Q2 2024 TIM SA Earnings Call
Good morning, ladies and gentlemen. Welcome to Team ESEI 2024 second quarter results conference video call.
Operator: We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. There will be a replay of this call on the company's website. After the TSA remarks are completed, there will be a question and answer session for participants, and at that time, further instructions will be given.
After TSA remarks are completed, there will be a question and answer session for participants. At that time, further instructions will be given.
Operator: Hello everyone, and welcome to TeamSA's earnings conference for the second quarter of 2024. Thank you for joining us.
Vicente Ferreira: I am Vicente Ferreira, Head of Investor Relations. Today we share our highlights in video, and afterwards, we'll have our live Q&A session with our CEO Alberto Griselli and our CFO Andrea Viega. Before we discuss our results, I remind you that management may make forward-looking statements, and this presentation may contain them. Please refer to the disclaimer on the screen, which is also available in our earnings materials and on our investor relations website. With that, let's move on to our results.
Alberto Griselli: Hello everyone, I'm Alberto Griselli, CEO of TIM Brazil, talking from our headquarters in Rio de Janeiro. I'm pleased to share the highlights of our solid second quarter 24 results. Despite some macro challenges, we are taking advantage of favorable market dynamics to develop further our 3B approach and deliver robust results across the board. In the second quarter, we maintained the pace at growing our service revenue high single digit year over year; our EBITDA grew above our revenues, sustaining margin expansion despite the tougher comparative basis. Our proxy for operating free cash flow reached a record high for the second quarter, growing approximately more than 20% year over year.
Hello everyone, I am Alberto Griselli, CEO of Team Brazil, speaking from our fourth residence in Rio de Janeiro.
Despite some macro challenges, we are taking advantage of favorable market dynamics to develop further our 3B approach and deliver robust results across the board. In the second quarter, we maintained the pace, growing our service revenue high single digits year over year, our EBITDA grew above our revenues, sustaining margin expansion despite a tougher comparative basis. Our proxy for operating free cash flow reached a record high for the second quarter.
Alberto Griselli: These solid financial results are accompanied by improvements in our services, innovation in our offerings, and consistent infrastructure development. Our results are driven mainly by mobile services, with revenues growing by 7.3% compared to second quarter 23. Consequently, ARP was expanded by 6.8% through more for more initiatives and migration strategy. Our customer base profile continues to improve, with post payment addition accelerating to solid levels. In second quarter 24, we added 458,000 clients.
Alberto Griselli: We combine initiatives to reduce churn and expand migration from prepaid to postpaid to support this performance. Behind these numbers is a sharp execution of our 3B strategy. Building the best offer in the market requires an innovative mindset, bringing novelties valued by customers at the right price. In the coming weeks, we will showcase our new postpaid portfolio with the best control clients in the market. The best network combines excellent coverage with the best availability and quality. As you know, Team ranks number one in those metrics in 5G and overall.
Fund Migration from prepaid to postpaid to support this performance.
Speaker Change: In the market, the best networks combine excellent coverage with the best availability and quality. As you know, TIM ranks number one in those metrics in 5G and overall. Building this while reducing CAPEX pressure requires an innovative and efficient approach. An example is the new 4G and 5G integrated antenna we developed with one of our vendors, which increases capacity and coverage at reasonable prices. To deliver the best service, we are changing our portfolio of offers and improving how we serve our clients more effectively. We are increasing first-call resolution rates and facilitating digital interactions. Therefore, call center amplification is key.
Alberto Griselli: Building this while reducing capex pressure requires an innovative and efficient approach. An example is the new 4G and 5G integrated antenna we developed with one of our vendors, which increases capacity and coverage at reasonable prices. To deliver the best service, we are changing our portfolio of offers and improving how we serve our clients more effectively. We are increasing first call resolution rates and facilitating digital interactions. Therefore, call center NPS is improving, and we continue to outperform the sector in resolution rankings.
Speaker Change: The FTTS is improving and we continue to outperform the sector in resolution rankings. Moving to the other areas of our operation, our Fixed Broadband Unit is performing well despite fierce competition. The focus remains to grow with profitability, so we kept revenue expansions at high single digit, while our FTTH base increased double digit. Our TIM IoT solution continues to evolve fast, winning new connectivity contracts while developing end-to-end solutions. In the last 12 months, we added close to 280 million reais in contracted revenues, growing in the three verticals we selected. Before Andrea joins us for this interview,
Alberto Griselli: Moving to the other areas of our operation, our fixed broadband unit is performing well despite feared competition. The focus remains to grow with profitability, so we kept revenue expansions at high single-digit rates while our FTTH base increased double-digits. Our IoT solution continues to evolve fast, winning new connectivity contracts while developing end-to-end solutions. In the last 12 months, we added close to 280 million reais in contracted revenues, growing in the three verticals we selected.
Alberto Griselli: Before Andrea joins us for this update, I'd like to remark on how effectively our 360-degree approach to productivity and efficiency is helping the team reduce cash cost pressures while improving customer satisfaction through technology and discipline. We have done a great job with digitalization in recent years, but there is room for additional improvement. For example, PIX is the new frontier for repayments, and MyTeamApp will contribute more to our digital interaction after its new version is released.
Andrea: In this update, I'd like to remark on how effectively our 360-degree approach to productivity and efficiency is helping teams reduce cash cost pressures, while improving customer satisfaction with technology and discipline. We have done a great job with digitalization in the past year. However, there is room for additional improvement. PIX is the new frontier for repayments, and MyTeamApp will contribute more to our digital interaction after its new version is released. In terms of our infrastructure, the network sharing with VIVO was resumed. We should accelerate more, but we are back working on the 2G shutdown and the single grid.
Alberto Griselli: In terms of our infrastructure, the network sharing with VIVO was resumed. We should accelerate it more, but we are back working on the 2G shutdown and the single grid. On another front, we recently closed new agreements with vendors for our access network.
