morgan stanley conference presentation
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TIM ParticipaTIM Participaçções S.A.ões S.A.Morgan Stanley Latin America CEO Conference
Miami – January 2009
2
Brazilian TLC overview
TIM Strategy
3Q08 Results: Operacional & Financial
Guidance
Historical Indicators
3
Competitive Landscape
Telecom Market
Political and Regulatory
1
3
2Mobile and broadband as main drivers for market growth
Modest growth in the fixed market (mainly due to low competition)
Increasing bundle offers (following the ‘one-stop-shop’ concept)
National consolidation of the main playersTough competition remains in mobile with aggressiveness in promotionsHuge opportunity in the broadband market due to strong demandAlternative operators and NP brought competition to the fixed marketHorizontal expansion aiming convergent offers
More political interventions over regulatory agentsRegulatory changes to allow TLC companies merge (OI & BRT)Pressure by Government for Telecom services universalization and digital inclusionTaxes and interconnection tariff discussionsWidening the competition: Number Portability (already in place), Wi-Max and Unbundling (to be discussed)
Brazilian TLC overview
4
Brazilian TLC overview: Political and Regulatory2009-10 Scenario Impacts for TIM
VU-M rates expected broadly stable with possible elasticity effect on traffic to exploitLower interconnection dependency due to better traffic mix and convergent offers
Agreement among fixed and mobile operators until mid-2009New regulatory rule by 2010 (Full Allocated Cost model)
Mobile: efforts to improve quality (call center, coverage) and loyalty as a competitive advantageFixed: opportunity with convergent offers
Full implementation by the end of 1Q09Widening competition
License payment: up front in 4Q08 (R$1.2bn)2009 coverage roll-out balancing value and regulatory obligationsCAPEX and OPEX impact
Anatel’s loan facility at a higher costCoverage obligation (service universalization and digital inclusion)“H” band to be auctioned
More capacity / frequency for BB offerDelayed Wi-Max commercial launchOpportunity in a niche market
Complementary vehicle for BroadbandAuction expected for 2009 (more than 2 years of delay)Widening competition
Updated rules to become commercially viableImplementation expected for 2010Widening competition
Allowing a fair competition in the fixed and broadband market for TIM
Interconnection tariff (VU-M)
3G license
Wi-Max license
Number Portability (Fixed and Mobile)
Unbundling
1
5
Brazilian TLC overview: Telecom Market
Billion of R$Million of lines
Source: internal estimates
BB Mobile
2008 2011
~5%
Fixed
Mobile
BB Fixed
~50%
~10%
~2%
CAGR
43
43 50
81115
46
2008 2011
41
144194
10
163
10
45
BB Mobile
Fixed
Mobile
BB Fixed
~10%
~50%
~3%
CAGR
~17%
2
Strong growth driven by Mobile BB fueled by market PC boom and low penetration ratioUniversalization of mobile service (~100% penetration by 2011)Fixed market growth fueled by increase of competition
TLC Subscriber Market TLC Revenue Market
6
Brazilian TLC overview: Competitive Landscape3
(1) Including Telemig Celular(2) Including Amazonia Celular(3) Considering its regional presence(4) 3Q08 figuresSource: company reports
Oi (2)/Brasil TelecomTIM Embratel /ClaroTelefonica/Vivo (1)
Long distanceincumbentPl
ayer
Foo
tprin
t
Mobile + Fixed Incumbent
Mobile
30%(42.3 MM)
25%(35.2 MM)
Fixed
Mobile
BroadbandMar
ket s
hare
(4)
National fixed license acquired
in may / 07
~0.4%
25%(35.7 MM)
19%(27.1 MM)
~4%
~30% / ~90%(3) ~12% ~55% / ~85%(3)
~25% ~22% ~40%
7
Brazilian TLC overview
TIM Strategy
3Q08 Results: Operacional & Financial
Guidance
Historical Indicators
8
Push on Mobile BB
Growth
Flexible/simple tariff plans (“no-frills”)Smartphone and 3G devices -new Wi-Fi devices
Lower PC entry level
New specialized kits for mass market distribution
Development of IM, social networking, mobile advertising
Key Objectives
'08 '11
0.5
~ 2.5
BB Users (Mn)30% contribution togrowth on servicerevenue
ActionsStrategy
0.2
> 3.0
TIM Fixo Customers (Mn)7% market shareHomezoning
Offers through TIM Fixo
Innovative OfferingsBest value for price (VAS included)
New packages for heavy users
Packaging TIM Fixo+ Mobile BB
Distribution (telesales, kiosks, and door to door approach) '08 '11
Mobile: “Customer
Centric"Approach
Focus on partnership with other operators of the new TMT chain (content & 4-Play)Reinforce TIM cutting edge positioning on data offers (through Smartphones: iPhone, Blackberry and etc)Invest in CRM capabilities improving customer life - cycle managementSelective approach by segment and geography
Market share of ~24% in 2011 with focus on value
Defend revenue share
Recovering brand awareness
TIM Strategy: Convergence through mobile network
9
TIM fixedlicense
MOBILEMOBILE
FIXEDFIXED
Partnership in Pay TV
Partnership in Pay TV
TIM Web
TIM Casa FlexTIM Casa
...2006...2006 20072007
Number portability
Competing on broadband market with mobility concept
Widening portfolio
Increase customer's share of wallet through bundle offers
Capturing opportunities on fixed voice services through number
portability
Strengthening our mobile business
Strengthening partnership inPay TV offers
Convergent Company
+
+
+
=
INTERNETINTERNETTIM 3Glicense TIM Web
Broadband
20082008 2008...2008...
