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![47TIM Participações – Investor Relations
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Spectrum Cap](https://image.slidesharecdn.com/apresentacaoinstitucionaltim-1t20eng-200605222419/75/1Q20-Institutional-Presentation-47-2048.jpg)
Uploaded byTIM RI
1Q20 Institutional Presentation
This document provides an institutional presentation by TIM Brasil for the 1st quarter of 2020. It includes the following sections: - About TIM - Provides an overview of TIM Brasil as an operator with national presence and best 4G coverage, as well as its fiber network, residential broadband, IoT, and financial highlights for 2019. - Market Overview - Discusses the Brazilian market context, including the economic environment, consumer demographics, and trends showing increased data usage and prominence of internet/mobile services. - Infrastructure - Will describe TIM's network infrastructure. - Strategy and Positioning - Will outline TIM's strategic priorities and positioning. - Operating Evolution -
1Q20 Institutional Presentation
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- 2. 2TIM Participações –Investor Relations Disclaimer Financial results are presented considering impacts from IFRS 16 adoption, except otherwise indicated. This presentation contains declarations that constitute forward looking statements regarding the intent, belief or current expectations of the customer base, estimates regarding future financial results and other aspects of the activities. 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. TIM Part undertakes no obligation to release publicly the results of any revisions to these forward looking statements. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected as a result of various factors. Institutional Presentation | 1Q20
- 3. 3TIM Participações –Investor Relations Agenda ABOUT TIM MARKET OVERVIEW INFRASTRUCTURE STRATEGY AND POSITIONING OPERATING EVOLUTION FINANCIAL EVOLUTION OUTLOOK 04 10 22 30 37 43 49 Institutional Presentation | 1Q20
- 4. 4TIM Participações –Investor Relations ABOUT TIM Institutional Presentation | 1Q20
- 5. 5TIM Participações –Investor Relations Challenger with relevant role in the telecom sector → Operator with National Presence → Best and Wider 4G Coverage → #1 in Prepaid, despite the transformation in the customer base → >100 thousand km of Fiber optical Network throughout the country MOBILITY → IoT: pioneer in Agribusiness vertical solutions, connected car and value added services SOLUTIONS → >580k Residential Broadband Clients → 100% of the Base with High Speed (>34 Mbps) → Presence in 24 cities with FTTH coverage → 2,5 MM Homes Passed with FTTH → Residential Broadband offered through Mobile Network RESIDENTIAL ~R$ 30 billion market capitalization Institutional Presentation | 1Q20
- 6. 6TIM Participações –Investor Relations 2019 financial highlights show strong execution 6 R$ 17.4 Bi Net Revenue (+2.3% YoY) R$ 8.1 Bln Highest EBITDA1 in TIM’s history 46.7% Highest EBITDA margin2 in the market R$ 491 MM TIM Live Revenue (Fixed Broadband) (+30.6% YoY) Institutional Presentation | 1Q20 (1) Normalized; (2) Normalized, Among Top 5 Players in the Telecom Market.
- 7. 7TIM Participações –Investor Relations 7 Institutional Presentation | 1Q20 UNIQUE TELCO COMPANY LISTED ON THE NOVO MERCADO 82% 8% 10% Adopted Partially adopted Not adopted SHAREHOLDERS’ STRUCTURE COMMITTEES TO REINFORCE AND GUARANTEE SOLID CORPORATE GOVERNANCE 10 members (4 independents) 3 members 3 members (3 independents) 3 members 5 members (2 independents) 7 members → Equal rights: vote, dividends and tag along → Higher liquidity → Single class of share (ordinary shares) → Greater independence of Board of Directors (at least 20%) → Strict disclosure policy → Member of ISE for 11 years Shareholders’ structure and highest level of corporate governance Corporate Governance Form1 vs 65% on average2 Telecom Italia S.p.A. Telecom Italia Finance S.A. TIM Brasil Serv. E Part. S.A. Minority TIM Participações S.A. TIM S.A. 100% 100% 67% 33% 100% → 40% of independent members → 30% of female representation: >3x B3- Novo Mercado average General Assembly Board of Directors Fiscal Council Statutory Audit Committee Compensation Board Control and Risk Board Statutory Board of Officers 34% 36% 30% Shares (% of Free Float) Brazil USA Rest of World (1) Share position as of Mar-2020; (2) According to EY 2018 report.
- 8. 8TIM Participações –Investor Relations ESG: TIM Brasil is committed to a Positive Transformation TIM Brasil plans to improve its ESG practices based on its Materiality Matrix Institutional Presentation | 1Q20 → Increasing efficiency and taking advantage of green energy cost reduction → Developing infrastructures and Data-Center to give more to our customer with less impact from operations Environmental We want to be green → Improving internal workforce valorization and talent management → Accessing Brazilian Top Employer ranking based on diversity issues → Promote digital capabilities and ESG Culture among the employees → Developing the digital education to support demand for connectivity Social We believe that new capabilities are a key factor to maintain the leadership → TIM recognized as a company with highest level of commitment to sustainability and corporate governance → Reinforcing and disseminating the ESG principles to the high risk suppliers → Adopting best practices regarding compliance, information security and privacy protection ("LGPD“) Governança Efficient Mecanisms to balance in a fair way the interests of all stakeholders, enhancing transparency and control. Indirect Emissions -70% Eco-efficiency +75% Employees