press release 4 t08 en
TRANSCRIPT
Results084Q
February 27th, 2008
1
Main phases of TIM Brasil’s Re-launch Plan
Volume driven strategyFalling ARPMRising bad debtOffering strategy is lacking
2008 1st half 2008 2nd half – 2009 1st quarter 2009 2nd quarter – 2009 2nd half
Lower Profitability
New management teamStrict financial disciplineLaunch of Fixed-Mobile substitution offer
Defend % EBITDA
Loss of Top of Mind/PreferenceDrop in volume share and valueIssue in post-paid segment
Loss of Revenue Share
Brand repositioningNew portfolio of offeringsConverging approach
Growth in Value
Phase 0:RestructuringDifficulty Phase 1:
Re-Launch PlanCurrentPosition
TIM PARTICIPAÇÕES S.A. | Investor Relations
2
Agenda
Claudio Zezza Luca Luciani
Difficulty CurrentPosition
Phase 0:Restructuring Phase 1: Re-Launch
Plan
TIM PARTICIPAÇÕES S.A. | Investor Relations
3
EBITDA margin 4Q08 at 26.2% and 22.2% FY 2008:meeting company's guidance
ARPM increase to R$0.35 (R$/min) in 4Q08
Bad debt 4Q08 at 4.1% of net service revenues:Discipline and stricter credit control (meeting
expected FY ~6%)
SAC reduction: selectivity and efficiency on
acquisition
Slowdown of ARPU erosion in 4Q08: R$29.9 in 4Q08
vs. R$29.7 in 3Q
VAS: +25.5% 4Q08 YoY, reaching 11% of gross service
revenues
..Lights..
4Q08 / 2008 Achievements
…shadows..
Drop in market share (below guidance ~26%)
24.2% of market share in 2008 vs. 25.8% in 2007
Net service revenue FY08 at 5.1% growth, below expectations (guidance >7%):
Lower Postpaid customer base (-200K lines YoY)
Low incidence of post-paid on total gross adds in 4Q08 (13%)
High churn of post-paid (10% in 4Q08)
Mix post-paid at 18.1% 4Q08 (vs. 21.7% in 4Q07)
MOU reduction in 4Q08 (-19% YoY) as consequence of lower push on promotions
TIM PARTICIPAÇÕES S.A. | Investor Relations
4
Rigorous Financial DisciplineEBITDA %: Meeting the company guidance
4Q07 4Q08
890 928
26.4% 26.2%Margin
ARPM Increase
R$ Million
3Q084Q07
143 13198
4Q08
4.7%3.2% 4.1%
3Q08
800
23.8%
Bad Debt Control
96110110
3Q084Q07 4Q08
3.7x3.2xSAC / ARPU 3.2x
SAC Control
110
R$
% Serv. revenues
R$ Million
6.2%FY 08
R$ Cent.
0.32 0.29 0.35
3Q084Q07 4Q08
0.32 0.29 0.35
3Q084Q07 4Q08
33.5%
-8.9%
∆ YoY
∆ QoQ
7.2%
18.0%
∆ YoY
∆ QoQ
4.2%
16.0%
∆ YoY
∆ QoQ
-12%
-13%
∆ YoY
∆ QoQ
TIM PARTICIPAÇÕES S.A. | Investor Relations
5
Solid KPI’sSlowdown of ARPU erosion
4Q07 4Q08
34.5 29.9
VAS (success in innovative services)
R$
3Q08
29.7
TIM WEB (boosting VAS)
~0.20~0.16
1H082007 2008
TIM FIXO* (fresh market)
~0.01
Million accesses
~0.5~0.3
1H082007 2008
~0.2
R$ Million% of gross service revenue
25.5%
17.0%
∆ YoY
∆ QoQ471.3402.9375.4
4Q07 3Q08 4Q08
9.0%9.7%
10.8%
* Including TIM Casa Flex
Million accesses+25%
-13.1%
+1.0%
∆ YoY
∆ QoQ
+70%
TIM PARTICIPAÇÕES S.A. | Investor Relations
6
Customer Base Profile
Million lines
121.0 125.8 133.2 140.8 150.6
31.3 32.5 33.8 35.2 36.4
4Q07 1Q08 2Q08 3Q08 4Q08
+16.5%
∆ YoYMobile Market
TIM
TIM: Market Share Erosion
Post-paid Pre-paid
6.8 6.8 6.8 6.8 6.6
24.5 25.8 27.0 28.4 29.8
31.3 32.5 33.8 35.2 36.4
4Q07 1Q08 2Q08 3Q08 4Q08TIM Market share 25.8 25.9 25.4 25.0 24.2
TIM: more pre-paid Customer Base
TIM Incr. share 25.5 26.5 17.4 18.3 12.1
∆ YoY
Million lines
+24.5%
% Pos / Total 21.7 20.8 20.2 19.4 18.1
-3%
+22%
TIM erosion in market share:Market continues to grow at a very strong pace (+24.5% in lines)TIM reduce its market share to 24.2% Incremental market share down to 12.1% in 4Q08
Mix change towards pre-paid (volume):TIM Customer Base grew-up to 36.4 Mln lines mainly on pre-paid (+22%)Post-paid lines down to 6.6 Mln (-200K lines YoY), representing 18.1% of total Customer Base