TIM Fixo
TIM Strategy: Roadmap to a Convergent Company
10
TIM Strategy: Efficiency
Commercial Efficiency
New commissioning model increasingly oriented on acquisition quality and value, leading to higher efficiency of customer investments
Subsidy strategy increasingly focused on high user segment
Bad debt reduction to industry benchmark leveraging on new control rules/ stricter credit analysis
Structural Efficiency
Optimize transport network infrastructure (partnerships vs. make or buy)
Maximum exploitation of IT platforms synergies with Telecom Italia
Tight G&A cost control
Harvest Human Resources efficiency
Financial objectiveActions
Commercial cash cost as % of service revenues
Bad debt as % of service revenues
Industrial (Network and IT) costs per customer per year
G&A & labour cost as % of serv. revs.
>2pp reduction in 2011 from 2008 level
From ~6% in 2008 to ~4% in 2011
Slightly decrease
~1pp reduction in 2011 from 2008 level
11
TIM Strategy: paving a sustainable growth
On December 1st of 2008, TIM became part of the new portfolio of
Bovespa’s Corporate Sustainability Index (ISE);
ISE is composed by 30 companies out of 394 traded at Bovespa,
comprising only the companies with a strongcommitment to sustainability and social responsibility;
ISE is based on the international concept of the Triple Bottom Line (TBL), which makes an integrated assessment
of companies’ social, environmental and financial elements;
Underlining TIM’s commitment on a constant relationship improvement among all its stakeholders and
strengthening its environmental indicators performance;
Recognized as one of the national companies more committed to management transparency and which contributes
to the development of a fair social system, environmentally balanced and economically prosperous.
TIM became part of Bovespa’ s Corporate Sustainability Index (ISE)
12
Brazilian TLC overview
TIM Strategy
3Q08 Results: Operacional & Financial
Guidance
Historical Indicators
13
Subscribers base (Mn)
3Q08 Results: Subs and Market ShareRevenue vs. Market share
33.831.3 32.529.2
35.2
6.6 6.8 6.8 6.8 6.8
3Q07 4Q07 1Q08 2Q08 3Q08Post-paid Pre-paid
22.6 24.5 25.8 27.0 28.4
20.7%
Pre-paid growth supported by on-net promotions and naked
SIM-Card sales (>50% of total gross adds)
Post-paid
. Selective approach on acquisition with focus on value and quality
. Commercial focus on retention
. Launch of new premium customer care channel
A selective approach on subscriber base growth, with focus on
profitability and a strict disconnection policy;
Capturing additional value from subscriber base through cross-
selling offer
Source: Anatel and internal estimates * net service revenues
TIM Competitors
RevenueShare*
28%
Marketshare
25%
14
► Widening our TIM Web plan to address different needs► Focus on number portability opportunity► Cross-selling convergent offers via TIM Web, TIM Fixo and Mobile
VOICE: Remodeling tariffs and promotions dynamics
VAS: Push on innovative services
CONVERGENCE: Strengthening our portfolio
► Change in promotions conditions aiming profitability► Shortening promotion validity► Handset subsidy value oriented (on retention and acquisition)► Stimulating customer’s recharges through promotional bonus
