Vivo Investor Day -...
Transcript of Vivo Investor Day -...
-
New YorkMarch 12th 2018
Vivo Investor DayDavid Melcon
Chief Financial Officer
-
Disclaimer
This presentation may contain forward-looking statements concerning future prospects and objectives regarding growth of the subscriber base, a breakdown of the various services to be offered and their respective results
The exclusive purpose of such statements is to indicate how we intend to expand our business and they should therefore not be regarded as guarantees of future performance
Our actual results may differ materiallyfrom those contained in such forward-looking statements, due to a variety of factors, including Brazilian political and economic factors, the development of competitive technologies, access to the capital required to achieve those results, and the emergence of strong competition in the markets in which we operate
For a better understanding, we are presenting pro forma numbers combining Telefônica Brasil and GVT results for all financial and operational indicators for every period as of January, 2015
2
-
4.8% 5.7%7.4%
-3.5%
-7.3%-8.7%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2015 2016 2017
A C C U M U L A T E D N E TR E V E N U E G R O W T H V S . 2 0 1 4
Vivo Competitors Average
Vivo has outperformed the market and grew consistently in revenues even during economic downturns…
36%
Vivo Competitors
+3.7 p.p. vs 2014
Competitors Avg.
+2.4%
-3.0%
NET REVENUE SHARE¹ 2017
CAGR 14-17
31 – Considers main competitors in the Brazilian telecom market
-
…with stronger EBITDA expansion due to an improved cost structure…
Competitors Avg.
+5.4%
+2.3%
RECURRING EBITDA SHARE¹ 2017
CAGR 14-17
4
1.8%
9.2%
17.2%
5.9%
-0.1%
7.1%
-2.0%
3.0%
8.0%
13.0%
18.0%
2015 2016 2017
A C C U M U L A T E D R E C U R R I N G E B I T D A G R O W T H V S . 2 0 1 4
Vivo Competitors Average
39%
Vivo Competitors
+2.1 p.p. vs 2014
1 – Considers main competitors in the Brazilian telecom market
-
18.8% 18.5%
20.9%
19.6%20.1%
2015 2016 2017
Vivo Vivo + Capex Synergies
R$8.3Bn R$8.0Bn R$8.0Bn
Fiber_18.4 million FTTx HPs_7.0 million FTTH HPs_64 IPTV cities
_Full Stack IT platform
IT
C A P E X ¹ / R E V E N U E S
4G_>2.6k cities_85% of
population covered
…sustaining solid investment over the years to create a unique combination of network, IT and service platforms…
19,7%
51- Capex ex-licenses
-
… while generating unrivaled Operating Cash Flow
Competitors Avg.
+17.5%
+4.2%
OPERATING CASH FLOW SHARE¹ 2017
CAGR 14-17
49%
Vivo Competitors
10.5%
13.3%
15.4%
5.4%6.9%
9.2%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
2015 2016 2017
O P E R A T I N G C A S H F L O W ( E B I T D A – C A P E X ) M A R G I N
Vivo Competitors Average
61 – Considers main competitors in the Brazilian telecom market
-
In 2017, we presented real growth across all lines
2 0 1 7 N O M I N A L G R O W T H Y o Y %
Service Revenues¹ +3.6%
RecurringEBITDA
+7.3%
NetIncome
+12.8%
OperatingCash Flow
+17.8%
FreeCash Flow
+20.1%
>2.9% Inflation (IPCA)
̲ A new cycle of real growth across all lines
̲ Consecutive cost reduction in the last 8 quarters
̲ Recurrent operating costs reduced almost 3% in the last two years vs. accumulated inflation of more than 9%
71- Ex-regulatory effects. Note: All figures presented are recurring
-
When we compare ourselves with the main global telecom companies it’s clear that we still have room to improve…
20%
30%
40%
50%
0% 10% 20% 30%
Telecom companiesOpCF/Revenues
EBIT
DA
Mar
gin
2015
2017
8
More efficient companies_Customer centric_Integrated brand_Convergent portfolio_Digital mindset_Focused on simplification
-
4G penetration over our customer base
Pay TV penetration
_Less than half of our customers have 4G smartphones
_Large data monetization opportunity as 4G customers data consumption is substantially higher
_Robust demand for UBB while less than 10% of Brazilian municipalities have connections >10Mbps
_Vivo FTTH connections grew 45% YoY in 2017
_Vivo IPTV connections growing 51% YoY in 2017 in a low penetrated market with high potential for cross-selling
_New consumption patterns create space for disruptive video offers and interactive platforms (IPTV)
_Revamped B2B value proposition in order to capture the increasing demand for digital services
_Absolute leader in M2M with 41.4% market share, paving the way for the launch of mass-market IoT solutions
4G
TV B2B/DIGITAL
…in a market with ideal conditions for growth boosted by economic recovery
75mnMobilecustomers
83%smartphones
46%4G smartphones
28%
TotalPremises¹
46%BB Connections
7%UBB² connections
Brazilian broadband demographics
UBB
