TIM S.A.

Hello everyone and welcome to TSA's Earnings Conference for the fourth quarter and full year 2023. Thank you for joining us. I'm Vicente Ferreira, Head of Investor Relations. Today we'll share our highlights on video and then we'll begin our live Q&A session with our CEO, Alberto Grizzelli, and our CFO, Andrea Viegas. Before we can discuss our results and new guidance, I remind you that management may make, and this presentation may contain, forward-looking statements. So, please refer to the disclaimer on the screen, which will also be available in our earnings materials and our investor relations website. With that, we move to our results.

Hi to everyone. I'm Alberto Griselli, CEO of Team in Brazil. I'm very pleased that 2023 was an outstanding year with great achievements and record high results. As we explained during our investor day in November, the Brazilian mobile market is healthier than ever, supporting a more formal strategy. New market dynamics and favorable demand are driving our results to improve across the board. Our service revenues grew in 2023 10.7% year-on-year, totaling more than 23 billion reais. With costs under control, our EBITDA grew more than 14% to reach the highest number in our history, 11.7 billion reais. In this context, our 2023 margin expanded to almost 49%, the highest among the large telcos in Brazil and Latin America. Another metric that measures our efficiency in allocating resources is the capex-to-sale ratio. We closed 2023 with the best result ever, just below 19%, contributing to our operating free cash flow growing more than 58% year-on-year, summing to R4.2 billion. To complete this small summary, our net income rose to R2.7 billion after expanding more than 50% year-over-year. These results explain why we were confident in November in raising our shareholder remuneration target to 2.9 billion reais. To generate such strong numbers, we are developing the best value proposition based on the three B's strategy. Best service, best network and best offer. During 2023, we work extensively to deliver improvements in customer experience. We seek the best service by digitalizing the interaction to accelerate and improve demand resolution. And we are best in class in all resolution rankings of Brazil. At the same time, if a human attendant services a client, the satisfaction with this interaction must be best in class. And we can deliver that. Call center NPS improved more than 40% in the fourth quarter. Meanwhile, we are consolidating our leadership in network coverage and quality in Brazil. We have the largest 4G and 5G coverage, being the only operator to cover all the cities of Brazil. Our network was also the most awarded among the Brazilian operators. We ranked number one in consistent quality, the most relevant KPI to measure a customer's actual experience. To complete, we are innovating to create the best offer, leveraging new concepts and partnerships to generate novelty and distinctiveness. We have launched the first trial offer in Latin America to encourage customers to test our service. We expect this tool to be relevant in changing clients' perception of our quality. We just launched commercially our partnership with Ambev. We are expanding the benefits for prepaid customers using the cashback in the ZDelivery app as a loyalty tool. and it is working. Today, we have the highest blended ARPU in the industry, close to 30 reais and growing nearly 13% year over year. We saw a similar performance in postpaid and prepaid ARPUs, which expanded at mid-teen space in 2023. At the same time, we are improving churn in postpaid, increasing upsell results with upward migrations, and seeing a rise in prepaid spending. Behind these financial and operational numbers is a clear strategy though to craft the next generation team. Under this framework the four pillars mobile, B2B, broadband and efficiency are developed integrating our people, society and the environment into our business strategy. Examples of that are the project in business B2B where we develop a new growth avenue and bring connectivity to countryside of Brazil also produce positive social and environmental impacts. The partnership with Cartão de Todos helps us differentiate our offer to telco customers while providing access to affordable health services. This integration prepares our ESG practices to be recognized as one of the most developed in the country. Team ranked 12th among the best companies to work for in Brazil in the Great Place to Work selection. Sustainalytics also awarded us as ESG industry top rated. Standard & Poor's lists a team among the most sustainable telco companies in the world. And last but not least, we are the most diverse and inclusive company in Latin America and the number one telco in the world ranked by Refinitiv. Our CFO Andrea will now provide additional details on our financial performance.

