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Investor Relations – Rio de Janeiro, October 29th 2010
1
Agenda
Q3 Results
Economics
Q4 Outlook
2
Q3 in few: a sustainable growth
Size
Growth
Profitability
• Market Share
• Incremental Market Share
Customer Base 46.9 Mln +18.5%
EBITDA
24.5%
40%
• Net Service Revenues
• EBITDA Margin
• EBIT
• EBIT Margin
• Operating FCF
• OFCF Yield
3,648 +6.1%
924 +19.6%
25.3 +290 bps
257 +226%
7.0% +470 bps
603 +53.9%
16.5% +510 bps
Q3 YoY
Ability to combine
Customer Base growth
with higher profitability
Net Revenues
3,387 +6.3%
3
Q1'10 Q2'10 Q3'10
25.3%25.1%24.8%
...with higher Profitability”
% YoY EBITDA +31.0% +16.1% +19.6% +21.6%Δ EBITDA Margin (bps) +528 +320 +287
“Talking More”
% YoY Total Rev. +3.0% + 1.3% +6.1% +3.5% % YoY Service +5.4% + 6.4% +6.3% +6.0%
3,2693,531 3,648
MOU +42% + 51% +37%
100110
12324.5%24.0%
23.6%
Consistency in Results
Q1'10 Q2'10 Q3'10
42.4
∆ % +17% + 17% +19%
YoY growth
44.4 46.9
Q1'10 Q2'10 Q3'10
3,146
YoY growth
3,317 3,387
YTD YoY
BR GAAP, R$ Mln
YTD
Market Share
CustomerBase
Q1'10 Q2'10 Q3'10
4,149
YoY growth
4,769
MOU
Total traffic
Traffic +64% + 77% +61%
Mln minutes, monthly averageCustomer base, Mln lines
Net Total Revenues
Net Service Revenues
BR GAAP, R$ Mln
810887 924
EBITDA
EBITDAMargin
“More People”
“Generating more Revenues ...
5,614
IFRS: 28.2%*
IFRS: 1,038*
* IFRS figure according to controlling shr. Report (TIM Brazil consolidated)
4
24.5%24.0%
23.6%
39.7 37.5 35.8
7.26.96.6
“More People”
Market Share and Client Base
Customer Base, Mln lines
46.942.4 44.4Post
Pre
Market Share
Q1’10 Q2’10 Q3’10
YoY growth %
CB +17% +17% +19%
Post +7% +12% +15%
Pre +19% +19% +19%
Back to #1 in NE
TIM #2
Back to #2 in SP
34%
24%17%
Solid #1 in the South
TIM #1
P1P2P3
P1
P2
P3
1.1 1.7 2.2
0.30.3
0.15
Incremental Market Share and Net Adds
Net Adds, Mln lines
2.5
1.25
2.0
Post
Pre
IncrementalMarket Share
Q1’10 Q2’10 Q3’10
#1
% of net share49%40%
29%
25
30
35
40
45
50
jul/10 aug/10 sep/10
40%34%
24%
Market share %, Metropolitan area
TIM back to #1
34%32%28%
6%P1
P2
P3
0
0
0
0
0
0
0
0
0
0
Q107 Q3'08 Q1'09 Q3'09 Q1'10Q1'08Q307 3Q092Q09 4Q09 1Q10 2Q10 3Q10
Back to #2 in Pre-Paid
Market share %, Area 10Market share %, PR / SC
Q3'10
43%
22%20%14%
0
Q1'09 Q2'09 Q3‘09 Q4’09 Q1‘10 Q2‘10 Q3‘10
25%
5
100%
100%
100%100%
100%
100%100%
99%100%
100%
98%
97%97%
91%
“Talking more”
Q1'10 Q2'10 Q3'10
Out
In
∆ % + 42% + 51% + 37%MoU 2009 70 73 90
YoY growth
Minutes / lines / month
Q1'10 Q2'10 Q3'10
59
∆ % - 25% - 25% - 31%SAC 2009 104 88 85
YoY growth
Q1'10 Q2'10 Q3'10
2.9% 2.7%2.0%
78
∆ % - 33% - 5% - 33%Bad Debt 2009 4.6% 3.1% 3.2%
YoY growth
BR GAAP, R$ BR GAAP, % Service revenues
MOU
2007 2008 2009 Q2'10
40%
#1 Mkt Share LD
SAC Bad Debt
100 110123
Sales Efficiency
Network Quality
P3P2P1
Drop calls
Network Quality
0.600.620.620.660.710.750.790.850.85
1.051.061.061.041.2
aug.09 oct.09 dec.09 feb.10 apr.10 jun.10 aug.10
* SAC = Subsidy + Commissions + AdvertIsing & Promotions
66
3.2x2.8x 2.5xSAC/ARPU
SAC
• 3Q’10: R$ 69,4 Mln• 3Q’09: R$ 102,9 Mln
6
“Generating More Revenues”... (1/2)
Q1'10 Q2'10 Q3'10
3,269
∆ % +3.0% + 1.3% +6.1% + 3.5%2009 3,174 3,486 3,440 10,099
YoY growth
BR GAAP, R$ Mln
3,531 3,648
YTD
Q1'10 Q2'10 Q3'10
3,146
