Q2 2023 TIM SA Earnings Call
Second quarter 'twenty, two and are playing an essential role in consolidating our leadership.
Better understand what is behind this result, so we need to recover concept from our 2022 Investor day.
We are developing our value proposition according to three pillars as tougher by service and best network.
And in all three of them, we are delivering what we promised.
As probably most of you saw last week, we extended our exclusive partnership with Apple and launched Apple one bundle in our high end thin black plants.
We are the third operator in the world to launch such initially in the first and only operator in Latin America.
This is a clear evidence of how we play the game of innovation is a core differentiator to deliver the best offer to Brazilian customers.
Our journey towards customer experience excellent as long, but we're doing it step by step to achieve the best service results from the Recliner key portal program agency and NFL point to a significant improvement in all experience metrics in June we want This resolution award from.
San Paolo Consumer Protection agency.
The only Brazilian company to ever achieve such a recognition.
What seems impossible a couple of years ago is now a reality.
<unk> is providing the best quality on Brazil's largest mobile network.
And we have the evidence to show open signal awarded us as the number one operator and consistent quality index and a metric that combines a set of political indicators to measure network quality across a variety of commonly used in demanding applications doubled that we are also a leader in <unk> with 40.
Per cent more sites than the second place.
Our value proposition evolution is clear, but the average client must also proceed.
And perception change is a marathon where consistency is more important that sprint's. The good news is that the first signs of change are emerging.
As I mentioned earlier in the second quarter, we had the best churn level linear so I need a quarter of inflation recovery in certain offerings also but that is historically low representing one 8% of our net revenues and our overall NPS improved by four points versus the first quarter.
With these robot the explanation on mobile performance and that we can now move next to fixed services.
In fixed the growth driver remained team will proceed with the solid performance fixed broadband revenues went back to double digit expansion.
<unk> grew year over year for the 18th consecutive quarter, reaching almost 95 reais.
Our broadband continues to be driven by the successful migration from STC to act Dth and accelerated net addition, borrowing the geographical expansion to partner in Santa Catarina States.
We closed the quarter with our client base beyond the 760000 connections at the 38000 clients in those new regions.
We're still fine tuning the model, but the results are encouraging.
Additionally, we are following a similar approach to the one that we're using mobile staying away from price competition and focusing our differentiators on offer innovation and quality of service with this in mind, we expanded our portfolio with a new <unk> plant.
Until now we have been successful, but the overall broadband market is still very price oriented I will now pass the floor to Andrea to review the financial results.
Thanks, Javier good morning, everyone.
I'll move to Joseph from the second quarter was very strong across all lines of our results.
Our performance continues to be driven by the positive effects of the IMO integration as well as now Bryan Mckeag group.
Our Opex continue to ERISA syndrome age and is now growing below inflation.
In addition during the call.
Our TSA agreement with Huawei.
Andrew.
Just helping us reduce cost and eliminate some pressure.
The combination of strong revenue and solid topics.
And in the double digits grew off on a beach in the quarter.
Nuclear more than 17% in a year over year beef and Superfast Chokepoint know Dino.
Our habits, Vermont expanded by 340 basis points in the core item and we recorded the highest margin on the Hardcourts chips person.
It is important to make sure that the second floor towards the first one with all the negative effects that were impacting the trends of our costs logistic costs was eliminating April and now we have an apples to apples comparison relates to the fiberglass smile ramp for them.
In terms of our the commissioning program. We are now seeing the benefits following our enemy.
You are able to optimize our process during the quarter and have a rash of just the dynamics with our suppliers.
As a result, we are now ready to accelerate the size dismantling.
My name of the partner, we have eliminated over two thirds of the planet sites for the year.
Of course, there is a delay between the physical the commissioning and seen its foundation back. However, we have already seen some initial positive effects in the second quarter.
Page 57 million of her eyes.
In their commissioning fine.
But the pace of increase in our lease cost has been slowing down on a year on year comparison and started to decline on a sequential basis.
Our results are a beach, that's the lease increased 22, 1% year old Dania.
