Meeting with Investors - April 2015
45
Company’s Presentation TIM BRASIL April, 2015
Transcript of Meeting with Investors - April 2015
Company’s Presentation
TIM BRASIL
April, 2015
Visit our website and IR app:
www.tim.com.br/ir
AGENDA Market Overview and TIM Positioning................ 4
2014 Results……………………………..………..……………..8
Network & Quality Evolution……..………………..…..17
Fixed Business…………………………….……………....…...21
Business Outlook………….….….…………………….……..24
Regulatory Update……….….….…………………….………29
Appendix..............................................................32
TIM IR app
(English) TIM RI app
(Portuguese)
Statutory Audit Committee:
• Report to Board of Directors
• Oversight Financial reporting
• Analyze anonymous complaints
20
25 28
30 29
2010 2011 2012 2013 2014
51
64 70 73 76
2010 2011 2012 2013 2014
CAGR+10%
KNOWING TIM 3
KNOWING TIM BETTER
15,000 km fiber optical backbone
5,500 km fiber optical backhauling
Growth Via
Acquisition
TIM: A Huge Brazilian Company
75.7 million customers (27% Share)
More than 465,000 points of sales
More than 170 own stores
15 Customer Care Centers (16k attendants)
~14,000 Antennas
3,433 cities covered
54,160 km of optical fiber network
23,000 indirect jobs
~R$3.9 billion invested in FY2014 (ex-licenses)
GROWTH STRUCTUE
Gross Revenues (R$ bln)
Customer Base EoP (mln customers)
EBITDA (R$ bln)
4.2 4.7
5.0 5.2 5.5
2010 2011 2012 2013 2014
CAGR+9%
CAGR+7%
Presence in Brazil since 1998
16th largest Private Company in Brazil (source: Exame Magazine - 2013)
Approximately R$32 billion of Market Capitalization
Brazilian Law
“Nível” 1 “Nível” 2
Legal Requirements
Demand for transparency and
disclosures
Highest level of Corporate
Governance
Requirement of protection for
minority shareholders
100% Tag Along
Equal dividends rights
One single class of shares
Strict disclosure policy
Unique Telco company listed on the Novo Mercado
CORPORATE GOVERNANCE
2nd Player Market & Revenue
Share
95% of urban pop. covered
~13k employees
Market Overview and TIM Positioning
TIM represents 30% of the industry mobile revenue2 while has 27% of the market share
TIM
Source: Anatel and Players balance sheet
Vivo
Claro Oi
Mobile Fixed1 Fixed BB Pay-TV Group
Customers 4Q14 (000´s) 74,721 657 153 n.a. 76,531
Market share 4Q14 27.0% 1.4% 0.5% n.a. ---
Net Adds 12M (000´s) 2,289 25 64 n.a. 2,378
Net Revs FY14 (R$ Mln) 18,919 579 19,498
ARPU 4Q14 18.0 n.a. n.a. n.a. ---
Mobile Fixed1 Fixed BB Pay-TV Group
Customers 4Q14 (000´s) 79,938 10,939 4,102 770 95,749
Market share 4Q14 28.5% 23.9% 17.1% 3.9% ---
Net Adds 12M (000´s) 2,693 502 -205 176 2,665
Net Revs FY14 (R$ Mln) 23,740 11,260 35,000
ARPU 4Q14 24.6 n.a. n.a. n.a. ---
Mobile Fixed1 Fixed BB Pay-TV Group
Customers 4Q14 (000´s) 71,107 11,519 7,523 10,182 100,331
Market share 4Q14 25.3% 25.2% 31.4% 52.0% ---
Net Adds 12M (000´s) 2,403 1,463 941 525 3,868
Net Revs FY14 (R$ Mln) 13,078 22,525 35,603
ARPU 4Q14 15.3 n.a. n.a. n.a. ---
Mobile Fixed1 Fixed BB Pay-TV Group
Customers 4Q14 (000´s) 50,918 16,692 6,554 1,303 75,467
Market share 4Q14 18.1% 36.5% 27.3% 6.7% ---
Net Adds 12M (000´s) 702 -1,742 20 474 1,196
Net Revs FY14 (R$ Mln) 9,290 19,132 28,422
ARPU 4Q14 17.4 n.a. n.a. n.a. ---
The mobile segment represents 78% of the industry access growth
1 - Fixed Access numbers refers to 3Q14
Fixed / Mobile Fixed BB Fixed voice & BB / TV Mobile
Fixed BB/ TV Fixed Mobile
BRAZILIAN TELCOS X-RAY
Fixed / Mobile
/ 2 - Mobile revenue considers only the 4 major players MARKET OVERVIEW AND TIM POSITIONING 5
Revenue Mix
Revenue Mix
27%
Mobile Market Revenues Evolution (Mobile Service Net Revenues; %)
• Most households without internet access • Mobile better suited to break price barrier
9.5
2.6
Jan-13 Nov-14
0.34 0.30 0.23
0.16 0.10 0.06 0.03 0.02
2012 2013 2014 2015 2016 2017 2018 2019
57%
4%
12%
1%
37%
2%
MTR Cut (R$)
Voice Incoming
Voice Outgoing
SMS
Internet 60%
• Maturing market: Customer base growth slowdown
• Consumption migrating from voice to data
2010 2020
SMS Traffic Sharp Decrease (billions of SMS sent)
Mobile Internet is the growth driver and will be the largest mobile market, although Voice remains important
Voice Decline
Internet Opportunities
STRATEGIC POSITIONING Internet Market Evolution
MARKET OVERVIEW AND TIM POSITIONING 6
105%
90% 79%
72% 66% 63%
• Huge gap between Brazil and developed markets
• Lack of infrastructure: low quality and speed
• Affordability issues (high prices, combos)
• Smaller gap between Brazil and developed markets
• Additional drivers for growth: days of use, data consumption
• Affordable prices
90% 83%
73% 73%
55%
32%
Fixed (% households) Mobile (% population)
Content & Usage Offer
Pure Connectivity
Offer
Developed markets avg: 75%
Developed markets avg: 82%
Connectivity
Proximity & MPayment
Connected Home & In Cars
RichCom
OTT
Telco
COOL
TRUST
QoE* and Caring
Fra UK USA Jap Rus Bra Jap USA UK Ita Fra Bra
Δ: 43 p.p.
