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1Q11 ResultsP iPresentation
TIM Brasil
1Q11 Results Presentation
Investor RelationsSão Paulo, May 3rd 2011
Agenda
1Q2011: Main Achievements 1Q2011: Main Achievements
1Q2011: Financial ResultsQ
Full Year 2011: Business Outlook
1
What’s TIM Brasil?
"Voice is Good"
Infinity breakthrough
Q1 Results
Innovation is in our DNA… …consistent value creation
• Customer Base
• Top Line
Infinity breakthrough- Local as Long Distance- Price per call concept
+25% YoY
+14% YoYTop Line
• Service Revenues
Infinity Mais (Off-net M2F): 3x traffic growth in 5 months
Liberty (postpaid): 2x MOU; churn below 2% per month
14% YoY
+9% YoY
• EBITDA
Liberty (postpaid): 2x MOU; churn below 2% per month
"New Data Approach"
4 t h ld i “ b id ”
Profitability
+9% YoY
• EBITDA (excluding subsidy capitalization)
• EBIT
4x smartphones sold in a “zero-subsidy” approach
Unlimited even for data concepts
+23% YoY
+109% YoY
• EBITDA-CAPEX
• Net Income
p
- Prepaid: pay per day . Infinity Web/SMS take-up
+186% YoY
+291% YoY
2
et co e
• Net Debt- Postpaid: on/off payment concept per month
. Liberty Web (smartphone, tablet, modem) -35% YoY
Acceleration of Growth: Customer Base and Revenues
5,58,5 Mln R$
Revenues
Mln clients, Base EoP
Customer Base
Gross Adds +55%
1,25 1,823.752
3.296
3.4633.176
T t l
+9,0%Service
Revenues
Gross Adds
42,452,8
Net Adds
+55%
+45%
+25%
Δ% YoY
7,7 +16%
Q1'10 Q1'11 Q1'10 Q1'11
TotalRevenuesCB +13,8%
Pre-paid
Post-paid
+26%35,8 45,16,6
7,7 +16%
Gross Adds Net Adds Total Revenues Service Revenues
45%
45%Pre
Tot.
6,6%
5,6%
Q2'10
Q1'10
+1,3%
+3,1%
Q2'10
Q1'10
Q1 YoY
+55%
+63%Pre
Tot.
Q1 YoY Q1 YoY Q1 YoY
20%
+265%Post Web
Post Voce-2%
6,0%
6,4%
Q4'10
Q3'10+6,1%
+9,9%
,
Q4'10
Q3'10
+256%Post Web
Post Voce
3
+265%Post Web9,0%Q1'11+13,8%Q1'11
256%Post Web
Drivers of Revenues Acceleration
Mobile - Voice InMobile - Voice OutYoY growth YoY growth
14,0%
13,8%
12,3%
Q3'10
Q2'10
Q1'10
-7,2%
-7,8%
-11,3%
Q3'10
Q2'10
Q1'10
Local: +16.3%LD: +21.0%
17,3%
11,0%
Q1'11
Q4'10
-2,4%
-6,2%
Q1'11
Q4'10
"Talking more" "Lower erosion"Talking more Lower erosion
Intelig Revenues*Mobile - Data Revenues
YoY growth YoY growth
14,0%
13,9%
12,7%
Q3'10
Q2'10
Q1'10
29,0%
26,0%
15,0%
Q3'10
Q2'10
Q1'10
g g
32,3%
31,4%
14,0%
Q1'11
Q4'10
Q3 10
30,6%
37,0%
Q1'11
Q4'10
"Data take up" "Intelig on track"
4
Data take-up Intelig on track
* Net revenues
Prepaid (Infinity): Enlarging TIM Community
Market Share LDCustomer Base Pre MoU Out
Mln Min
48,3%
20 6%
27,7%
33,8%+40%
TotalCB
+26%
