Telefônica Brasil Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 10 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to VIVO Second Quarter 2023 Earnings Call. This conference is being recorded and the replay will be available at the company's website atri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese.

Operator

To access, You can press the globe icon located on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Miu to original audio for a better experience. We would like to inform you that all attendees will only be listening to the conference during the presentation and then we'll start the question and answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during the conference Call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of VIVUS' Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depends on circumstances that may or may not occur.

Operator

Investors should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in their respective forward looking statements. Present at this conference, we have Mr. Christian Jabara, CEO of the company Mr. David Malcolm, CFO and Investor Relations Officer and Mr. Jean Pedro Carneiro, IR Director.

Operator

Now I will turn the conference over to Mr. Jean Pedro Carneiro, Investor Relations Director of VIVO. Mr. Canelo, you may begin your conference.

Speaker 1

Good morning, everyone, and welcome to our Q2 2023 earnings call. The presentation will be divided in 2 parts. First, our CEO, Christian Jabbata, will comment on Veevo's operational and financial performance, followed by an update on the progress of our B2B and B2C digital ecosystems and ESG initiatives. Then our CFO, David Melcon, He'll walk us through our cost and CapEx evolution, net income, shareholder remuneration and free cash flow generation. Christian, I hand it over to you.

Speaker 2

Thank you, Joao. Good morning and thank you for participating in our earnings call. We delivered a very strong result in the first Like for like quarter after Oemovios acquisition in April 2022, total revenues grew by 7.6% year over year, Well above inflation, mainly driven by the mobile service revenue that was up 10.4%. This outstanding performance is a result of our best in class value proposition in mobile and fiber, which translates to an expansion of postpaid access The robust operating performance combined with cost discipline enabled EBITDA to grow at double digit pace, Plus 11.1 percent year over year, contributing to a 120 basis point margin expansion in the period. By summing up a robust EBITDA expansion, if a reduced level of CapEx intensity, we were able to deliver an exceptional performance operating cash flow, which totaled BRL6 1,000,000,000 in the first half of twenty twenty three, up 29.2% year over year.

Speaker 2

All these factors allow us to reach BRL2 1,000,000,000 in net income in the 1st 6 months of 2023, An increase of 28.9 percent versus the same period of the previous year. As we keep on generating a massive amount of free cash flow, As seen by the BRL5.6 billion produced year to date, we are committed to maintain a strong level of shareholder remuneration Up to July 12, 2023, we already declared BRL1.9 billion in dividends and interest on capital, while We also invested over BRL200 1,000,000 to buy back our own shares. Turning to Slide 4, We show how our strategic decision of investing in core products during the last years is enabling us to deliver above inflation top line growth. Pricing rationality combined with continuous upselling to postpaid plans allows mobile service revenues to reach A 100 percent organic double digit expansion in the 1st comparable quarter since the acquisition of Moi Mobile. On the fixed side, FTTH and corporate data, ICT and digital services continue to be the main growth drivers As we continue to capture the growing demand for high quality connectivity and digital services in Brazil, as such, Revenues from these two business verticals are growing at rates around mid teens, contributing to the positive expansion of our fixed revenues.

Speaker 2

Moving to Slide 5, we can see the strengthening Of our leadership in the mobile business, despite the disconnection of almost 4,000,000 inactive users received Fanoi, We have consistently increased our market share since consolidation started. The better mix of customer capital with our pricing strategy resulted 11% annual growth in ARPU with visible improvements also in the quarterly trends. While average spend increases, postpaid churn has reduced sequentially and reached its lowest historical level of 1% per month, which is almost half the level we had in 2019. These operational figures give us confidence That we continue to post strong results going forward. On Slide 6, we detailed operational performance of The fiber business, in the last 12 months, we added 3,700,000 fiber to the home premises, which now totals 24,700,000 homes in 439 cities throughout the country.