Engagement >MQ3 Digital Capability Development 1k people Employees trained on ESG Culture >95% 2025 2022 Carbon neutral by 2030 New Market and ISE Mantain ISO 27001 and ISO 37001 Obtain United Nations Agenda: 10 relevant goals for TIM Brasil Brasil Long Term Targets (TIM Brasil) Renewable Energy Sources: around 50% of TIM’s energy consumption in 2019. Expanded to 60% till the end of 2020. • Self-generation: : 6 Hydroelectric Power Centers (5 in MG and 1 in SP) 1 Biogas Plant (landfill methane) • Energy Buy: Free Energy Market GRI 302-1 Standard ISO 14001 (Network – 1st Brazilian Telco) and ISO 9001 (Billing and Network) Signatory of UN Global Compact since 2008 Member of ISE (Corporate Sustainability Index) for 12 consecutive years Membr of CDP (Carbon Disclosure Project) – Investor and Supply Chain Questionnaires (since 2010) Sustainability Report - GRI GHG Inventory verified by 3rd Part -Gold Stamp
- 9. 9TIM Participações –Investor Relations Institutional Presentation | 1Q20 MAIN PROJECTS MISSION: To create and strengthen resources and strategies for the democratization of science, technology and innovation that promote human development in Brazil, with mobile technology as one of its main enablers. → + than 700,000 people involved → Partnership with 3 Ministries: MINC, MEC e MCTIC → Present in ~ 500 cities and 26 states (+DF) → 500,000 students, 4,000 Public Schools and 16,000 teachers GARATEA-ISS INSTITUTO TIM-OBMEP SCHOLARSHIPS PRINCIPLES AND STRATEGIES Education Work Application Inclusion ACADEMIC WORKING CAPITAL (since 2013) Instituto TIM’s initiatives have reached all 26 States and the Federal District Instituto TIM: Commitment to a Positive Transformation of Society
- 10. 10TIM Participações –Investor Relations Milestones: Innovation DNA Start-up 1998 Beginning of Long Distance Services 2003 The end of differentiated call tariffs (MTR) between operators 2015 GSM launch National Presence 2002 3G and Mobile Broadband Launch 2008 Infinity and Liberty Leadership in national LD Intelig Incorporation 2009 AES Atimus Acquisition Migration to Novo Mercado 2011 4G License Acquisition – 2.5GHz Launch of Live TIM in SP 2012 Launch of InstitutoTIM 2013 4G License Acquisition – 700MHz TIM Live reaches 100 thousand customers 2014 New Positioning & New brand 2016 Comercial and financial turnaround 2017 TIMLIVE / Fiber/WTTx Digitalization 2018 5G Trials TIM Live reaches 500 thousand customers 2019 Institutional Presentation | 1Q20 TIM Black Família > 500k 2020
- 11. 11TIM Participações –Investor Relations MARKET OVERVIEW Institutional Presentation | 1Q20
- 12. 12TIM Participações –Investor Relations Despite slow recovery, structural drivers point to a better environment 5.9 6.5 5.8 5.9 6.4 10.7 6.3 3.0 3.8 4.3 3.3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 IPCA (% p.a.) 7.5 4.0 1.9 3.0 0.5 -3.5 -3.3 1.3 1.3 1.1 0.9 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 GDP Growth (% YoY) (1) GDP growth at market prices: accumulated rates for the past four quarters (in relation to prior year’s same period). Source: IBGE, BACEN, FGV. (2) June 1st, 2020. 10.8 11.0 7.3 10.0 11.8 14.3 13.8 7.0 6.5 4.5 3.8 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 Interest Rate (% p.a.) 1.67 1.88 2.04 2.34 2.66 3.90 3.26 3.31 3.87 4.10 5.20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 Exchange Rate (R$ / US$, EOP) Institutional Presentation | 1Q20 Brazilian economy was showing early signs of improvement when social distancing measures were addopted to contain the spread of the novel coronavirus in the country. The 1st quarter of 2020 was mostly impacted in its last couple of weeks, but it was enough to cause a GDP decrease of 0.3% when compared to 1Q19. The latest projections reported by Brazilian Central Bank’s Boletim Focus² pointed to a 6.25% YoY decrease of Brazilian GDP in 2020.
- 13. 13TIM Participações –Investor Relations Brazilian population by social class The consumers still feels the impact from past years crisis, influencing the sector dynamics During the past year, class B decreased, while classes D/E increased A B C DE 5 MM 44 MM 101 MM 60 MM 2.5% 21.0% 48.1% 28.5% Source: IPC Maps 2019 and 2019/ABEP 2019, Worlddata (2018), Exchange rate as of October 11th, 2019 (R$/US$ 4,11), IBGE, BACEN, FGV. Average income Benchmark countries 6.9 6.5 12.0 11.6 12.2 Unemployment Rate (% in the last quarter of the year) 39.6 43.8 46.3 42.4 42.7 45.9 Household Debt (%, EOP) 2012 14 16 1813 15 17 19 106.1 86.4 73.4 93.0 80.2 Consumer Confidence (0-200) 104.5 86.9 78.4 96.1 91.2 Business Confidence (0-200) > 100 = optimism > 100 = optimism (US$ 6.262) (US$ 4.872) (US$ 3.203) (US$ 2.596) (US$ 1.681) (US$ 1.137) (US$ 959) (US$ 804) (US$ 711) (US$ 299) (US$ 217) (US$ 151) US$ 6.217 US$ 1.373 US$ 426 US$ 176 US$ 734 Institutional Presentation | 1Q20 1Q20 2012 14 16 1813 15 17 19 1Q20 2012 14 16 1813 15 17 19 1Q20 2012 14 16 1813 15 17 19 1Q20
- 14. 14TIM Participações –Investor Relations 0.8% 1.3% 1.4% 1.4% 1.7% 1.9% Brazil Morocco South Africa Iraq Malaysia Nigeria Mobile Wallet Share1 (Mobile ARPU / per capita GDP) Brazilian market is relevant globally with room for ARPU growth (1) Selected countries. Source: Merrill Lynch – Global Wireless Matrix 1Q20 (4Q19 data). 224 254 303 426 957 1,604 Brazil Russia Indonesia USA India China 6th Mobile Customer Base Ranking (MM) 15.5 20.3 20.4 64.5 120.7 176.7 Brazil India Korea Japan China USA 10th Mobile Service Revenues Ranking (US$ Bln / year) 107% 165% 167% 174% 180% 181% Brazil Morocco Hong Kong South Africa Finland Austria 30th Mobile Penetration Ranking (MM) 5.9 30.2 34.9 36.5 36.7 39.7 Brazil Qatar USA Norway Switzerland Canada 38th Mobile ARPU Ranking (US$ / mo) Institutional Presentation | 1Q20 19th