∆ % +5.4% + 6.4% +6.3% + 6.0%2009 2,985 3,118 3,186 9,289
YoY growth
BR GAAP, R$ Mln
3,317 3,387
YTD
Q1'10 Q2'10 Q3'10
172
∆ % +14.4% + 26% +29% + 24%2009 151 165 170 485
YoY growth
BR GAAP, R$ Mln
208 220
YTD
Q1'10 Q2'10 Q3'10
124
∆ % - 34.4% - 42.1% +2.8% - 26%2009 189 368 254 811
YoY growth
BR GAAP, R$ Mln
213
261
YTD
Total Revenues Service Revenues
Intelig Service Revenues Product Revenues
Consistency
Invertedtrend
Acceleration
Take-up
7
... with “High Quality Mobile Revenues” (2/2)
Business Generated vs Received Service Revenues Growth
Gross Margin of Outgoing Voice* Outgoing Voice Contribution
31% 27%
58% 66%
11% 12%
Q3'09 Q3'10
VAS
Voice
Incoming
Generated
Received
14%
-7,2%
Business Generated
Business Received
IncomingRevenues
69%
63%
Q3'09 Q3'10
OutgoingVoice Net Revenues
Saving on ITX costs
Δ Out Voice Contribution
+20% vs. YA
* (Outgoing Voice Revenue – ITX cost) / Outgoing Voice Revenues
73%69%
% on Net Service Revenues % on Gross Service Revenues
Δ YoY
+ 14%
- 2%
+ 14%
Voice Out
VAS
Others
• Discount on services +17% YoY:– Chip Only approach (voice and
data)– Push Internet Penetration
. Pre: 1 month free
. Post: 6 months free
% YoY
+10 %
-7 %
+223 Mln
• Local: + 11%• LD: + 25%
8
Q1 '10 Q2 '10 Q3 '10
4.4%
6.1%7.0%
24.8% 25.1% 25.3%
Q1 '10 Q2 '10 Q3 '10
16,5%6,5%
214143
257887
810
924
“Higher Profitability”
EBITDA
Margin %
EBITDA
∆% +31% +16% +20% +22%EBITDA ‘09 618 764 772 2,155(2009 Pro-forma TIM + Intelig)
YTD
BR GAAP, R$ Mln
Operating FCF
OFCF Yield
OFCF Q1’10
Q2’10 Q3’10
EBIT
EBIT
∆% - +151% +226% +454%EBIT‘09 -54 85 79 111(2009 Pro-forma TIM + Intelig)
YTD
BR GAAP, R$ Mln
∆% +43% - 44% +54% -OFCF ‘09 (1,251) 407 392 (452)
BR GAAP, R$ Mln
YTD
+290 bps vs. 3Q09 Margin %
+470 bps vs. 3Q09
+510 bps vs. 3Q09
(716)
229
603N/A
vs. 116Mln YTD 2010
vs. 614Mln YTD 2010
vs. 2,620MlnYTD 2010
9
Q3 Results
Economics
Q4 Outlook
Agenda
10
1Q 2Q 3Q September YTD
mln R$ 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY
Net Revenues 3,269 3,174 96 3.0% 3,531 3,486 45 1.3% 3,648 3,440 208 6.1% 10,448 10,099 349 3.5%
of which Services 3,146 2,985 161 5.4% 3,317 3,118 199 6.4% 3,387 3,186 201 6.3% 9,850 9,289 562 6.0%
of which Handsets 124 189 (65) ‐34.5% 213 368 (155) ‐42.1% 261 254 7 2.8% 598 811 (213) ‐26.3%
EBITDA 810 618 191 30.9% 887 764 123 16.1% 924 772 152 19.6% 2,620 2,155 466 21.6%
Ebitda Margin % 24.8% 19.5% 25.1% 21.9% 25.3% 22.5% 25.1% 21.3%
Capex 576 201 375 186.7% 436 429 7 1.6% 463 541 (78) ‐14.3% 1,475 1,171 304 26.0%
EBITDA ‐ Capex 234 418 (184) ‐44.0% 450 335 116 34.6% 461 232 229 99.0% 1,145 984 161 16.4%
Br Gaap
Consistency in Quarterly Trend
Guidance on trackIFRS shows at OFCF level the benefit of reducing subsidy strategy
*: BRGAAP and IFRS 2009 figures Proforma including InteligNote: Key difference between BRGAAP and IFRS is the handsets subsides capitalization
1Q 2Q 3Q September YTD
mln R$ 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY 2010 2009abs. YoY
% YoY
Net Revenues 3,296 3,198 98 3.1% 3,559 3,512 47 1.3% 3,677 3,467 209 6.0% 10,532 10,178 354 3.5%
of which Services 3,177 3,015 161 5.3% 3,350 3,151 199 6.3% 3,418 3,223 196 6.1% 9,945 9,389 556 5.9%
of which Handsets 120 183 (63) ‐34.6% 209 361 (152) ‐42.2% 259 245 14 5.6% 587 789 (202) ‐25.6%