Speaker 2

In the same period, We continue to lead the market in terms of net additions, connecting 760,000 homes to reach a total of 5,800,000 customers, an increase of 15.1% year over year. Besides being the absolute leader in fiber With the largest FTTH footprint, VIVO has been extremely successful in reducing its FTTH churn, Having reached in Q2 'twenty three its lowest level ever, after reducing it by 20% since 2020. This demonstrates that the unmatched quality of our services, Here represented by the elevated and growing average speed of our FTTH customer base coupled with the strength of our fiber mobile convergent offer Our elements that will continue to give us the edge to maintain the Farber differentiation and leadership. Going to Slide 7, we give an update on recent changes and results related to our portfolio. First, in prepaid, We increased the level of our minimum top up by 25% from BRL12 to BRL15, highlighting this amount with price of the entry level plan we have in our VIVO pre Turbo offer.

Speaker 2

This movement simplifies the prepaid portfolio structures and help us Continue to pull the pre to postpaid upsell lever by reducing the price gap from prepaid To hybrid, on hybrid, we launched 3 new offers that bundle connectivity with health and entertainment options. VIVO Hybrid Health We will help us scale Valisau, a healthcare startup that we acquired last quarter and to improve Our value proposition by providing our customers access to a wide network of health service providers with national coverage. Moreover, Vivo Hybrid with Netflix or Vivo Play strengthens our portfolio with broad catalog of content that contributes reduced churn and increased customers' lifetime value. Lastly, you can see That Vivo Total, our convergent offer that bundles FTTH with postpaid continues to gain relevance. Today, almost 80% Of the FTTH sales in Vivo's own stores are originated by Vivo Total.

Speaker 2

This offer has an incredibly low churn All of our customers' connectivity needs inside and outside their homes. Turning to Slide 8, you can see the evolution of our digital B2B services, which are asset light and this help improve VIVO's return on invested capital. During the last quarter, the revenues from these services added up to BRL800 1,000,000. Most of these revenues are recurrent. And as such, we have been able to maintain an annualized growth level of around 30%, even though in some quarters, We may see lower or higher growth rates depending on the capture of 1 shot revenues.

Speaker 2

I'm proud to share that Vivo Cloud Azure, Microsoft 365 and Microsoft Teams to company of all size. We are the 1st telco in Brazil to receive this important recognition. Moving to Slide 9. We update you on the evolution of digital service in the B2C segment. On the left hand side, you can see that in the Q2 of 2023, Financial Services generated BRL95 1,000,000 in revenues, up 39% year over year.

Speaker 2

Here we have an important contribution of Vivo Money, our 100% digital credit product that ended the quarter with a portfolio of BRL275 1,000,000, up 3.6 times year over year. Another important pillar of The B2C ecosystem is the distribution of video and music OTTs through our invoice, bundled with connectivity plans or On a standalone basis, we currently bill 2,500,000 OTT subscriber, having generated BRL137 1,000,000 of revenues in the Up 35% year over year. VIVO clearly stands out in terms of partnerships with content providers, allowing us to increase our share of wallet and customer retention. Let's move to Slide 10. On ESG, we highlight some initiatives across all fronts.

Speaker 2

First on environment. We ended up the quarter With 6 tons of electronic waste recycled within the VIVO recycle program, targeting to double this amount year By year end, the distributed generation program continues to evolve as we already have 59 functioning renewable power plants We see the results of the actions we have been taking to foster diversity in the company. We launched the XAVING Aprengis program 2023 that targets a public We're 16 to 22 years old and removes any age limitation in the case of professionals with disabilities and directs 50% of the vacancies to black people. This initiative, together with others, contribute To the increase of diversity in the company, by the end of June, Black PeopleReady represented 41.2% of our workforce, A 7.6 percentage point increase versus December 2022. In addition, VIVO sponsored For the 2nd year in a row Sao Paulo's LGBT plus Pride parade inside the company, we also had an increase of LGBTI plus Self declared employees, which totaled 8.5 percent of our workforce, up 2.5 percentage points in 6 months.