+1.8xCloud Revenues ■ 2016
■ 2017
Security Revenues
+2.1x
91- Potential market: ABC households + B2B. 2- UBB considers connections >34Mbps
-
DIGITALIZATION AND BIG DATA
Synergies run rate
SYNERGIES FROM GVT INTEGRATION…contributed to the reduction of recurring Opex for eight consecutive quarters, despite high inflation in the period
…are a catalyst to accelerate the transformation of the Company, control costs and improve capital allocation
Prof
itab
ility
2015 2016 2017 2018 2019 2020
Looking forward, we should continue to expand margins and cash flow by leveraging on new waves of efficiency
10
-
We have successfully integrated GVT and executed sizeablesynergy initiatives in the last two and a half years…
Integrated customer base with single brand
Network unification
Organizational restructurings
Improved TV content cost structure
Call center and field services optimization
Improved Capex allocation
11
-
…with expected full run rate in 2019, exceeding the NPV guidance of the Best Case scenario of R$22 billion
2015 2016 2017 2018 2019
Cash Flow Achievement Target Vivo Day 2016
S Y N E R G I E S R U N R A T E E V O L U T I O N ¹ ( R $ B n )
80%of Run Rate
75%of Run Rate
is DirectCash Flow
Full Run Rate
_80% of run rate already achieved
_Full run rate now expected for 2019 (vs. 2020 announced during the last Investor Day)
_Vast majority of initiatives already secured
R$ Bn Total
Best Case 22
Already Secured 19
% Secured 85%
Natural build-up of customer base and efficiency initiatives should continue to improve synergy evolution, leading us to exceed the Best Case scenario
3.13.0
2.4
1.4
0.6
121- Does not include tax synergies. Note: Trending NPV of R$25 billion
-
Proportion of annual Opex with potential to be impacted by digitalization initiatives
At least R$1.2bn of annual gross Opex Savings by 2020 arising
from digitalization
Digitalization and efficiency as main levers for margin growth
1/3
In addition to the digitalization initiatives, we also have significant simplification opportunities, which will further improve our savings potential
13
On top of that, we also have significant opportunities in digitalization and efficiency
-
In the digital space, we already achieved promising results and have ambitious targets for the future
2020Fronts 2017KPIs
Enhanced customer care
experience
Fostering sales and top-ups
through digital channels
19% >30%_% of digital top-ups
14 million ~45 million_Unique users of Meu Vivo
-15% YoY -30% vs 2017_Call center calls
_Online FTTH B2C sales 24% >50%
_Online hybrid plan activations x5
14
-
More efficient and friendly payments &
collection
Robust IT and improved
technical support
_Digital credit scoring ~55% >65%
_Penetration of e-billing 43% >80%
_Collections through digital channels ~50% >75%
_IT legacy systems (B2C customers in Full Stack) 90%
15
2020Fronts 2017KPIs
In the digital space, we already achieved promising results and have ambitious targets for the future
_Incidents solved remotely ~50% >70%
-
We have been developing projects that will guarantee a more efficient, leaner structure benefiting EBITDA and Cash Flow
• Portfolio simplification: 84% reduction of our mobile plansand further rationalization
• Consolidation of IT platforms, data centers and applications
• Continuous zero-waste approach to all processes and initiatives
• Switch-off of legacy technologies (2G, copper)
• Network virtualization reducing core network, generating savings
• Automatize network operation
• 60% of energy coming from renewable sources by 2020(vs. 26% in 2017)
• Leveraging on distributed generation to optimize cost structure
• Optimization of occupancy rate of buildings to create a leaner real estate structure and unlock opportunities
• Lower handset and equipment costs due to Telefónica’sglobal scale
• Reduced unitary cost of fiber deployment based on Spain’s experience
• Improved access to content and innovations
• Use of Big Data and AI (Aura) to differentiate our offer and improve customer experience
Simplification and G&A efficiencies Network modernization
Optimization of energy costs and facilities Leveraging on the Group’s capabilities
16
-
New Capex Guidance for the 2018-2020 Period
Up to
R$24 billionRecurring Capex focused on 4G, Fiber expansion and IT transformation
And to support our leading stance, we will invest accordingly in the next three-year period to further improve quality, customer experience and accelerate revenue growth…
17
Non-recurring Capex envelope does not change long-term
downward trend in Capex/Sales
R$2.5 billionIncremental, non-recurring Capex for