TIM erosion in market share:Market continues to grow at a very strong pace (+24.5% in lines)TIM reduce its market share to 24.2% Incremental market share down to 12.1% in 4Q08
Mix change towards pre-paid (volume):TIM Customer Base grew-up to 36.4 Mln lines mainly on pre-paid (+22%)Post-paid lines down to 6.6 Mln (-200K lines YoY), representing 18.1% of total Customer Base
TIM PARTICIPAÇÕES S.A. | Investor Relations
∆ YoY
∆ YoY
7
Revenue Performance
TIM Service Revenue ShareNet Revenue
29.6% 27.5% 27.3%
4Q07 3Q08 4Q08*
R$ Million
3,3762,993 3,186
4Q07 2Q08 3Q08
3,358
1Q08155 321292215276
3,2233,0662,9712,8383,100
3,544
4Q08
Net Service Revenue Net Handsets Revenue
Revenue Growth at 5.1% on a FY basis (below guidance >7%) due to:
lower than expected post-paid growth (post-paid Gross Adds at only 13% of Total in 4Q08)
high churn on post-paid (10% in 4Q08)
MOU reduction in 4Q08 as consequence of lower push on promotions
Revenue Growth at 5.1% on a FY basis (below guidance >7%) due to:
lower than expected post-paid growth (post-paid Gross Adds at only 13% of Total in 4Q08)
high churn on post-paid (10% in 4Q08)
MOU reduction in 4Q08 as consequence of lower push on promotions
+5,3% +5,0%+6,1%+4,1%∆ YoY
YoY %
+4.0%
+16.5%
TIM PARTICIPAÇÕES S.A. | Investor Relations
* Includes net service revenue from Vivo, Claro, TIM, Telemig, Amazônia, Oi and Brt
8
Revenues KPI evolutionMOU
R$
-18% -21%Incoming
Outgoing +9%-19%
ARPM
ARPU
R$
-13%-13%R$
-13%+7%
∆ YoY
∆ YoY:
∆ YoY
-19% -1%Total
Incoming
Outgoing
TIM PARTICIPAÇÕES S.A. | Investor Relations
The 2008 objective was:
Price increase and to contain the
ARPU dilution
Greater discipline towards the
pre-paid promotions that
resulted in pre-paid ARPU
increase
Total ARPU performance mirrors
the mix deteoration
62 70
2625
9586
4Q08 FY08
0.350.31
4Q08 FY08
29.729.9
4Q08 FY08
9
EBITDA YoY performance
R$ Million
EBITDA Margin 26.2%26.4%
Change +4.0% +16.5% +9.5% -1.1% +17.6% +33.5% -5.5%% YoY
890.4
123.0
45.6 (61.4) 11.8 (65.9)(32.7)
927.6
16.7
EBITDA 4Q07 ServiceRevenue
HandsetsRevenue
SellingExpenses
NetworkExpenses
COGS Bad Debt *OtherExpenses
EBITDA 4Q08
• Increase due to higher commercial
activities, advertising exp. and
commissions
Higher handset sale volume (+14% YoY)
Largely impacted by strong credit
collection effort in 4Q07
* Other Expenses include: G&A, Personnel and Net Other Operating Expenses/Revenues
TIM PARTICIPAÇÕES S.A. | Investor Relations
10
From EBITDA to bottom line – 4Q08
Change YoY +4.2%+4.2% +3.3%+3.3% +5.9%+5.9% +153.0%+153.0% n.m.n.m. +65.8%+65.8%
EBITDA 4Q08
DepreciationAmortization
EBIT Net FinancialExpenses
Taxes andOthers Net Income
927.6
305.4
(622.2)
(141.4) 135.6299.6
Tax loss carry forward R$160.2Mn
Growth fueled by higher cost of debt and 3G NPV
TIM PARTICIPAÇÕES S.A. | Investor Relations
R$ Million
11
Net financial position and FCF – 4Q08
R$ Million
Net DebtR$ Million
Operating Free Cash Flow
Gross Debt R$ 3.2 billion (of which 60% long term)~28% of total debt is denominated in foreign currency (fully hedged)
Average annual cost 12.1% in 2008 vs. 11.4% in 2007 (13.2% in 4Q08 vs. 10.9% in 4Q07)
Debt ratio 0.58x - Net debt over 2008 EBITDA
3Q08 OpFCF NonOpFCF
4Q08
+1,072
Positive Net Cash Flow
(2,743) 1,229
(157) (1,670)
EBITDA ΔWkC Capex OpFCF
928
1,229
(782)1,084
3Q07 and 4Q07 figures
(1,788)(1,788) 928928 (92)(92) (952)(952) 890890 1,0441,044 (1,007)(1,007) 9289284Q07 figures
TIM PARTICIPAÇÕES S.A. | Investor Relations
12
On December 1st of 2008, TIM became part of the new portfolio of Bovespa’s