Speaker Change: We recently closed new agreements with vendors for our access network. We are bringing new 5G technology and an effective cost to improve the quality of our customers. Our AI initiatives are moving from pilot to full rollout. Two of the 10 use cases mapped to be tested in 2024 have completed the testing period, and we are rolling them out until the end of this year. During the test, the team AIX customer care co-pilot showed a decrease in average service time and increased satisfaction. For network predictive maintenance, the test showed that our system was able to predict failures and we were able to resolve them. Our hypothesis that generative AI
Alberto Griselli: We are bringing new 5G technology and effective cost to improve the quality of our customers. Our AI initiatives are moving from pilot to full rollout. Two of the 10 use cases mapped to be tested in 2024 have completed their testing period, and we are rolling them out until the end of this year. During the test, the AIX customer care co-pilot showed a decrease in average service time and increased satisfaction.
Alberto Griselli: For network predictive maintenance, the test showed that our system was able to predict failures, and we were able to resolve them. Our hypothesis that generative AI could benefit teams by reducing costs and increasing customer experience is holding so far. We will keep you updated on this topic in the coming months. Now, I will pass over to Andrea to talk more about our financial highlights.
Speaker Change: Benefit team by reducing cost and increasing customer experience is holding so far. We will keep you updated on this topic in the coming months. Now I will pass over to Andrea to talk more about our financial highlights.
Andrea Palma Viegas Marques: Hello everyone, I'm Andrea Viega, CFO of TIM. As Alberto mentioned, we delivered robust results across the board. The top line grew 7.5% year-on-year this quarter, with positive contributions from all revenue lines. EBITDA showed solid performance despite a tougher competitive phase. It grew more than 8%, with the margin reaching an all-time high of 50% for a second quarter. Considering the lease's effects, EBITDA after lease grew by almost 14%. This performance continues to benefit from the decommissioning project, which has reduced recurring lease payments by R$ 56 million versus Q2 2023.
Speaker Change: Hello everyone, I'm Andrea Vieira, CFO of TIM.
Andrea Palma Viegas Marques: As Alberto mentioned, we delivered robust results across the board. The top line grew 7.5% year-on-year this quarter, with positive contributions from all revenue lines. Our EBITDA showed solid performance despite a tougher competitive basis.
Speaker Change: It grew more than 8%, with the margin reaching an all-time high of 50% for a second quarter.
Speaker Change: Considering the leaves' effects, a beech-grafted leaf grew by almost 14%.
Speaker Change: This performance continues to benefit from the decommissioning project.
Speaker Change: which has reduced recurring lease payments by R$ 56 million versus Q2 2023. The EBITDA after lease margin grew notably by more than 2% points year over year. In this quarter, our net income grew by more than 20% year over year.
Alberto Griselli: The EBITDA after lease margin grew notably by more than 2% points year-over-year. In this quarter, our net income grew by more than 20% year-over-year, benefiting from the overall operational performance and positive effects at the DNA line. In addition, we recorded a substantial increase in operational cash flow of almost 24%, with the margin expanding to 24.4%. As we explained last quarter, the seasonal negative impacts on working capital and CAPEX are reverting. CAPEX will close the year inside our guidance band, with no material impact from FX, and working capital should be positive in the second half.
Speaker Change: benefitting from the overall operational performance and positive effects at the DNA line. In addition, we recorded a substantial increase in operational cash flow of almost 24%.
Speaker Change: with the margin expanding to 24.4%. As we explained last quarter, the seasonal negative impacts on working capital and CapEx are reverting.
Speaker Change: CAPEX will close the ear inside our guidance band, with no material impact from effects.
Alberto Griselli: I am pleased with the figures we are delivering, which makes me confident that we will achieve our guidance by the end of the year, even with a more challenging comparison base in the second half. Now back to Alberto. We just closed Better Than Expected, the first half.
Speaker Change: and Working Capital should be positive in the second half. I am pleased with the figures we are delivering, which makes me confident that we will achieve our guidance by the end of the year, even with a more challenging comparison base in the second half.
Alberto Griselli: We just closed a better than expected first half. Financial and operational performance are responding well to our initiatives. In the second half, we expect healthy competition to be maintained. Therefore, we will focus on evolving our portfolio and looking more carefully into our prepaid dynamics as the macro environment may be a concern for low-income clients. Our digitalization program will continue to run, both in the more traditional way and through AI projects. We expect more pilots to move from the testing environment to full implementation.
Alberto Griselli: Now back to Alberto.
Alberto Griselli: We just closed better than expected first half. Financial and operational performance are responding well to our initiatives. In the second half, we expect healthy competition to be maintained.
Alberto Griselli: So, we will focus on evolving our portfolio and looking more carefully into our prepaid dynamics as the macro environment may be a concern for low-income clients.
Alberto Griselli: Our digitalization program will continue to run, both in the more traditional way and through AI projects. We expect more pilots to move from the testing environment to full implementation. In B2B, we expect the coming months to be exciting, with more solutions being added to our portfolio. We are optimistic about the future and look forward to the opportunities that lie ahead. We are on a long journey to become Brazil's most preferred mobile operator, and our commitment to this goal remains unwavering. This delivery can only be achieved through hard work, creativity and discipline, and we are confident in our ability to succeed. Now, let's move to the live Q&A session.
Alberto Griselli: In B2B, we expect the coming months to be exciting, with more solutions being added to our portfolio. We are optimistic about the future and look forward to the opportunities that lie ahead. We are on a long journey to become Brazil's most preferred mobile operator, and our commitment to this goal remains unwavering. This delivery can only be achieved through hard work, creativity, and discipline, and we are confident in our ability to succeed. Now, let's move to the live Q&A session.
Operator: We'll now start the Q&A session for investors and analysts. If you wish to ask a question, please press the button, raise your hand. If your question is answered, you can exit the queue by clicking on the same button. You can also send written questions through the Q&A button. Our first question comes from Bernardo Guttmann with XP. You can open your microphone. Hi, good morning.
Speaker Change: We'll now start the Q&A session for investors and analysts.
Speaker Change: If you wish to ask a question, please press the button, raise your hand.
Speaker Change: If your question is answered, you can exit the queue by clicking on the same button. You can also send written questions through the Q&A button.
Speaker Change: Our first question comes from Bernardo Guttmann with XP. You can open your microphone.
Bernardo Guttmann: Hi, good morning, everyone. Thanks for taking my question. Actually, I have two on my side.