Hello to all, I'm Andreia Viega, CFO of TIM in Brazil. To reach some numbers and go above our original target for 2023, we closed the year at an excellent pace. In the fourth quarter, sales revenue grew more than 7% year-on-year, with mobile raising 7.6%. while Broadbent expanded 9.5%. With costs under control and reaping the benefits of the M&A transaction, our EBITDA grew in the quarter by 7.5% to reach R$ 3.2 billion, with the margin expanding to 50.2%. Accounting for the leases, EBITDA after lease grew even faster, at a 15% pace, amounting to R$ 2.5 billion. This performance benefited massively from the sharp execution of our decommissioned projects. We ended the year with 4.4 thousand sites decommissioned and 3.8 with contracts canceled. As a consequence of a better depreciation number due to lease reduction and the tax shield generated by the interest on capital, our net income presents a robust expansion of more than 50% year-over-year. With this, net profits reached one of the highest results in TIN's history, summing R$ 900 million in the fourth quarter. Additionally, we saw a vigorous cash generation in the fourth quarter, with operation free cash flow growing more than 50%. year over year, and margin expanding to nearly 19%. For the full year, EBITDA after leasing minus CAPEX over revenues stood close to 18%. With a strong cash position, our net debt fell to R$ 11.6 billion, taking our leverage ratio to one-time EBITDA. All those numbers confirm what a remarkable year we had in 2023. To wrap up this results discussion, I hand it back to Alberto.

When we started the year, we set challenging but achievable targets. As we executed our plan, results began to come faster, which led to the best performance of Teams history in many KPIs. We completed a quarter of a century of existence over delivering on every front. We set ourselves to grow high single-digit in service revenue and deliver double-digit, proving our ability to operate multiple revenue levers. We forecasted low double-digit growth for EBITDA and close 2023 with mid-teens, showing significant operational leverage. Our capex on revenue was expected to go just below 20%. We delivered below 19% with the best coverage and largest mobile network in Brazil. This is a clear demonstration that we are improving our capital allocation strategy. The expectation for operating free cash flow was double-digit growth and we delivered close to 60% expansion. We initially pointed to 2.3 billion Reais for shareholder remuneration but we decided to raise our target in November to more than 2.9 billion and delivered on that. These notable achievements have been made possible by the contribution of every team employee and I'm proud to lead the team of committed and hardworking colleagues with an engagement level of above 90%. 2023 was an outstanding year, but we are already in 2024 and on a long journey to become the most preferred telco. We are updating our guidance to adjust to new market conditions and the macro environment. Service revenues are expected to grow above inflation and not faster than last year's plan. EBITDA is forecasted to sustain a solid growth pace with a positive margin contribution. Nominal capex should remain broadly stable with a clear focus on developing infrastructure to drive revenue growth. For operating free cash flow, we confirm the growth pace we set during the old plan. On March 7, the team group will host the Capital Market Day in Italy. We plan to disclose an updated target for shareholder remuneration there, among other elements that complement our strategic plan. Please join us in this event that will set the direction of a new team group. Now, let's move to the live Q&A session.

Thank you, Mr. Roberto. We are now going to start the question and answer section. If you wish to ask a question, please click and raise head button. If your question has already been answered, you can leave the queue by clicking on the same button. You can also send written questions via Q&A button. Wait while we pull four questions. Our first question comes from Marcelo Santos from JP Morgan. Mr. Marcelo, your microphone is open.

Hi, thank you for allowing us to ask questions. Thank you for the presentation. My first question is regarding the sources of growth going forward in mobile revenues. In the past couple of years, in general, TIM didn't add so much volume And a lot of the revenue growth came from ARPU side. Is this something expected to continue in the coming years? Or should we see more like growth on the volume side and a little bit less on ARPU? Just wanted to see your thoughts there. And the second question is regarding the pricing environment. How do you see that for 2024? Thank you.

OK, thank you, Marcelo. So let me address the two questions. And so when we look at the revenue growth dynamic, We look at that in, we've got a number of different levers in our hand. So you've got the volume, you've got the more formal strategy, and you also have the inter-plan migration that we carry out in our customer base, meaning pre to control and control to control, control to post-pay. So when you look at the way we want to move forward, it's basically a mixture of all these elements. So when you say that we focus more on ARPU versus volume, it depends a bit on which horizon, temporal horizon you're looking at. So if you look at the performance for postpaid after the oil migration that ended in the first quarter last year, you would see that our postpaid growth quarter on quarter, it's difficult to see still year on year, is basically driven by inflation. the composition and the blending of all these three levers. So we are growing in volumes. We are growing because of the more for more strategy. And then I will go into the second question. And we are growing, impacting the ARPU basically by migrating customers to better plan where they have the right benefits for the price that they're paying for. So looking forward, I see in postpaid a combination of all these three levers. In prepaid, the situation is a bit different because basically the market is sort of evenly divided by the three operators. And therefore, I think that the price lever is going to be more predominant for that specific segment. So when you go then to the competitive dynamics and what we are expecting to do in terms of pricing, basically the main message is the following the competitive dynamics remain quite rational and if we look at what we did in 2023 it's something that we want to do in 2024 so just recapping what happened last year last year in the second quarter we applied our more formal strategy for postpaid both on what we call front book and back book prices. So this happened in the second quarter last year. And by the end of last year, we decided to upgrade our prepaid offer. So what we are going to do this year is roughly, or we intend to do this year, is roughly similar. So in the second quarter this year, we are going to upgrade our front book and back book prices for postpaid. This is already being decided and it's being coded in our IT systems. The decision has not been taken yet for prepaid. We just did a move recently. So we need to see what the customer reaction is, what the competitor's reaction is, and then made a final decision. the plan that we're looking for is to do some further adjustment by the end of this year. So basically at the same timing we did it last year.