Δ: 19 p.p.
* Quality of Experience
DATA: CONNECTIVITY AND BEYOND Getting People Connected: Broadband Penetration
Entering in the Content World
MARKET OVERVIEW AND TIM POSITIONING 7
Apps Social Video Music
Gaming
Digital Identity & Security
A
B
C
D/E
Voice Centric World Data Centric World
Data Data Voice Voice
Focus on voice for B/C classes
Focus on data for B/C classes
Targeting the “Big Middle”
Source: OVUM / INEGI
2014 Results
RESULTS HIGHLIGHTS: A SOLID QTR TO CLOSE A SOLID YEAR
2014 RESULTS 9
33% 42%
49% 56%
28.0% 27.9% 27.4%
30.1%
61.1 63.2
20% 30%
P1
26.7% 26.1%
28.4%
-22.9% -20.5%
-2.9%
2.6% 1Q14 2Q14 3Q14 4Q14
Innovative offers generating value: • Charging per day Infinity “dia”
• Controle WhatsApp
• Shared Data plans
MTR cut impact still significant: ~R$372 million on EBITDA in 2014
75.7 million
customers
Customer Base
34
Data Acceleration
30%
Improving Profitability
Fixed
Turnaround on
EBITDA Margin
business
million users (+26% YoY)
Strong reduction of SMS business (-26% YoY in revenues)
Tougher macro environment: • GDP: +0.15%*
• Inflation: 6.4% in 2014
2014 Year Recap
New infrastructure approach: data centric
4G LTE auction: assured future positioning
Fixed corporate business turnaround completed
Live TIM: best in class fixed broadband
2 1
Dec/13 Dec/14
Prepaid (mln customers)
Control Plans (mln customers)
+3.4% YoY
Dec/13 Dec/14
+13.8% YoY
2Q13 4Q14
4G Market Share (%)
TIM
Gross Data Revenue Yearly Growth (ex-SMS) (% YoY)
1Q14 2Q14 3Q14 4Q14
EBITDA Margin (%)
1Q14 2Q14 3Q14 4Q14 2012 2013 2014
Net Revenues (Δ% YoY)
Source: Company and Anatel
P2
P3
*Central Bank consensus
+25 p.p
Solid financial results: Growth on EBITDA / EBIT / Net Income
Consistent growth on Business Generated revenues +6.3% (YoY)
EBITDA Growth:
4Q14 x 4Q13: +4.0% 2014 x 2013: +6.4%
KEEPING THE FOCUS ON THE EXECUTION
2014 RESULTS 10
2013 2014
2013 2014
-31%
Network & Interconnection Savings
Interconnection Cost (R$; % YoY)
Leased Lines Cost (R$; % YoY)
Relevant cost savings amid total data traffic growth of 39% in 2014 when compared to 2013
Regulatory price reductions and substitution of leased lines by own infrastructure
-10%
3.2
3.4
4Q13 4Q14
Equipping Customer Base
Handsets Sold (mln units)
% of smartphone sales among players in 4Q
+6.3% YoY Growth
+6.1% QoQ Growth
Source: Company and GFK Group
TIM 48%
P1 14%
P3 29%
P4 9%
Leading player in handset sales
Up 16 p.p. in 4Q14 vs. 4Q13
0.6%
0.5%
4Q13 4Q14
Operational Efficiency
Fixed Business Progress
SAC (Subscriber Acquisition Cost) (R$; % YoY)
Bad Debt (% Bad debt over gross revenues)
SAC/ ARPU
24
21
4Q13 4Q14
-15%
1.3x 1.1x
-16%
Corporate Solutions New Sales (R$; % YoY)
Live TIM Ultra Broadband (customer base in thousand)
4Q13 4Q14
+39% 60
130
4Q13 4Q14
+2.2x
Solid Performance in Net Adds
Pre paid
1st in prepaid market share
+ 2.1 million clients in 2014
Post paid
25% of net share in December (ex M2M and broadband)
Control plans bases rose 14% YoY
2014 RESULTS 11
OFFER STRATEGY EVOLUTION CONTINUES
Data Customer Base (as % of total base)
Smartphone Penetration (% of smartphones over customer base)
14.9%
29.4%
49.5%
2012 2013 2014
Smartphone sales over 80% in 4Q14
Data ARPU (% YoY Growth)
18%
20% 21%
25%
1Q14 2Q14 3Q14 4Q14
Beyond Connectivity on Data
Controle WhatsApp
Data centric offer with no voice obligations
Data Package and WhatsaApp included in monthly fee
Differentiation among peers, with positive impact on postpaid performance
Data Revenues Penetration (% Gross VAS Revs / Gross Mobile Service Revs )
25.2%
27.2%
28.7%
30.9%
1Q14
2Q14
3Q14
4Q14
INFINITY TURBO 7 INFINITY “DIA”
+7.2 p.p
Protecting Core Revenue
+35 p.p.
R$ 0.75 DAILY OFFER
SHARED INTERNET PLANS
Offer Innovation Strong Data Progress
Leveraging on simplicity, transparency and convenience
30.3%
36.4%
44.6%
2012 2013 2014
2014 RESULTS 12
1Q14 2Q14 3Q14 4Q14
RESHAPING THE BUSINESS Different Revenue Profile
Improving Profitability
Mobile Service Net Revenues (% YoY)
Mix of Gross Data Revenues (% YoY)
2013 2014
SMS
Web
Content & Others
+29% +39%
+45% +80%
+33%
+72%
+47%
+82%
1,500 1,578 1,677 1,862
Mobile First Margin* (Δ YoY)
Service EBITDA (R$ mln; % YoY)
Service EBITDA Margin (% YoY)
35%
38%
4Q13 4Q14
+2.8 p.p.
