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ApresentaçãO Da Tim No Jp Morgans Asia Pacific And Emerging Markets Equity Conference
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ApresentaçãO Da Tim No Jp Morgans Asia Pacific And Emerging Markets Equity Conference

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  • 1. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO TIM Participações S.A. JP Morgan's Asia Pacific and Emerging Markets Equity Conference 2007 September 24-25, 2007 New York 1
  • 2. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO General Context TIM General Overview TIM Strategic Objectives Marketing Developments Regulatory Framework 2Q07 Results Conclusion 2
  • 3. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Brazilian Macroeconomic Scenario Growing economy and widening consumer market Gross domestic product growth Minimum-salary increase vs. inflation 5.7% 16.7% 15.4% 4.7% 4.4% 4.2% Increasing purchasing 3.7% Minimum- power of lower income 2.9% salary 8.3% increase classes 5.7% Inflation 7.6% 4.2% 3.9% 4.1% 3.1% 2004 2005 2006 2007E 2008E 2009E 2004 2005 2006 2007E 2008E 2009E PAC* estimate 4.5% 5.0% 5.0% PAC* inflation estimate 4.1% 4.5% 4.5% Stability and increase of purchasing power •Government infrastructure investment program to accelerate economy 3 Source: EIU, Brazilian Central Bank
  • 4. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Brazilian Telecom Market Telecom growth driven by mobile and broadband Client base (Mln) 6.5 Penetration Rate (Per 100 inhabitants) Broadband 5.6 Broadband 56.4 3.9 53.2 Mobile Mobile 47.3 Fixed 2.3 Fixed 36.4 1.2 99.9 106.7 86.2 26.1 65.6 22.0 21.8 20.7 20.5 46.4 22.0 0.7 1.3 2.1 3.0 3.4 39.2 39.6 39.8 38.8 38.7 2003 2004 2005 2006 2Q07 2003 2004 2005 2006 2Q07 Main players in the telecom industry Telefonica/PT Telmex / A. Movil Telecom Italia Citi / Pension Funds Finan. Groups Telephony Fixed Fixed license acquiried on May 2007 Telephony Mobile Source: ANATEL. 4
  • 5. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Brazilian Wireless Market Continuous Market Growth Client Base Performance Market Share Performance Mln lines -27.2 pp 29.8 29.1 30.3 1st Player 1st Player 45.1 26.5 40.5 -2.6 pp 25.4 27.5 34.5 20.9 26.3 3rd Player 29.1 20.2 28.4 23.9 3rd Player 23.4 25.4 25.8 13.7 20.5 20.8 18.7 23.9 24.6 9.5 21.6 17.9 20.7 13.6 8.3 -2.6 pp +1.2 pp 2003 2004 2005 2006 2Q07 2003 2004 2005 2006 2Q07 Source: ANATEL / Company´s data / Competitor´s press releases. 5
  • 6. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Brazilian Wireless Market Growing customer and revenue Service Revenue 2Q07 Client Base (mln) Postpaid mix (%) (R$ bln) ARPU (R$) Share 27.5 25.8% 22.0 2.8 30.3% 34.6 1st Player 30.3 28.4% 18.8 2.6 28.9% 29.9 3rd Player 26.3 27.0 24.6% 18.2 2.1 22.5% 6
  • 7. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO General Context TIM General Overview TIM Strategic Objectives Marketing Developments Regulatory Framework 2Q07 Results Conclusion 7
  • 8. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO TIM Strategic Objectives Market evidence * Strategic goals Initiatives Segmented Offers To consolidate our leadership TIM #1 in positioning (revenue Integrated Solutions Mobile service growth consistently above Community Concept revenues* market average), Stimulating Usage increasing profitability Prepaid Loyalty Promotion To capture fixed-line New convergent products: Convergence Fixed-line = revenues (increasing share R$ 47 billion of spending of TIM Brasil Home Zone Offer (“TIM Casa”) customer base) Internet Access Solution (“TIM Web”) market Convergent package Mobile +Fixed + To defend TIM mobile Internet (“TIM Mais Completo”) leadership Low-ARPU approach Residual clients To ensure profitability of Developing new business model market in lower low ARPU clients Oriented to low-ARPU customers income classes * Considering 2Q07 figures. 8