Thank you. And what about control?

Control is going to be, when I say postpaid, it's pure postpaid and control. So we're going to do the two things together in the second quarter, as we did last year. And it's going to be inflation plus on a more formal strategy. Just adding a bit more on that, you know that we provide extra benefits to our customers when we do these movements. So it's going to happen in the second quarter this year for control and postpaid. exactly as it happened last year in the second quarter.

Perfect. Thank you very much.

Our next question comes from Leonardo Olmos from UBS. Please, Mr. Leonardo, your microphone is open.

Hi. Good morning, everyone. First of all, congratulations on beating the guidance. It was very, very positive. And I think the format of the Q&A and the call is very good. So good to see you all in face-to-face when answering our questions. So I've got a couple of questions here. The first one is a double-click on Marcel's question on mobile. In terms of where do you see the most opportunities to better monetize your plans? So we heard you and competitors talking a lot about prepaid and social media having unlimited data allowance and maybe cross-selling with other subscriptions. Where do you see the opportunities in terms of products and how the packaging of your plans could be done in 2024? That's my first question. I'll do the other after you answer. Thank you.

Okay. So, Leonardo, thanks for your nice comments at the beginning of your question. So, when we look at the way we – what we are – if you look what we share at Investor Day in November, basically, is that we see favorable conditions on the demand side. So, if you look at demand – and this is across the board, across all plants – Basically, we see an essential services that is sort of cheap and utilization use is fairly low, especially in prepaid and control. So there is actual opportunity to implement the more for more strategy. So the more for more strategy, it's a combination of a number of elements. And I think that when, so basically it's extra data allowance, especially for lower end plans, so prepaid and control. because there is limited use still compared to other markets. And so there is the opportunity to monetize that. And then there is another set of services that is related to the digital life of our customers that we are constantly including into our portfolio. And then there is the final item, which is OTT, which I will address as the last one. So, the more formal strategy in terms of increased data allowance, this is what we have been doing over the last years, and I think we will keep on doing this going forward across the board. Even because when you look at prepaid and postpaid, we need to maintain a coherence of the plans among themselves. So if we move something, we need to upgrade the other side of it. So if we move control, then we need to upgrade prepaid to have the right incentives then to move customers from one plan to the other one. So the more for more strategy on data usage is fairly unchanged. Then what we are doing with success is to providing extra benefits to our customers without impacting that much our margins. Like, for example, the last one that we launched with Ambev, whereby if any prepaid customers at Teams Brazil recharges, it gets back a cashback in the delivery product. Remembering that last year, we introduced Prime Video for prepaid. So today, if you are prepaid, when you do a recharge, you got access to Prime Video for the length of the offer for the recharge. And then starting from January, you also have the benefit from Zed delivery. And when we look at these services, there are two ways we monetize them. One is to provide extra benefits to the customers straight away that tends to manifest in a longer lifetime of the customer with us. So chain reduction. The other way to monetize is to engage our partners in some kind of equity or commercial terms, like Cartao de Todos, for example, that we launched last year. So in terms of Cartao de Todos, which is more similar to C6 or what we are doing with other digital services, whereby we get the benefits of the partnership, part is handed over to the customers, and part is an extra revenue for us. So it's another way to monetize our customer base. So even we give the benefits all of it to the customer, like Ambev, or part of these benefits comes to us in terms of either equity or commissioning revenues. When it goes, so Leonardo, I don't know if I managed to make myself clear, but these are the levers that we use. And- Okay, so then there is another one that we have been using for a while. We started with the immigration of prepaid to control. So basically, we look at the profiling of our customer base. We see people that... may perceive the benefits to move to a larger plan and we migrate, like prepaid to control, but we do a lot of control to postpaid also. So you don't see in the number pure postpaid customer base evolution, but it's been growing double digit for a while. And this tends to increase our postpaid ARPU as a blended number. The last one that has been on the news and has been discussed by the sector and by us for some time is the OTT. So as you all know, we got a zero rate on a number of plans and this is something that has been introduced in the market a few years ago where the OTT was a novelty and at the same time it was a novelty with a low consumption of data. Over the last year, things changed because everybody now is offering these OTT services. The customer doesn't perceive the value, which is because it's included in the debt allowance. And at the same time, we have some, let's say, negative effect in our network planning because these services have been launching new features that put a further constraint on our network, like live streaming or this sort of stuff. And this makes our capital allocation less efficient and less difficult to control, because things happen without our knowledge. So basically, we just have an increase in traffic. So what has been going on for some time is our intent to reduce OTT traffic And we need to do this in a way that is viable and acceptable to the customer base. So a couple of years ago, we took away Facebook from prepaid and we substituted the services with Prime Video and with Z Delivery on Cartel de Todos more recently. And so we are planning to move ahead with this strategy and reduce our dependence on zero rate services making this in, let's say, in an acceptable way for customers. So we're going to start probably in plants where the effect can be compensated with another set of benefits.