Corporate Sustainability Index (ISE)
ISE is composed by 30 companies out of 394 traded at Bovespa,
comprising only the companies with a strong commitment to sustainability and social responsibility
ISE is based on the international concept of the Triple Bottom Line (TBL), which makes an integrated assessment of companies’
social, environmental and financial elements
Underlining TIM’s commitment on a constant relationship improvement among all its stakeholders and strengthening its
environmental indicators performance
Recognized as one of the national companies more committed to management transparency and which contributes to the
development of a fair social system, environmentally balanced and economically prosperous
Paving a sustainable growth
TIM became part of Bovespa’ s Corporate Sustainability Index (ISE)
TIM PARTICIPAÇÕES S.A. | Investor Relations
13
Agenda
Claudio Zezza Luca Luciani
Difficulty CurrentPosition
Phase 0:Restructuring Phase 1: Re-launch
Plan
TIM PARTICIPAÇÕES S.A. | Investor Relations
14
Penetration
A Large and Competitive Market
Double-digit market growth
151121
Customer Base
25%
2007 2008
Service Revenue
Churn market... 56 75
Gross Adds
35%
2007 2008
4438
14%
2007 2008
Million lines Billion R$
35 46
Churn
32%
2007 2008
Million lines Million lines
64% 78%
32%
Competition increases with Mobile Number Portability in 2009:17% of population covered in Sep-08 100% by Mar-09
34%Churn
… suffering strong competitive pressure
TIM PARTICIPAÇÕES S.A. | Investor Relations
Player 1
-3%
2007 2008
R$, R$/min
-15%
ARPUARPM
TIM
-13%
2007 2008
R$, R$/min
-13%
Player 2
-7%
2007 2008
R$, R$/min
-23%
34.4 29.7
0.360.31
30.3 29.6
0.340.39
27.3 25.5
0.270.35
15
Loss of TIM Brasil’s competitiveness
Source: Synovate Image Survey Sept-Oct 08* Includes net service revenue from Vivo, Claro, TIM, Telemig, Amazônia, Oi and Brt
46%
11%
18%20%27%26%
Top of Mind
Top of Mind and Preference
Player 2 Player 3 Player 4
21%21%25%
22%
Preference
Player 2 Player 3 Player 4
Mobile Number Portability
IN OUT
Oct-08 Oct-08
MNP%, Sept-Dec 2008
Market Share
(value and volume)
Revenue Share
2006 2008
Market share
2006 2008
29.4% 27.7%25.4% 24.2%
% * %
29.6%
2007
25.8%
2007
High-Value Base (Post-paid)
2006 2008 1Q08 4Q08
21.3% 18.1%20.8%
18.1%
2007
21.7% 19.4%20.2%
2Q08 3Q08
Churn: 10% in 4Q08Gross Adds: 13% post-paid/total in 4Q08
Increasing competitive pressure in 2009
% Post-paid/Base % Post-paid/Base
TIM PARTICIPAÇÕES S.A. | Investor Relations
16
TIM Brasil’s strong fundamentals
Network: leadership in coverage and quality
• voice (coverage and quality)
• data (Edge/ 3G)
High-Value Customer Base (ARPU ~30R$) with proven innovation attitude (VAS 10.8% Gross Service Revenue in 4Q08)
Unique “Pure Mobile” convergence offering
• TIM Web: strong growth (+2.5x of base YoY)
• TIM Fixo: high satisfaction among early adopters
Operating as a“Pure Mobile”
company, with solid fundamentals…
… in line with our DNA
1
2
3
TIM PARTICIPAÇÕES S.A. | Investor Relations
17
Network: leadership in voice and data coverage
* Urban population covered (Jan-09)
Voice Data
Population covered by GSM*
Recovery of Service Quality
59% of high-value customer base covered by 3G (Jan-09) 78% by Dec-09
Native 3.5G (HSDPA) high performance
Largest data network = Edge / UMTS
3G Data Only high quality
93%
90%
88%
88%
Player 2
Player 3
Player 4
Congestion % cells with Grade of Service > 2%
0
2
4
6
8
10
W1 W2Jan Feb March April May June July Aug Sept Oct Nov Dec Jan Jan
“Right on spot”
TIM PARTICIPAÇÕES S.A. | Investor Relations