11,5% 17,0%
20,6%
11,5%
17,2%
InfinityCB (60%)
(90%)90%
Infinity TorpedoInfinity ‘Mais’
2007 2008 2009 Jun/10 Dec/101Q'10 1Q'11
8,5
Off-net TIM-Fixed Traffic
Mln minutes/day
Customer Base
Millions
Volume of SMS sent
35,040,0
lions
Volume: X 5
3X
0 05,010,015,020,025,030,0
Mill
5
Oct/10 Mar/11 Oct/10 Mar/11
0,0
01/01/2011
05/01/2011
09/01/2011
13/01/2011
17/01/2011
21/01/2011
25/01/2011
29/01/2011
02/02/2011
06/02/2011
10/02/2011
14/02/2011
18/02/2011
22/02/2011
26/02/2011
02/03/2011
06/03/2011
10/03/2011
14/03/2011
18/03/2011
22/03/2011
26/03/2011
30/03/2011
03/04/2011
07/04/2011
11/04/2011
Liberty: Driving Postpaid Growth
Mln lines, EoP
Customer Base Post Churn Reduction
GrowthChurn Voice Consumer
Gross adds
Net adds
% YoY
+16%
Churn Voice Consumer
1 2
% monthly
6,6
7,7
Total CB
2,5
Liberty
Total churn rate
3,1%
2 7%
2010
2011
% monthly
-1,2 pp
+600%Liberty CB
(90%)-0,4p.p.
32%8%
MoU Post Liberty: driving MoU increase
Liberty Success
2,7%2011
Min/month, Outgoing only Min/month
230
+36%
~
~8 x
230
Total Post Infinity controle Old Plans LibertyQ1'10 Q1'11
6
Q Q
Smartphone Sales: boost Data take-up
Mln R$, ‘000 handsets, R$
Handsets/Smartphones Sales Pre-Paid: Infinity Web success
Unique users, Average, mln clients
29%3
5x>1.3
2,312%
2
3
ProductRevenues
+ 142%
+64%
0,28
Aug/10 Sep/10 Oct/10 Nov/10 Dec/10 Jan/11 Feb/11 Mar/114x more smartphones
1,2
1,41,4
1
2
Total Volume
Post-Paid: New Offering
smartphones sold in a “Zero
Handsets Subsidy” rule
approach,
0,2
0,9
0
1
Q1'10 Q1'11
Smartphone/ Webphone
x4
Q1 10 Q1 11
Unit price +48%
16% 40%% Smart-Webphone
on Total
7
Unit price(mix effect) 87 128+48%
KPI’s evolution
Minutes per line per month
MoU
126+27%
SAC & SAC/ARPU
SAC/ARPU
Out112
100
82 +37%
Total
75
3,1
1,8-44%
(monthly)
SAC Unitary(R$)
1418In
Q1 11Q1 10
-22%
Volume (Bln Out
12,410 2
19,717 5
+58%+71%
Total
36
Q1 11Q1 10
-51%
Bad Debt ARPU
(Blnminutes) In
Out 10,22,2
17,52,2
+71%-3%
Q1 11Q1 10SAC Total (Mln R$) 408 309-24%
93
2,0%0,8%-1,2pp
R$ Mln, % Gross Revenues
20 824,0
-14%
R$• Out: -13%
• In: -21%
Pré: Estável
Pós: -11%
42
93
-55%
20,8
8
Q1 11Q1 10Q1 11Q1 10
Intelig “on track”
Net Revenues Major Commercial Achievements
R$ Mln
+31%
Key & Large
Focused Approach
Intelig
31%
RJ Government RJ City Hall SP GovernmentGovernment
Q1'10 Q1'11
...of which...
SME Top Clients
Military games
Success in the main Government bids
+26%
SME
+39%
Top Clients
MVNO First Mover in Brazil
Q1'10 Q1'11 Q1'10 Q1'11 d P t hi i
9
Q1'10 Q1'11 Q1'10 Q1'11 ... and more new Partnerships in progress...