1,534
1,598
4Q13 4Q14
+4.2%
4Q13 4Q14
+4.5 p.p.
FY 2014 growth: +5.2 p.p. FY 2014 growth: +3.0 p.p. FY 2014 growth: +6.9%
+1.2% -19% -8.2% -24%
(Voice & Other)
(Data & SMS)
(Incoming MTR + SMS)
Gross Data Revenues Growth (% YoY of growth)
20%
22%
23%
28%
1Q14
2Q14
3Q14
4Q14
Excluding handset business
* Mobile First Margin = Business Generated less costs related to the service.
Business Received
Business Generated
-30%
+6.3%
2014
+4.8%
-34%
2014
4Q14
4Q14
-R$1.1 billion
2014 RESULTS 13
5,168
167
Tho
usa
nd
s
1,558
97 1,499 123 -64 1,558
Tho
usa
nd
s
5,183 5,168 157 -307 4 132
Tho
usa
nd
s
+13.5%
FINANCIAL RESULTS ANALYSIS (1/3)
MTR Exposure
1,655
28.9%
35.3%
30.1%
38.1%
EBITDA Margin
Service EBITDA Margin
EBITDA (R$ mln; % YoY)
Reported EBITDA 4Q13
Reported EBITDA 4Q14
Δ Opex/ Others
Traffic/Data Δ Contribution
Margin
‘Pro forma’ EBITDA in 4Q14
+10.4%
+4.0%
Ex-MTR
MTR Impact
+3.5% +3.1% ΔYoY
Revenue Exposure (as % of net service revenues)
EBITDA Exposure (as % of EBITDA)
~ 25%
~ 12%
4Q10 4Q11 4Q12 4Q13 4Q14
~ 32%
~18%
4Q10 4Q11 4Q12 4Q13 4Q14
Reported Revenue
4Q13
Reported Revenue
4Q14
‘Pro forma’ Revenue 4Q14
Δ Others Δ Business Received
Δ Business Generated
Δ Products Revenue
5,335
+2.9%
- 0.3%
Ex-MTR
Δ % YoY +4.8% -33.9% +2.6% +16%
MTR Impact
5,207
5,538
5,910
2013 2014
372
+6.4%
MTR Impact
660
2013 2014
16,325
MTR Impact
-2.3%
Net Revenues Net Service Revenues (R$ mln, % YoY)
16,985 16,701
+1.7%
(R$ mln, % YoY)
13,216
2,530
579 3,173
19,498
3,991
4,318
3,340
2,311
5,538
EBITDA
From Revenue to EBITDA in 2014 (R$ mln; %ΔYoY)
Business generated
Products Selling & marketing
Network & interconnection
Net Revenues
Business incoming
Fixed business
COGS Others
ΔYoY +6.3% -30.0% -11.9% -1.5% -2.1% +1.3% -18.7% -0.3% +9.3% +6.4%
From EBITDA to Net Income in 2014 (R$ mln; %ΔYoY)
EBITDA
+6.4% ΔYoY
Depreciation
+11.3%
Amortization
+9.0%
5,538
-1,673
-1,380
2,486
-293
-646
1,546
Net Income
+2.7%
Tax and Social Contribution
Net Financial Result
-3.3%
EBIT
+2.5% +1.9%
FINANCIAL RESULTS ANALYSIS (2/3)
2014 RESULTS 14
2014 RESULTS 15
700MHz Acquisition Capex
1,274
Tho
usa
nd
s
306 372
386 366
315 348
499 460
2013 2014
FINANCIAL RESULTS ANALYSIS (3/3) Net Income Evolution (R$ mln; % YoY)
Net Debt (R$ mln)
EBITDA 2014
Debt Cash Net cash
2013 2014
Debt Cash Net debt
Cash Flow - 12 months (R$ mln; R$ YoY)
Net debt/EBITDA 12M: 0.23x
Organic CAPEX
Organic Δ WC Organic OFCF 2014
Reported OFCF 2014
LT Amazonas Leasing
6,507 5,233
2Q
1Q
+10.6%
% YoY
3Q
1,506 1,546
+21.6%
-5.2%
-7.7% 4Q
Considering R$1.7 bln 4G pymt
*Organic figures excludes the 700MHz frequency acquisition and LT Amazonas leasing effect
700MHz Acquisition Effect on Δ WC
+2.7% FY
4,867 5,288
-421
Cash Flow - 12 months (R$ mln; R$ YoY)
Composed by: + NPV of the 700MHz clean up cost + Warranty Insurance + Monetary Adjustments
5,538
-2,923
-3,928
-96 1,514 182
1,181
-45
BNDES 58%
BB 6%
BEI 19%
BofA ML 5%
KFW 4%
Cisco 4%
Others 5%
Higher cash yield and debt cost due to CDI increase in the period Bigger gap between cash yield and debt cost due to smaller cost of new loans
Δ: 62 bps
4,279 4,867
6,507
2,000
2012 2013 2014
NET FINANCIAL POSITION DETAILS Cash & Debt Evolution
Cash Yield vs. Debt Cost (% per year)
Net Financial Position (R$ mln)
BNDES new disbursements
Short term debt
Better Profile: Less Short Term Debt
Debt by Lender in 2014 end (% of total loans)
Debt Position (R$ mln; % of total debt in short term)
Cash Position (R$ mln)
4,431
5,288 1,742
2012 2013 2014
4G payment
5,233
Improved group liquidity margin
9.58% 7.69%
8.58%
9.78%
10.20%
7.09%
9.50%
11.25%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Δ: 147 bps
Cash yield
Debt cost
Excluding 4G payment -151
-421
1,274
-468
Net debt/
EBITDA 12M 0.23x -0.08x -0.03x
2012 2013 2014
20% 21% 21%
2014 RESULTS 16
Network & Quality Evolution
NETWORK & QUALITY EVOLUTION 18
3,093
3,013
2,930
2,845
TIM P4 P3 P1
QUALITY IMPROVEMENT UNDESCORED BY…
Source: Anatel
Source: Company’s survey of national satisfaction
TIM
P1 P3 P4
Customers Satisfaction