- 15. 15TIM Participações –Investor Relations New consumer habits reinforce data service as essential, especially over mobile network 3% 56% 40% Internet users by device Only computer Only mobile Both +7 p.p A/A 24% 10% 63% 3% Internet users Only Wi-Fi Only mobile Both Don't know 73% 96% 66% 59% 37% 27% 6% Whatsapp Facebook Youtube Instagram Twitter Time spent per day 2º3º2º 2º (Global ranking position) 2º Internet – 9h29m 2º Social Network – 3h34m Social network penetration (% population) 50% 64% 74% 2017 2018 2019 45% 26% Movies and series Music Paid streaming and car app users (% of smartphone users) +24 p.p. Source: We are Social, Mobile Time (Opinion Box), Statista, CETIC. Institutional Presentation | 1Q20
- 16. 16TIM Participações –Investor Relations Traditional services have been losing relevance in this new framework and internet has been gaining prominence Source: Anatel. (1) Number of households in 2019 estimated by TIM. (2) Source: CGI.br/NIC.br; last update as of 2018. 27% 31% 34% 36% 37% 42% 44% 45% 2012 2013 2014 2015 2016 2017 2018 2019 Fixed Broadband Penetration (% of households) 12% 25% 23% 41% < 2 Mbps 2 - 12 12 - 34 > 34 Fixed Broadband Connections Speed 32.6 MM lines 31% 47% 56% 66% 71% 74% 2012 2013 2014 2015 2016 2017 2018 2019 Mobile Internet Users2 (% of >10 years population) 25% 28% 29% 28% 27% 26% 25% 22% 2012 2013 2014 2015 2016 2017 2018 2019 Pay TV Penetration (% of households) 15.8 MM accesses 69% 69% 67% 64% 61% 58% 53% 46% 2012 2013 2014 2015 2016 2017 2018 2019 Fixed Voice Penetration (% of households) 33.5 MM lines Institutional Presentation | 1Q20
- 17. 17TIM Participações –Investor Relations 17 Institutional Presentation | 1Q20 Change in Market structure combined with new consumption habits resulted in a transformation in the base profile 199 201 203 204 206 208 209 210 131% 135% 138% 126% 118% 115% 110% 97% 2012 2013 2014 2015 2016 2017 2018 2019 Mobile Penetration Population (MM) Penetration 2.00 1.96 1.94 1.73 1.64 1.54 1.44 1.37 2012 2013 2014 2015 2016 2017 2018 2019 SIM Cards per Unique User (Unit) 0.36 0.32 0.24 0.16 0.10 0.06 0.03 0.02 2012 2013 2014 2015 2016 2017 2018 2019 MTR Evolution (R$ / min) The maintenance of a high interconnection tariff pushed the “community effect (on-net)” through the possession of multiple SIM cards. Mobile market has been experiencing organic growth in total unique users. Penetration is decreasing due to the reduction of total SIM cards: weakening of the “community effect” due to the decrease in ITX tariff (off-net reduction) and dissemination of communication apps. SIM consolidation despite the growing number of mobile users. 211 212 213 185 165 149 130 117 44 51 58 62 67 73 80 85 2012 2013 2014 2015 2016 2017 2018 2019 Prepaid Human Postpaid Mobile Base per Segment (MM) Postpaid base already represents ~50% of unique users, besides that >60 MM Brazilians are in the credit bureau blacklist. 227 MM SIM Cards 124 130 137 139 138 142 144 146 74% 76% 79% 80% 79% 80% 80% 79% 2012 2013 2014 2015 2016 2017 2018 2019 Unique user >10 years (MM) Penetration Unique User Penetration 146 MM people
- 18. 18TIM Participações –Investor Relations Three major players working in integrated manner, TIM with relevant performance in mobile and selected approach in broadband Integrated Pure Regional / Niche ISPs MVNOs Selected broadband (Mobile) (Pay TV) Acquired 4-play (In JR) Institutional Presentation | 1Q20
- 19. 19TIM Participações –Investor Relations 51% 52% 54% 49% 48% 46% 119.3 118.5 116.9 2016 2017 2018 Mobile Fixed 60.7 61.8 62.8 2016 2017 2018 Market revenue dynamic indicates mobile growth, and highlights TIM’s evolution (1) 2016-2018 comparison on pro-forma basis; (2) 2019 vs 2018 disconsidering Nextel figures and excluding impacts from IFRS 16 adoption (except for Claro in 2019). Source: Operators’ Earnings Releases. 20.9 19.7 18.5 2.8 2.3 1.9 29.3 29.4 30.0 34.6 35.6 35.7 12.3 13.1 13.9 2016 2017 2018 13.8 13.0 12.0 5.5 4.4 3.5 17.6 17.8 19.2 40.1 41.1 40.9 23.0 23.8 24.4 2016 2017 2018 Total Services Net Revenues Share (%) Mobile Service Net Revenue Share (%) Nextel TIM Oi Claro Vivo Nextel TIM Oi Claro Vivo Market | Total Services Net Revenues (R$ MM) Market | Mobile Service Net Revenues (R$ MM) -1.0% CAGR +1.7% CAGR 53% 55% 47% 45% 113.9 113.1 2018 2019 59.9 61.7 2018 2019 19.0 17.5 30.3 31.1 36.5 36.8 14.2 14.7 2018 2019 12.6 11.9 19.3 20.7 42.5 42.1 25.6 25.4 2018 2019 Institutional Presentation | 1Q20
- 20. 20TIM Participações –Investor Relations Mobile and broadband market are competitive, but have been showing evolution towards more rationality. Changes in market structure may reinforce this path 0% 3% 2% 23% 8% 31% 21% 33% 24% 49% 30% 29% 26% 10% 30% 15% 16% 33% 5% 33% 1% Others (1) Claro considers participation of Nextel in the SMP. Source: Anatel. Nextel HHI Index 0 0.25 0.5 0.75 1 0 0.25 0.5 0.75 1 0 0.25 0.5 0.75 1 0 0.25 0.5 0.75 1 Level of competitiveness + - (Market Share | Mar-20) Institutional Presentation | 1Q20
- 21. 21TIM Participações –Investor Relations SP Interior 34.3% 32.0% 22.1% 8.1% TIM has different opportunities in terms of regionality Institutional Presentation | 1Q20 2nd Leader 3rd 4th TIM’s Position YoY p.p. NE 32.2% 30.3% 25.4% 12.1% -1.2 p.p. BA/SE 36.2% 24.8% 20.0% 18.8% RJ/ES 36.0% 33.0% 16.9% 13.8% SP Capital 41.7% 23.7% 23.5% 9.3% MG 42.8% 21.8% 19.0% 10.8% RS 47.0% 31.6% 12.8% 8.3% PR/SC 51.7% 20.3% 16.9% 10.4% CO 37.2% 34.6% 16.0% 11.7% NO 36.1% 24.6% 19.8% 19.3% BRASIL Pen: 96.2% 33.0% 25.9% 23.3% 16.2% -1.9 p.p. +1.4 p.p. (Market Share | Mar-20) -1.7 p.p. -0.2 p.p. -1.5 p.p. -2.4 p.p. +1.1 p.p. -0.6 p.p. -0.8 p.p. 0.0 p.p.