During the disclosure of our guidance at the beginning of the year. We explained that we expect the effects from the commission chip pickup in the second half of the year, that's more science and illuminate we are happy with the progress we are resumes in this project so far.
This strong operational financial performance and smaller bottom line totaling 640 neither.
Which is almost double the amount of what we registered in the second quarter of last year.
It's important to remind you that the transitory impacts we addressed in recent quarters I started to decrease including the least impact on both DNA and punish expense. We are also seeing less on a back off the monetary adjustment relates to the time to realize them.
And a reduction in the tax burden as we resume at the distribution of interest okay.
Free cash flow for the second quarter was also strong our ambitious often these minus capex was up six 7% totaling one 2 billion.
Our cash position also rose by 46% year over year ended the quarter at $3 3 billion.
The second quarter allows us to shrink our financial position and improve our leverage level than that debt to EBITDA ratio decreased to one four times and thoughts on that debt, including leases amounted to $15 3 million hat this sustainable trends leave us.
That's comfortable enough, saying they are of high interest rate.
Now I hand, the call back Chavez.
Thank you Andrea I am very pleased with the first half of the year as we were able to achieve that so many things we completed our integration.
Achieved naphtha leadership improve customer experience and deliver an important milestone in ESG.
While posting solid results that put us more than on track to reach our guidance actually it is fair to see some upside risk to our full year numbers, but this will depend on several factors some of them we control by some we don't.
That is why our focus on mobile for the coming quarters won't change.
Execution to capture all the synergies will.
We recover inflation in a more rationale and value based competitive environmental while using the other marketing mix towards differentiated from our competitors.
Finally, leading by G deployment to both support efficiently and Capex efficiency.
On fixed broadband we continue using the asset light model to expand and tuning this approach new markets, while we migrate from FTC to Eskom ph.
The second half for the customer platform initiatives will be more exciting.
We are accelerating the implementation of the cartel Ddos health partnership and new partnership will be launched.
Lastly, we will continue to evolve our b to B verticals, we are increasing the penetration of our solution to consolidate our leadership in Cuba, because while we mature the different business models.
And in my comments I want to thank the Wolf team for the great job done so far for.
For the second half, but we know what the challenges are we have a clear plan and we will maintain focus on execution.
Let's now open the floor for questions. Please operator.
[laughter].
Thank you Mr. AHL Battle now we'll begin the Q&A section first who will take questions from analysts followed by channel public both in English.
Listening to the webcast your questions can be sent by chat.
Please hold them, while they collect collect questions.
We ask each participant to restrict yourself to two questions at a time to ask a question. Please press star one and to remove the question from the left please press star two.
The first question comes with Marcellus Santos with JP Morgan. Please go ahead.
Hi, good morning, Thanks for taking the questions.
My first question is regarding the sustainability of margins you had a very strong.
Strong margin increase this quarter, if you could please comment how.
This translates to the next couple of quarters are if there are some effects that should not be sustained or they are this is the first question and the second question is regarding the very low churn equal speed could you. Please explain what is causing this churn to be so low what are the main sources of this improvement were seeing thank you.
We have been discussing for a while our guidance here whereby we were planning.
Margin expansion because we were.
Assuming in our guidance EBITDA growing double digits versus revenues growing high single digits.
And so everything that is going on with exception on this is that we can discuss this a bit it's organic so it means that there are a number of things that we're doing on the beat the margin to increase the productivity of our our all our resources.
And if you look at.
These from let's see a logical point of view, we have a few.
A few levers in place the first of which is the fact that the costs related to oil start to disappear starting in the second quarter than we have a number of productivity increase.
Related to the to the increased productivity of the old customer base.
That we are capturing overtime, so the cost to serve them and third we have a.
A significant number of our initiatives within the company.
From innovation to business process, a remodel linger and discipline them to a better allocate our cost base and saw increased productivity on the EBITDA level. So we got margin of improvements going forward.
When you look at the after Lisa also because the the commissioning process is proceeding.
A bit ahead of schedule and this will support the further margin expansion on that line also so all in all we are quite confident that the profitability can be sustained and expanded.