► Segregate VAS promotion from voice► Stimulating usage through data package offer► VAS empowered by 3G roll-out► Further enhance partnerships
Stimulating VAS traffic‘Mega TIM Torpedo’
TIM + ASUSEnhance partnership
‘TIM FIXO’ launchConvergent offer
Post-paid focus with smartphone
‘Nova Tarifa Zero’
Pre-paid reinforce offer‘Use e Ganhe’
Commercial activities roadmap in 3Q08
Post-paid focus‘Tarifa Zero’
‘TIM Web’ BroadbandConvergent offer
3Q08 Results: Commercial activities
‘TIM TV 3G’Innovative service
JUL/08 AUG/08 SEP/08 OCT/08
15
3Q08 Results: KPI’s performance
R$ Minutes
R$ R$ Mn
ARPU MOU
SAC BAD DEBT
-13%
3Q07 2Q08 3Q081Q08
34.0 29.5 29.8 29.7
+7%
3Q07 2Q08 3Q081Q08
94 94 100 101
-14%-7%
3Q07 2Q08 3Q081Q08
129 117 119 110
275
3Q07 2Q08 3Q081Q08
156 143
~95**
~60**
177
272
203
143
~119*
* Impact from write-off of receivables in 3Q07 **Impact from telesales channel in Q1 and Q2
as % of net service revenue
9.6% 9.6% 6.8% 4.7%
16
3Q08 Results: Net Revenue and EBITDA performancesTotal Net Revenues
3,163 2,993 3,186
R$ Mn
Net Service Revenue Net Handsets Revenue
3Q07 2Q08 3Q08
YoY 1Q 2Q
Total net revenue +5.3% +4.1%
Service revenue +6.6% +6.8%
Handset revenue -14.5% -22.4%
3Q
+6.1%
+6.5%
+2.3%*
3,358
1Q08285 215 292
2,878 2,838 2,971 3,066
155
* -14% adjusting for write-off of receivables in 3Q07
EBITDA and EBITDA margin
542 637535
~173* ~95 ~60
715630
697
3Q07 2Q08 3Q081Q08
Additional bad debt impact
80012%
R$ Mn
*Impact from write-off of receivables in 3Q07: R$119 Mn in bad debt and R$55 Mn in handset revenue
20.0%
21.9%
23.8%
23.8%
17.9%
21.1%
17.1%
22.2%
Reported Margin
Adjusted Margin
17
3Q08 Results: EBITDA YoY performance
17.1%
Adjusted EBITDA Margin
R$ Mln
23.8%
Change
715.1 (173)
542.1
187.8 6.6 (40.3)(80.6) 42.6
132.1 799.89.5
AdjustedEBITDA
ReceivablesWrite-off
ReportedEBITDA
3Q07
ServiceRevenue
HandsetsRevenue
SellingExpenses
NetworkExpenses
COGS Bad Debt OtherExpenses
EBITDA3Q08
3Q07
+6.5% +2.3% +6.0% +8.1% -10.1% -48.0% -3.8%
22.2%
% YoY
(48.4) If adjusted by write-off of receivables in 3Q07
13.0 If adjusted by write-off of receivables in 3Q07
ReportedEBITDA Margin
18
Brazilian TLC overview
TIM Strategy
3Q08 Results: Operacional & Financial
Guidance
Historical Indicators
19
Guidance: TIM 2008 estimates and 2009-2011 targets
2008 E 2009 2011
Bn Reais CAGR 2008-2011
% on revenues Bn Reais % on revenues 2011
Bn Reais Bn Reais % on revenues 2011
Net Revenue
EBITDA
CAPEX
>7% ~14.4 ~8%
22 – 22.5% ~3.3 ~27%
~3.3* ~2.3 ~12%
Local currency BR GAAP
* Including 3G licenses (R$1.3 Bn)
20
Brazilian TLC overview
TIM Strategy
3Q08 Results: Operacional & Financial
Guidance
Historical Indicators
21Numbers may differ from the previous publishing due to rounding
Historical Indicators: Operational Results1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 QoQ % YoY %
Estimated population in the Region (million) 188.5 189.2 189.8 190.5 191.1 191.8 192.4 0.3% 1.4%
Municipalities Served (GSM) 2,460 2,501 2,538 2,655 2,706 2,733 2,765 1.2% 8.9%
Brazilian Wireless Subscriber Base (million) 102.2 106.7 112.8 121.0 125.8 133.2 140.8 5.7% 24.9%
Estimated Total Penetration 54.2% 56.4% 59.4% 63.5% 65.8% 69.4% 73.2% 3.7 p.p. 13.8 p.p.
Market Share 25.8% 25.8% 25.9% 25.8% 25.9% 25.4% 25.0% -0.4 p.p. -0.9 p.p.