the execution of the Fiber AccelerationProject (2018-2020) aiming to speed
up our already successful expansion of FTTH
-
_60% on Network Expansion
_40% on Installation and CPEs (variable to access growth)
_Leveraging on the Telefónica Group’s global scale and expertise and synergies on existing infrastructure
_Cities with >50k inhabitants
_Cherry-picking of high-potential homes
_Additional 3.0 million FTTH HPs
_Threshold of IRR >17%
_>R$1bn in additional UBB revenues in 2020
_90% of incremental revenues coming from new fixed customers
_Increased Capex efficiency and smart allocation
_Maintaining solid capital structure and flexibility
_Self-funding contribution
…with an envelope of R$2.5bn (2018-20) for a Fiber Acceleration Project, which will be cash flow accretive from year 3
Maintain strong shareholder remuneration benefiting from growth profile
18
INVESTMENT CORRELATED TO REVENUE GENERATION
FUNDINGCLEAR GUIDELINES AND OBJECTIVES
-
Investing in higher return growth projects while reducing investments in legacy
_Cost of FTTH deployment32% lower vs. 2015
_Cost of 4G expansionoptimized with 700MHz roll-out
Lower unitary cost of growth technologies
2 0 1 6 - 2 0 1 8
4G +44%
FTTH +174%
IPTV +108%
IT +8%
3G -27%
Copper -38%
DTH -53%
Additionally, the Fiber Acceleration Project Capex will be fully directed to growth in FTTH
Spectrum and larger technological cycles in mobile are behind us
_Vivo already has a superior spectrum portfolio in Brazil
_Optimization with 1.8GHz refarming and 700MHz roll-out
19
2/3 of R$24bn Capex plan
oriented for growth
2 0 1 6 - 2 0 1 8
Total Capex is clearly focused on capturing growth opportunities
…
-
As a result, Vivo’s ROCE should expand at a premium to the expected risk-free rate
8%10%
13.75%
7.00%6.75%
8.00% 8.00%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2016 2017 2018 2019 2020
Vivo ROCE Risk-Free Rate
RETURN ON CAPITAL EMPLOYED¹ EVOLUTION ABOVE RISK-FREE RATE
201- ROCE ex-goodwill
-
21
A strong financial discipline guarantees solid conversion of Operating Cash Flow into Free Cash Flow…
4.4 5.7 6.7
3.9 4.8 5.7
88.0% 84.4% 86.1%
2015 2016 2017
OpCF FCF from Business Activities Cash Conversion
1- FCF after taxes and interest
FCF +21.5%OpCF +22.9%C A G R 1 5 - 1 7
CONVERSION OF OpCF TO FCF¹ (R$ Bn)
-
+ 17. 6 %
…allowing Vivo to sustain a solid capital structureand boost shareholder remuneration…
_Rating Ba1, Negative Outlook_One notch above sovereign rating
_Rating brAAA, Stable Outlook_One notch above sovereign rating
Net Debt/EBITDA YE2017
0.26x
4.6
4.1
3.3
- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
2018
2017
2016
LOW LEVERAGERESULTING IN STRONG RATINGS
IMPROVED PROFITABILITY AS A FOUNDATION OF OUR SOLID SHAREHOLDER REMUNERATION
Payment of Dividends¹ (R$ Bn)
C A G R 16 - 1 8
R$20.5 billion distributed as dividends¹ since 2013
221- Includes Interest on Capital
-
…supporting our unique position as a value and growth player
EBITDA CAGR 2018-2020¹
Div
iden
d Yi
eld¹
0%>6
%
>10%0%
Utilities
Retail & Consumer Goods
Oil and Gas
Construction & Real Estate
Metal and Mining
Telecom²
Agribusiness
V I V O V S . L I S T E D C O M P A N I E S ( B R A Z I L )
1- Source: Bloomberg. 2- Ex-Vivo.231- Source: Bloomberg. 2- Ex-Vivo
-
_Acceleration of Total Revenues
_Sustaining solid Mobile Service Revenue growth
_Resuming Fixed Revenue growth
_>R$1bn in additional UBB Fixed Revenues in 2020 from the Fiber Project, further improving evolution
_Sustainable margin increase, maintaining the current pace of EBITDA growth
_Annual gross Opex savings of >R$1.2bn from digitalization by 2020
_2018-20 Capex: up to R$24bn + R$2.5bn envelope for the Fiber Acceleration Project
_OpCF margin, excluding the Fiber Project, consistently above 20% as of 2020
_At least +2 p.p. already in 2018 (vs. 2017)
_Continuous ROCE expansion
_Strong FCF and Net Income evolution with double-digit growth in 2018 (vs 2017)
_R$4.6bn to be paid as dividends¹ in 2018 (+13% YoY)
_Unmatched shareholder remuneration
Absolute leader in REVENUESin the Brazilian telco space
(70% share of incremental revenues in the last 3 years)
The most efficient Company with the largest OpCF in the
sector
(+5.0 p.p. in OpCF margin since 2015)
Second to none SHAREHOLDER REMUNERATION
in the industry(Dividend Yield ~6% in 2017)
Past execution positions Vivo with a strong present and a brilliant vision for the future
TODAY TOMORROW (2018-20)
241- Includes Interest on Capital. 2- Based on gross dividends of R$2.82 per preferred share declared during 2017. Note: Trends excluding eventual non-recurring items.
-
For further information:Investor Relations
+55 11 3430.3687
www.telefonica.com.br/ir