VIVO - Apresentation of 3rd Quarter 2006 Results

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Apresentation of 3rd Quarter 2006 Results

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VIVO - Apresentation of 3rd Quarter 2006 Results

  1. 1. Vivo Participações – 3Q06 Results October 27, 2006 1
  2. 2. Executive Summary More than 90.0% of our customers are already inserted in the new IT/IS platform, which attests that the unification projects is now entering in the final stage and have been successful. Sustainable combat against cloning and fraud, with certification of network and prepaid and post-paid customer base, provided approximately 84% reduction in the number of cloning occurrences in comparison to the same period the last year; Second stage of the Corporate Reorganization about to be concluded and which will cause 14 operators to be merged into one only company, with consequent simplification of structures and processes and allowing operating and control efficiency. VIVO is a leader in compliance of ANATEL’s quality goals, having achieved 96.7% of the pre- established goals. VIVO has the best channels of distribution of the Brazilian telecom sector with 8,364 points of sales, being 319 own stores, 3,175 third party stores and 4,718 retails stores. Higher coverage – 2,272 municipalities against 1,757 from competitor 1 and 1,694 from competitor 2. Total net revenue grew 13.0% in relation to the previous quarter. Termination of the partial Bill&Keep system in July contributed to such increase. 2
  3. 3. Executive Summary The losses recorded in 3Q06 were 60.1% lower than the previous quarter (from R$ 493.1 million to R$ 196.9 million) EBITDA of R$715.6 million, with Ebitda margin of 25.3% in the quarter, represented a significant growth in relation to R$306.3 million and 11.8% Ebitda margin recorded in 2Q06. Positive reversal of the operating cash flow in 3Q06 over the previous quarter represented a consequence of improvement in the EBITDA. The amount of R$270.8 million recorded in the quarter increases the year-to-date operating cash flow to R$675.0 million. The net indebtedness in the amount of R$4,147.6 millions presents a 4.3% reduction in the quarter in relation to the 2Q06 due to the benefit of the first stage of the corporate restructuring. Increase of 18.3% of the post-paid ARPU and 21.7% in the pre-paid ARPU when compared to the 2Q06. SAC was reduced by 31.4% and 18% in relation to 3Q056 and 2Q06, respectively. GSM – coverage and overlay have been fulfilled as planed. 3
  4. 4. Client Base - 0.4% + 0.7% 28,840 28,726 28,525 -7.2% - 0.5% 5,650 5,244 5,268 +1.3% + 1.0% 23,190 23,482 23,257 3Q05 3Q06 2Q06 Pre Post Market leadership in its authorized area; Stable mix of clients; Loyalty and retention; Maintenance of the entry level handset prices. 4
  5. 5. Leadership in Distribution & Coverage Only operator in 3G Distribution Channels Covered Municipalities 8,364 2,272 319 6,953 6,116 1,757 97 1,694 89 3,175 2,500 1,954 4,718 4,386 4,011 Vivo C1 C2 Vivo C1 C2 Retail Third Party Own Stores 87% of clients covered by 1xRTT 5
  6. 6. 3Q06 Main Marketing Actions Inbound Traffic Vivo ZAP 3G Upon receiving calls win bonus for local calls from Vivo to Vivo Vivo ZAP 3G: Promotional prices Father’s Day Talk more: Vivo-Prepaid Buy any handset and win up to R$1,000 every month, Client speaks for free to till the end of the year any Vivo or fixed phone after 3 minutes of connection 6
  7. 7. Loyalty and Retention Postpaid Clients Prepaid Clients Program based on Points Implementation of new values to Change of non-authenticated recharge handsets and/or of obsolete technology Incentives to recharge Right Planning Bonus in minutes Client Bring-back Program More options in points to recharge Special Care Program Accomplishment of Campaigns +52% +20% 3Q05 2Q06 3Q06 Number of binded clients 7
  8. 8. Net Revenues R$ million Service Revenues Handset Revenue + 2.3% + 13.0% 2,412 2,468 + 261 2,184 -10.3% -13.8% 992 1,150 868 + 1% 1,285 1,182 1,159 - 8% 398 357 414 136 136 157 3Q05 3Q06 2Q06 3Q05 3Q06 2Q06 Other Services Monthly Subscription Handsets Network Usage Bill & Keep effect and others Bill & Keep effect and others (R$ 261 MM); Campaigns to stimulate recharges 8
  9. 9. Data Revenues Evolution Data Net Revenues 3Q06 - 4.5% 2Q06 +8.5% 3Q05 3Q05 3Q06 15% 22% 23% 54% 62% 24% SMS WAP ZAP + others SMS WAP ZAP + others 9
  10. 10. ARPU Blended Evolution 3Q05 vs. 3Q06 3Q06 vs. 2Q06 +1.8% +19.1% 28.2 28.7 3.1 24.1 11.5 13,4 9.7 16.7 15.3 14.4 3Q05 3Q06 2Q06 Inbound Outgoing Bill & Keep effect and others 10