Bernardo Guttmann: The first question is related to margin; you have consistently achieved this expansion. On the revenue side, it's evident that the more for more strategy is proving effective. But on the cost side, I would like to understand the main factors that are contributing to this expansion, the key initiatives that can drive this growth moving forward. And my second question is related to competition in the mobile segment. It would be great to hear views on possible competition coming from a new player, Anel Bank, as an MVNO. Historically, this market never took off in Brazil, but now there's a new player with great execution capacity. What has changed in this market from a commercial point of view?
Bernardo Guttmann: Hi. Good morning, everyone. Thanks for taking my question. Actually, I have two on my side. The first question is related to margin. You have consistently achieved this expansion.
Speaker Change: On the revenue side, it's evident that the more for more strategy is proving effective.
Speaker Change: But on the cost side, I would like to understand the main factors that are contributing to this expansion, the key initiatives that can drive this growth moving forward.
Speaker Change: And my second question is related to competition in the mobile segment.
Speaker Change: It would be great to hear views on possible competition coming from a new player, Anel Bank as a MVNO.
Speaker Change: Historically, this market never took off in Brazil, but now there is a new player with great execution capacity. What has changed in this market from a commercial point of view? Thank you.
Alberto Griselli: Hi Bernardo. So I will start with the second one, and then I will pass it to Andrea for the margin one. So on the first one, I would say, Bernardo, that the competitive environment so far remains pretty rational in terms of what is happening in both postpaid and prepaid. So the more for more approach and the shift from volume to value are actually happening. Everybody's more competing on the quality of services and innovation rather than a straight on price or price per gigabyte.
Speaker Change: Hi Bernardo, so I will start with the second one and then I will pass it to Andrea for the margin one. So, on the first one I would say Bernardo, that the competitive environment so far, it
Speaker Change: remains pretty rational in terms of
Speaker Change: what is happening in both postpaid and prepaid. So the more for more approach and the shift from volume to value is actually happening. Everybody's more competing on quality of services and innovation rather than a straight on price or price per giga.
Alberto Griselli: When it comes to possible new entrants, we need to see what kind of strategies we deploy. So far, MVNO has been operating in niche segments, competing on a different value proposition, and again, not competing on prices. So, so far, MVNO has not been a disruptor on one lever, that is, price.
Speaker Change: When it comes to the possible new entrants.
Speaker Change: We need to see what kind of strategies that we'll deploy. So far, MVNO has been operating as niche segments, competing on a different value proposition, and again, not competing on prices. So, so far, the MVNO has not been a disruptor on one lever, that is the price.
Alberto Griselli: They have been focusing their strategy in specific segments, and so they haven't changed the competitive dynamic materially. So on this front, I would say that for the specific case that you mentioned, we need to wait to see what their commercial approach will be. So far, everything is fairly constant and focused on the more for more approach, competition for quality of services, meaning new offerings. We are launching some new ones in the coming months, natural services and the likes, less on price.
Speaker Change: So on this front, I would say that for the specific case that you mentioned, we need to wait to see what their commercial approach will be.
Andrea Palma Viegas Marques: Hi Bernardo, in relation to the margin, we achieved a very good percentage this quarter. In the future, and also in the future, at least, we will continue to focus on our productivity to increase our digitalization, but we have to remember that we also have to invest in some topics to generate more revenue. We always have room to improve, but our guidance shows that we will increase margin this year compared to the previous years, but we also have Tim Leto. So. We have a good margin result, and we will continue this path.
Speaker Change: Hi Bernardo. Related to the margin, we achieved a very good percentage this quarter.
Speaker Change: But we have to remember that we also have to invest in some topics also for generating more revenue.
Speaker Change: So, we always have room to improve, but our guidance shows that we will increase margin this year relative to the previous years.
Speaker Change: We also have team members, so we have good margin results and we will continue this path.
Alberto Griselli: And if I can add something, if you look at the categories of things that we're doing, so we've got this whole front of digitalization that we mentioned in the presentation before, a few examples that are proceeding quite nicely. We have clearly the dynamics of revenue that favors also the margins when it comes to the more formal strategy, so it's a critical margin expansion. And I would also say that we are studying a few remote, fine-tuning of the make versus buy approach that we are thinking of deploying in the coming quarters that should be effective in terms of increased efficiency and increased quality of the services that we are related to that specific activity.
Speaker Change: And if I can add something, if you look at the categories of things that we are doing, so we got this all front of digitalization.
Speaker Change: the more formal strategy so it's a critical margin expansion and I would say it's also that we are starting a few remote, fine-tuning of the make versus buy approach that we are thinking to deploy in the coming quarters.
Bernardo Guttmann: Very clear. Thank you, Alberto and Andrea.
Operator: Next question from Marcelo Santos with J.P. Morgan. You can open your microphone.
Marcelo Santos: Hi, good morning to all. Thanks for taking my questions. I also have two.
Marcelo Santos: First, I wanted to question you a bit about the guidance, especially the service revenue growth guidance. For the second quarter in a row, you were coming in above the guidance, above the high end of the guidance. Is there room to increase that guidance, I mean, or is there some expectation that the second half is going to be particularly weak? I mean, could you please just comment on your yearly guidance in light of the results that you have achieved so far? That's the first question, and the second question is the lease line and the tower renegotiation. Where are we on that process? What's the outlook for the line of lease payments? Thank you very much.
Speaker Change: Expectation that the second half is going to be particularly weak.
Speaker Change: I mean, could you please just comment, I mean, on your yearly guidance in face of the results that you have achieved so far?
Speaker Change: That's the first question. And the second question is the lease line and the tower renegotiation. Where are we on that process? What's the outlook for the line of lease payments? Thank you very much.
Alberto Griselli: Okay, Marcello, I will take the first one, and then we'll pass to Andrea for the second one. When it comes to the second half, I wouldn't call it weak guidance, so I would say the following. Weak guidance, and you're right, we've been performing above the bracket in the first quarter and second quarter. Now, what we are foreseeing for the following quarter is something that has already happened in the previous year, so a sort of slowdown in the pace of revenue growth. And there are a number of reasons that we need to be considering that.
Speaker Change: Okay, Marcello, I will take the first one and then we'll pass to Andrea for the second one. When it comes to the second half, I wouldn't say weak guidance, so I would say the following. Weak guidance, and you're right, we've been performing above the bracket in the first quarter and second quarter. Okay.
Andrea Palma Viegas Marques: Now, what we are foreseeing for the following quarter is something that has already happened in the previous year, so a sort of slowdown in the pace of revenue growth.