Speaker 2

Finally, on governance. The application security and data protection monitoring process were certified by ISO 27,001, demonstrating our alignment with international standards In reference, for Information Security Management. Moreover, VIVO was recognized by Merco as the leader in ESG's responsibility in the sector, Recognizing our efforts to build a sustainable company. For more information on our ESG practice, I invite you all to check out our 2022 integrated report available on the Investor Relations website. Now David will take us through the financial highlights of the quarter.

Speaker 3

Thank you, Christian, and good morning, everyone. On Slide 11, you can see our positive cost evolution. Cost of service and goods sold, which represent 30% of total OpEx, increased 6.4% year over year, reflecting the higher revenues from B2B Digital Solutions and handset sales. The most representative part Cost of operations were up 5% year over year, a much lower piece than in the last quarters. This better performance is linked to the completion of Oi's mobile asset integration and our continuous efficiency and digital initiatives.

Speaker 3

In commercial and infrastructure expenses, we no longer have the transition service agreement with Oi, which represent BRL147 million over the last 12 months. Personal cost is still impacted by insourcing of activities in critical areas and greater commercial activity in B2B. Lastly, provision for bad debt Increase in the quarter due to the specific cases in the large corporate segment that should be normalized in the second half of the year. In B2C, provision for bad debt remains stable, demonstrating that our customers prioritize the payment of their bills with VIVO. Moving to Slide 12.

Speaker 3

In the 1st 6 months of 2023, we have invested BRL4 1,000,000,000, A decrease of 9.3% year over year, which represent a CapEx to sale ratio of 15.9%. This figure demonstrates that we are on the track to keep 2023 CapEx below BRL9 1,000,000,000 As guided at the beginning of the year, despite this CapEx reduction, we continue to invest in top tier technologies Such as 5 gs and fiber. As of June this year, Vivo was the 5 gs leader in Brazil with 112 cities Our operating cash flow expanded by 29.2% year over year in the first half of 2023, not only due to the CapEx reduction, but also driven by double digit EBITDA growth. We continue to see opportunities to optimize our capital allocation as the mobile traffic begins to flow from 4 gs to 5 gs And synergies from OFTCCIEN start to materialize. Turning to Slide 13.

Speaker 3

On the left hand side of the slide, You can see the evolution of our net income that added BRL1.1 billion in the Q2 this year, a growth of 47.2 percent year over year, reaching BRL2 1,000,000,000 in the last 6 months. This solid financial performance allowed us To declare until July 2023, BRL 1,900,000,000 in dividends and interest on capital and to invest in additional BRL213 million to buy back our shares. On July 18, we concluded the payment of the 2022 base shareholders remuneration With a cash outflow in the amount of BRL1.8 billion, we remain confident That Vivo will continue to be best positioned in the sector to translate this strong operating momentum into an attractive shareholders remuneration. Lastly, on Slide 14, our free cash flow generation remains extremely strong, with BRL5.6 billion generated In the first half of the year, expanding 21.7% on a yearly basis. This translates Into our last 12 months free cash flow yield of 11.5%.

Speaker 3

These outstanding results, Coupled with efficient financial management allowed us to maintain a solid balance sheet and control levels of financial debt in this high interest rate environment. Thank you. And now we can move to the Q and A.

Operator

Thank you. We are now going to start the question and answer section for investors and analysts. Our first question comes from Marco Nargini from XP. Please, Mr. Marco, your microphone is open.

Speaker 4

Hello, Christian, David and VIVO team. Thank you for taking my questions. I actually have 2 here in my side, if I may. The first one is whether you could give us a quick update on the ongoing status of the capital stock reduction by up to BRL5 1,000,000,000? And the second one is regarding the FTTH expansion.

Speaker 4

If you could comment on the positive the competitive environment in FTTH. So even though we saw once again a strong performance in top line growth this quarter, it was a slower pace than in Q1. Can you provide us further details on that, please? And perhaps a comment on Vero and Americanet merger and what possible impacts mostly in Sao Paulo region, which Perhaps fierce competition, please. Thank you.