Total Lines (´000) 26,307 27,478 29,160 31,254 32,533 33,815 35,206 4.1% 20.7%
Pre-paid Lines (´000) 20,629 21,435 22,571 24,483 25,775 26,993 28,386 5.2% 25.8%
Post-paid Lines (´000) 5,678 6,043 6,589 6,771 6,758 6,821 6,820 0.0% 3.5%
Gross Additions (´000) 3,105 3,724 3,996 4,576 3,787 4,046 4,573 13.0% 14.4%
Net Additions (´000) 896 1,172 1,681 2,094 1,279 1,282 1,392 8.6% -17.2%
Churn 8.7% 9.7% 8.4% 8.5% 7.9% 8.4% 9.4% 0.9 p.p. 1.0 p.p.
Total ARPU 34.4 34.6 34.0 34.5 29.5 29.8 29.7 -0.6% -12.7%
Total MOU 89 94 94 106 94 100 101 0.6% 7.4%
Investiment (R$ Mn) 255 326 344 1,007 273 1,706 511 -70.1% 48.3%
Employees 9,520 9,675 9,854 10,043 10,097 10,253 10,173 -0.8% 3.2%
22
Historical Indicators: Financial Results
2006 1Q07 2Q07 3Q07 4Q07 2007 1Q08 2Q08 3Q08Net Revenues 10,138,247 2,843,173 3,059,568 3,163,387 3,375,515 12,441,642 2,992,957 3,186,075 3,357,794Services 8,955,662 2,661,539 2,781,858 2,877,941 3,099,698 11,421,037 2,837,663 2,970,664 3,065,744Handset Revenue 1,182,585 181,634 277,710 285,445 275,816 1,020,606 155,294 215,411 292,051
Operating Expenses (7,701,710) (2,179,122) (2,315,857) (2,616,106) (2,460,679) (9,571,763) (2,457,594) (2,549,414) (2,557,961)Personal Expenses (594,890) (152,173) (156,631) (149,426) (167,167) (625,398) (162,625) (168,697) (152,654)Selling and Marketing Expenses (2,173,548) (571,742) (618,680) (674,698) (646,957) (2,512,078) (598,141) (665,621) (715,019)Network & Interconnection (2,690,571) (908,735) (899,760) (996,524) (1,060,069) (3,865,089) (1,044,547) (1,072,570) (1,077,171)General & Administrative (434,358) (112,562) (108,011) (102,812) (106,314) (429,699) (123,779) (107,984) (101,496)Cost of Goods and Services (1,407,761) (263,619) (376,408) (420,673) (373,729) (1,434,431) (263,235) (324,831) (378,072)Bad Debt (451,976) (172,968) (168,405) (275,371) (97,827) (714,571) (271,701) (203,327) (143,250)Other operational revenues (expenses) 51,394 2,678 12,039 3,399 (8,615) 9,502 6,434 (6,384) 9,702
EBITDA 2,436,537 664,051 743,711 547,281 914,836 2,869,879 535,363 636,662 799,834EBITDA - Margin over total net revenues 24.0% 23.4% 24.3% 17.3% 27.1% 23.1% 17.9% 20.0% 23.8%
Depreciation & Amortization (2,234,438) (582,266) (569,986) (569,251) (602,172) (2,323,674) (572,033) (596,338) (617,988)
EBIT 202,099 81,786 173,725 (21,970) 312,665 546,205 (36,670) 40,323 181,846
Net Financial Results (287,034) (63,255) (81,462) (80,893) (53,241) (278,851) (56,071) (59,157) (118,360)
Income (loss) before taxes and Minorities (82,409) 17,375 89,709 (113,794) 249,643 242,932 (95,316) (18,326) 62,108
Income tax and social contribution (203,133) (36,840) (55,695) (8,041) (66,261) (166,837) (12,613) (15,743) (39,579)Net Income (Loss) (285,542) (19,465) 34,014 (121,836) 183,383 76,095 (107,929) (34,069) 22,529
R$ (Th)
23
“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.
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.
Investor Relations
Avenida das Américas, 3434 - Bloco 016° andar – Barra da Tijuca22640-102 Rio de Janeiro, RJPhone: +55 21 4009-3742 / 4009-3446 / 4009-4017Fax: +55 21 4009-3990
Investor Relations
Avenida das Américas, 3434 - Bloco 016° andar – Barra da Tijuca22640-102 Rio de Janeiro, RJPhone: +55 21 4009-3742 / 4009-3446 / 4009-4017Fax: +55 21 4009-3990
Visit our Website
http://www.timpartri.com.br