  • 9. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Mobile Leadership: Innovative Marketing Strategy Pushing on usage through promotions “On-Net Traffic” focus Stimulating R$ 0.07 per minute for local on-net (also to fixed number) intra-network R$0 (free calls) for 500 minutes on-net traffic ► Facing competitors aggressiveness through continuous offer improvement ► Working on community concept in order to increase usage Lowering SAC & Stimulating Usage TIM Chip only & Recharge ►TIM chip cost refund subject to recharge within 48 hours from activation incentives ► Bonus in minutes according to recharge value so as to stimulate usage Focusing on retaining customers Prepaid Loyalty ► Quem tem TIM tem Mais: Loyalty promotion for prepaid clients Promotion ►Bonus in minutes for TIM clients that have been in our base for more than 1 year 9
  • 10. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Mobile Leadership: Continuous Value Added Services Innovation Pushing on media content and interactivity TIM Music Store TIM Studio Music Download Wap Portal User Generated Content Easy-to-download: 1 to 3 clicks maximum Videos, Images and Music upload and download from the Web Related contents: songs, videos, wallpapers Revenue sharing with content producer (user) TIM Music Club: latest news Records: Sony&BMG, Universal, Warner and EMI Music 10
  • 11. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Convergence: Focusing on Customer's Total communication needs Stimulating fixed to mobile substitution Mobile Internet TIM Casa (Home Zone) TIM WEB Internet Data Packages, also for non-TIM clients Fixed to mobile substitution Works like a pen drive (PC or laptop internet access) Dial-up access substitution Very competitive local fixed calls tariffs in User-friendly device the customers home-zone Devices Low entry point for prepaid and attractive + or discount for postpaid SIM Card “Data” Modem USB PCMCIA TIM Mais Completo Fixed local calls Mobile local calls (TIM Casa) + (TIM Brasil plan) + LD Full communication package combining Mobile 200 Min 200 Min 40 Min Calls + Home Fixed Calls + Internet Access Enriching TIM convergent service offers Internet + MMS + SMS + Modem USB 250 MB 60 60 11
  • 12. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Developing a new business model Mobile Penetration* by social classes 93% New business model characterized by 59% reduced ownership cost: Lower air-time prices (leveraging on 28% price/volume elasticity) Use of extensive, indirect distribution channels Increase of electronic caring High income** Medium income Low income (> 3 MS***) (1-3 MS) (<1 MS) % of 11% 31% 58% population Residual market in lower income social classes * People more than 10 years old ** According to per capita household income 12 *** Minimum salary = R$350,00 Source: IBGE (PNAD, 2005)
  • 13. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Regulatory Framework 2006 2007 2008-09 F-M Fully Stability of termination Arbitration Arbitration Allocated interconnection tariff in rate Cost model the medium term M-M B&K(45/55) < Jun Positive for a fair termination Pay per use > Jul Pay per use Pay per use regulatory environment rate Number Additional opportunity to consolidate leadership Portability - Definition Implementation in high-value customer (F+M) segments 3G Commercial 3G/Wi-Max Availability of wireless - 3G bid offer Auction Wi-Max bid broadband Partially regulated Expected upgrade of Increase of competition Unbundling Commercially not - in the fixed-line market viable regulation 13
  • 14. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO General Context TIM General Overview TIM Strategic Objectives Marketing Developments Regulatory Framework 2Q07 Results Conclusion 14
  • 15. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO 2Q07 Results: Solid Net Service Revenues Total Net Revenue Growth YoY Growth R$ Mln Reported Organic* 3,060 +34.5% +17.3% Continuous service revenues growth: 2,275 Total traffic + 43% YoY: focus on 91% on-net call promotion, stimulating usage 87% +40.5% +20.2% Customer growth +23% YoY Handset revenues drop confirms the trend -5.8% 13% 9% of the previous quarters reflecting strong 2Q06 2Q07 push on ‘TIM Chip Only’ sales Net Service Revenues Net Handset Revenues MOU / ARPU Performance MOU increase driven by on-net traffic ARPU increase QoQ R$ Min +16% +0.7% 81 94 34.4 34.6 2Q06 2Q07 1Q07 2Q07 Increasing usage Keeping ARPU above the market * Proforma: Adjusted by Bill & Keep elimination starting on January 1st of 2006. 15