¹ Voice Network (repair and call completion) ² Data Network: Estimated by TIM and composed by a subset group of Additional Services complaint
Total Demands at Consumer’s Protection Agency (Procon) (Per economic group, in thousands)
Source: SENACON/MJ
10.6 14.0
23.6 27.2
42.2 46.3
21.4
28.0
4Q13 1Q14 2Q14 3Q14 4Q14
TIM
P1
P3
P4
Data Evolution
Data Accessibility Ranking (3G) in SP
4G Sites in State Capital Cities
Anatel
Average Satisfaction with Coverage and Quality of Calls (score assigned by the customer)
Least claimed company at
Procon
7.80 7.80
Nov-12 May-13 Nov-13 May-14 Nov-14
Network Complaints (number of complaints)
Voice network¹
Data network²
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Voice network 2014 vs. 2013
-27%
Data network 2014 vs. 2013
-11%
Anatel Metrics
Customers Demands
Source: Anatel
Access
Anatel
Access
Access
Access
Access
99.24%
98.93%
99.20%
99.57%
98.88%
2.5 GHz 2.1 GHz
1.8 GHz 850 MHz 700 MHz
radius (km)
0.458 0.61
INFRASTRUCTURE (R)EVOLUTION Innovative Coverage
Investment Profile
Site Densification
Cell coverage characteristics (Urban coverage simulation)
Capital allocation on innovative services:
Fiber (metropolitan + LD): expansion to ~55k Km in 2014
2G (voice)
3G+4G (data)
Number of 4G Sites Number of 3G Sites
4Q13 4Q14
1.9k
3.7k
4Q13 4Q14
9.1k
10.4k
Indoor coverage deployment
DAS (Distributed Antenna Systems) Solution
Femto Cells (corporate)
Wifi (consumers)
+92% +14%
R$3.9 bln Organic Capex +
R$2.9 bln (4G License & Clean up)
=
R$6.85 billion in 2014
Deployment in:
0.363 1.413 1.685
Rio de Janeiro Curitiba Brasília Manaus Natal São Luís
51%
87%
49%
13%
2013 2014
Band 850 MHz 900 MHz 1800 MHz
2100 MHz
2500 MHz
700 MHz
Possible Technologies
2G/3G 2G/3G 2G/4G 3G 4G 4G
Efficient Use of Spectrum Portfolio
Wifi and Small Cells
> 100% YoY
Fistel exemption
approved in Jan/15
Mobile Broadband Evolution (cities)
The 125 cities of the MBB project
represent 50% of the total network
traffic 39
53
66
83
125
4Q13
1Q14
2Q14
3Q14
4Q14
NETWORK & QUALITY EVOLUTION 19
2014 Actual 2015 Bdg 2016 Plan 2017 Plan
MBB Project Geographic Area
Small Cells
New Macro Sites
WiFi / Femto / DAS • 3,000 WiFi in 2015 • >150 DAS in 2015
1,137 cities prioritized due to business relevance, based on IRR and Payback
HetNet
% of Urban Covered Population
2G
3G
4G
2014a 2015e 2016e 2017e
MBB program is addressing >70% of TIM's business, and is the key investment program in 2015-2017
High business concentration in few cities allows for a focused infrastructure enhancement program
1.9k 3.7k
>15k
2013a 2014a 2015e 2016e 2017e
Number of 4G Sites
9.1k 10.4k >14k
2013a 2014a 2015e 2016e 2017e
Number of 3G Sites
0.7k 1.5k
5k
2013a 2014a 2015e 2016e 2017e
Number of Wifi & Small Cells
2G
3G
4G
95% 95%
78% 79%
27%
86%
2013a 2014a 2015e 2016e 2017e
STATE OF ART CAPEX ALLOCATION: QUALITY TO INCREASE RETURNS Network Rollout New Coverage Strategy
Technology Capex Allocation TIM LD Backbone
NETWORK & QUALITY EVOLUTION 20
1.4k
3.9k
2015e 2017e
New Small Cells
0.8k
3.5k
2015 2017
+2.8x
+4.3x
2009 2017
~60,000 Km
~15,000 Km
Fixed Business
FIXED BUSINESS 22
2013 2014
3.4
3.3
2.9
Live TIM
GVT
NET
4Q13 4Q14
ACCELERATING FIXED BUSINESS PERFORMANCE
2014 business remodeling recap:
Customer base management
Multiservice network launch
Sales team reorganization
Brand repositioning
Re-designed service portfolio
Fixed + mobile integration for corporate clients
2013 2014
+3.5x
EBITDA Net Revenues (with intercompany)
Revenues from New Sales (YoY)
Outstanding product performance… (ISP speed ranking - Mbps)
…with solid operational and financial results
60
130
4Q13 4Q14
Customer Base (000 users)
+2.2x
ARPU (R$; YoY%)
+24%
New Line Payback (months)
21
14
4Q13 4Q14
1
15.9
8.9
8.8
Live TIM
NET
GVT
37
21
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1
1,490
2,194
1,069
1,503
4Q13 4Q14
Coverage (000 Households)
+41%
Addressable Households
Homes passed
+1.0%
2013 2014
+2.7x
-33%
60k
130k
>500k
2013a 2014a 2015e 2016e 2017e
2013a 2014a 2015e 2016e 2017e
Customer Base (thousands customers)
EBITDA Revenues from New Sales (R$; YoY)
2013a 2014a 2015e 2016e 2017e
FIXED
MOBILE
CONVERGED SOLUTIONS
2015-2017 Drivers:
• Revenue and EBITDA rebound
• Sales team resizing and training
• Customer care unification (F+M)
• Improvement on service level
• Fine tuning mobile portfolio
• Launch of new convergent solutions
+9x
Investments (R$; YoY)
2013a 2014a 2015e 2016e 2017e
+3x +9x
From option value to reality:
• Accelerate growth through incremental investment
• Focus on keeping customer experience leadership
• Introduction of new services (Voice and Bluebox)
• Support the discussion on “Banda Larga Para Todos” program
Corporate Solutions as a Sustainable Business
Live TIM Plan: Accelerating Growth
FIXED CORPORATE SOLUTIONS & LIVE TIM POSITIVE TRENDS
FIXED BUSINESS 23
Business Outlook
32.0%
34.9%
2012 2013 2014 2015e
Delivering important operational and financial results
Strong market positioning for growth
Renewed culture of innovation, quality and caring
Staying power and commitment with long term, with recognized
institutional leadership
Best governance in the industry: Novo Mercado
MBB (cities)
2014 CONCLUSION Changing Business Profile Focus on Execution Improving Profitability
Infrastructure Leveraging Growth
Revenue profile changing
Pre-paid data as key source of growth
TIM strategically well positioned with data focus on “big middle”
Business Generated Net Revenues Keeping costs under control, amid macroeconomic pressure
Keeping innovative offers:
• Infinity Day, Data Shared Plans, Controle Whatsapp plan, TIMmusic by Deezer, TIM Multibank (2015), Blue Box (2015)
Fixed turnaround completed: back to growth in 2015
Live TIM: from optionality to reality
TIM: A Solid Player
Building the Future
Tower sale
Big data analysis for Capex allocation
Investing Efficiently
4G LTE in 700MHz and 1,800MHz
EBITDA growth in 2014: +6.4% YoY
Margins expansion through opex savings and new revenues sources
(Voice & Other)
(Data & SMS)
Service EBITDA Margin (%; YoY)
+3.0 p.p.
2013 2014
39
125
Mobile broadband project
+86
2013 2014
74% 69% 64%
26% 31% 36%
BUSINESS OUTLOOK 25
2014a 2017e
Leased Lines Cost (R$)
SAC (Subscriber Acquisition Cost) (R$)
Bad Debt (R$)
EBITDA Evolution (R$ without intercompany)
EBITDA - Capex
2013a 2014a 2015e 2016e 2017e
Data Traffic Expectation
3G Data Traffic
LTE Data Traffic
(in petabytes)
Mobile Customer Base (mln customers)
73.4
75.7
2013a 2014a 2015e 2016e 2017e
2014a 2017e 2014a 2017e
2014a 2015e 2016e 2017e
Business Growth
2014a 2017e
COST EFFICIENCY
Operational Efficiency
Fixed Business Progress
BUSINESS OUTLOOK 26
MTR Path (R$)
0.34
0.02
2012 2014 2016 2018
SMS Market Revenues (R$)
2014a 2017e
Network & Interconnection Savings
18.8 19.9 19.5
2012A 2013A 2014A 2015e 2016e 2017e
5.0 5.2 5.5
2012A 2013A 2014A 2015e 2016e 2017e
0.6 0.4 2.9
3.1 3.5
3.9
2012A 2013A 2014A 2015e 2016e 2017e
Organic
Others/ Licenses
3.8 3.9
6.9
Continued Growth
Continued Growth, improving margin
CAPEX 2015-2017:
>R$14 billion
Net Revenues
EBITDA
CAPEX
48% 40% 37% 35%
52% 60% 63% 65%
2014a 2015e 2016e 2017e
Innovative
Traditional
Innovative and Traditional Investments (R$; %)
(R$ billion)
(R$ billion)
(R$ billion)
2015-2017 Guidance
MTR Impact Analysis (R$; %)
Mobile Net Revenues Analysis (R$; %)
A Close Look at Business Performance
24%
12%
31%
18%
2010 2011 2012 2013 2014 2015e 2016e 2017e
-15% -11% -25%
Net Services Revenues Exposure
EBITDA Exposure
-33% MTR Cut (% YoY)
2013a 2014a 2017e
Innovative:
Traditional:
Data Content
Other
Voice Incoming
SMS
+48%
-11%
% YoY
Near mid-single
-35% -44%
~5 bln
~9 bln
2012a 2013a 2014a
2012a 2013a 2014a
2012a 2013a 2014a
PERSPECTIVES
BUSINESS OUTLOOK 27
TOWER SALE TO AMERICAN TOWER
Transaction Value
BUSINESS OUTLOOK 28
The effective cash in will happen
according to the tower transfer
process, that can take up to 18
months in different installments
No FX volatility since the deal
was closed based on the
Brazilian currency
The contract guarantees more
usage space on the tower
than industry standards
The deal foresees the lease
back of the sold towers by
American Tower to TIM for a
term of 20 years
Operational Advantages Built to Suit Roll Out
The transaction foresees the
construction of built to suit