- 22. 22TIM Participações –Investor Relations Regulatory updates promoting major changes in the sector Institutional Presentation | 1Q20 Anatel and Relevant Regulators 4 MAIN REGULATORY CHAPTERS → License and Spectrum → Competition → Quality and Consumer Protection → Universalization Policy and Broadband ORGANIZATION Anatel is subject to special authority regime and bound to the Communication Ministry, with the function to regulate the Brazilian telecom sector (LGT, Art. 8º) Independent Antitrust Agency (coordination with Anatel to sectoral matters) Important in the intersectoral regulation (infrastructure) Tribunal de Contas da União¹: surveillance of Anatel’s operating activities; final instance on matters “related to costs” (RF auctions, liquidation agreements etc.) Independent system for consumer protection on national, regional and local levels; not integrated entities that work in parallel (and overlapping) to Anatel ~1,500 Public agents ~5,000 Control items 26 Regional Offices 336 Resolutions in force Recent important changes Law nº 13.879/2019 (PLC 79) (presidential approval on 10/04/2019) Fixed → Option to migrate from concession to authorization model → Additional broadband investment plan: balance of concession exchange to authorization, reversible goods and public politics area Mobile Spectrum → Successive renewals of the authorization (not limited to 2 periods) → Possibility of conversion of the renewal fee for investments → Radiofrequency transferal between operators (secondary market) RQUAL (2020) → Approved in Dec, 2019 to introduce responsive regulation to reach better quality of telecom services. Replaces pecuniary sanctions for alternative measures according to the risk identified. TAC² –Conduct Adjustment Term (Mar/19) → First agreement with a major operator approved by Anatel (Sep/19) and TCU (Mar/20), with a reference value of R$ 627 million, to generate improvements in three operating pillars: client experience, quality and infrastructure, as well as a project to cover 300 municipalities with 4G SPECTRUM CAP (Nov/18) → <1GHz frequencies: stablished the limit of up to 35% concentration → Between 1GHz and 3GHz bands: up to 30% In both cases, participation can be extended up to 40%, with conditioning (1) Government Accountability Office. (2) Agreement for Conduct Adjustment – agreement that operators can reach with Anatel to substitute fines for investment in less favored regions. (3) Universalization Plan.
- 23. 23TIM Participações –Investor Relations STRATEGY AND POSITIONING Institutional Presentation | 1Q20
- 24. 24TIM Participações –Investor Relations Institutional Presentation | 1Q20 EVOLVE TRANSFORM → Move from volume to value to sustain mobile business growth → Grow on broadband with financial discipline → New operating model to address current and future challenges → Additional growth through adjacent markets 1. INFRASTRUCTURE 2. DISRUPTIVE EFFICIENCY 3. MOBILE (PREPAID, POSTPAID AND B2B) 4.UBB (B2C, B2B) 5. NEW REVENUE SOURCES 6. ESG Strategic Pillars: Time to Move Forward → Evolution Plan to Further Develop Initiatives Already in Place → Transformation Plan to Reshape Company’s Skills Over the Next 3 Years
- 25. 25TIM Participações –Investor Relations Institutional Presentation | 1Q20 Attack all segments → Prepaid acceleration (regional + smart promo, channel mgmt.) → Postpaid: brand positioning, handsets → SMB: consumerization 36 33 20 21 Postpaid >45% in 2022 167 185 117 30 56 82 Playing by opportunity, meeting clients true needs Postpaid Prepaid Customer Base Mix1 (MM) Mobile Customer Base by Segment (MM) (1) Total market; (2) Population > 10 years old. Innovation positioning: ensuring execution and customer satisfaction to succeed. Low Price Convergence 2014 2019 2022 P2 P3 P4 Innovation Premium Price Reduce churn → Eliminate pain points: discount management → Lock in high propensity customers → Improve service level 3.5 % 3.8% -0.6 p.p. until 2022 104 139 146 Residual growth: churn management becomes more important Mobile Unique Users1,2 (MM) Postpaid Churn Rate (% p.m.) ARPU increase → Unlock upselling opportunities → Price with “more for more” approach → Boost big data, data analytics, NBA capabilities 22.5 23.7 CAGR 19-22 low to mid single digit 1.9 1.7 1.4 Increasing “share of wallet” SIMs per Unique Users1 Mobile ARPU (R$ / month) 2018 2020 20222010 2015 2020 2022 Mobile: Move from volume to value to sustain mobile business growth, leveraging customer experience
- 26. 26TIM Participações –Investor Relations Institutional Presentation | 1Q20 Footprint expansion and operational improvement Cherry picking deployment, Reduce early churn, Improve care and self-care, Reliable bill to cash processes Differentiation: UBB + Content OTT content friendly approach, Wi-Fi experience 2018 2019 2020 2021 2022 TIM Live >30% CAGR 19-22 TIM Live Others FIXED NET REVENUES (R$) FTTx CUSTOMER BASE (mln) 2018 2019 2020 2021 2022 FTTH FTTC +15 cities +42% households covered FROM EVOLUTION… Broadband: Revenues will be the Lever for Fixed Business Growth