Andrea Palma Viegas Marques: And there are a number of reasons that we need to be considering that. First of all, we got a less favorable comp versus last year, so we got quite a strong second semester last year.
Alberto Griselli: First of all, we got a less favorable comp compared to last year, so we got quite a strong second semester last year. The second one is the fact that when you look at the price of post-pays, this year was less intense compared to last year. So you tend to see results in the second quarter and going forward. So if you look at our post-paid revenue growth on a historical trend, you generally see a strong second quarter, and then the effect of the price increase tends to stabilize in the following quarters, and so the revenues are slowing down a bit.
Andrea Palma Viegas Marques: The second one is the fact that when you look at the price up of post-pays, this year was less intense versus last year. And so you tend to see the results in the second quarter and going forward. So if you look at our post-paid revenue growth on a historical trend, you generally see a strong second quarter and then the effect of the price up.
Andrea Palma Viegas Marques: to stabilize in the following quarters, and so the revenues are slowing down a bit.
Alberto Griselli: And so we expect the same effect this year. We need to see results on prepaid, so you see that on prepaid, we got a slightly negative revenue growth in this quarter, also because we are migrating prepaid to control plans, and this is going to happen in the next quarters. And so we are fine-tuning our value proposition and go-to-market approach, and we need to see how this plays out in the following quarters.
Alberto Griselli: And last but not least, we got the team ultra, so the broadband that we imagine is going to stay fairly stable. So all in all, what we are likely to see in the second semester is a slowdown of the revenue growth, and this will put us in the position to fully achieve our guidance, which is the bracket from 5% to 7%. I must say I will hurry, really.
Andrea Palma Viegas Marques: A slowdown of the revenue growth, and this will put ourselves in a position to achieve fully our guidance, which is the bracket from 5% to 7%.
Andrea Palma Viegas Marques: I must say, in relation to the leases, this quarter, we still have the impact of the decommission, but as we mentioned before, we ended the major part of the fiscal decommission. So we still have some positive impact on the decommission side, but we also have inflation, and we have a lot of contracts that have an inflation adjustment in this quarter. So we have the lease at the same level as the first quarter, but from now on, the trend is to increase a little bit.
Andrea Palma Viegas Marques: I must say, Alonso, related to the leases, this quarter we have still the impact of the decommission, but...
Andrea Palma Viegas Marques: We still have some renegotiations with the Tauber company that is ongoing for us. And related to the panels, we also have some panels in the second quarter because we still have around 200 sites that we are, and it's the final, the final stretch of the contract. So the trend is to increase the lease a little bit in the second half of the year.
Alonso: We still have some renegotiations with the Tauber company that is continuous for us.
Andrea Palma Viegas Marques: And related to the panels, we also have some panels in the second quarter because we still have around 200 sites that we are in the final stretch of the contract.
Marcelo Santos: Thank you very much. Thank you.
Operator: Our next question comes from Vitor Tomita with Goldman Sachs. You can open your mic.
Speaker Change: Our next question comes from Vitor Tomita with Goldman Sachs. You can open your microphone.
Vitor Tomita: Hello, good morning, all, and thanks for taking our questions. We have two questions from our side. The first one is, since you cited some AI initiatives on the cost side and some other areas, do you believe those could be major enough to support some upside to long-term EBITDA guidance assumptions, depending on how they play out? And our second question would be: you mentioned just now a change in make versus buy approach. Could you give some more color on that? Thank you very much.
Vitor Tomita: Hello, good morning, all, and thanks for taking our questions.
Vitor Tomita: We have two questions from our side. The first one is...
Vitor Tomita: And our second question would be, you mentioned just now also a change in make-versus-buy approach. Could you give some more color on that?
Alberto Griselli: OK, so Vito, let me take the first one, and then we'll interact with Andrea on the second one. So when it comes to artificial intelligence, we are following a quite pragmatic approach. So we are deploying it, and we are measuring the results. If the results are there, we are going to scale this up in the coming years. So we organized ourselves since 2023 with an organizational structure that is quite transversal among the companies that select the case studies, and the one with the most potential, economic potential, and the one that is closer to our strategy.
Speaker Change: Thank you very much.
Speaker Change: Okay, so Vito, let me take the first one and then we'll interact with Andrea on the second one. So, when it comes to the artificial intelligence...
Alberto Griselli: So this process led us to select something like 100 use cases that were artificial intelligence that could be applied. Now, of these 100 potential use cases, we went down to a number of around 10, that are the most promising in terms of alignment with the strategic fit and potential benefits. And there are two clusters of these use cases that we are actually in the phase of implementing. One is related to customer care, and the other one is related to natural maintenance. Why these two?
Speaker Change: We are following a quite pragmatic approach, so we are deploying it, we are measuring the results, and if the results are there, we are going to scale this up in the coming years.
Andrea Palma Viegas Marques: We organized ourselves since 2023 with...
Andrea Palma Viegas Marques: An organizational structure that is quite transversal among the companies that select the case studies and the ones with the most potential, economic potential, and the ones that are closer to our strategy.
Andrea Palma Viegas Marques: So, this process allows us to select something like 100 use cases where artificial intelligence can be applied.
Speaker Change: Now, of these 100 potential use cases, we went down to a number which is around 10 that are the most promising in terms of alignment with strategic fit and potential benefits.
Speaker Change: And there are two clusters of these use cases that we are actually...
Speaker Change: in the phase of implementing. One is related to the customer care, and the other one is related to the natural maintenance. Why these two? Because these are in line with our strategic objectives, that is to increase the quality of services that we are providing to our customers, and at the same time, increase productivity.
Alberto Griselli: Because these are in line with our strategic objectives, that is, to increase the quality of services that we are providing to our customers and, at the same time, increase productivity. So where do we stand now with these use cases? We are rolling them out. As a matter of fact, we are rolling out the artificial intelligence use case to all our internal service attendants for the call center. So we are moving from the piloting phase to the rollout this month.
Speaker Change: So where do we stand now with these use cases? We are rolling them out.
Speaker Change: As a matter of fact, we are rolling the artificial intelligence use case.
Speaker Change: All our internal service attendants for the call center, so we are moving from the piloting to the rollout, and we are doing this this month.