towers guaranteeing TIM’s
coverage expansion necessity
The construction of the towers
is forecasted to happen
between 2016 and 2018
6,481 telecommunication towers
to be transferred to American Tower
Approved The Brazilian anti-trust authority
(CADE) has approved the deal
~R$3 bln is the estimated value of the deal
(~R$2.4 bln net of tax)
Regulatory update
Spectrum Market Cap Availability
SPECTRUM COMPARISON Spectrum Caps and Distribution
25
25
0
24
19
0
9
16
25
25
0
25
10
5
5
5
5
5
2
5
5
5
2
5
5
5
5
5
5
5
5
5
20
20
30
45
21
21
26
39
40
40
29
20
25
25
25
40
21
21
42
36
30
30
20
20
22
30
25
22
23
30
27
20
20
20
30
30
30
30
20
20
0 10 20 30 40 50 60 70 80
Northeast
South
North
Southeast
Midwest
0
1,800 MHz
900 MHz
850 MHz
2,100 MHz
0
0
0
0
0
Band 850 MHz 900 MHz 1800 MHz 2100 MHz 2500 MHz 700 MHz Possible Technologies 2G/3G 2G/4G 3G 4G 4G
(FDD Cap) (12,5+12,5)
MHz (2.5+2.5)
MHz (25+25)
MHz (15+15)
MHz (30+30)
MHz (20+20)
MHz
Total FDD Regulated Cap:
80 + 60 + 40 = 180 MHz Global Cap of 80 MHz Specific Cap
6
25
15
REGULATORY UPDATE 30
1st Round (10+10) MHz cap
Block 4 (10+10) MHz
Block 5 (10+10) MHz
Block 6 (10+10) MHz
Block 2 (10+10) MHz
Block 3 (10+10) MHz
Block 1 (10+10) MHz Total
R$ mln Regional National
Minimum Price 1,893 30 5 1,928 1,928 1,928 7,712
Winning Bid Unsold 30 Unsold 1,947 1,928 1,947 5,852
Premium - 0.02% - 0.99% 0.00% 1.00% 38
Final Public Price (Anatel) - 26 - 1,739 1,720 1,739 5,224
EAD 887.59 13.86 2.48 903.93 903.93 903.93 3,616
EAD w/ unsold blocks obligations
- 18.9 - 1,119 1,119 1,119 3,616
Clean-up Cost Road Map*
LTE AUCTION DETAILS 700MHz Auction Results
Auction totaled R$5.85 billion, 24% lower then the R$7.7 billion expected for minimum prices for all blocks
EAD Contribution of R$890.1 million related to unsold blocks will be distributed proportionately among the participants and will be discounted of the Public Price
0.52 0.78 0.83 1.07 1.13 1.18 1.22 1.28 1.29 1.29 1.48
2.58
DEN NZL Spain Brazil GER PORT EUA Taiwan Italy France AUS Canada
Average = 1.22
Oi and Sercomtel did not participate in the auction
Spectrum acquisition at fair price (Price in USD/MHz/Pop. adjusted for GDP)
UPLINK Central Band
TV Channels Guard Band Private Limited Service
4 2 3 1
Central Band 5
6
REGULATORY UPDATE 31
30% in April 2015
30% in January 2016
30% in January 2017
10% in January 2018
R$1,199 million
~R$360 million
~R$360 million
~R$360 million
~R$120 million
Total Amount:
* Values will be adjusted by the IGP-DI index.
MAIN REGULATORY TOPICS FOR 2015
REGULATORY UPDATE 32
Internet “Marco Civil da Internet” (Brazilian Civil Rights Framework for the Internet): Law nº. 12,965 provides Decrees/Regulations on topics such as net neutrality and privacy. Public Consultations will be launched involving the Comitê Gestor da Internet (CGI), MinCom and ANATEL
Broadband “Programa Banda Larga para Todos” (Broadband for All) and review of PGMU (Universal Service goals): The President Dilma intends to launch a universal broadband program, with 90% of households connected at 25Mbps.
Licensing “PL das Antenas” (SCD 293): Approved by the House of Representatives. Still needs to be voted in the Senate. Main points: simplification of licensing in environmental bodies and municipal governments; 60 days “positive silence”; right of passage in public lands.
Exemptions
Fistel (Law nº. 13.097/2014): Enacted on 20.01, by President Dilma Rousseff. FISTEL full exemption for Small Cells with power <5W and reduction to 10% with power <10W. REPNBL: Regulates tax exemption for Telecommunications Network Deployment. Update approved by Minicom on 01.14.2015, reducing the % of national technology.
Regulatory evolution
“Revisão do modelo de Concessão de STFC”: Asset reversibility and duration, Universal Service (Presidential Decree nº. 7.512/2011): possibly relieving voice universal service goals, changes in Law nº. 9.472/1997 (General Telecommunication Law), extending the concession beyond 2025.
Spectrum 1,800 MHz Renewal: Anatel approved the renewal process for the 1,800 MHz band for an additional period of 15 years.