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High-Value Customer Base with proven innovation attitude
38%
4%
VAS/ Gross Service Revenue
% Gross Service RevenueMonthly ARPU, R$
ARPU Data Revenue Growth
4Q07 vs. 4Q08
Reversal of ARPU dilution Increase in VAS... ... with push in
data and content
4Q07 1Q08 2Q08 3Q08 4Q08
SMS/MMS
VAS-i
TIM PARTICIPAÇÕES S.A. | Investor Relations
29.8 29.7 29.929.534.5
9.0%8.4%
9.8% 9.7%10.8%
4Q07 1Q08 2Q08 3Q08 4Q08
19
Agenda
Claudio Zezza Luca Luciani
Difficulty CurrentPosition
Phase 0:Restructuring
Phase 1: Re-launch Plan
TIM PARTICIPAÇÕES S.A. | Investor Relations
20
Three markets, one approach: “Pure Mobile”
Net revenue, Billion R$
Attractiveness Key Success FactorsMain Dynamics
Mobile
Fixed
FixedMobile
44 50
46
811
43
2008 2011
1
5
~5%
~2%
~10%~50% Fresh market
F-M substitution
Churn market
“Innovation”MbpsAlways on
“Convenience”Value for moneyReady to go
“Positioning”BrandSegmentation
96
112
To become the #1 alternative amongHigh-Value Customers
BB
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Brand: repositioning1
* January-November 2008Source: Ibope Monitor/GRP, Synovate Image Survey Sept/Oct 08
Volume/ Value Positioning
+
-
Bran
d St
reng
th
Brand Standing+
Voice Share
Communication Investment Share
Voice Share + ~70% ATLProduct (corporate support)Coherence and recognition
TIM PARTICIPAÇÕES S.A. | Investor Relations
TV - GRP TIM
% Total Investments TIMLeader
5.9 13.2 13.3
Delta p.p.
23.6%19.1% 17.4%
29.5% 32.3% 30.7%
2006 2007 2008*
20.4%20.1%22.6%
32.6%34.2%40.5%
2006 2007 2008*
Leader
22
Fixed
Web
TV
Fixed
March May …Jan
Internet
MobileCustomer loyaltyPush Post-paid Gross Adds
Segmented approach“Custom” offer
Conver-gence
From F-M substitution to multiple play
Consumer:
Social-demographic segmentationInnovative tariff schemes (less promotion)Integration with devices and VAS
Business:
Segmented convergent offering for:• SOHO• SME• LA
Quick wins New offer portfolio
ConvergenceMobile
Offering portfolio: distinctiveness2
TIM PARTICIPAÇÕES S.A. | Investor Relations
23
Caring: selectivity3
PRE-PAIDPOST-PAID+
-
Cus
tom
er V
alue
Current caring model (ex: Consumer)
Premium
High value
Post-low
A
B
C-E
F/New
Outsourcer
Outsourcer
Customer Care: Key Points
New management model based on access/ value
Strict regulations increase structural costs (and keeps service leverage flat)
Actions:
Quick wins in High Value: personal agent
Service differentiation
Specialization of call centers
Multi-channel vs. Human Touch
MNP Management
Customer loyalty and development of existing clients (CRM)
TIM PARTICIPAÇÕES S.A. | Investor Relations
24
Sales Force: leveraged footprint and higher productivity 4
* Including Ponto TIM
Points of Sale (PoS)
# 000 PoS, Dec 2008
GDO
Dealers
OwnBusinesses*
PoS Productivity by Region
Value channel, Gross Adds/PoS/month
0
100
200
300
R1 R2 R3 R4 R5 R6 R7 R8
Dedicated Time
Customer Value
Own Businesses
Ponto TIM
Dealers
GDO
Alternative
Volume
Service
Pro-activity
Education/ caring
Larger footprint vs. competitorsPush convergence offeringsProduct/offering needs (store traffic)Differentiation (multi-channel)Control (productivity)
Variance and Metric
Average
TIM PARTICIPAÇÕES S.A. | Investor Relations
Player2
Player3
Player4
7.18.59.4 9.0
25
Network: quality and efficiency…5
3G for data transmission
Value driven coverage: ~80% of value base in 2009
Higher 2G quality
Higher capacity (load)
Investment in 2G qualityNetwork cost efficiency to support aggressive 3G roll-out
2G Quality 3G Roll-outEfficient Cost Structure
Rationalization of costs and contract renegotiations
(leased lines, energy, ...)