Alberto Griselli: And the same we are doing with the predictive maintenance of the network. So we have already got three main vendors. And with one of these vendors, we are already engaged in rolling out predictive maintenance based on artificial intelligence for field services. So this means that, starting from now, we will be in a position to see the impact of those use cases on a large scale. And we will be able to see if our initial hypothesis of an increase in productivity and quality of services stands.
Speaker Change: and the thing we are doing with the predictive maintenance of network. So we already got three main vendors and with one of these vendors we are already engaged in rolling out predictive maintenance based on artificial intelligence for field services. So what does it mean? That starting from now, we will be in the position to see the impact of those use cases on a large scale.
Speaker Change: And we will be able to see if our initial hypothesis of increase of productivity and quality of services stands.
Alberto Griselli: If this is the case, if this is proved on this rollout, then we are talking about a double-digit reduction, roughly in terms of cost to do these activities, and at the same time, a potential benefit in increased NPS or network availability for the network side. So we are providing resources. We need to see if it works. And we are in the process of proving this in two specific large use cases for call centers and network maintenance.
Speaker Change: If this is the case, if this is proved on this rollout, then we are talking about double-digit reduction, roughly, in terms of cost to do these activities, and at the same time, potential benefits in increased NPS or network availability for the network side.
Speaker Change: So, we are programming this, so we need to see if it works.
Speaker Change: And we are in the process to prove this in two specific large use cases for call centers and network maintenance. In the meantime, we are cleaning up also the others that we selected.
Alberto Griselli: In the meantime, we are also cleaning up the others that we selected. But the two main ones are these two that I've been mentioning. I don't know if this is clear for you, Victor. If it is, we move to Andrea for the second question.
Speaker Change: But the two main ones are these two that I've been mentioning. I don't know if it's clear for you, Victor, this. If yes, we move to Andrea for the second question.
Andrea Palma Viegas Marques: Related to make or buy, we are always looking for another way to increase our productivity. So we are always doing this kind of study about make or buy. For example, now we are studying one part of the maintenance of our network, the operation of the network. Maybe we can have a BPO in this area. We are studying another area, some administrative areas that maybe we can also bring outside of the company with better productivity. So this kind of make or buy is what we are studying now.
Andrea Palma Viegas Marques: Related to the microbiome, we are always looking for...
Andrea Palma Viegas Marques: [inaudible]
Speaker Change: Another way to increase our productivity. So we always make this kind of study about make or buy. For example, now we are studying about the one part of the maintenance of our network, the operation of the network, maybe.
Andrea Palma Viegas Marques: We can have a BPO in this area, we are still in another area, some administrative areas that...
Andrea Palma Viegas Marques: Maybe we can also bring outside of the company with better productivity. So this is kind of a maker-buyer we are studying now.
Vitor Tomita: Very clear, and very pragmatic as well. Thank you.
Speaker Change: Very clear, very pragmatic as well. Thank you.
Operator: Next question from Gustavo Farias with UBS. You can open your microphone.
Speaker Change: Next question from Gustavo Farias with UBS. You can open your microphone.
Gustavo Farias: Hi everyone. Thank you for taking my questions. I have two as well. The first one is regarding the prepaid operation. If you could put more color on what you guys expect.
Speaker Change: On revenues going forward,
Speaker Change: And the second one, regarding the fiber operation.
Speaker Change: As we have seen limited growth and other players in the market considering selling their operations, what's your strategy on the fiber operation as a whole? Thank you.
Alberto Griselli: Okay, Gustavo, so let's start with prepaid. When it comes to prepaid, I think that there are two main dynamics that determine how revenues are performing and are going to perform in the future. One is in our hand and is the prepaid to control migration.
Speaker Change: Okay, Gustavo, so let's start with the prepaid. When it comes to prepaid, I think that there are two main dynamics that determine how revenues is performing and is going to perform in the future.
Speaker Change: One is in our hand and is the pre-papal control migration.
Alberto Griselli: And this is something that we are fine-tuning quarter on quarter. We discussed this in the last quarter. As a matter of fact, we are accelerating a bit, keeping control of the overall effect that is positive for the company, which is accretion on revenue growth. So this trend is there and is there to stay, and so this will impact revenues as we go forward as it is impacting them today. The other element is more related to, let's put it this way, the elasticity of demand versus the price adjustment I've been doing in the last quarter.
Speaker Change: And this is something that we are fine-tuning quarter-on-quarter. We discussed this in the last quarter. As a matter of fact, we are accelerating a bit, keeping control of the overall effect that is positive for the company, which is accretion on revenue growth.
Speaker Change: So this friend is there and is there to stay.
Speaker Change: And so this will impact the revenues as we're going forward, as it is impacting it today.
Alberto Griselli: The other element is more related to the, let's put it this way, the elasticity of the demand versus the price adjustment I've been doing over the last quarters.
Alberto Griselli: So when you look at prepaid, prepaid is a mixture of a number of segments or sub-segments. So in this structure, you find people that have a limitation on available income and their ability to commit a specific amount of money to that specific month. So let's say low-level, lower-income segments, whereby at the same time, you have people that have the ability to recharge, and it could also be postpaid customers, but they prefer to be prepaid because they prefer to have the flexibility of spending the money as they please. And what we saw when we applied the adjustment over the last quarters is that the elasticity response is different in different segments. And it's sort of all of you.
Speaker Change: So when you look at prepaid, prepaid is a mixture of a number of segments or sub-segments. So in this structure, you find people that have a limitation on available income, and so their ability to commit.
Speaker Change: a specific amount of money to that specific month, so let's say low level, lower income segments, whereby at the same time you have
Speaker Change: G. We are a team of people that have the ability to put recharge and they could be also postpaid customers, but they prefer to be prepaid because they prefer to have the flexibility of spending the money as they please.
Speaker Change: And what we saw when we applied the adjustment over the last quarter is that the elasticity response is different in different segments.
Speaker Change: And it's sort of obvious, if you are lower income, your responses are not that great. If you are higher income, the response is better.
Speaker Change: So what we are doing is to fine-tune our value proposition and go-to-market strategy to be able to segment our operation to address in a more efficient way these different sub-segments of prepaid customers.
Speaker Change: And so, the extent that we'll be successful in implementing our strategy, and the time required for this strategy to pay off, will determine, together with the prepaid to control migration, our prepaid performance in the next quarters.