Speaker 2

So, hi, Marcelo. That's Christian. So as you may know, we have asked, Anatel For the authorization of the reduction that you mentioned, the request was filed on February 15. It's already being analyzed by the technical area and the Anatel's attorney. Now is the process that will go to the Anatel's council And then it's going to be voted.

Speaker 2

So we are very confident that about receiving the approval that we will receive the approval and because we have a very robust financial position. So after that, can comply with all the necessary steps to for this kind of operations, such as our general shareholder meeting And a period for a position of creditors. So we are confident and optimistic about the timing. It's now we wait for the process to go on And as soon as we have any news coming from Nanatell, we'll let you know. So I think that was the first question.

Speaker 2

No, Marcelo, can I go to the second one?

Speaker 4

Yes, please.

Speaker 2

Sorry, Marco, myself sorry, Marco. I'm going to go with the second. So I don't know specifically what you wanted to ask about, but let's talk about consolidation in the market. Now we see it's a very positive outcome. As you know, Brazil has so many players.

Speaker 2

We talk about like more than 5,000 ISPs. So any type of consolidation is very like positive. We are not worried about competition. I think consolidation could be good for the market because In some regions, these ISPs are competing against each other. So we have more players.

Speaker 2

So there is consolidation maybe we're reducing the number Of national players where we have to face every time we enter a new city, we are confident that our strategy is the good one. We continue to grow, as you could see, The number of home pass, now in the last year, we went from the last quarter of 2022 from 20 1,000,000 up to 24,700,000. The number of homes connected now was 5,000,000 to 5.8,000. It's almost 800,000 New customers that we could get, so we continue to be the number one in ad adds of this business in Brazil. Again, it's realistic to imagine that we're going to see more consolidation.

Speaker 2

We are very attentive to all movements and to all targets that we could see in this market, But we need to find targets that fulfill all our requirements, technical requirements to start with. Then there are fiscal requirements And of course, there is overlap of the network that we have. So and the price that we are willing to pay, considering that we have Economy of scale to build network. We have economic scale to connect customers. So when we put everything in balance, We haven't found anything that could fit all the requirements that we have.

Speaker 2

So we continue with our plan to reach €29,000,000 home passed by the end of 2024, continue to connect customers in a very accelerated pace as we have been doing In the last quarters and very focused on the quality of our connection, I also wanted to highlight The 93% of the FTTH gross adds that we had in the period were in speeds that at least 300 megabits, That's not everyone who could offer that. We also wanted to highlight this quarter the lowest churn that we had over the last 3 years. And finally, you also highlighted that 80% of the sale of FTTH in our stores came into the VIVO Total

Speaker 4

Convergent offer. Perfect. Thank you, Christian.

Speaker 2

And sorry, Marco, because I called you

Operator

Our next question comes from Marcelo Santos from JPMorgan. Please, Mr. Marcelo, your microphone is open.

Speaker 5

Good morning, Christian, Taffy, Joao. Thanks for taking the question. I wanted to touch upon mobile. So it was a very strong quarter. I wanted to first the first question would be about the prepaid pricing.

Speaker 5

You made an adjustment an upward adjustment on Pricing, are you happy with the way prices are today? Do you see more room for increasing? How do you see in the past you were VOCAL that you thought there was room to increases in the market as a whole. So I wanted to get your opinion now that you made this important change. And the second question is regarding the postpaid and hybrid users.

Speaker 5

Are there still some users who were not Increased in price that you still have to increase during the rest of this year? Or are you done with price increases for your current base on postpaid and hybrid? These are the two

Speaker 2

Thank you, Marcelo. No, I think the price increase that we had in this 1st 6 months are the ones that we had for the year. What we are doing here is upselling within our customer base. That is something that we always do. I think also we highlighted the new plans that we had for hybrid that we are now blending with the service, Either health or entertainment, and we have new things to come up in the next quarter.

