ApresentaçãO Da Tim No Jp Morgans Asia Pacific And Emerging Markets Equity Conference
Transcript of ApresentaçãO Da Tim No Jp Morgans Asia Pacific And Emerging Markets Equity Conference
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
September 24-25, 2007
New York
TIM Participações S.A.
JP Morgan's Asia Pacific and Emerging Markets Equity Conference 2007
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
General Context
TIM General OverviewTIM Strategic ObjectivesMarketing DevelopmentsRegulatory Framework
2Q07 Results
Conclusion
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Brazilian Macroeconomic Scenario Growing economy and widening consumer market
Gross domestic product growth Minimum-salary increase vs. inflation
PAC* estimate 4.5% 5.0% 5.0% PAC* inflation estimate 4.1%
Minimum-salary increase
Inflation
4.5% 4.5%
2004 2005 2006 2007E 2008E 2009E
5.7%
3.1% 3.9% 4.2%4.1%7.6%
8.3%
15.4%16.7%
2004 2005 2006 2007E 2008E 2009E
Increasing purchasing power of lower income classes
Stability and increase of purchasing power
•Government infrastructure investment program to accelerate economySource: EIU, Brazilian Central Bank
5.7%
2.9%3.7%
4.7% 4.4% 4.2%
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
22.0 21.8 20.7 20.5
3.43.02.11.30.7
56.453.247.3
36.426.1
22.0
39.6 39.8 38.8 38.7
65.686.2 99.9 106.7
39.2
46.4
1.22.3
3.95.6 6.5
Fixe
d
Tele
phon
yM
obile
Te
leph
ony
Penetration Rate (Per 100 inhabitants)
Fixed licenseacquiried on
May 2007
Telefonica/PT Telmex / A. Movil Telecom Italia Citi / Pension Funds Finan. Groups
Source: ANATEL.
BroadbandMobileFixed
2003 2004 2005 2006 2Q07 2003 2004 2005 2006 2Q07
BroadbandMobileFixed
Client base (Mln)
Telecom growth driven by mobile and broadbandBrazilian Telecom Market
Main players in the telecom industry
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
45.140.5
34.529.1
21.6 23.9
28.4
24.620.5 20.8 23.4 25.4 25.8
17.9 20.7
20.926.5
29.8 29.1
18.723.9
20.2
30.3
26.3
9.513.7
25.4 27.5
8.313.6
Continuous Market Growth
Brazilian Wireless Market
Market Share Performance
-2.6 pp
Source: ANATEL / Company´s data / Competitor´s press releases.
Client Base Performance
1st Player
3rd Player
2003 2004 2005 2006 2Q07
Mln lines
+1.2 pp
-2.6 pp
-27.2 pp
2003 2004 2005 2006 2Q07
1st Player
3rd Player
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
30.3
27.5
26.3
2.6
2.8
2.1
29.9
34.6
27.0
18.8
22.0
18.2
25.8%
Share
28.4%
24.6%
30.3%
28.9%
22.5%
Client Base (mln)
Growing customer and revenueService Revenue (R$ bln) ARPU (R$)Postpaid mix (%)2Q07
Brazilian Wireless Market
1st Player
3rd Player
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
General Context
TIM General OverviewTIM Strategic ObjectivesMarketing DevelopmentsRegulatory Framework
2Q07 Results
Conclusion
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
TIM Strategic ObjectivesMarket evidence * Strategic goals Initiatives
TIM #1 in service revenues*
To consolidate our positioning (revenue growth consistently above market average), increasing profitability
Mob
ile
lead
ersh
ip
Residual market in lower income classes
To ensure profitability of low ARPU clients
Developing new business model Oriented to low-ARPU customers
Low
-AR
PU
clie
nts
appr
oach
Fixed-line = R$ 47 billion market
To capture fixed-line revenues (increasing share of spending of TIM Brasil customer base)To defend TIM mobile leadership
Con
verg
ence
Segmented OffersIntegrated SolutionsCommunity ConceptStimulating UsagePrepaid Loyalty Promotion
New convergent products:
Home Zone Offer (“TIM Casa”)Internet Access Solution (“TIM Web”)Convergent package Mobile +Fixed +
Internet (“TIM Mais Completo”)
* Considering 2Q07 figures.