On the low churn on postpaid.
I think that the there are Marcel a number of our of AR of factors to be taken into account. So generally this is quite a remarkable achievement because we are getting the lowest churn on postpaid <unk> in the quarter of.
The implementation of our more for more strategy.
And.
Generally the tense these tends to put a bit more let's see.
A bit more pressure on the charter level in the quarter that we executed. If you look for example last year churn level in the second quarter. So I think that there are number of factor in place here. So the first one is related to the more rational competitive environment and the fact that we adjusted our postpaid offer for folio in the first quarter.
Before the implementation of the more for more strategy and the second one is related to the numerous initiatives that we are implementing.
To increase the quality of service are perceived by our customers. So this is a continuous have forever and Ah Ah is going to improve going forward and this is basically related to the quality of the value proposition that we offer to our customer base said that generally tends to increase their lifetime with us for <unk>.
Example, in in this quarter, we just launched the upper one initiatives at the second set of initiatives is related to the quality of service. So that we can that can fall into the category of customer relations and there you've got a number of improvement on Ala Telerik Columbia key consumer protection agency, and so customer start supersede that.
And the third one is the fact that we are also working quite hard to improve that.
The quality of our network, let's put this way our technical service. So the fact that we've been awarded the Ah in July the <unk>.
<unk> networks in terms of quality of perceived quality is another important initiative. So all these combined.
Tends to increase our our ability to retain customers and therefore to reduce churn.
So I don't know if ive been associated in the answer.
No it very very clear thank you very much.
Thank you.
The next question comes with another Korchman with.
Thanks, Pete Please go ahead.
Hi, good morning, everyone and thanks for taking my question actually I have two on my side. The first question was related to dividends. If you could provide us an update for our dividend distribution for this year. It seems like you're on track to generate a lot of cash probably at a faster pace than the guidance provided.
Up to 3 billion. So I just want to understand if there is room for potential upside here in terms of dividend distribution.
And the second one is related to the tax reform I would appreciate it if you could make a general comment about the proposal under discussion hardness sector. Thank you.
Okay, but now when it comes to dividend says saw a we just remembering when we we met for our guidance earlier. This year, we gave a $2 3 billion reais as the new floor.
Of our shareholder remuneration for 2023, and then a continuous improvement going forward.
When you look at.
The the the way we are executing the plan.
The basically we are we are trying to improve we gave we are improving as a matter of fact.
Listen I mean, all the lines.
Yeah, Okay. Okay, yeah, it's all here sorry.
Because here this is a sort of appear to be to be went out and so bernardo. So when I look at the performance of our plan that data at.
We'll see a number of upside risks of course, there are still uncertainties related to for example, the microenvironment at Butler, a number of things that are going according or better versus our plan.
Our focus on main focus is to increase our free cash flow and the operating free cash flow margin and we see upside risk here versus our guidance. So basically we are now in the process of analyzing the numbers and discussing this among ourselves there, but the risk of risk of our upsell.
Review of our shareholder remuneration.
When it comes to the tax reform.
I think here, we see these and are in the.
The in the <unk>.
And the phases that are being discussed in terms of.
The the V. A T refer and that has been that just pasta Ah and theres going to be discussing the Senate.
Whereby we see that we need to actually been out of the viewpoint of here, we need to wait for the actual the.
Actual numbers are.
Take a stance on how what the impact is going to be for us. So far the discussion is going according to what has been anticipated. So there is no surprise.
Whereby the other component of the tax reform that is related to our corporate Ah Ah.
Taxation and dividends.
It's a it's a bit further on so our understanding is that it took to make a precise call of what the implications are going to be that we are closely monitor as a sector, we need to wait for the actual tax rate will be defined and this is going to happen probably in the next year reset during the transition period this should be soft for them.
Next couple of years.
And about I would say that we need to be a bit more to come.
To give a final thoughts on this.
Okay very clear thank you Robert.
Yeah.
Thank you. The next question comes with Vitor Tomita with Goldman Sachs. Please go ahead.