Speaker 2

So and the strategy also To migrate the postpaid upselling, especially when they acquire a 5 gs smartphone, today we have 22 Our customer base is in pure postpaid with a 5 gs and also migrating them to the VIVO Total when they don't have the fiber with us. So that's the structure going forward. And of course, we are going to keep doing the annual adjustment when it gets to the time. Regarding the prepaid that you asked before, What we the new pricing strategy is for the top up. So we have a face value for top up.

Speaker 2

We had a face value, the minimum one was 12 And we move to BRL15 that matches with the current offer that we have for the biweekly R15 prepaid offer. We are considering because as we were able to pass through inflation In hybrid and postpaid, we are considering the possibility of doing that also in the prepaid. That would be changing the promotion price. So far, what we did

Speaker 5

Okay. So we could see improvements in the rest of the year in this prepaid line. Postpaid and control, you're already done for the year, but prepaid, there is room. Just

Speaker 2

Yes. Prepaid, yes, there's room. Hybrid and postpaid again. There is room for doing adjustment in the offers, Not increasing price, adjusting offers with more value added services, new offers, blending with fiber Or adding digital service to the offer. And again, always, we keep migrating prepaid to hybrid in Very accelerated way that also contributing to the revenue movement.

Speaker 5

Perfect. That's very clear. Thank you very much.

Speaker 2

Thank you,

Operator

Marcelo. Our next question comes from Andres Salas from UBS. Please, Andres, your microphone is open.

Speaker 6

Hi, good morning, Christian, David, Joao. Thanks Congratulations for the results. I have two questions here on my side. When we look at the ARPU and Churn dynamics here in the quarter, we see a very positive print. And my question is how to read this, if there are any Substantial aspects here positively affecting this behavior or we can interpret this as a more structural And my second question is related to the B2B market, B2B revenues here, as Christian mentioned during the call, there are some one shot revenues in this line.

Speaker 6

My question is, How can we see if you can have additional color on the recurrence of B2B revenues or out of the BRL800 1,000,000 that you had in How much of that is related to 1 shot projects? That would be from my side. Thank you.

Speaker 2

Andrea, thank you for your comments in the beginning. Let me go to the V2B. Yes, it's a small piece is one shot. Most of our revenues is recurrent. We highlighted that there is still pieces of 1 shot because sometimes we have big deals That may change a little bit the growth pattern, either in a positive or negative depending on the quarter that we're comparing with.

Speaker 2

But most of it is in a recurrent basis and there is a big change in the mix. I think some years ago, We had a bigger or larger concentration in 1 shot. Now is the opposite. It's a very large concentration in recurrent. So we don't open up at the moment what is 1 and 2, what's the other.

Speaker 2

But I can tell you that because that's We also wanted to highlight the last 12 months quarter by quarter the evolution of over 30% because most of it is recurrent. The changes that you may see is that sometimes big deals coming up with 1 shot, but most of it is recurrent. In the second question, I think you were related to the ARPU of the mobile, isn't it?

Speaker 6

Yes, yes, that's it.

Speaker 2

I think the ARPU in the mobile, there are many things contributing to that. Of course, there is price increase that we talked before. There is a lot of positive migration prepaid to hybrid. We continue to do that in a very accelerated way. There is also contribution of digital services blended with both hybrid now that we started selling and the postpaid.

Speaker 2

When we talk about the 2,500,000 customers that we have with digital services, they are a combination of standalone, but also a lot in bundled with Postpaid and also bonded with fiber. So ARP is also being positively impacted by that And there is also a porting movement that is positive from our to our side. So it's also contributing To the growth that we see in the ARPU and also the reduced churn. I think the reduced churn is a combination of many other factors of our Perception of superior quality in all senses from network to customer services, but also in the strength of our brand, The brand that is also being gradually more associated as a digital player that is putting customers in the center of this ecosystem and we've been able To increase lifetime value and their lifetime value is increased by more service, but also for the loyalty of these customers in our customer base.