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Mobile Leadership: Innovative Marketing StrategyPushing on usage through promotions
► Facing competitors aggressiveness through continuous offer improvement► Working on community concept in order to increase usage
R$ 0.07 per minute for local on-net (also to fixed number)R$0 (free calls) for 500 minutes on-net
Stimulatingintra-network
traffic
“On-Net Traffic” focus
Lowering SAC & Stimulating Usage►TIM chip cost refund subject to recharge within 48 hours from activation► Bonus in minutes according to recharge value so as to stimulateusage
Focusing on retaining customers► Quem tem TIM tem Mais: Loyalty promotion for prepaid clients
► Bonus in minutes for TIM clients that have been in our base formore than 1 year
TIM Chip only& Rechargeincentives
Prepaid Loyalty Promotion
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Mobile Leadership: Continuous Value Added Services InnovationPushing on media content and interactivity
TIM StudioTIM Music Store
User Generated Content
Videos, Images and Music upload and download from the Web
Revenue sharing with content producer (user)
Music Download Wap Portal
Easy-to-download: 1 to 3 clicks maximum
Related contents: songs, videos, wallpapers
TIM Music Club: latest news
Records: Sony&BMG, Universal, Warner and EMI Music
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Fixed to mobile substitution
Very competitive local fixed calls tariffs in the customers home-zone
Low entry point for prepaid and attractive discount for postpaid
Stimulating fixed to mobile substitution
Convergence: Focusing on Customer's Total communication needsMobile Internet
TIM Casa (Home Zone)
SIM Card “Data”
or
Modem USB PCMCIA
+
Devices
Internet Data Packages, also for non-TIM clientsWorks like a pen drive (PC or laptop internet access) Dial-up access substitutionUser-friendly device
TIM WEB
+ +
++ +
Fixed local calls(TIM Casa)
200 Min
Mobile local calls(TIM Brasil plan)
200 Min
LD
40 Min
ModemUSB
Internet
250 MB
SMS
60
MMS
60
TIM Mais Completo
Full communication package combining Mobile Calls + Home Fixed Calls + Internet Access
Enriching TIM convergent service offers
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Developing a new business model
Residual market in lower income social classes
(> 3 MS***) (1-3 MS) (<1 MS)
93%
28%
59%
11% 31% 58%
High income** Medium income Low income
Mobile Penetration* by social classes
* People more than 10 years old ** According to per capita household income*** Minimum salary = R$350,00 Source: IBGE (PNAD, 2005)
New business model characterized by reduced ownership cost:
Lower air-time prices (leveraging on price/volume elasticity)
Use of extensive, indirect distribution channels
Increase of electronic caring
% ofpopulation
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Regulatory Framework
2006 2007 2008-09
Stability of interconnection tariff in the medium term
F-M termination rate
Arbitration ArbitrationFully
Allocated Cost model
Availability of wireless broadband
3G/Wi-Max Auction
- 3G bid3G Commercial
offerWi-Max bid
Additional opportunity to consolidate leadership in high-value customer segments
Number Portability (F+M)
- Definition Implementation
Increase of competition in the fixed-line marketUnbundling
Partially regulated Commercially not
viable-
M-M termination rate
B&K(45/55) < JunPay per use > Jul Pay per use Pay per use Positive for a fair
regulatory environment
Expected upgrade of regulation
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
General Context
TIM General OverviewTIM Strategic ObjectivesMarketing DevelopmentsRegulatory Framework
2Q07 Results
Conclusion
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
Total Net Revenue GrowthR$ Mln Reported Organic*
YoY Growth
* Proforma: Adjusted by Bill & Keep elimination starting on January 1st of 2006.
