TIM - Results Presentation 2Q13
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  • 1. Agenda 15 years Anniversary - Rodrigo Abreu Q2 Discussions: Q2 in Few - Rodrigo Abreu Operations - Lorenzo Lindner Marketing - Roger Solé Live TIM - Rogério Takayanagi Financials - Claudio Zezza Conclusions - Rodrigo Abreu 2
  • 2. 27.8 2010 20132004 2009 15 years anniversary: Building up a solid organization 3 → Start up (privatization process); → Launched national coverage; → Pioneer on GSM technology; → First operator to launch data services: SMS and MMS. → Acquired fixed license; → 3G launch; → ISE adherence; → Intelig acquisition (~R$0.8mln) → Long distance leadership; → Novo Mercado migration; → Public offering R$1.7 bi; → Atimus acquisition (~R$1.6bln). 1998 2003 1998 Gross Revenues (R$ Bln) Customer base EoP (Million) 15,000 km fiber optical backbone 5,500 km fiber optical backhauling Accessing Capital Market → Leadership on prepaid and advancing on postpaid. → Consolidated 2nd player in value and volume. → Building a robust fixed infrastructure. → Leadership in market net adds. → >400,000 points of sale. → >11,500 employees. → >23,000 indirect jobs. → Recognized as the market innovator. Organic Growth Growth via Acquisitions 2012 1998 70.3 2012
  • 3. 0.9% 1.1% 0.7% 1.0% 0.9% Quarter in Few: Improvements Across the Board 7.0% 5.4% 9.7% 2Q132Q12 Organic1 Net Revenue Growth(YoY) Organic1 Net Services Revenue Growth(YoY) Organic1 EBITDA Growth(YoY) -15.3% -11.0% -9.5% -3.6% -0.7% 1Q132Q12 10.0 10.3 10.7 10.9 11.4 2Q132Q12 3Q12 4Q12 2Q13 Ex one-off event ARPU Performance (YoY) Postpaid Base (mln customers) %Bad Debt/Gross Revs. +20% (YoY) Ex-M2M Financial Operational +14% 1Q133Q12 4Q12 1Q13 6.4% 5.5% 1.4% 1.8% 3.1% 2Q132Q12 1Q133Q12 4Q12 +8.7% (YoY) Reported 5.6% 4.1% 4.4% 2Q132Q12 1Q13 2Q132Q12 1Q133Q12 4Q12 +2.0% (YoY) Reported +1.8% (YoY) Reported 4 Efficient Approach 1: Organic revenues growth adjusted by R$44mln, EBITDA growth adjusted by R$31mln and Net Income growth adjusted by R$20 mln due to one-off impact related to interconnection disputes. +0.4% Organic1 Net Income Growth(YoY) -1.6% 13.9% 17.9% 2Q132Q12 1Q13 +12% (YoY) Reported 18.7% 19.6% 20.5% 21.4% 22.1% %VAS / Mobile Service Gross Revenues 2Q132Q12 1Q133Q12 4Q12
  • 4. Operations
  • 5. Customer Base Evolution - Market Share (Source: Anatel) Growth Backed by Business Resilience 19.6% 19.6% 24.0% 25.0% 28.0% 26.3% 28.1% 28.8% 2Q12 +67 bps -168 bps +96 bps -1 bps 2Q13 15.3% 16.5% 23.9% 20.3% 38.2% 39.1% 22.0% 23.4% 2Q12 +140 bps +90 bps -353 bps +124 bps 2Q13 29.6% 29.7% 29.1% 28.8% 28.7% 26.9% 26.8% 26.9% 27.0% 27.2% 24.6% 24.5% 24.9% 25.1% 25.0% 18.7% 18.7% 18.8% 18.7% 18.7% Oi Claro Vivo 2Q12 3Q12 4Q12 +28 Bps -89 Bps +43 Bps +5 Bps YoY 1Q13 2Q13 Prepaid Voice Postpaid* 35 26 27 1.6 1.4 1.5 2Q11 2Q12 2Q13 2Q132Q11 2Q12 1.1% 0.9% 0.9% Total TIM SAC & SAC/ARPU (R$; months) Efficient Market Approach (Source: TIM, Anatel) Bad Debt & Postpaid CB (000 customers; %postpaid mix)  Leading net additions.  Consolidating Prepaid #1.  Accelerating on Postpaid.  Maintaining an efficient go- to-market. SAC/ ARPU SAC % Gross Revs Postpaid *Excluding modems and M2M. +25% +14% 14.4% 14.5% 15.8%Mix 6