Operator

Our next question comes from Freddie Manges from Bank of America. Please, Mr. Freji, your microphone is open.

Speaker 7

Thank you. Good morning, everyone. I have two questions The first one is the working capital, once again, a very positive dynamics. And once again, you're generating more cash than earnings. So just wondering how we should expect this line moving forward if it was mainly inventory and other assets that you reduced.

Speaker 7

So how should we expect this line for the second half? And then the second one, I think Christian already mentioned, but I mean, there was a small decline in the ARPU for the FTTH. I mean, nothing major from 'ninety to 'eighty seven. But I'm just wondering if this is a change, somehow a change The competitive landscape or that's basically you're expanding to more series, new series and then you have an effect on ARPU?

Speaker 2

Thank you. Fred, I will go to the second, okay? I'll let David answer the first one. No, yes, it is new cities That we are entering, sometimes we will enter with some promotions to get in the new city and that is impacting, But nothing that will be permanent. It's much more than we expanded so much The number of premises in the last year being able also to be entering in these cities with a very positive commercial attraction, So that's why revenues are being in the space of 14.3% growth, reaching BRL1.5 billion in the quarter.

Speaker 2

The level of net adds, we've been the 1 gaining the absolute numbers, the largest amount of net adds. So again, it's Strategy to go in. The trend, we cannot talk about it, but we are positive that it's momentaneous and that we're going to be able to capture More customers keep the churn reduced as the way it is and adding digital services on top of. So that's also a good one. Also The strategy in TV has been very, very successful.

Speaker 2

The possibility of blend IPTV for those who only want this, saving as CapEx for those who don't want it And adding OTT on top of fiber. So that's what I can share with you in the But again, BRL1.5 billion already of revenues per quarter in FTTH with a growth of more than 14%. I'll let VIVO go to the first if we have more

Speaker 3

and the second for the Quebec. Hi, Fred. Talking about The first question, I mean, during the last few years, you have seen we have shown a consistently very strong free cash flow. And some of the quarters, This has been also helped by positive working capital. So particularly this quarter, we have a positive impact.

Speaker 3

And let me summarize what are the main drivers. Now the first one Have to do again with the tax asset that we have in our balance sheet that we are monetizing. Just this quarter, this has represent around 300,000,000 Related to ISMS, but we still have around BRL150 1,000,000 that will come through cash in the 3rd quarter. So this will help also to have a strong free cash revolution. The second one have to do also with the fixed L.

Speaker 3

As you know, we haven't paid this year. So this will generate again BRL 700,000,000, so positive working Ital during the whole full year. So in the quarter, it could be around EUR 200,000,000. The third one have to do with inventories. If you look to the levels on inventory that we have in March and the number we have now in June, this has reduced in more than EUR 300,000,000 Of the management that we are doing on the inventory, and this management should continue.

Speaker 3

So again, this will continue to bring some opportunities. And again, the rest of initiatives that we have are on across the board, particularly to monetize the rest of the assets. So it's difficult to foresee, That could be precisely the next quarter, the working capital. But overall, what I can say that we continue focusing on generating A strong free cash flow, and this should continue for the coming quarters.

Speaker 7

Perfect. Very clear, Christian, David. Thank you. If I just may, a quick follow-up on financial service. I know it's a small line, but it's a small line that we see a lot of potential.

Speaker 7

Year over year, the growth is strong, but quarter over quarter is basically flat on the second Q2. So just wondering if you are making the type of adjustment in Product or anything, if you or if you kind of reach a level that you think is this is the level that should be. Anyway, just any view here, I think, would be great.

Speaker 2

Fred, I get this one. We highlighted the financial service Revenue and then we'll talk about the VIVO money and all the land platform. The financial services revenue, it's not only VIVO money, It's a series of business in different states of maturity. 1 of this business that is related And responsible for social part of these revenues is the advance of credit to prepaid customers. When they run out of a balance or data package, We advanced some credit to these customers.