Net Service Revenues Net Handset Revenues
2Q07 Results: Solid Net Service Revenues
Continuous service revenues growth:Total traffic + 43% YoY: focus on
on-net call promotion, stimulating usageCustomer growth +23% YoY
Handset revenues drop confirms the trend of the previous quarters reflecting strong push on ‘TIM Chip Only’ sales
R$
MOU / ARPU PerformanceARPU increase QoQ
Keeping ARPU above the market
2Q07
3,060
2,275
2Q0613% 9%
87% 91%
+34.5% +17.3%
+40.5% +20.2%
-5.8%
1Q07
34.4 34.6
2Q07
Min
2Q07
94
2Q06
81
+16%MOU increase driven by on-net traffic
Increasing usage
+0.7%
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
SAC Performance
Lowering SAC despite better level of customer and handset mix:
24.6% YoY growth in postpaid gross addsincreasing % of mid-range and high-end handsets
sold
Reduced subsidy strategy with focus on “TIM Chip Only” offer:
More than 70% of overall gross adds in 2Q07 vs. ~40% in 2Q06
Postpaid SAC oriented to maintain competitiveness
Improved pay-back period:3.3 months in 2Q07 vs 4.7* months in 2Q06
42%30%
58%
70%
2Q06 2Q07
168
CommissionSubsidyAnatel’s fee on
net adds
ComodatoAdvertisingOthers
113
Direct cost Indirect cost
R$ -33%
* Proforma: Bill & Keep elimination starting on January 1st of 2006.
2Q07 Results: Reducing Acquisition Cost
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
2Q07 Results: Net Financial PositionNet Debt QoQ Trend
Gross Debt: R$2.3 billion (of which 89% long term / average annual cost of 11.66% p.y. in 2Q07)Cash and equivalents: R$0.3 billionNet Debt: R$2.0 billion
OpFCF1Q07
(1,973)(556)
R$ Mln NonOpFCF 2Q07
Net Cash Flow (OpFCF + Non OpFCF)
Positive Operating FCF due to increased profitability
(1,582) 165
R$ Mln
Reported2Q07
Positive Net Cash Flow (+R$390 Mln) excluding seasonal disbursement
(391)440
Net CashFlow
Pro-forma
341 390
AnnualFistel
PaidDividends
Seasonal Impact (R$781 Mln)
Of whichDividends (440)
EBITDA +744CAPEX (324)Δ Oper. WC (255)
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
2Q07 Results: Profitability and Bottom Line GrowthEBITDA and EBITDA Margin
+ 4.5 p.p. YoY organic margin growth
Strong service revenue growth offsettingthe seasonality of the period related tocommercial expenses
743.7515.7
743.7
515.7
2Q06 2Q07
44.2%
22.7% *24.3%
Organic EBITDA Margin **
19.8%** 24.3%+R$ 228 million
+4.5 p.p.
EBITDA MarginEBITDA (R$ million)
Net IncomeR$ Mln Positive Bottom Line
+R$273
(239)
342Q06
2Q07Improved operating result
reversal of R$ 273 million in relation to the losses reported in the 2Q06
* Reported EBITDA Margin* * Adjusted by Bill & Keep elimination starting on January 1st of 2006
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
General Context
TIM General OverviewTIM Strategic ObjectivesMarketing DevelopmentsRegulatory Framework
2Q07 Results
Conclusion
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
TIM Strong Market PositionInnovation Nationwide
Quality Sustainable Growth
The first mobile operator choiceLeader in average client satisfactionCommitted to constant improvement of brand perception through creation of new customer operations unit
Recognized TIM Brand
Leadership in innovative services
convergent solution (mobile + fixed + internet)Continuous VAS innovation
Only Company with full national presenceLargest GSM operator in number of clientsThe largest mobile data coverage
Continuous value client growthLeader in service revenueSolid YoY Revenue growthLeader in ARPU
Coverage
Strong operational & financial results
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JP Morgan’s Asia Pacific and Emerging Markets Equity Conference 2007New York - September 24-25, 2007 - Mr. Francesco Locati, COO
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