Speaker Change: And when it comes to the broadband...
Speaker Change: So, you're right, as we've been mentioning over the last quarters, we have a selective approach in terms of broadband growth, and this doesn't change, meaning that we consider the market to be extremely competitive.
Speaker Change: Keep in competitive and therefore we are controlling the pace of growth to ensure profitability.
Speaker Change: As part of this process, we decided to restructure a bit our sales and commercial machine in order to depend less on what we call push channels, that generally tends to have a lower quality of acquisitions.
Speaker Change: And this, of course, requires a resetting of the commercial machine, because we close down these channels.
Speaker Change: And the first effect is that you lose a bit of gross additions, whereby the churn level tends to stay constant for six months because of what entered in the previous gross campaigns.
Speaker Change: This is impacting the pace of growth on FTTH, but we are getting to the normalization for the next quarters. Plus, we are expanding the footprint, so we are likely to accelerate a bit versus where we stand today.
Speaker Change: At the same time, we decided to close the sale of FTTC, so copper, so we don't sell any more copper, and so we lost the gross additions of this operation, whereby the churn level continues to be there.
Speaker Change: If you combine these two things, you see a bit of a slowdown. We are working to invert this trend and going back to growth that is not going to be very different from a high single-digit growth because this is the pace that we consider to be good.
Speaker Change: for this moment of the market. In the meantime, you're right, there are a number of players in the market that they are willing to consolidate. So we are looking at it to find the right move for us. We are not in a hurry because our exposure to Broadman is limited. And so we are waiting for the right conditions and the right player to appear in our screen.
Speaker Change: Thank you.
Operator: Our next question comes from Daniel Federli with Bradesco BBI. You can open your microphone.
Speaker Change: Our next question comes from Daniel Federli with Bradesco BBI. You can open your microphone.
Daniel Federli: Hi, good morning, everyone. My first question is more like a follow-up to Marcelo's question. Your three-year guidance also implies a deceleration in the upcoming years versus 2024. So my question is, why should the mobile industry grow less in 2025 than it did this year? What are the drivers for the deceleration?
Daniel Federli: Hi, good morning everyone. My first question is more like a follow-up on Marcelo's question. Your three-year guidance also implies deceleration in the upcoming years versus 2024, so my question is why the mobile industry should grow less in 2025 than this year? Which are the drivers for a deceleration?
Daniel Federli: And the second question related to selling expenses; they are growing in line with revenue, and we were not expected to see some efficiency gains with lower churn, right, churn close to all-time lows. Selling expenses could be benefiting from that. Thank you very much.
Speaker Change: And the second question related to selling expenses, they are growing in line with revenue, and we were not expected to see...
Speaker Change: Some, like, efficiency gains with lower churn, right, churn close to all-time lows.
Speaker Change: selling expenses could be benefiting from that. Thank you very much. Okay, let me take the first one and then we'll pass to Andrea for the second one. In terms of the first one, I would say that the rationale is sort of pretty simple.
Alberto Griselli: Okay, let me take the first one. And then we'll pass it to Andrea for the second one. So the first one, I would say that the rationale is sort of pretty simple. So when you look at revenue growth and you look at the performance of the sector over the last 10 years, you will see that if you take away 2022 and 2023, when the sector grew above inflation because market rationality and market repair were already in place.
Speaker Change: When you look at the revenue growth and you look at the performance of the sector over the last 10 years, you see there have been, if you take away 2022 and 2023 where the sector grew above inflation.
Andrea Palma Viegas Marques: because the market rationality and market repair was already in place in the last previous years we have been growing below inflation.
Alberto Griselli: In the past years, we have been growing below inflation. So, the thesis of the more for more approach is the one that we discussed at our investor day. So, you have a situation where the market is shifting from volume to value, and so there is more importance placed on quality of service versus price. This is confirmed by all the research that we are running. At the same time, on the demand side, you see that we have in our hands pretty essential services with, let's put this way, low usage and low prices because of the competitive dynamics of the previous years.
Andrea Palma Viegas Marques: The thesis of the more-for-more approach is the one that we discussed in our investor day.
Andrea Palma Viegas Marques: A situation where the market is shifting from volume to value and so more important of quality of service versus price. This is confirmed by
Andrea Palma Viegas Marques: … all research that we are running. At the same time, on the demand side you see that we got in our hands a pretty essential services with, let's put this way, low usage and low prices because of the competitive dynamics of the previous years.
Alberto Griselli: And so, the opportunity to catch up this gap that has been growing over the last years, and at the same time, you've got a macroeconomic environment where inflation is now a bit less, going down over time, but it's still going down over time. And so, when you put what is the ideal growth rate, it's 1.5 to PP above inflation, and this is basically what we put in our guidance at that time, stronger growth at the beginning because we have some ground to catch up on, and then growth that slows down to something above inflation.
Andrea Palma Viegas Marques: And so the opportunity to catch up this gap that has been growing over the last years. And at the same time, you've got a macroeconomic environment where inflation was, and now it's a bit less, going down over time.
Andrea Palma Viegas Marques: but it's still going down over time. So when you put what is the idea growth rate, it's 1.52 pp above inflation. And this is basically what we put in our guidance at that time.
Andrea Palma Viegas Marques: A stronger road at the beginning because we have some ground to catch.
Andrea Palma Viegas Marques: And then a growth that slowed down to something above inflation. And this is, by the way, subject to the fact that a rational environment will keep staying in place for the next years.
Alberto Griselli: And this is, by the way, subject to the fact that a rational environment will keep staying in place for the next years and the ability to have a positive demand elasticity response when implementing the more for more strategy. And that it is basically behind our assumption for the guidance. So five to seven percent for the bracket for 2024 and five to six on a longer time horizon as inflation goes down. And therefore, our inflation plus it goes down as well.
Andrea Palma Viegas Marques: and the ability to have a positive demand elasticity response when implementing the more formal strategy.
Andrea Palma Viegas Marques: And that it is basically behind our assumption for the guidance, so 5 to 7% for the bracket for 2024 and 5 to 6 on a longer time horizon as inflation goes down and therefore the inflation plus goes down as well.
Alberto Griselli: Was it clear, Daniela? Very clear about the thing.