- 27. 27TIM Participações –Investor Relations Institutional Presentation | 1Q20 (1) Anatel (dec-19), internal analysis. > 60% 20% - 40% 0% – 20% 40% – 60% Broadband Penetration 25 26 26 23 2 3 6 10 27 29 31 33 2016 2017 2018 2019 Others Fiber +79% -3% +7% CUSTOMER BASE BY TECHONOLOGY (mln) BRAZIL’S BROADBAND MARKET BROADBAND AND FIBER PENETRATION (on HH) Expanding TIM Live's services with the right balance between Sales and Capex, unlocking additional value of this asset Create in partnership a neutral fiber infrastructure asset in Brazil Market sound process with an advisor to find the right partner out of the telecom space …TO TRANSFORMATION Strategic Partnership FIBER PENETRATION TOP 5 São Paulo 24% Santa Catarina 23% Minas Gerais 23% Paraná 21% Ceará 19% Brasil 16% CAGR Broadband: Smart Capex to Ensure Acceleration
- 28. 28TIM Participações –Investor Relations OPERATING PERFORMANCE Institutional Presentation | 1Q20
- 29. 29TIM Participações –Investor Relations TIM is well positioned to attend the new demand, with no legacy to defend 41.2 39.6 37.5 33.5 32.6 2016 2017 2018 2019 1Q20 Fixed Line Base (MM) 18.8 18.1 17.5 15.8 15.4 2016 2017 2018 2019 1Q20 Pay-TV Base (MM) 66.6 72.7 79.8 85.2 86.4 2016 2017 2018 2019 1Q20 Human Postpaid Base (ex-M2M) (MM) 26.9 28.9 31.2 33.0 33.0 2016 2017 2018 2019 1Q20 Broadband Base (MM) -6.9% CAGR Fixed-mobile substitution Traditional-OTT substitution +15.7% CAGR Market +8.3% CAGR +9.4% CAGR Market -6.0% CAGR Market +6.5% CAGR +22.0% CAGR Market
- 30. 30TIM Participações –Investor Relations Customer base transformation process, driven by pre-postpaid migration, supported an evolution at the top of the pyramid 77% 70% 64% 61% 59% 21% 27% 32% 33% 34% 2% 3% 4% 7% 7% 2016 2017 2018 2019 1Q20 TIM Base Mix Prepaid Human Postpaid M2M +1.1 p.p. YoY -1.6 p.p. YoY 49% 42% 34% 31% 30% 45% 52% 59% 61% 63% 6% 6% 7% 8% 7% 2016 2017 2018 2019 1Q20 Mobile Service Revenue Mix Prepaid Postpaid Other +1.3 p.p. YoY -1.0 p.p. YoY
- 31. 31TIM Participações –Investor Relations 21% 20% 23% 21% 21% 40% 43% 40% 39% 39% 22% 20% 22% 23% 24% 16% 12% 11% 12% 12% 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 Market Share | Human Postpaid TIM Vivo Claro Oi 28% 29% 28% 28% 27% 27% 25% 25% 27% 27% 25% 25% 25% 23% 23% 20% 20% 21% 21% 21% 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 Market Share | Prepaid TIM Vivo Claro Oi Customer base management momentum: “from volume to value” 9.5 11.1 11.2 12.3 13.4 16.1 18.1 17.8 17.9 1.2 1.2 1.3 1.3 1.5 1.7 2.2 3.6 3.8 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 TIM Base | Postpaid (MM) Human Postpaid M2M Source: Anatel. 70.4 73.4 75.7 66.2 63.4 58.6 55.9 54.4 52.8 59.7 61.1 63.2 52.7 48.5 40.8 35.7 33.0 31.2 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 TIM Base | Total and Prepaid (MM) Total Prepaid Institutional Presentation | 1Q20
- 32. 32TIM Participações –Investor Relations Approach to ensure higher value captured and sustainable growth 16.7 40.6 10.4 17.9 37.7 11.3 20.2 39.7 11.5 22.4 39.9 11.5 23.7 38.1 12.0 Total Postpaid Prepaid Mobile ARPU (R$ / mo, Pro-forma1) 2015 2016 2017 2018 2019 7.1 16.9 27.6 34.5 38.6 38.6 10.7% 26.6% 47.1% 61.7% 71.0% 73.1% 2015 2016 2017 2018 2019 1Q20 Base 4G (MM) 4G Base Penetration 397 640 1,198 2,184 3,009 3,592 2015 2016 2017 2018 2019 1Q20 BOU (MB / mo) (1) ARPU on Pro-forma basis, excluding IFRS 9, 15 and 16 impacts. +10.6% CAGR -1.8% CAGR +4.2% CAGR Change in customer base mix, with greater postpaid relevance, was a lever for Total ARPU growth. Upgrade to higher value plans will ensure this continuous and robust increase. Reduction due to Postpaid mix, with greater importance of Control plans. Institutional Presentation | 1Q20
- 33. 33TIM Participações –Investor Relations “More for more”: Stepped portfolio addressing consumer wishes through relevant partnerships (1) Core offer for three users. POSTPAID ENTERTAINMENT HUB FOR THE FAMILY Communication Services TIM banca virtual Trial +R$ 15/mo after unlimited calls TIM Controle TIM Black TIM Black Família from 2GB Social unlimited calls from 4GB unlimited calls from 10GB unlimited calls from 60GB1 Entertainment international roaming 1x GB shared benefits (monthly fee included) TIM Pré Top GB bonus for portability ≥R$ 20.00/two weeks ≥R$ 49.99/mo ≥R$ 119.99/mo ≥R$ 269.99/mo Increase CEX with better Quality and Value Proposition Institutional Presentation | 1Q20
- 34. 34TIM Participações –Investor Relations TIM Live Exploring accelerated growth opportunities: Residential broadband 306 392 467 566 584 2016 2017 2018 2019 1Q20 Broadband Base (Mil) FIBER Internet (WTTx) Ultra Ultra Fibra speed from 40 mbps to 60 mbps speed from 100 mbps to 2 gbpsallowance of 30 GB to 80 GB Plans Value-Added Services Protection + Modem + VoD Partnerships + Content (VoD, TIM Banca, Ensina) + Power Wi-Fi 57.9 67.3 76.0 80.8 82.4 2016 2017 2018 2019 1Q20 TIM Live Fiber ARPU (R$ / mo, Pro-forma1) 26 cities166 cities +27.9% CAGR² +14.3% CAGR² (1) ARPU on Pro-forma basis, excluding IFRS 9, 15 and 16 impacts. (2) For the 2016-2019 period. Institutional Presentation | 1Q20