Appendix
34
MOBILE BASE ANALYSIS Mobile Base
26.5% 26.9% 27.1% 27.0%
24.9% 24.9% 25.3% 25.3%
29.5% 29.1% 28.5% 28.5%
18.8% 18.8% 18.5% 18.1%
17. 0%
19. 0%
21. 0%
23. 0%
25. 0%
27. 0%
29. 0%
4Q11 4Q12 4Q13 4Q14
27.6%
28.3% 28.9% 29.7%
24.1% 24.7%
25.7% 26.0%
28.0%
27.2%
25.3% 24.2%
20.1% 19.5% 19.7% 19.6% 19. 0%
21. 0%
23. 0%
25. 0%
27. 0%
29. 0%
4Q11 4Q12 4Q13 4Q14
21.1% 21.0% 20.6% 18.4%
28.8% 25.7% 24.1% 23.1%
36.6% 36.9% 39.8% 41.8%
13.0% 15.8% 14.2% 13.5%
0.5% 2.2% 0.0 %
5.0 %
10. 0%
15. 0%
20. 0%
25. 0%
30. 0%
35. 0%
40. 0%
4Q11 4Q12 4Q13 4Q14
21.4%
23.4%
24.9% 25.9%
42.0% 41.3% 38.6% 34.3% 33.1%
25.8%
23.5% 25.0% 3.4%
8.9% 12.2% 13.4%
0.0 %
5.0 %
10. 0%
15. 0%
20. 0%
25. 0%
30. 0%
35. 0%
40. 0%
4Q11 4Q12 4Q13 4Q14
30.9% 32.3%
17.0% 19.7%
41.1% 38.9%
11.0% 8.0% 0.0 %
5.0 %
10. 0%
15. 0%
20. 0%
25. 0%
30. 0%
35. 0%
40. 0%
45. 0%
4Q13 4Q14
3G Mkt. Share 4G Mkt. Share
Source: Anatel
22.3% 20.7% 18.6%
2.7%
29.6%
5.8%
16.5%
42.5% 39.3%
57.9% 57.5%
5.5%
34.2%
5.0%
8.5% 3.8% 14.7%
0.0 %
10. 0%
20. 0%
30. 0%
40. 0%
50. 0%
2011 2012 2013 2014
36.1%
38.6% 34.9%
65.7%
20.3%
35.3%
52.0%
33.9%
25.0% 15.0%
18.5% 11.2%
13.1%
0.5% 0.0 %
10. 0%
20. 0%
30. 0%
40. 0%
50. 0%
60. 0%
2011 2012 2013 2014
33.2% 32.3%
34.2%
24.7% 22.3% 24.9%
38.8%
25.9% 28.7% 23.5%
12.4%
29.0%
15.8% 19.3%
11.0% 7.6%
3.6%
12.9%
0.0 %
5.0 %
10. 0%
15. 0%
20. 0%
25. 0%
30. 0%
35. 0%
40. 0%
2011 2012 2013 2014
Net Share Net Share Net Share
Prepaid Postpaid
Share per Technology
83% 65%
78% 82% 76%
17% 35%
22% 18% 24%
TIM Vivo Oi Claro Industry
Pre Post
Mobile Customer Base in 2014
1Q14 2Q14 3Q14 4Q14 Jan-Feb/15
TIM
• Increase of SMS and internet
offer from R$0.50 to R$0.60/day
each
• Increase on the monthly charge of
TIM Liberty plans
• Increase on the monthly charge of
Liberty Controle plans
• Infinity Turbo 7 launch
• SMS + Data for R$12/month
available to Liberty Controle
plans
• Infinity Day launch
• Increase of Web+SMS package
to from R$0.75 to R$0.99/day
• Increase on SMS and data
services to R$0.75/day each
• Increase of R$1 on Liberty
Torpedo
• Internet sharing plans with
up to 4 devices
• Controle Whatsapp launch
• Price up in the prepaid plan:
from R$0.25 to R$0.30 per
unlimited on-net and LD calls
(using 41) in several regions
• Internet access blocked when
the limit hired is reached (in
prepaid and Controle plans in
some regions)
Vivo
• Vivo Tudo: weekly charge of
R$6.90 for voice, SMS and data
• Increase of R$2 on monthly
charge of Controle plans
• Increase of monthly
package ‘Vivo Sempre
Internet’ from R$9.90 to
R$11.90
• Increase on ‘Vivo Sempre’
tariff from R$0.05 to R$0.06
• Obligation to contract data
package on postpaid plans
• 4G available on ‘Vivo Tudo’
and prepaid packages
• New ‘SmartVivo pós’ plans
• Internet access blocked when
the limit hired is reached (in
prepaid and Controle plans
nationally and in ‘Vivo Tudo’
plan in most regions)
Claro
• Unlimited prepaid: increase of
on-net calls tariff from R$0.21 to
R$0.25
• Increase of SMS and internet
offers to R$0.60/day each
• Unlimited Controle plan: on net
calls increased from R$0.21 to
R$0.25
• Free on net local calls M-M
in the main code areas
• SMS + Data package per
R$0.99/day
• Promo 6 launch: recharge of
R$6 with voice, SMS and data
benefits
• New offer to SP with voice,
SMS and internet benefits for
R$0.99/day
• Increase on M-F off-net
calls to R$0.70/call
• Increase of SMS and Web
services to R$0.75/day
each
• Internet access blocked when
the limit hired is reached (in
prepaid plans nationally)
Oi • Increase of internet and SMS
offers to R$0.60/day each
• Increase on daily tariff of
internet to R$0.60/day
• New package with SMS+
Data + Wi-Fi for R$0.75/day
• Obligation to contract data
package on postpaid plans
• Increase of M-M and M-F
on-net calls to R$0.25/day,
local M-F off-net to
R$0.70/day and SMS +
Web + Wi-Fi to R$0.99/day
• Increase bonus, internet limit
and download speed on
prepaid plans
OFFERS: RECENT MAIN CHANGES
APPENDIX 35
B
167 mln 119 mln
59 36 26
74 96
95
45 56 72
9 9 10
2006 2010 2014
188
196 203
Income Profile
BRAZIL’S SPECIFICS % of Population in Urban Areas
Population by Social Class (million people)
C
A
DE
0 +1
+11
+22
-23
+16
-1
-10
Middle class development
MEN WOMEN Age
2020: 213 mln 2010: 196 mln
0 to 4 5 to 9
10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64 65 to 69 70 to 74 75 to 79 80 to 84 85 to 89
>90
10 10 5 5 0 Million
+13 mln
Minimum Wage in Brazil (minimum wage; % of the pop.)