Perfect, Albert. That was the point of my question. Happy to hear about the timing of the Zed delivery promotion since we're so close to Carnival. My second question, if I may, about leasing, very positive surprise on the numbers, 7% below our figures. The cash generation was way above what we expected. But when we look at 2024, what's your expectations on decommissioning and how can we conciliate that with the 5G increasing coverage? Thanks.

Okay, I will ask Andrea to address this first, and then let me start with more general comments on the lease. When you look at the leases, you've got a number of plus and minus effects. And so there is, if you look at the commissioning exercise, this is a sort of one-off exercise, right? and we got the towers and the Kimpem from OI and we've been decommissioning at a quite fast pace what was not useful to us. At the same time, you have contractual adjustment of that cost base, because part of this cost needs to be adjusted by inflation, basically. And you have an increased footprint. So we reached all municipalities with 4G, but nonetheless, especially in B2B and some kind of obligation, we need to put more site on the ground. And so our footprint increases over time. And then, as you correctly mentioned, you've got 5G also. So the effect of 5G is that we need to put in additional antennas on our towers, depending on the contract. This is additional wind space and so additional costs at the end of the day. And then there are potential minus that we've been discussing in the investor day, which are related to the fact that we have ongoing initiatives to optimize this cost from technical innovation to negotiation with our partners, so that our companies, we got the 4G around sharing agreement with Vivo that has been reactivated, let's put it this way, that of course reduced resources. So you've got all this set of movements, some are positive and some are negative. Of course, what we want to ensure is the sustainability of this cost line over time as we increase our footprint and deploy new technology to improve the quality of service to our customers. And so we've got all these initiatives that basically we are putting in place to compensate or to partially compensate for the cost pressure that we have either for price adjustment, either for increased footprint on our network. Of course, the lower inflation is something that is positive with going forward because it's been negative or fairly negative over the last years, looking more positive year to go. And so basically what we want to have is delivering our plate in our hands to ensure the sustainability and the optimization of the coastline. And so we've got a robust plan in place. I will ask Andrea to elaborate on the commissioning plan that is going quite well.

Alberto almost said everything, but related to the commission, in the fiscal terms, we finished. So we have very good results in this quarter. We will continue to have some good results in the first quarter. But as Alberto mentioned, we have the price adjustment. In February, March, we have the huge impact of this price adjustment. And also, 5G, although not necessarily generates new sites, we have to occupy more space on the site. So we have some kind of adjustment in these expenses. But what we expect from now on, is to continue to to look for another ways of again productivity in the least sites the least size of our negotiation especially with the the major contracts that we all still have very interesting okay thank you very much alberto andrea vicente and luisa have a great day thank you

Our next question comes from Fred Mendes from Bank of America. Please, Mr. Mendes, your microphone is open.