Hello, Good morning, all and thanks for taking our questions. My first question would be a quick follow up on Marcellus earlier question looking on cost looking aside from the end of the TSA should their sales and marketing line, which improved quite a bit this quarter should we assume this squad her and I know they're right.
Easier comps versus last year, but should we assume at this quarter's level of sales and marketing expenses as a recurring baseline for our first quarter's in particular should we expect marketing activity to pick up in the third quarter relative to the <unk> or a similar level and a second question from us would.
On if you could provide an update on how you view the possibility of price readjustments in prepaid or additional.
Price readjustments in postpaid this year following the recent readjustments you made thank you.
Okay Victor saw on the first ones in terms of sales activity. This is pretty much dependent on the number of active of launches commercially needs for these that we are running <unk> on each quarter. So if you look at for example, the current quarter. So we just happen to launcher.
Significant campaign with the Apple one she has the exclusive partnership so you see a number of our advertisement around the you will see some subsidies are in our point of sale. So we have at the moment, a very appealing proposition for our blackboard.
Great plants and so this is much dependent therefore this line of Casa on the activities that we're running so for example, I would expect that this quarter because of the launch of the Apple one campaign is going to be heavier versus the previous quarters, where we didn't launcher anything let's say, let's put these wastes special.
And that we got more specialty inks coming up.
For the last quarter also and so I would say that the second half in terms of commercial activities and initiatives is likely to be more let's say intensive versus the first half.
This is for the first question in terms of our marketing and sales expenses.
When it comes to the price adjustments.
Topic I would say the following so.
The overall competitive environment, there is moving where SASSA a value based.
Ah at least what we are doing a competitive dynamics there.
So our approach is always to provide the more for more offers and value proposition for our customers.
And in the first alpha we pretty much concentrated on postpaid and we're accumulating with the Apple one launch so we make at the let's say, we deliver more value to our customers and prices are adjusted Accordingly, I will say that the bulk of our adjustment that I am fine.
Tuning of our our postpaid offer is completed now so we do something on the enterprises are in the first quarter.
We are doing we did that we carried out the more for more strategy in the second quarter. So the recede well opportunities are a let's say a they got much less impact versus what we did in the first half and so we are turning our attention into prepaid and a weird.
Going to follow the same approach whereby we're going to upgrade the value proposition to our customers.
And they were gonna come under some price revision accordingly, so we did at least this last year for example, including Amazon Prime and all our charges and we are planning something they're starting the second the second half as well so the focus of the second half of the year is going to be more concentrated on prepaid.
Very clear thank you very much.
The next question comes with clergyman, just with Bank of America. Please go ahead.
Hello, Good morning, everyone and thanks, Thanks for the call here I have two questions here as well I mean, the first one on the working capital line, we see a major impact in the large suppliers are one 3 billion on this quarter. It looks like you paid this amount.
So just try and when I look at the second tier Chinese George Cds does impact. So just Aldridge you took advantage of some type of approach in terms of the FX or something as large as trying to understand the working capital here. This will be the first one.
And then the second one I think is more like a question on their strategy.
When I look at the airport you already have the highest sharpen the street looks like or one of the highest.
And when I look at the net adds I mean, it has been better than the last three months, it's true but over the last years. It hasn't been as strong I mean, when I look forward, where should they ship most of the growth for team for the next let's say the next two years. Thank you very much.
Good morning.
In France. Thank you your first question.
Racism or he capital there are some dynamics less pressure.
Our working capital in this first semester like formation and the major major impact is related to ziv and theirs.
Yeah, and the intercept does is it this is related to our southern in the southern area in our business and if you'll see it past. He is happened the same and we expect the second part of the year less pressure on this item.
Yeah.
Go on the thread on the second one on the outer pursue yes. So we are we achieve the the alpo leadership on both prepaid and postpaid through that's a nice achievement on our side.
And when I when I go for all then they look for order at the revenue dynamic of our of the sector and the of Tim.
In Brazil.
Ah the here what we always said is that we want to grow on a balanced way in terms of the customer base growth and the ARPA growth.
So when it comes to ARPA growth of course are the main strategies related to the value based competition. So we're providing something more for the customers to be able to command a higher price.