Speaker Change: [inaudible]
Andrea Palma Viegas Marques: Hi Daniel. In relation to the selling expenses, if we are increasing them below the revenue, because remember, last year we had the Fistel credit. When we incorporated the OE, we recognized the Fistel credit. When we took this value from last year, you see that our increase in selling expenses is below revenue. We also have productivity in these expenses. The selling expenses are increased basically related to the expenses with the revenue, with the project revenue, where we have a substance and also the bed depth, but the bed depth.
Speaker Change: Very clear, Alberto. Thank you. Okay.
Speaker Change: Hi, Daniel. In relation to the selling expenses, if we are increasing them below the revenue, because remember, last year we had the fiscal...
Speaker Change: Credit. When we incorporate the OI, we recognize a credit of itself. When we took this
Speaker Change: Peace.
Speaker Change: Andres Coello from last year, you see that our increase in selling expenses is below revenue. We have also...
Speaker Change: For the tubing of these experiences.
Speaker Change: The same expenses are included related to the expenses with the revenue, with the project revenue.
Speaker Change: where we have a substance and also the bed depth, but the bed depth.
Andrea Palma Viegas Marques: We have the same ratio on revenue, so we consider that we have a very good result in the offset expenses. And we will continue to grow this one. For example, in the second quarter, we have more advertising, we have Rocking Hill, and other, we will launch other products. So we have increased in this part. But related to the goal on revenue, we have a very good ratio in the set expenses.
Speaker Change: We have the same ratio on revenue. So we consider that we have a very good result in the Austin city expenses, and we will continue to grow this one.
Speaker Change: For example, the second quarter we have more diversified, we have Rock in Rio, and other, we will launch other products, so we have increased in this part. But related to that, we go on, on revenue, we have a very good ratio in the expenses.
Daniel Federli: I don't know if I answered your question, but that was perfect. Thank you, Andrea.
Speaker Change: I don't know if I answered your question. That was perfect. Thank you, Andrea.
Speaker Change: Congratulations.
Operator: Our next question comes from Faujif Serafim with Nanvi. When do we have to expect dividend guidance revision since the company is generating much more cash than predicted? Well, we have some.
Andrea Palma Viegas Marques: Thank you.
Fauji Serafin: Our next question comes from Fauji Serafin with Nanvi. When do we must expect dividend guidance revision since the company is generating much more cash than predicted?
Alberto Griselli: Well, we have some formal moments in our governance where we update our guidance, and that will be the guidance for next year. It is going to be released in February next year.
Speaker Change: Well, we have some formal moments in our governance where we update our guidance, and that would be the guidance for next year that are going to be released in February next year. So far,
Operator: So far, we've given guidance for three years already. That was a big, put it away, positive novelty and response to the demand from you guys to have a more long-term view. So we move to the 12 billion overall three-year guidance for 20456. And so the number is in place. It covers already three years. As we have said many times, we want to have some flexibility on our side for potential inorganic activities. And the update, I would say at this point in time, it's going to be next year when we update the triennial in that.
Speaker Change: We gave a guidance for three years already.
Speaker Change: This was a big positive novelty in response to a demand of you guys to have a more long-term view. So we moved to the $12 billion overall real guidance for 20456.
Speaker Change: And so the number is in place. It covers already three years. As we said many times, we want to have some flexibility on our side for potential inorganic activities.
Operator: And the update, I would say at this point in time, it's going to be next year when we update the D3 annual industrial plan.
Operator: Once again, if you wish to ask a question, please press the button raised by the hand. If your question is answered, you can exit the queue by clicking on the same button. Please hold while we pull for questions. Our next question comes from Gustavo Farias with UBS.
Speaker Change: Thank you. Once again, if you wish to ask a question, please press the button, raise hand. If your question is answered, you can exit the queue by clicking on the same button.
Speaker Change: [inaudible]
Speaker Change: Please hold while we pull for questions.
Operator: You can open your microphone.
Speaker Change: Our next question comes from Gustavo Farias with UBS. You can open your microphone.
Gustavo Farias: Hi, everyone. One additional question regarding bad debt. Do you believe in an increase in bad debt given a higher mix of postpaid? uh, in the for uh, going forward. Thank you.
Gustavo Farias: Hi everyone. One additional question regarding the bad debt. Do you believe in an increase in bad debt given a higher mix in postpaid?
Gustavo Farias: and for going forward. Thank you.
Andrea Palma Viegas Marques: Gustavo, what we are seeing now is that our BDEP, even with our increase in the NNS and increase in revenue, is still under control. We are not seeing any kind of increase in the BDEP. Our collection is still the same, and our collection curves for the future are still the same. So we are seeing a very good result in this way, even with the increase in our base, of part base. So, so far, so good.
Speaker Change: Gustavo, what we are seeing now is that our BDEP, even with our increase in the NNS and increase in the revenue, is still under control. We are not seeing any kind of increase in the BDEP, our collection.
Gustavo Farias: It's still the same. Our collection curves for the future are still the same. So we are seeing a very good result in this way, even with the increase of our base, of our base. So, so far, so good.
Gustavo Farias: Okay, thank you.
Gustavo Farias: Okay, thank you.
Operator: Next question from Felipe Chang with Santander. You can open your microphone.
Speaker Change: Next question from Felipe Chang with Santander. You can open your microphone.
Felipe Chang: Hi, thank you so much for taking my questions. Two on my side, if you guys could provide a little bit more detail as to what stage we are in the infrastructure sharing agreement with Vivo, if this has already been an important driver here for OpEx and CapEx, and what to expect in the upcoming years for this infrastructure sharing agreement, that would be great. And my second question is related to the B2B business, the IoT solutions, how this has been evolving, if you could also provide a little bit more detail, if it has been running ahead of expectations or not. So these are my two questions. Thank you very much.
Felipe Chang: Hi, thank you so much for taking my questions. Two on my side.
Felipe Chang: If you guys could provide a little bit more detail as to what stage we are in the infrastructure sharing agreement with VIVO, if this has already been an important driver here for OPEX and CAPEX, what to expect in the upcoming years for this infrastructure sharing agreement that would be great.
Speaker Change: And my second question is related to the B2B business, right, the IoT solutions, how this has been evolving, if you could provide also a little bit more detail, if it has been running ahead of expectations or not. So these are my two questions. Thank you very much.