Agenda
1Q2011: Main Achievements 1Q2011: Main Achievements
1Q2011: Financial ResultsQ
Full Year 2011: Business Outlook
10
EBITDA analysis: Q1 2011 YoY
R$ Mln
Q1’11Q1’10Revenues2011289
2010120
ΔYoY+169
Fistel: -R$50 MMCRC R$29 MM
Subsidies analysis
300
350
300
350 8341
251
Considering Subsidies
Capitalization
R$ Mln R$ Mln
+9.0%
RevenuesCOGSNet at P&L
289(333)(44)
120(136)(16)
+169(197)(28)
CRC: -R$29 MMRecharge: -R$28 MM
289333
100
150
200
250
120 136100
150
200
250
Capitalization
115
947
+2411.033
(22)(106)
(1)8
(28)
0
50
Prod rev. COGS
120
0
50
Prod rev. COGS
115
Reported at P&L Capitalized Costs
Handsets sold (Mln)
2,31,4 +64%
+23%
Subsidy per handset (R$)
,,
+14 8% +13 4%-2 5% +0 0%% YoY +9 0%+171 8%
EBITDA 1Q10
EBITDA 1Q11
Business Generated (Outgoing
– ITX costs)
Business Received
(incoming)
Commercial expenses
Others expenses*
ProductContribution
(Rev. – COGS)
11
2395 -76%
* Personnel, Network, G&A , Bad Debt and Other Expenses
+14.8% +13.4%-2.5% +0.0%% YoY +9.0%+171.8%
Impact of “Zero Handset Subsidy” on Financial Results
EBITDA Margin
R$ Mln, %
YoY
Margin w/o subsidy capitalization
Subsidy
EBITDA +9%EBITDA
EBITDA w/o subsidy
capitalization
+23%Capitalized
Cash Generation
9471 033EBITDA
-107 Mln of subsidy included on P&L and CAPEX
EBIT 167
350
9,3%5,1%
+109%
+420bp% of Revenues
YoY
689297
1.033
Q1'10 Q1'11
EBITDA
CAPEX
167
Q1'10 Q1'11
+109%EBITDA - CAPEX
Absolute
% of sales
258
7,8%
736
19,6%+11,8 p.p.
+186%
Net Income 55
213
5,7%1,7%
+291%
+400bp% of Revenues
YoY
12
55
Q1'10 Q1'11
Net Debt Evolution
Net Debt 1Q 2011 Net Debt Profile
R$ Mln
Seasonality: 4Q CAPEX payment
and yearly Fistel (March) (688) 1.671
Gross Debt: R$ 3.26 bln (of which 70% in the long term)~23% of debt is denominated in foreign currency (100% hedged)Average Annual Cost: 10.6% in the 1Q’11 vs. 9.9% in the 1Q’10 and10.1% in the 4Q’10
428
963
984
6%
100%
28%
12%
30%
1.671
876 3.2591.587
991
Net Debt 1Q 2010
1 684 (874) 2 558
NFP 4Q10 1Q'11 NET CASHFLOW NFP 1Q'11
30%
Cash <12M 12<36M 36<60M +60M TotalDebt
NFPChange in Debt 1Q 2011 vs Q1 10
1.684 (874) 2.558
(700) +187 (887)
From Operating to Net Cash Flow 1Q
(549) (2) (687)(136)
OperFCF Interest & taxes Others Net Cash Flow
Q1 11
13
(718) (43) (874)(113)Q1 10
+169 +41 +187(23)Vs YA
Agenda
1Q2011: Main Achievements 1Q2011: Main Achievements
1Q2011: Financial Results
Full Year 2011: Business Outlook
14
Outlook
TIM Strategy
Mobile over Fixed: acceleration of FMS trend
Market Scenario
No legacy in FMS: “The largest pure mobile in B il”
MTR cut glide path as of H2
Intensification of Mobile competition (still
Brasil”
Low MTR cut exposure:
Intensification of Mobile competition (still rational):- More chip-only, less handset subsidy- New services (long distance via mobile SMS)
30% 23%42%
Q1'09 Q1'10 Q1'11
(Incoming –ITX)/ Ebitda
(%)
- New services (long distance via mobile, SMS)
Fast Data take-up (#3 worldwide in growth rate), while voice market still expanding