And when it.
It goes to the customer base I think that the answer is a big difference between postpaid and prepaid so.
If Ah Ah Ah if you look in general at our our customer base dynamics on postpaid that youre right that we've been running a number of quarters with negative postpaid additions.
And the the the numbers have been a bit mixed up by the oil post merger integration and that we signaled the AR over the last quarters that in the second quarter, we would've come to positive net additions. So this is the results of this quarter confirm that we are now in the positive net additions there.
Reiterate and we expect to move four or the add on a positive.
On the positive space for the next quarters.
And when you look at the absolute number of net additions I think that the number that needs to be taken into account is the relative ratio between our net additions in customer base because on postpaid that we got the three of US are a different customer base and so when you look at growth I think that it is better to look at relative numbers versus our.
Our customer basis versus our absolute numbers, because these put everything into perspective, and these translate into the year on year growth in quarter on quarter growth both positive for us in this quarter. So on the customer base, we want to grow the customer base for postpaid and since we have with the lowest market.
Sure within that resource base will grow there whereby on a value based proposition, we intend to increase our pool, providing better services to our customers for our postpaid there was mentioning before for Marcel and Victor the exercise has been closer whereby for prepaid there.
Might be some additional update for the second half so at the end of the day with Ben always running on a mix growth approach customer base and our pool are the Oh integration sort of made it really difficult to read through these dynamics.
And I. Thank them from this quarter onwards, you will be able to see again that our topline is going to be driven by both ARPA growth and the customer base growth.
Perfect very very clear about to thank you. Thank you Andrea.
The next question comes with little neither Walmart with UBS. Please go ahead.
Hi, good morning, everyone. So a couple of questions from my side first leaves expanses and the decommissioning process is such that a little bit before can you can you provide some idea on what should we expect in the second half of 'twenty three.
In and provide some update on the number of towers, how how is that going and the second question is regarding the basically asking for an update on the agreement with neutral networks, particularly vishal. Thank you.
Okay on the lease expenses are I think alone out of that are we have some upside risk.
We are moving ahead of our plan. So as of today is that I was mentioning in his speech, we are at around 70% of the plan already executed.
This is going to be a bit less relevant for this year, because the number needs to pile up.
But he is going to provide us some upside there on the entry speed for the following years.
And.
We are likely to provide a better focus on the progress in the last quarter. We are now left with the harvest hour to the commission and so the let's say the the easy part or the easier part because it was now easier with the commission and thousand of towers. This year, but basically we are happy with the results and we are ahead of schedule. So it's a positive.
Upside risk on this lineup a more profound that in the following years highlights on this year because of the piling up of of the exercise by the already in this quarter. You can appreciate the positive dynamics that I was saying when it comes to the NAV from network.
We have been we carried out a quite successful launch in Parana Santa Catarina. We are very pleased with the commercial results of our operations. We are now fine tuning.
Ah the the.
The model is the largest scale.
The benefit of a <unk> of it is related to the fact that since we don't need to be the network. We can operator in a mobile like fashion. So our go to market. It simpler and this should translate into a better quality of our AR.
Our commercial operations.
Or at this point in time, we are happy with our speed that we increase our net addition to something like 30 K per quarter, we are likely to run the speed in the following quarters and we are fine tuning the machine to be able to scale up when the competitive environment are going to be a bit more attractive vessels today.
Sounds great. Thank you very much have a great day.
Okay.
Thank you once again, if you wish to ask a question. Please press Star then one.
Ladies and gentlemen, without any more questions I am returning to Mr. Although I took it as Andy for his final remarks. Please.
Mr. Roberto you May proceed.
Thank you everybody. So my closing remark considering this exciting world Cup atmosphere and going to play a leader football culture play off time is over guys that we need to go back on the field to secure about victory in the second half of the game Sizzle.
Bye.
Thus, we conclude the second quarter of 2023 conference call of Tim SA for further information and details of the company. Please access our website <unk> Dot Com E R.
I R. You can disconnect from now why thank you once again have a good day.
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