EBITDA 949 706 243 34.4% 1,012 872 140 16.1% 1,038 882 156 17.7% 2,999 2,460 539 21.9%
Ebitda Margin % 28.8% 22.1% 28.4% 24.8% 28.2% 25.4% 28.5% 24.2%
Capex 689 322 368 114.4% 520 535 (15) ‐2.7% 526 692 (166) ‐24.0% 1,736 1,548 187 12.1%
EBITDA ‐ Capex 260 385 (125) ‐32.5% 492 337 155 45.9% 512 190 322 169.5% 1,264 912 352 38.6%
IFRS as reported
by Telecom
Italia
For perspective
Current
*
*
11
EBITDA3Q10
Depreciation and
Amortization
EBIT Net Financial Expenses
Taxes and
Others
Net Income
3Q09 (693.6) 78.8 88.6 27.6772.3 194.9
151.7 26.4 (150.1) (98.2) (70.2)Y/Y 178.0
From EBITDA to Net Income (in R$ Mln)
124.7
924.0
256.8
-667.2
-61.4
-70.6
Consistent EBITDA growth
EBITDA Evolution (in R$ Mln)
EBITDA3Q09
Δ Business Generated +
Handsets
Δ Business Received
(incoming)Δ Network
Δ Commercial Expenses EBITDA
3Q10
Δ G&A + Other
expensesEBITDAMargin
25.3%+2.8 pp
22.5%
+20%
772
273 -65-65
-20 28
924
Net Services: +266Products: +7
Net Revenues: +208 Costs: +57
• Marketing & Sales• COGS• Bad debt
• ITX• Maintenance• Energy & Rental
• Personal• G&A• Other
Non recurrent impacts (Total: 234 Mln)• +R$164,5Mln - FX variation on Intelig’s 3Q09 results• +R$38,5Mln - TIM Celular’s reversion of tax provision• +R$30Mln - adherence of REFIS fiscal benefit
12
Free Cash Flow and Net Financial Position
Operational Free Cash Flow in 3Q10
924
-463
603
142
EBITDA Δ Workingcapital
CAPEX Oper.FCL. * TIM excluding Intelig
R$ 3.45 bln (of which 73% in the long term)
~22% of debt is denominated in foreign currency (100% hedged)
10.0% in the 3Q’10 vs. 9.74% in the 3Q’09 and 10.0% in the 2Q’10
Gross Debt
Average AnnualCost
161
2,0792,544
-603
2,520
Oper FCF Non-OperFCF
3Q09* 3Q102Q10
959 1,703 1,369
-18.3%
Net Financial Position – Sep10R$ Mln
% of Net revenues
YTD09 YTD10
11.4% 14.1%
3Q09 3Q10 3Q09 3Q10 3Q09 3Q10
2x 2x 10x
3G Towersactivated
2G Capacity(# TRX)
Microwaves activated
+20% YoY
+54% YoY
Cash% on Net Revenues
25.3% 3.9% 16.5%
13
Q3 Results
Economics
Q4 Outlook
Agenda
14
Q4 Outlook
CommunityExpansion
(Customer Base)
FMS on Voice(Usage)
Internet Penetration(Data)
Strategy
KPI’s 50 Mln at end of year
MOU 140’
~10Mln Unique
Active Users(20% of CB)
Expected Results
Maintain
- CB Expansion
- EBITDA and Margin Improvement
- Cash Generation
Accelerate
- Top line Growth
- Smartphone Penetration
- Data Revenues
- Intelig Development
15
Christmas Campaign
Infinity
Ultimate Smartphones
portfolio, unsubsidised, sold in a pro-
rata basis
Infinity Web
Smartphone PenetrationTiM Liberty
16
Intelig Development among Corporate Market
Service Revenues Growth
206 220
Net Revenues 2010 in R$ Mln
172
YoY growth
+29%+26%
+14%
Q1'10 Q2'10 Q3'10 Q4'10
Rio de Janeiro’s City Hall
352 links with potential up to 2,000 links
Sky
AES 54 links won
30 links won
São Paulo Government
~25 thousand mobile lines (total replacement)
Mobile
Fixed
Fixed
FixedBR GAAP
Last Auctions Won
17
Conclusions
Q3 confirms TIM Turnaround, with improvement on Network Quality, Market Share, Revenues Growth, Profitability and Cash
“Voice is Good”: outgoing voice continues to be the key driver of growth both in terms of Revenues and Contribution
In Q4 we will insist in marketing efforts to enlarge TIM Community, forcing FMS on voice and penetrate the internet market via smartphone