Speaker 2

As there is like a great effort to migrate these customers to hybrid and postpaid plans, It ends up affecting the revenues coming from this type of services. So important to see because it's also Part of the contribution that we had when you see this quarter over quarter, we migrated more customers or Prepaid didn't ask for so much advance of credit, so that impacts the revenue that we capture. Also In the last quarter, we were a little bit more conservative in the credit concession in the VIVO money, Although we increased the number of customers getting credit, we were more conservative in the type of customers that we were Given this long, going forward, we are very confident, confident because we see a perspective of Going back being more aggressive in the credit concession using the VIVO money and also because we are developing new Products in this credit portfolio, there's consortium, there is one related to PIKS, there are many things that come up To the market in this next quarter, giving us more opportunity to increase the reach of our credit portfolio And also leveraging on the customer base that we have, the big data that we have, all the points of interaction that we have with these customers.

Speaker 2

So we are confident that this figure will go up, considering all the mix that we have. And also I have to put in this account as well, the insurance is another business That is bringing some results to the revenue pool of Financial Services.

Speaker 7

Perfect. Very clear. Thank you, Christian.

Speaker 3

Thank you, Alfred. Thank you.

Operator

Our next question comes from Victor Tomita from Goldman Sachs. Please, Mr. Vitter, your microphone is open.

Speaker 8

Hello, good morning all and thanks for taking our questions. Two questions from our side. The first one following up on the fiber expansion point, could you give us some more color on the typical profile of The new cities that you are entering with fiber at this point of the expansion, how large are those cities and what type of competitors Are you usually active in those cities? And the second question from our side would be on personnel expenses. How advanced is the process of In sourcing, internalizing critical areas at this point.

Speaker 8

If I recall correctly, this has been impacting personnel expenses For about a year now, so at this point, should we expect personnel expenses to be more stable from now on? Or should they still increase to

Speaker 2

Sure. That's Christian. Thank you for the question. The fiber expansion, it's I think nowadays it's less related to new cities, although we do new cities through 5 Brazil. 5 Brazil is where we are Spending greenfield footprint outside the state of Sao Paulo.

Speaker 2

So we do that in cities depending on the state, But around 100,000 inhabitants, some of them can be a little bit smaller. We just launched 1 in Spirit Santo that was smaller than $100,000 was much closer than $50,000 So some cities where we'd see the opportunity to fiber expansion And also very based on the market share we have in postpaid or in prepaid. And also that depends. But what we've been doing also is expanding Our footprint in cities where we are already present, so we do that in larger cities. We do that in capitals.

Speaker 2

We do that in other cities that are very relevant in the state of Sao Paulo and sometimes we just not only expand coverage with fiber or we do also more overlay Both in FTTC that we have outside Sao Paulo in some capitals or also in cities in Sao Paulo where we still have copper. So it's a combination of 3. We are more focused now in expanding footprint where we see more value of capturing customers rather than Having a number of many, many cities, but again, keeping the €29,000,000 home pass, But in a combination of the 3 strategies that I said, few greenfield that is basically outside Sao Paulo done by fab Brazil FTTC overlay, copper overlay or expansion of fiber in cities where we already have presence. Have I answered you, Vitor? And then I'll go to the second one.

Speaker 8

Yes, it's very clear. Thank you.

Speaker 2

And the second one, Vitor, we are Still analyzing in sourcing and especially in 3 different areas, B2B That we've been increasing our digital services business and managed service capability. So we bought also like the company that we said last year, VITIT. VITAIT we bought, especially because they had a very strong team focus in Cisco's Implementation, so that also blended with our team that we have already doing network managed services. We increased our capabilities And that's the focus that we had when we do this type of acquisition or when we hire new people. So V2B is one area, managed services both in networks, but also in digital service, Cloud, cyber or IT.