Alberto Griselli: So, Filippo, let me start with the second one, and I will pass on the first one. On the second one, B2B, we are on track according to our plan. So we have quite an ambitious plan, by the way, and this is something that is going to, in our view, contribute to revenue growth in the medium term. It's already contributing, but so far, it's an absent business. Nonetheless, over the last two years, basically, we have increased by 10 the revenues of this sector. So we keep closing contracts in the three main verticals where we are operating. That would be the agribusiness, that would be the logistics business, and the utilities business.
Speaker Change: So, Felipe, let me start with the second one, and I will pass on there for the first one. On the second one, on the B2B, we are on track according to our plan. So, we have quite an ambitious plan, by the way.
Speaker Change: And this is something that is going to, in our view, contribute to...
Speaker Change: to revenue growth in the medium term is already contributing to it. But so far, it's a it's an absent business.
Speaker Change: nonetheless
Alberto Griselli: Over the last two years, basically, we increased by 10 the revenues, contracted revenues of this sector.
Speaker Change: So we keep closing contracts in the three main verticals where we are operating.
Speaker Change: that would be the agribusiness. There will be the logistic business and the utilities business. So on both these verticals, we are making steady progress and consistent progress. And the pipeline of the contracts that you know, the cycle took Officer is pretty long. It's something that it takes from six months to 18 months to grow. So the pipeline is pretty strong.
Alberto Griselli: So on both these verticals, we are making steady progress and consistent progress. And the pipeline of the contracts that, you know, the cycle to close this contract is pretty long. It's something that takes from six months to 18 months to close.
Alberto Griselli: So the pipeline is pretty strong, and our positioning is pretty strong. And so the answer is we are in line with our plan, and we are moving forward, and you will see a number of things appearing in the next quarter in terms of commercials, wins, and potentially new verticals that we are going to open. We have got the priority to expand our customer base on one side and also to increase our portfolio on the second one. So finding partners to enrich the portfolio and provide additional services for our customers. So I'm satisfied with the progress to date.
Alberto Griselli: And our positioning is pretty strong, and so the answer is we are in line with our plan and we are moving forward, and you will see a number of things appearing in the next quarter in terms of commercials, wins, and potentially new verticals that we are going to open.
Speaker Change: We've got the priority to expand our customer base.
Bernardo Guttmann: from one side, and also to increase our portfolio on the second one, so finding partners to
Speaker Change: and reach the portfolio and provide additional services on our customers. So I'm satisfied with the progress to date. And the last but not least, we are also looking at non-organic activities. And when we have some news, of course, we're going to share it with you.
Andrea Palma Viegas Marques: Hi Filipe, in relation to the infrastructure agreement with EIF, we are still on this project. As we mentioned in our presentation, we have updated some cities. We have two fronts, one single grid, and another one is to shut down the 2G network.
Speaker Change: Hi Filipe, in relation to the infrastructure agreement with IFE, we are still on in this project. We mentioned in our presentation, we have updated some cities. We have the...
Andrea Palma Viegas Marques: and others. One is to shut down the 2G network.
Andrea Palma Viegas Marques: We are moving forward with this, and we are looking for another city inside what we have approved with the CAJ in Aracel, but it's a complex project. Not very fast like we want, but we are continuing with this project. And we think that until the end of the year or first quarter of next year, we will be completing this project.
Speaker Change: We are moving forward in this, and we are looking for another city inside what we have approved with the CAD and ANATEL. But it's a complex project.
Andrea Palma Viegas Marques: Not very fast like we want, but we are continuing in this project, and we think that until the end of the year or first quarter of next year, we will complete this project.
Alberto Griselli: Maybe it's worth remembering that, Felipe, when you look at this, the one that is the 2G shutdown is basically an energy saving.
Alberto Griselli: Felipe when you look at this, the one that is the 2G shutdown is basically energy saving. That's the main driver. When you look at the single grid, we share the entire infrastructure, and so there is some cost avoidance in terms of energy, maintenance and actual costs.
Alberto Griselli: But that's the main driver, whereby when you look at the single grid, we share the entire infrastructure. And so there is some cost avoidance in terms of energy maintenance and actual cost. And it's clearly much more complex to implement. And when you move forward to what it could be, that would be complex avoidance if we decided to extend this to 5G at some point in time. But for this weapon, of course, the 2G and the single grid need to work, and the process needs to work. And this is something that we are proceeding with VIVO at this stage. And just remember that this is only for cities with less than 30,000 people.
Felipe: And it's clearly much more complex to implement, and when you move forward to what it could be, that would be complex avoidance if we decide to extend this to 5G at some point in time. But for this weapon, of course, the 2G and the single grid needs to work.
Alberto Griselli: And the process needs to work, and this is something that we are proceeding with vivo at this stage. Just remember that only for cities with less than 30,000 people.
Felipe Chang: Perfect. Very clear. Thank you so much. And congratulations on the great results. Thank you.
Speaker Change: Perfect, very clear. Thank you so much and congratulations on the great results.
Alberto Griselli: Ladies and gentlemen, without any more questions, I am returning to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.
Felipe: Thank you.
Speaker Change: Ladies and gentlemen, without any more questions, I am returning to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.
Alberto Griselli: Thank you, everyone, for staying with us. We are delivering a very strong first semester for this year. So, the first half of the job is done, and we're fully focused on the second half. I would like to thank the entire team for the hard work that allowed us to deliver another great quarter. And I look forward to meeting you guys on the one to one conference call in the coming days and weeks. Thank you, everybody.
Alberto Griselli: Thank you everyone for staying with us. We are delivering a very strong first semester for this year, so first half of the job is done and now we are fully focused on the second half. I would like to thank the entire team for the hard work that allowed us to be here.
Alberto Griselli: to deliver another great quarter and I look forward to meet you guys on the one-to-one conference call in the coming days weeks. Thank you everybody.
Operator: Thus, we conclude the second quarter of 2024 conference call of TeamSA. For further information and details of the company, please access our website, www.team.com.br slash ir. You can disconnect from now on. Thank you once again.
Operator: Thus, we conclude the second quarter of 2024 conference call of TeamSA. For further information and details of the company, please access our website, team.com.br slash IR. You can disconnect from now on. Thank you once again.