New transportation model
Rationalization of investments(right-engineering vs. over-engineering)
Choicesmake vs. buy
“Right on spot”
TIM PARTICIPAÇÕES S.A. | Investor Relations
26
2007 2008
…less buy, more make in transmission5
Logic considers transmission network:
• Make, not buy
• Partnerships
LeasedLines
Network CostsMillion R$
TIM PARTICIPAÇÕES S.A. | Investor Relations
15%
30%
21%
27
Organization and team: new, marketing-driven and rapid…6
Marketing
Marketing drivenEnd-to-endPresence at client
LeanStaff simplification (from 12 to 7)Fewer levels (no GD, no regional coordination)Efficiency
Plug and Play
Change management and motivationState of the artYoung (average age: 42 years)
CEO
1
2
3
4
Operations Technology
End-to-endRevenue
National Presence
EfficientPerformance
Reporting to CEO:11
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28
...with a new customer-oriented sales structure6
Top clients
COO
Business Consumer
Regions
Business
COO
Consumer RegionalCoord.
Regions
Business Consumer
76
Regions4
Regions2
Sales Structure: 2nd half 2008 Sales Structure: January 2009
# Number of regional operations
3 levels between CEO and regional channelSales structure for each client segment
5 levels between CEO and regional channelsSales structure for each region
GM
CEOCEO
“Think globally, Act locally”
# Number of regional operations
TIM PARTICIPAÇÕES S.A. | Investor Relations
29
The re-launch phases1Q09 2Q09 3Q09 4Q09
ResultsHigh Churn:“Clean” our prepaid and postpaid customer base
Post-paid Subscribers:“back on track” Back to Revenue Growth
New strategy assessment
Organization and Team
Advertising: new format
Push on existing Offers:• TIM Fixo• TIM Web• Existing post-paid offer
Actions
New Offering:• Consumer• Corporate• Convergent
Push on the points of sale
Network optimization
New Caring Model
Convergence: multiple play strategy
Push on Commercial
TIM PARTICIPAÇÕES S.A. | Investor Relations
30
Summary …
To capture the excellent opportunities in the Brazilian market …
… operating as a Pure Mobile company, competing aggressively in the entire telecommunications market: mobile, internet and fixed…
… in order to become the # 1 alternative among high-value customers, through:
• Brand: repositioning• Offering Portfolio: uniqueness• Caring: selectivity• Sales Team: footprint and productivity• Network: quality and efficiency• Organization and team: new, marketing-driven and rapid
TIM PARTICIPAÇÕES S.A. | Investor Relations
31
… and commitments for 2009
Growth in Value Revenue Growth
Operating cash flow(EBITDA – CAPEX)
Top of Mind
Preference
Service Revenue Share
ARPU
Strengthening the Position
Back todouble digit in 2H
Positive
Maintain #2
TIM PARTICIPAÇÕES S.A. | Investor Relations
32
“Safe Harbor” Statements
Statements in this presentation, as well as oral statements made by the management of TIM Participações S.A. (the “Company”, or “TIM”), that are not historical fact constitute “forward looking statements” that involve factors that could cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward looking statements. The Company cautions users of this presentation not to place undue reliance on forward looking statements, which may be based on assumptions and anticipated events that do not materialize.
Statements in this presentation, as well as oral statements made by the management of TIM Participações S.A. (the “Company”, or “TIM”), that are not historical fact constitute “forward looking statements” that involve factors that could cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward looking statements. The Company cautions users of this presentation not to place undue reliance on forward looking statements, which may be based on assumptions and anticipated events that do not materialize.
Investor Relations
Avenida das Américas, 3434 - Bloco 016° andar – Barra da Tijuca22640-102 Rio de Janeiro, RJPhone: +55 21 4009-3742 / 4009-3446 / 4009-4017Fax: +55 21 4009-3990
Investor Relations
Avenida das Américas, 3434 - Bloco 016° andar – Barra da Tijuca22640-102 Rio de Janeiro, RJPhone: +55 21 4009-3742 / 4009-3446 / 4009-4017Fax: +55 21 4009-3990
Visit our Website
http://www.timpartri.com.br
TIM PARTICIPAÇÕES S.A. | Investor Relations