Speaker 2

The second one is IT, IT and digital. So we are like some factors that we had We are then bringing the people inside and being in sourcing them because we've been very focused on deploying not only in our new architecture of IT, but also deploying New channels as we are doing that, we are revamping our VIVO app, also e commerce or marketplace. And the third one is new businesses. As we're expanding health, we're expanding education, we're expanding in Smart homes and we're spending in many other education, I think I've mentioned before, financial services. We are trying to So hiring people with special knowledge on these new sectors to be part of our Tim, so it's the 3 main areas, but it depends case by case.

Operator

Our next question comes from Carlos Sequeira from BTG Pactual. Please, Mr. Carlos, your microphone is open.

Speaker 9

Hi. Good morning, Christian, David, Joao, Gabriel. Amazing numbers My question, if I may, is on the migration process, The concessions authorization migration process, we just saw Anatel's decision, I think, pushed by the TCU Raising the numbers, crazily raising the amount of money that's needed to migrate by almost 50 And I was just wondering what's your view on that and what the plans are if Anatol really keeps a number that high, please? Thank you.

Speaker 2

Tadul, thank you for your words. Tadul, here we are very positive about the possibility of Finding a solution through the TCO consensus instrument that is in place right now. The number that you mentioned, yes, it's a very, very large number. We already argued about this number before the correction. The correction in our case was not the largest one, but it was, of course, we went from 7.7% to 8.7%.

Speaker 2

We have another number, As you know, being discussed in the other arbitrage that we have, that's also a very, very large number. Here we are discussing the sustainability and even the equilibrium of the concession. And now with the possibility of putting these 2 discussions In one table, give us an optimistic perspective of finding a solution in the near term. So rather than discuss just one number, I prefer now to focus on finding a solution, getting the two numbers together And see a way for us to migrate from a service that no one demands anymore and going to any or some type of investment, If there is anything that still has to be invested, considering this consensus agreement that we may reach, focus On broadband or other services that are much more required by society nowadays. So anyway, I think there is this number of news, But there is also another good news that is the possibility of GET IT Proconsensual Agreement.

Speaker 9

Okay. So in a way, your feeling is that not going to really change it, right? The whole debate that was trying to do To match the true numbers, right, is the shoe on the table, right?

Speaker 2

Yes. I think that's a good thing That now we can discuss both at the same because there was always this concern about the timing of the two discussions. I think now we reached a situation where the 2 of them can be discussed together. And that I think is the most positive outcome that we got in the last weeks, the possibility of discuss the 2 of them together. And again, that also that stops everything and give us a period of Trying to get this consensus that I'm optimistic that we could get.

Speaker 2

So we get like a suspension of the arbitrage for the moment. And even the timing that Enateo would give us once the number that they have for the other part is approved by TCO is also A post while we have this concession possibility on the table. So that I think is very positive.

Operator

The question and answer section is over. We would like to hand the floor back to Mr. Christian Gjabara for the company's final remarks. Please, Mr. Christian, you may proceed.

Speaker 2

So thank you, everyone, for participating. As you all state and all, we are extremely happy with the results that we presented, extremely positive results in all lines And all of them well above inflation. Important also to highlight now that is a quarter like for like comparison with the quarter that we had last year that both of them already integrated the numbers coming from the Oi Mobile acquisition. This strong start of the year make us very comfortable About the full year outlook, on a stable macro scenario, we are optimistic about all evolutions, the revenue In mobile, in fiber and also in digital services, in B2B and B2C. The CapEx we already gave, The guidance that you know should be below €9,000,000,000 and we continue to be focused on expanding 5 gs coverage, Differentiating mobile with the net quality, besides the security disruption, capturing off, of course, all the opportunities that we see in the FTTH expansion, Working on the customer base, being the customer much more convergent, being a customer convergent and with digital services, expanding lifetime value And focusing on reducing and reducing the churn.

Speaker 2

So that's what we have for today. We are open here the whole team for any other question that we may have. And thank you again for participating in our call. Thank you.

Operator

Thank you. VIVO conference is now closed. We thank you all for your participation and wish you a very good day.

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Earnings Conference Call
Telefônica Brasil Q2 2023
00:00 / 00:00