- 35. 35TIM Participações –Investor Relations Not Only B2C: Evolving from Connectivity to Value-Added Service and Solutions Provider Porto Seguro Conecta → New M2M customer base: vehicle/fleet tracking and financial services (POS); → New SIM card management platform: upselling opportunity for value-added services. ConectarAGRO → New farm covered: Amaggi; → Partnership to promote 700MHz 4G in countryside; → Implemented solutions: Connected Car → Development of agreements with car manufacturers; → Connected sensors to monitor, protect, and maintain the car; → Management using new e-SIM platform; → Upselling opportunity for human lines and VAS. 2.5 0.81.8 3.3 2Q18 2Q19 M2M Base (MM) +77.3% Porto Conecta EM CONSTRUÇÃO Institutional Presentation | 1Q20
- 36. 36TIM Participações –Investor Relations Institutional Presentation | 1Q20 (1) Global Data Market Opportunity Forecasts to 2023: Global IoT. 360 184 ~750 ~400 - 1.0 2.0 3.0 4.0 5.0 6.0 0% 20% 40% 60% Connections Share of IoT Revenues From (2018) To (2022) From (2018) To (2022) Transport Agriculture IoT MARKET SIZE1 = USD Revenues (mln) IoT IN LATIN AMERICA DEVELOP AT SCALE AND MONETIZE IOT VERTICALS 4G TIM no Campo Sole operator in the initiative developing agribusiness solutions based on IoT. Connected Car First mover: agreement with car manufacturer to provide in-car connectivity and automation. ~5 mln acres with 4G 1 st place in 4G coverage in Brazil >3k cities with NB-IoT major partners in agro Beyond Core: Exploring B2B New Services
- 37. 37TIM Participações –Investor Relations Institutional Presentation | 1Q20 TIM Ads addressable environment (1) Latin America Digital Ad Spending 2019 eMarketer, internal analysis. R$ 24.2 bln digital ad market in 20221 R$ 19 bln delivered through mobile >2x upside for TIM in 2022 Brands1 Ad agency2 Demand side Platform3 Connection mechanisms4 Supply side Platform5 Publisher6 DMP 5% 50% 45% VALUE POOL Beyond Core: The Mobile Advertising Opportunity
- 38. 38TIM Participações –Investor Relations Institutional Presentation | 1Q20 As is To be Opportunistic approach → SMS to any 3rd parties → ~R$ 190 mln already generated in mobile ads products Becoming a front runner → Data monetization: enhancing 3rd parties campaigns assertiveness with customer knowledge → Operators cooperation → Aligned with LGPD for scoring and new economy TIM AS AD TECH PLAYER Leveraging on customer data and ownership to enhance advertisers knowledge. TIM AS PUBLISHER Exploring owned touch-points (digital and physical) to advertise 3rd parties. Close the gap → Exploring Captive Portal interactions to display 3rd parties ads → New trial contracts signed in the past 2 months → Fine-tuning and new products development ~1902019 2020 2022 MOBILE ADS REVENUE (R$ mln) +35% +70% Beyond Core: TIM’s Positioning as Publisher and Ad-Tech Player
- 39. 39TIM Participações –Investor Relations Institutional Presentation | 1Q20 LOW-END Access to banking services. 2 → Symbiotic partnership (JV like) → Value generated by profit sharing HIGH-END Convenience and simplicity. 1 → Full bank offer → Commercial partnership → Value generated by commissions in fees + equity EXPLORING PARTNERSHIP OPPORTUNITIES (1) Population > 15 years old (Global Findex Database 2017); (2) Population > 10 years old; (3) Population > 16 years old (Locomotiva). First mover in telecom + digital banking services. Exclusive agreement with Bank C6. Partners short list under analysis. 27% 59% 79% Credit Card Debit Card Mobile Unique Users 1 2 FINANCIAL SERVICES IN BRAZIL OWNERSHIP PENETRATION OF… (% population) 1 45 mln Brazilians have no bank account3 817bln annual transactions of unbanked population in Brazilian economy3 R$ 83 % top 5 banks’ market share EOP 2020 BCB expects to launch its instant payment system: PIX. Beyond Core: FinTech’s Playing Field is Moving Fast and We Have a Unique Window of Opportunity
- 40. 40TIM Participações –Investor Relations Institutional Presentation | 1Q20 REDUCE CHURN Distinguished offer through MFS and increased engagement with the clients have a potential to reduce churn in the core telco business. DESCRIPTION TIM C6 BANK Role Sales channel Provider of banking licenses, technology and infrastructure Target clients TIM customer base: increase attractiveness on client acquisition within a differentiated onboarding experience (potential ‘VIP’ experience for high-end costumers) Offer Bank and Telecom account, making life easier for consumer Business structure Hybrid partnership model combining fees and equity LOWER COLLECTION COST The bonus is only guaranteed when the customer pays their invoice or recharge through the App C6, lowering the cost of collection. Beyond Core: Confirming Innovation Leadership in Telecom Through a Hybrid High-end Partnership with C6 Bank
- 41. 41TIM Participações –Investor Relations INFRASTRUCTURE Institutional Presentation | 1Q20