  • 16. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO 2Q07 Results: Reducing Acquisition Cost SAC Performance R$ 168 -33% Lowering SAC despite better level of customer and handset mix: 113 24.6% YoY growth in postpaid gross adds increasing % of mid-range and high-end handsets 58% Commission sold Subsidy 70% Anatel’s fee on Reduced subsidy strategy with focus on “TIM net adds Chip Only” offer: More than 70% of overall gross adds in 2Q07 vs. 42% Comodato ~40% in 2Q06 30% Advertising Others Postpaid SAC oriented to maintain 2Q06 2Q07 competitiveness Direct cost Indirect cost Improved pay-back period: 3.3 months in 2Q07 vs 4.7* months in 2Q06 * Proforma: Bill & Keep elimination starting on January 1st of 2006. 16
  • 17. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO 2Q07 Results: Net Financial Position Net Debt QoQ Trend Net Cash Flow (OpFCF + Non OpFCF) R$ Mln Non R$ Mln Seasonal Impact (R$781 Mln) OpFCF OpFCF 1Q07 2Q07 341 390 Annual Fistel Net Cash 440 Flow Pro-forma (391) (1,582) 165 Reported Paid (556) (1,973) 2Q07 Dividends EBITDA +744 CAPEX (324) Δ Oper. WC (255) Of which Dividends (440) Positive Net Cash Flow (+R$390 Mln) excluding Positive Operating FCF due to increased profitability seasonal disbursement Gross Debt: R$2.3 billion (of which 89% long term / average annual cost of 11.66% p.y. in 2Q07) Cash and equivalents: R$0.3 billion Net Debt: R$2.0 billion 17
  • 18. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO 2Q07 Results: Profitability and Bottom Line Growth EBITDA and EBITDA Margin 743.7 515.7 44.2% 24.3% + 4.5 p.p. YoY organic margin growth 22.7% * 743.7 515.7 Strong service revenue growth offsetting 2Q06 2Q07 the seasonality of the period related to Organic EBITDA Margin ** commercial expenses 19.8%** 24.3% +R$ 228 million +4.5 p.p. EBITDA (R$ million) EBITDA Margin Net Income R$ Mln Positive Bottom Line 34 2Q06 Improved operating result 2Q07 reversal of R$ 273 million in relation +R$273 to the losses reported in the 2Q06 (239) * Reported EBITDA Margin * * Adjusted by Bill & Keep elimination starting on January 1st of 2006 18
  • 19. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO General Context TIM General Overview TIM Strategic Objectives Marketing Developments Regulatory Framework 2Q07 Results Conclusion 19
  • 20. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO TIM Strong Market Position Nationwide Innovation Coverage Leadership in innovative services Only Company with full national presence convergent solution Largest GSM operator in number of clients (mobile + fixed + internet) The largest mobile data coverage Continuous VAS innovation Recognized TIM Brand Strong operational & The first mobile operator choice financial results Continuous value client growth Leader in average client satisfaction Leader in service revenue Committed to constant improvement of brand perception through creation of new Solid YoY Revenue growth customer operations unit Leader in ARPU Quality Sustainable Growth 20
  • 21. JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007 New York - September 24-25, 2007 - Mr. Francesco Locati, COO Presentation Disclaimer These presentations have been written and presented by TIM Participações S.A. TIM Participações S.A. is solely responsible for the accuracy and completeness of the contents of such presentations and/or other documents. JPMorgan does not have any responsibility for or control over the contents of such presentations and/or other documents. No endorsement is intended or implied notwithstanding the distribution of the presentations and/or other documents at the JPMorgan Asia Pacific Conference / Corporate Access Day. The materials and information in the presentations and other documents are for informational purposes only, and are not an offer or solicitation for the purchase or sale of any securities or financial instruments or to provide any investment service or investment advice. 21