  • 6. Caring Improvements to Increase Customer Satisfaction Claims at Consumer’s Protection Agency (Procon) (Avg # Claims - the lower the better; Source: SINDEC database) ImprovingcaringReducingcomplaints P3 P4 P1 TIM TIM PRE POS CORP Customer Care Satisfaction Survey (Points; Source: TIM) IDA – Index of Caring Performance (last reported) (Points - the higher the better; Source Anatel) 99.9 93.998.0 92.1 92.8 80.4 84.9 65.9 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 P3 P4 P1 TIM Anatel Ranking of Complains (last reported) (Index of Complains under 1,000 access - the lower the better; Source: Anatel) 0.20 0.320.24 0.360.34 0.470.50 0.65 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 P3 P4 P1 TIM 2,564 4,147 2,262 3,179 6,187 6,990 3,503 6,870 2Q12 3Q12 4Q12 1Q13 2Q13 7 8.0 7.5 7.0 6.5 6.0
  • 7. Marketing
  • 8. ARPU Performance (%YoY; R$) Reverting ARPU Trend Voice Usage (000 lines; minutes) Data Performance (monthly unique users; average days of use) 7,638 8,184 8,703 8,956 9,367 2Q12 4Q123Q12 1Q13 127 150 139 145 2Q12 4Q123Q12 1Q13 18.3 19.918.9 18.5 VAS Voice -15.3% -11.0% 9.5% -3.6% -0.7% 2Q12 4Q123Q12 1Q13 After several quarters, ARPU has reversed its trend thanks to a continuous management of the customer base. Voice Postpaid* Total MOU 2Q13 18.1 2Q13 148 2Q12 4Q123Q12 1Q13 Data Users SMS Usage 2Q13 2Q13 2Q12 4Q123Q12 1Q13 2Q13 +21% +13% *Excluding modems and M2M. +23% +16% 9 Organic 18.3 Organic 0.4%
  • 9. 35% 39% 43% 46% 50% 2Q12 3Q12 4Q12 1Q13 2Q13 Data Services Update: Keeping the Good Pace Data users (% over total customer base) VAS (% of Mobile Services Gross Revenues; R$ Million) Handset Sales Market Share Apr-Jun/13 (% of handset revenues; Source: TIM) 19% 22% Smart/Web phone Penetration (% over total base of lines) VAS Gross Revs VAS/Revs 7% 21% 34% 38% 54% 46% P4 P3 P1 TIM Players Open Mkt TOP SELLERS @ ~R$300 27.7% 28.7% 30.3% 31.0% 31.9% 2Q12 3Q12 4Q12 1Q13 2Q13 +25% 23 mln users 78 % on sales 10 1,031 1,291 2Q12 2Q13
  • 10. Live TIM Update
  • 11. Live TIM: Delivering on Plan 257 522 609 804 3Q12 4Q12 1Q13 2Q13 Network Evolution (000 Addressable Households ; Source: TIM) Sales per Quarter (000 Clients; Source: TIM) 9.7 17.1 1Q13 2Q13 Customer Base (000 Clients; Source: Anatel) 9.7 16.3 26.4 4Q12 1Q13 2Q13 82% Net Share Live TIM SP+RJ (UBB >34MB ; Source: Anatel) Market Share SP+RJ (UBB >34MB ; Source: Anatel) 38% 19% 13% 11% 10% 9% Live TIM Oper. I Oper. II Oper. III Oper. IV Outras 26% 69% 73% 3Q12 4Q12 1Q13 ITAQUERA CASA VERDE BUTANTÃ JABAQUARA PINHEIROS MORUMBI MOOCA São Paulo Totaling 26 Districts in São Paulo 12
  • 12. Financials
  • 13. Financial Evolution Analysis 1,210 EBITDA 2Q12 Organic EBITDA 2Q13 -15 ΔMkt and Sales ΔPers./G&A and others -53 ΔHandset Margin -39 ΔNetwork and ITX +35 ΔServ. Revs 26.6% 25.3% 32.1% 31.5% +125 +5.8% +8.3%-51.2% +1.1%+3.1%ΔYoY 1,263 +4.4% 563 879 879 3,984 4,109 4,065 Thousands Revenue 2Q12 Δ HandsetΔ Fixed Services Organic Revenue 2Q13 Δ Mobile Services +316-86+211 Service Handset 4,547 -33%+5.7%ΔYoY 4,988 -44 One-off Event Reported Revenue 2Q13 4,944 -31 Reported EBITDA 2Q13 1,232 +1.8% 24.9% 31.1% One-off Event 14 +56% +3.1% +2.0% EBITDA Margin Service EBITDA Margin Organic EBIT Net Financial Result Organic Net Income 2Q13 Organic Taxes and Others Depreciation/ Amortization Organic EBITDA 2Q13 From EBITDA to Net Income (R$ Million) ΔYoY One-off Event Reported Net Income 2Q13 +0.9% +8.5% -36% +5.6% +18% +12% 1,263 -671 592 -41 -145 406 -20 386 Net Revenue Evolution (R$ Million, % YoY) From EBITDA to EBITDA (R$ Million) +8.7%+10%