Focus on value (#2 in Revenue Share)- The largest community (Infinity >41MM)- MOU Accretion: outgoing Revenues at double digit p g g g ggrowth
- Zero-subsidy strategy on handsets- Data take-up via smartphone penetration (4x)
Brazilian mobile market attractiveness •Innovation in go-to-market…
15
Brazilian mobile market attractiveness
(large and fast growing)…Enhancing shareholder value
Drivers of Growth
Now Full Competitive in the 3 waves
FMS(MoU)
CommunityExpansion (CB)
Internet(Data)
Speed-up small screen data Revenues through Smartphone
penetration
Double digit Customer Base growth
Double digit outgoing voice Revenues growth
16
Smartphone penetration take-up in a zero subsidy approach
Smartphone penetration* in the World
North America
2011E vs 2010
+12 8 p p44%
% of customer base
With a zero subsidy approach
North America
Europe
+12,8 p.p.
+8,3 p.p.32%
24%
44%
32%
Impact on accounts115
85
With a zero subsidy approachAvg. World
Central and Latin Ameica
+3,3 p.p.
+3,7 p.p.
2%
10%7%
7%
12%15%
11%9%
64
25
8
Less advantage on P&L in contrast to a
lower CAPEX-107
2007 2008 2009 2010 2011 “Catch up the Best”
Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11
Smartphone penetration* in TIM Brasil% of customer base
+8 p.p.
12%
18%2011E vs 2010
12%10%
8%
17*Smartphone penetration as % of total mobile subscriber reported (dongle x M2M excluded)Source: Global Wireless Matrix (28° april 2011); BofA Merrill Lynch
2010September
2010 Year End 2010 March 2011 Year End
A better Capital Allocation(benefits of zero-subsidy approach)
322 689 297
1Q 2011 CAPEX evolution Full Year 2011 CAPEX expected
R$ Bln,R$ Bln,• 2011 CAPEX Guidance : R$2 9 Bln
2 7 2 875% 85%
51%25% 15%
322
Commercial
689 297
T l
• 2011 CAPEX Guidance : R$2,9 Bln• Better mix
% of Total Revenues
19,6%19,7%
2.7 2.849%
75% 85%
Q1 09 Q1 10 Q1 11
Infrastructure
Total Commercial
Commercial
Infrastructure
Total33% 19% <10%
81% >90%67%
2009 2010 2011Subsidy
Comodato
80 115 8
87 62 35
Increase network capacity to support voice (2G)
Drivers% of sites connected with own backhauling
Backhauling
20 7
26,5 28,3
Backbone000 km More Make, Less Buy
20%Buy
Full coverage prospective (3G)Fiber to the antenna’s in main citiesDevelop Wi-fi hot spots
20%
20,7
7,0
16,0
35%
65%
65%80%
20%
35%
18
complementary to 3G '09 10 11 12 13
'09 10 11 12 13
Make35%
2009 2011 2013> 80% of Brazilian major cities connected via fiber by 2013
Conclusions – Take-aways from 1Q
Operations: acceleration of growth in terms of customer base, services,
smartphone penetration and usage of voice
Economics: "double-digit top line", "triple-digit bottom line" Economics: double digit top line , triple digit bottom line
Profitability: High single digit EBITDA growth, double digit normalized (+23%)
for the "zero subsidy approach"for the zero-subsidy approach
Cash generation, better CAPEX allocation
The 3 drivers of growth strategy is now in place:
- Community expansion
- FMS on voice
- Small screen mobile data, via fast smartphone penetration
19
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