- 42. 42TIM Participações –Investor Relations Institutional Presentation | 1Q20 IT to the next level in 18-24 months Network 5 key pillars Benefits: Big data evolution NBA roll-out Application and architecture review Catalogue creation Cognitive systems Data Growth 5G ready New initiatives IoT Fixed Broadband New capabilities Customers’ Integrated view Time-to- market Automation of processes and efficiency increase Densification and innovative solutions Fixed Wireless Access Convergent architecture New IoT businesses opportunities Decommissioning Savings Evolution Transformation Infrastructure: Act Today to Be Ready for the Future
- 43. 43TIM Participações –Investor Relations Institutional Presentation | 1Q20 Data Growth 5G ready IoT New initiatives Fixed Broadband New services requirements: increasing efficiency to cope with data demand Innovate with 5G, evaluating spectrum limitation vs new services to technology development Support fixed BB growth with agnostic approach and consistent convergent architecture New opportunities becoming reality: "Network slices“ for service optimization Decommissioning and convergence of network to boost savings → Deep infra sharing → 80% of new sites will be Biosites → Indoor sites densification → Massive MIMO → IP/Optical convergence → 5G spectrum Auction → Launch of main cities → Cluster approach (MAN) at 5G cities → Core evolution → Content distribution → Resilience improvement → FTTH vs FWA → Virtualization through SD-WAN → Multi access edge computing → New IoT services → NB-IoT expansion → E2E legacy decommissioning → Sky coverage → Partnerships (MOU Vivo) → 2G/3G consolidation Network: Transformation Initiatives to Thrive Efficiency and New Business Opportunities
- 44. 44TIM Participações –Investor Relations Institutional Presentation | 1Q20 17 19 ~22 2018 2019 2020 2021 2022 ACCESS NETWORK (‘000 SITES) 3,272 3,520 >4k 1,426 2,455 2018 2019 2020 2021 2022 Total 700 / 850 MHz 4G COVERAGE (# cities) 76% 75% 92% 2018 2019 2020 2021 2022 TRAFFIC MIX EVOLUTION 4G 2G / 3G Better indoor experience. Network: Mobile Shift to 4G Network Still in Progress as a Way to Improve Quality and Reduce Cost to Serve
- 45. 45TIM Participações –Investor Relations Institutional Presentation | 1Q20 FTTH (# cities) 11 23 ~70 2018 2019 2020 2021 2022 HOME PASSED (mln) 1.1 2.3 ~5.5 2018 2019 2020 2021 2022 BACKBONE + BACKHAUL (‘000 km) 90 101 >130 2018 2019 2020 2021 2022 FTTCity (# cities) 601 821 ~1.5 2018 2019 2020 2021 2022 Transport Network UBB Network: Fiber Expansion to Support Business Continuity and Ultrabroadband Acceleration
- 46. 46TIM Participações –Investor Relations Institutional Presentation | 1Q20 → Bad Debt (e.g. new credit models, collections systems improvement) → Legal processes (e.g. predictive models to reduce JEC expenses - special court for small cases) → Self-Provisioning (e.g., Naked SIM) → Self-caring: Cognitive IVR and WhatsApp services (e.g., second invoice, balance check and etc.) → Self-healing (e.g., technical resolution for broadband services) → Administrative processes (e.g. ground leasing) → Pay-roll management IT Planning & Development → Industrial agreements (e.g. VIVO MoU) → Innovative Technologies (Massive MIMO) → TIM Live’s Transformation with partnership → Cloudification (storage as commodity) Process efficiency Digital & Automation Make vs buy Smart CAPEX Being competitive: increase return on investment by focusing it where we can apply differentiation. Productivity: focus on the core. Brazilians are already digital: unique environment opportunity. Gaps as opportunities: Close gaps and surpass the benchmark. Holistic Efficiency Approach: Disruptive Efficiency to Address Industry Challenges
- 47. 47TIM Participações –Investor Relations 3 5 5 1 20 20 20 11 21 185 3 4 5 35 26 29 43 1322 29 25 24 20 21 44 43 20 117 148 177 93 Spectrum Distribution (Average of MHz / population) Spectrum distribution reflects available capacity, though user experience will also depend on network management 14 MHz 90 MHz 80 MHz 20 MHz 150 MHz 135 MHz 100 MHz 190 MHz 450 MHz 700 MHz 850 MHz 900 MHz 1,800 MHz 2,100 MHz 2,300 MHz 2,500 MHz 450 MHz 700 MHz 850 MHz 900 MHz 1,800 MHz 2,100 MHz 2,500 MHz <1 GHz = Coverage [35%l----l40%] >1 GHz <3 GHz = Capacity [30%l----l40%] Mobile Total Spectrum Cap
- 48. 48TIM Participações –Investor Relations Coverage expansion supported by a robust infrastructure 411 1,255 3,003 3,272 3,477 3,506 0 2 916 1,426 2,313 2,436 2015 2016 2017 2018 2019 1Q20 4G Coverage (# cities) Total 700 MHz 93% with VoLTE 70.3 75.8 85.2 90.1 100.8 102.2 2015 2016 2017 2018 2019 1Q20 Backbone + Backhaul Evolution (‘000 km) Start of robust infrastructure via acquisition strategy: Intelig (2009), AES (2012). 15.0 17.3 18.2 18.8 19.6 21.7 2015 2016 2017 2018 2019 1Q20 Total Sites (‘000) (1) Full coverage is not equal to the sum of technologies, as there is an overlapping area (brownfield). 5 5 5 5 5 5 2 11 23 24 2015 2016 2017 2018 2019 1Q20 TIM Live Coverage1 (# cities) FTTC FTTH 2.1 2.1 3.2 3.5 3.6 3.6 1.1 2.3 2.5 2015 2016 2017 2018 2019 1Q20 Covered Households1 (MM) FTTC FTTH 4.3 14 25 Institutional Presentation | 1Q20 5.526 5.6 -- -- -