  • 14. Strong Cash Position Net Debt (R$ Mln) Capex (R$ Mln, % YoY) 1,998 2,278 1,984 2Q11 2Q12 2Q13 +14% -13% 725 1,057 2Q11 2Q12 2Q13 +46% +6% → 37% of debt in foreign currency (100% hedged to R$). → Average debt maturity: ~ 3 years. → 0.39x net debt to Reported EBITDA (LTM). → Capex catch up during Q2. → 94% of Capex related to infrastructure (ex-licenses). → No subsidy capitalization. 1,123 0.45x 0.47x 0.39xNet debt/ EBITDA (LTM) 15
  • 15. Conclusions
  • 16. Strategic Priorities Check Point • Improvements on all customer care indicators; • FTTS Plan on track (569 new sites in Q2); • 4G launch anticipated in SP and Curitiba, good traction on 4G market share.; • Final steps of LT Amazonas Fiber Line; • Started rollout of small cells for JMJ in Rio. • Strength of “Controle” strategy – hybrid pre/post; • VAS over Mobile service: 22%; • 3G adoption: WCDMA base grew by 21%; • TIM Music launch: OTT music platform, more than 6mln songs downloaded already; • Several actions for monetizing customer base with new micro-packages. • Launched company wide initiative on “Best Company to Work For”; • Total employee population grew to over 11,500, an additional 574 new employees compared to 2Q12; • Reached the number of 134 own stores, adding several new TIM employees; • Initiated a movement to reinforce and add new talent on all teams, in particular on Network and Regional structures. • “Portas Abertas” campaign, web-site and mobile app reinforcing commitment with quality and transparency; • Closure of the Dropped Calls accusation with final report from Anatel releasing the company from any misconduct; • Proactive position in the sector in conversations with Congress, Anatel, Ministry and State Governments – position of collaboration and transparency. 1Q13 2Q13 TIM Call Center 1Q13 2Q13 Anatel 2Q12 2Q13 +23% 2Q11 2Q12 2Q13 14% 39% 57%40% 40% 21% 46% 21% 22% % Only Smartphone over Total Sales Smartphone Webphone Essential Network Complaints -15% -8% Postpaid Voice Base 17
  • 17. Conclusion & Outlook Perspectives 18  Business has shown good resilience, even with slower economic growth;  TIM led industry growth both in value and volume;  Recent polls showed good recovery in net customer preference;  Quality and Infrastructure KPIs already showing improvements in many fronts.  Continuous offer innovation to help TIM leadership in a lower growth / more rational competitive environment;  Data/VAS to continue leading growth; TIM well positioned in handsets and micro browsing;  Fixed-to-mobile substitution still a trend;  Focus on leveraging huge customer base;  Postpaid mix and ARPU are important improvements to business case. Achievements Solid fundamentals. Track record built over 15 years. Clear momentum for a continuation of growth path. 15th Anniversary