More than 90%
% of pop. in urban areas
Less than 70%
80% to 70%
90% to 80%
2%
15%
83%
More than 10(>R$7,888)
2 to 10 ( R$1,576 -R$7,888)
Up to 2 (<R$1,576)
30 mln people still live in the rural areas 5.8% of the cities accounts for 75% of GDP Brazil is in the 7th position in terms of GDP
Minimum wage in 2015: R$788
Age Pyramid (million people)
Education Profile (% of the population)
8.5% of Brazilian above 15 years are illiterate
Years of study
11.9%
29.90%
36.3%
21.8%
More than 15 years
11 - 15 years
4 - 10 years
0 - 3 years
Source: Census 2010 (IBGE)
Source: Census 2010 (IBGE) and IPC Target 2014 Source: IBGE as of 2013
Source: IBGE
APPENDIX 36
MACRO SCENARIO OUTLOOK (1/2)
• Market consensus shows a softer growth in GDP
• Consensus expects a deterioration in overall macroeconomic scenario on the short term
• Market expects government to push inflation above the center of the target
• With inflation and FX Rate going up, SELIC is expected to grow, specially after the recent decision to rise the rate to 12.25% p.y
GDP Forecast (% YoY growth)
Inflation Forecast (IPCA: 12 months)
Interest Rate Forecast FX Rate Forecast (R$/U$ - end of period) (% Selic Target p.y. – year end)
Source: IBGE for actual figures and Central Bank Focus Report of February 6th, 2015 for estimated figures
6.20 6.30
7.20
5.60
4.50
2013a 2014a 2015e 2016e
10.00
11.75 12.50
11.50
2013a 2014a 2015e 2016e
2.36
2.66
2.80 2.90
2013a 2014 2015e 2016e
2.49
0.15 0
1.50
0.50 0.80
2.00
2013a 2014e 2015e 2016e
Government’s Target
Government projection Market Consensus
Government projection Market Consensus
APPENDIX 37
MACRO SCENARIO OUTLOOK (2/2)
• Market expects the unemployment rate to decrease in 2015, although jobs creation remains very low
• Indebted households and families in default figures has been decreasing, despite the fact that the unemployment rate has been continuously increasing
Unemployment (%)
Formal Jobs Creation* (in thousand)
Indebted Households* Families on Default (% of total) (% of total)
Source: Central Bank/Bloomberg
59.6 59.6 62.5 59.6
4Q11 4Q12 4Q13 4Q14
-307
303
189 237
-147
4Q13 1Q14 2Q14 3Q14 4Q14
20.8 21.0 21.2
18.1
4Q11 4Q12 4Q13 4Q14
* Families that declared to have debts on the categories of: credit card, stores bills, personal loans, car loans and insurance and postdated check
* Families that declared to have debts overdue for more than three months
*Number of job positions with the complete registration of the employee
APPENDIX 38
6.90
6.20 6.50
6.80
5.70
6.10
4Q12 4Q13 4Q14 2014a 2015e 2016e
Cofins PIS/ PASEP ICMS Fistel Fust/
FUNTEL
TotalTotal Fust/
FUNTEL PIS/
PASEP
ICMS Cofins Fistel
% Gross Revenues
TELCOS’ TAX BURDEN
3% ~1%
28%
~5% 1.5% ~39%
Taxation represents almost 40% of companies gross revenues
Tax Burden Composition Telecom Industry Tax Payments1
(R$ Bln)
Source: players Balance Sheet
1 Considers TIM, Telefonica, Oi and AMX
45.7 46.0
2012 2013
APPENDIX 39
Short term
BALANCE SHEET ANALYSIS Debt Composition
P/B Price/Book Value
Source: Bloomberg *Estimated
58.9% 60.1%
56.0%
52.5%
1Q 2Q 3Q 4Q
2014 2013 2012
Long Term
P/E Price/Earnings
Turnover in Days
Accounts Receivable Turnover
43.0 46.6
43.4 41.4
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
2.1 1.9
1.4 1.2 0.9
0.2*
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
20.7
18.5
7.7 10.7
6.2 0.9*
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
APPENDIX 40
118.2 128.5
149.7 158.5 Payable Turnover
12.8%
13.4%
11.9%
10.3%
8.7% 8.5%
10.5%
10.7%
8.4%
2012 2013 2014
10.8%
10.6%
10.3% 10.1%
8.5%
11.2%
5.5%
9.9%
6.6%
2012 2013 2014
7.8% 7.4%
6.8% 6.8% 5.6% 5.6%
4.6% 5.3% 4.6%
2012 2013 2014
TIM
VIVO
OIBR
Market Average
ROE Net Income/Shrd. Equity
ROE NOPAT/Total Asset
ROIC NOPAT/Invested Capital
QUARTERLY HISTORICAL DATA (R$ THOUSAND)
APPENDIX 41
ANNUAL HISTORICAL DATA (R$ THOUSAND)
APPENDIX 42
HISTORICAL DATA: OPERATIONAL
APPENDIX 43
Stock Performance (base 100)*
STRUCTURE AND STOCK PERFORMANCE
*Last price as of 12/31/2014 Source: Bloomberg
HISTORICAL DATA 44
130
120
110
100
90
80
70
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
APPENDIX 44
Investor Relations Team
Avenida das Américas, 3434 - Bloco 01
6° andar – Barra da Tijuca
22640-102 Rio de Janeiro, RJ
E-mail: [email protected]
Rogério Tostes
E-mail: [email protected]
Phone: +55 21 4109-3742
Vicente Ferreira
E-mail: [email protected]
Phone: +55 21 4109-3360
Leonardo Wanderley
E-mail: [email protected]
Phone: +55 21 4109-4017
Rodrigo Godoy
E-mail: [email protected]
Phone: +55 21 4109-3446
Luiza Chaves
E-mail: [email protected]
Phone: +55 21 4109-3751
Visit our Website
www.tim.com.br/ir
Safe Harbor Statements
Statements in this presentation, as well as oral
statements made by the management of TIM
Participações S.A. (the “Company”, or “TIM”), that are
not historical fact constitute “forward looking
statements” that involve factors that could cause the
actual results of the Company to differ materially from
historical results or from any results expressed or
implied by such forward looking statements. The
Company cautions users of this presentation not to
place undue reliance on forward looking statements,
which may be based on assumptions and anticipated
events that do not materialize.
SAFE HARBOR AND IR CONTACTS
SAFE HARBOR & IR CONTACT 45