  11. 11. Post-Paid ARPU Evolution 3Q05 vs. 3Q06 3Q06 vs. 2Q06 + 1.1% + 18.3% 83.0 83.9 28.8 70.9 23.9 20.8 59.0 55.1 50.1 3Q05 3Q06 2Q06 Inbound Outgoing 11
  12. 12. Pre-Paid ARPU Evolution 3Q05 vs. 3Q06 3Q06 vs. 2Q06 11.3% 22.7% 15.7 14.1 12.8 9.6 8.1 6.8 6.0 6.1 6.0 3Q05 3Q06 2Q06 Inbound Outgoing 12
  13. 13. MOU Blended Evolution 3Q05 vs. 3Q06 3Q06 vs. 2Q06 + 2.6% +18.2% 76 78 66 40 38 35 40 +11.1% +29.0% 36 31 3Q05 3Q06 2Q06 Inbound Outgoing 13
  14. 14. SAC* -31.4% -18.0% 153 128 105 3Q05 3Q06 2Q06 *SAC Blended 14
  15. 15. Operating Costs* R$ million Cost of 372 services 418 rendered 390 664 149 274 Personnel 155 151 557 3Q05 Cost of 547 2Q06 handsets 512 3Q06 Bill & Keep effect 768 Selling 1002 expenses 697 General & 159 administrative 146 expenses 113 *Depreciation is not included 15
  16. 16. PDD* Evolution R$ million 9.0% 4.1% 3.7% 338.7 161.3 147.8 3Q05 2Q06 3Q06 PDD % Gross Revenues Control of cloning and fraud with reduction of approximately 84%; Management of the credit risk involved in the capture of new clients; Increased number of actions to improve collection; Authentication of client base. * PDD = Provision for Bad Debt 16
  17. 17. EBITDA & Free Cash Flow R$ million EBITDA Free Cash Flow* 28.4% 28.3% 25.3% 11.8% 796.6 715.6 728.4 406.8 270.8 306.3 -31.6 3Q05 3Q06 2Q06 3Q05 3Q06 2Q06 EBITDA Adjusted EBITDA EBITDA Margin Adjusted EBITDA Margin * EBITDA - Capex 17
  18. 18. Gross Debt, Net Debt and Gearing Covered Short-Term Debt Gross Debt (R$ million) Net Debt (R$ million) 4,686.4 4,699.6 4,334.0 4,147.6 60% 68% 40% 32% 2Q06 3Q06 2Q06 3Q06 Short-Term Long-Term Gearing R$ million 7,928 7,733 4,334 0.55 0.54 4,148 Net Debt Shareholder's Equity 2Q06 3Q06 2Q06 3Q06 18
  19. 19. Net Financial Result Reduction in Financial Expenses R$ million -5.2% -5.6% (213.6) (212.7) (201.6) 3Q05 3Q06 2Q06 19
  20. 20. Capex R$ million 444.8 1,344.0 389.8 1,064.0 Total Capex 337.9 135.1 294.1 94.0 191.4 110.8 349.1 71.2 107.1 87.6 280.6 858.5 224.6 202.6 139.5 434.3 3Q05 2Q06 3Q06 Accumulated 2005 Accumulated 2006 Network Technology Others Network Technology Others % Capex/Net Rev. 15.7% 16.3% 13.3% 13.9% 13.0% 3Q05 2Q06 3Q06 Accumulated 2005 Accumulated 2006 Main Capex Targets: IT / IS Programs; Quality and Coverage; Corporate Market Segment. 20
  21. 21. ANATEL Standards Improvement in Indicators 12.1% 9.3% 3.8% 3.3% 3.3% Best Performance Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Source: ANATEL (September/2006) 21
  22. 22. Vivo Social Responsibility Vivo is one of the first companies to adhere to the “Everyone Committed to Education” program, a nationwide mobilization to the benefit of improvement of public education quality in Brazil.. Four months after its opening, the Portuguese Language Museum, sponsored by Vivo, was awarded UNESCO’s recognition diploma due to its contribution in Communication and Information.. ACTIONS Vivo Institute, in a partnership with the City of São Paulo Government, has launched the Reading to Believing project, which will allow visually deficient people to have access to education and to reading. The Environmental Education School – Park School, a project sponsored since 2004 by Vivo Institute, won the 2006 Telecom Yearbook Citizenship Prize. 22
  23. 23. GSM Overlay More handset models available. Competitiveness National coverage in digital roaming. Lower risk of cloning. Overlay in 850 MHz results in: Coverage Superposition of coverage areas; Good indoor coverage. Overlay Availability of GSM in parallel to CDMA. Commitment to maintain the same levels of quality in CDMA and GSM. Quality PT and TEF expertise in GSM. Opex off-set by reduced costs in other items. Technology More choices in providing communication solutions. 23
  24. 24. Final Remarks Main Strategic Points Cloning and Fraud Permanent combat and progressive reduction IT / IS Platforms Unification Corporate Restructuring Final stage toward conclusion Coverage Quality Assured National Coverage • Digital Roaming (hybrid handsets) • 1.9 MHz Frequency Price of Handsets and Services New Campaigns 24
  25. 25. Safe Harbor Clause Forward Looking Statements • This presentation contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines, market share, financial results and other aspects of the activity and situation relating to the Company. The forward looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward looking statements as a result of various factors. • Analysts and investors are cautioned not to place undue reliance on those forward looking statements which speak only as of the date of this presentation. 25

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