- 49. 49TIM Participações –Investor Relations Spectral capacity management to ensure a continuous evolution of customer experience 179 2,116 244 2,221 298 2,314 304 2,339 2,1 GHz 1,8 GHz Spectrum Refarming for 4G (# cities) 1Q20 2019 2018 2017 68.2 77.3 77.7 85.7 P4 P2 P3 TIM 4G Availability¹ (% of time) 1º 68.4 61.4 58.4 57.4 P4 P2 P3 TIM 4G Latency1 (ms) 1º (1) According to Tecnoblog, Jan-20. Institutional Presentation | 1Q20 +5.9 +5.0 2018 2019 NPS | Postpaid Evolution (Points) +6.5 +15.6 2018 2019 NPS | Prepaid Evolution (Points) +7.3 +9.3 2018 2019 NPS | Total Evolution (Points)
- 50. 50TIM Participações –Investor Relations FINANCIAL EVOLUTION Institutional Presentation | 1Q20
- 51. 51TIM Participações –Investor Relations 14.7 14.0 14.7 15.3 15.7 3.8 0.7 0.8 0.8 0.9 1.0 0.2 15.4 14.7 15.5 16.2 16.6 4.1 2015 2016 2017 2018 2019 1Q20 Net Service Revenues (R$ bln, Pro-forma¹) Mobile Fixed 15.4 14.7 15.5 16.2 16.6 4.1 1.8 0.9 0.8 0.8 0.8 0.1 17.1 15.6 16.2 17.1 17.4 4.2 2015 2016 2017 2018 2019 1Q20 Net Revenues (R$ bln, Pro-forma¹) Service Handset Strategy and execution adjustments have recovered TIM's results and set the company’s path to financial sustainability 0.6 0.7 1.8 2.7 2.9 0.7 2015 2016 2017 2018 2019 1Q20 EBITDA – CAPEX (R$ bln, Pro-forma1) 5.4 5.2 5.9 6.6 6.9 1.6 31.5% 33.5% 36.6% 38.5% 39.8% 37.6% 2015 2016 2017 2018 2019 1Q20 EBITDA and EBITDA Margin (R$ bln, Pro-forma1) EBITDA EBITDA Margin +3.9%-8.9% +5.0% +5.1%-4.3% +4.7% +13.7%-3.2% +10.3% (1) Financial KPIs on Pro-forma basis, excluding IFRS 9, 15 and 16 impacts. Institutional Presentation | 1Q20 +2.2% +2.5% +5.8% +3.3% +0.1% +1.4%
- 52. 52TIM Participações –Investor Relations Solid financial position: Maintaining a strong balance sheet and increasing distribution to shareholders 6.7 5.6 3.7 1.9 2.9 1.6 2015 2016 2017 2018 2019 1Q20 Cash (R$ bln) 8.4 8.3 6.4 3.3 3.4 3.6 2015 2016 2017 2018 2019 1Q20 Gross Debt (R$ bln, Pro-forma1) BofAML; 14% Scotiabank; 12% Debentures; 27%KFW; 11% Leasings; 35% Cisco; 1% Debt by Lender 0.37 0.47 0.34 0.95 1,00 2015 2016 2017 2018 2019 Dividends and Interest on Equity Declared (R$ bln) 1.7 2.7 2.7 1.5 0.5 1.9 2015 2016 2017 2018 2019 1Q20 Net Debt (R$ bln, Pro-forma1) 0.32x 0.52x 0.45x 0.22x 0.07x Net Debt / EBITDA1 (1) Financial KPIs on Pro-forma basis, excluding IFRS 9, 15 and 16 impacts. Institutional Presentation | 1Q20 0.07x
- 53. 53TIM Participações –Investor Relations Investing in a smart and efficient way: Focusing on 4G and fiber optic infrastructure 3.5 2.9 2.9 2.7 2.8 0.6 0.8 0.9 0.7 0.7 0.8 0.2 0.2 0.2 0.1 0.1 0.3 0.5 0.5 0.3 0.5 0.1 4.8 4.5 4.1 3.9 4.0 0.9 2015 2016 2017 2018 2019 1Q20 CAPEX Evolution (R$ bln, Pro-forma1) Others Licences (new + renewal) IT CAPEX / Net Revenues1 (ex-license) 23%26%28%28% 22% (1) Financial KPIs on Pro-forma basis, excluding IFRS 9, 15 and 16 impacts. Institutional Presentation | 1Q20 21%
- 54. 54TIM Participações –Investor Relations OUTLOOK Institutional Presentation | 1Q20
- 55. 55TIM Participações –Investor Relations Institutional Presentation | 1Q20 ≥40% CAGR 2018-21: ~3% CAGR 2018-22: ~2% 4.7% 2.4% 0.4% 1.5% 2018 2019 2020 2021 2022 NET SERVICE REVENUES (% YoY) Mid Single Digit CAGR 2019-22 10.6 10.6 10.6 10.8 2018 2019 2020 2021 2022 OPEX (R$ bln) New Plan Old Plan 6.4 6.8 37.5% 39.1% 2018 2019 2020 2021 2022 EBITDA AND MARGIN EXPANSION (R$ bln; %) Market TIM 2.5 2.9 15.0% 16.9% 2018 2019 2020 2021 2022 EBITDA - CAPEX (R$ bln; %) ≥20% 2020-’22 Targets: Key Performance Indicators (IFRS 15/9) (1) Released on March 10th, 2020.
- 56. 56TIM Participações –Investor Relations Institutional Presentation | 1Q20 GOALS DRIVERS SHORT TERM TARGETS (2020) LONG TERM TARGETS Revenue Growth Sustainability → Leverage mobile ARPU improve → Expand Residential UBB operations → Tap B2B opportunity Service Revenues Growth: Mid single digit (YoY) Service Revenues Growth: Mid single digit (CAGR ‘19-’22) Improve Profitability → Accelerate digital transformation → Maintain zero-based budget approach → Reliable bill to cash process EBITDA Growth: Mid single digit (YoY) EBITDA Margin: ≥40% in 2022 (≥47% w/ IFRS 16) Infrastructure Development → Smart and selective Capex approach Capex on Net Revenues: Low 20’s Capex: R$ 12.0 - 12.5 bln (∑‘20-’22) Expand Cash Generation → Strict financial discipline → Continue debt and tax rate optimization EBITDA-Capex on Net Revenues: >16% (>20% w/ IFRS 16) EBITDA-Capex on Net Revenues: ≥20% in 2022 (≥25% w/ IFRS 16) (1) KPIs with IFRS 15/9, except when otherwise indicated. (2) Released on March 10th, 2020. 2020-’22 Targets: Guidance
- 57. Vicente Ferreira E-mail: vdferreira@timbrasil.com.br Phone:+55 21 98113-1400 Bernardo Guttmann E-mail: bguttmann@timbrasil.com.br Phone: +55 21 98113-1408 Camila Assano E-mail: cacruz@timbrasil.com.br Phone: +55 21 98113-4236 Lucas Carneiro E-mail: lmcarneiro@timbrasil.com.br Phone: +55 21 98113-1141 Guilherme Kopke E-mail: gknascimento@timbrasil.com.br Phone: +55 21 98113-0583 Visite o nosso site www.tim.com.br/ir E-mail: ri@timbrasil.com.br Avenida João Cabral de Melo Neto, 850 – Torre Sul - 12º andar Barra da Tijuca – 22775-057 – Rio de Janeiro, RJ For Further Information