R$ Bln)
Telecom Industry Investments2 (R$ Bln)
HISTORICAL DATA & OTHERS 40 Source: players Balance Sheet
1 Considers TIM, Telefonica, Oi and AMX 2 Considers TIM, Telefonica, Oi, AMX and GVT
45.7 46.0
2012 2013
36.8
38.4
2012 2013
Investor Relations Team
Avenida das Américas, 3434 - Bloco 01
6° andar – Barra da Tijuca
22640-102 Rio de Janeiro, RJ
E-mail: [email protected]
Rogério Tostes
E-mail: [email protected]
Phone: +55 21 4109-3742
Vicente Ferreira
E-mail: [email protected]
Phone: +55 21 4109-3360
Leonardo Wanderley
E-mail: [email protected]
Phone: +55 21 4109-4017
Rodrigo Godoy
E-mail: [email protected]
Phone: +55 21 4109-3446
Luiza Chaves
E-mail: [email protected]
Phone: +55 21 4109-3751
Visit our Website
www.tim.com.br/ir
Safe Harbor Statements
Statements in this presentation, as well as oral
statements made by the management of TIM
Participações S.A. (the “Company”, or “TIM”), that are
not historical fact constitute “forward looking
statements” that involve factors that could cause the
actual results of the Company to differ materially from
historical results or from any results expressed or
implied by such forward looking statements. The
Company cautions users of this presentation not to
place undue reliance on forward looking statements,
which may be based on assumptions and anticipated
events that do not materialize.
SAFE HARBOR AND IR CONTACTS
SAFE HARBOR & IR CONTACT 41