Hello, good morning, everyone, and thanks for the call. I have two questions here as well. The first one is on CapEx, especially on the guidance. It was slightly ahead, slightly above where it had. I guess we were on the bullish front. But just trying to understand if there is like a line you're going to be focusing more, let's say IT or 5G, that could eventually explain this, let's say, higher capex, at least from our expectation. Or if that's basically a network improvement, basically business as usual, this would be the first one. And then the second one, if you can just comment, Alberto, how is going to be the structure that now that Leonardo Capdeville went to TI, if you continue to help on the operations from there, you're going to have a new structure, anything you can comment on that, I think it would be great for us. Thank you.

Okay, let me take the second one, and then I will ask Andrea to discuss a bit about CAPEX. So, when it comes to the structure of the CTIO, the CTIO structure is being removed. And so, basically, this is something that has happened, I think it was... either last year or the beginning of this year, I don't remember anymore. But basically what happened is that Marco Di Costanzo, who was the former chief technology officer, and Awana Mattar, who was the former chief information officer, are now reporting directly to me. So these are two executives that have been with us for many, many years. And so the structure has been, basically, I moved from one report to two reports. Our strategy doesn't change as a result of that, of course, so we've got in full continuity. And so our focus is always in terms of correct capital allocation and leadership in network quality of service. And when it comes to the IT, it's innovation and strong support on our go-to-market. So this has been already done, Fred. And the executive that had been promoted has been with us for, I think, 20 years, both of them.

Our guidance, the CAPEX is maintained more or less the previous guidance that we already said 4.4, 4.6 on the CAPEX. We still remains with the 5G deployment quality. And remember that in IT, we have a component on CAPEX and we also have OPEX related to the cloud.

Perfect. Perfect. Very clear. Thank you. Thank you, Albert. Thank you, Andrea. Good day.

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

Hello. Good morning, all. And thanks for taking our questions. Two questions from our side as well. The first one is regarding the 2026 revenue growth guidance, the longer term guidance. Does that already assume a relevant contribution from your B2B strategy or other fronts? Or are those more of a longer term driver and in those three years, the growth is likely to be primarily driven by mobile? And the second question from our side is on migration of users from prepaid to controller plans, which you mentioned. just now. You've been doing that for a long time at this point. So how much more room do you see to increase the percentage of postpaid in your user base? And how high do you believe that percentage could get in the longer term as you continue to capitalize on this driver? Thank you.

Vito, sorry, we lost your question. For some reason, you got frozen. I don't know if on your side or on our side. May I ask you to repeat the question?

Sure, no problem. So the first question would be on the longer term 2026 revenue growth guidance. Does that guidance already assume a relevant contribution from your B2B strategy or is that more of a longer term driver? And the second question would be on migration of users from prepaid to controller, which you mentioned just now. You've been doing that for a long time at this point. So how much more room do you see to increase the percentage of postpaid in your user base? And how high do you believe that percentage could get eventually? Thank you.

So, Vittor, on the first one, we don't share the exact breakdown of the different components of our revenue drivers. So, you will see that basically we're growing. So, let me give you a piece of information. So, the assumption on inflation on our plan at this point in time is around 4%. this year for EPCA and then going down to 3.5 in years to go. So the main assumption is that we'll be able to grow consistently above inflation in the short term and in 2025-2026 already. And so this is driven by the overall portfolio of our revenue generation initiatives So, of course, we have mobile, which is our cash flow, the important one with this whole market rationality. And then we got exponential growth in B2B, for example. We got some kind of high single digit of broadband, and we got a customer platform. And so when you look at, for example, B2B, to go to your specific question, We shared with you in November that we have contracted revenues of 300 million over the last 18 months. So this year we shared in the presentation that we're having 200 additional contracted revenues in 2023, sorry. But these contracted revenues extend on a period of, let's say, five years. And so they will build up over time. And so we are starting from almost zero, as we show in November, a couple of years ago, and we are quickly ramping up. So if you move to the end of the forecasting period and you keep the speed of our growth and you pile it up over time, you have a sense of the composition of the B2B revenues that we are expecting at the end of our three-annual plan. And so this is basically something that can contribute, point something to our growth revenue. So overall, it's not gonna be, it's gonna be small compared to mobile, but in terms of all the initiatives, broadband, B2B, and the customer platform are important for the speed of revenue growth. The second one, guys, was, Victor, the second one was? You are correct. Immigration is something that we have been doing for a while, but I would say that we will keep doing this for a while. There is always something new. For example, we've been working extensively on the oil customer base over the last 12 months. And that was a sort of new lake. If you look at the churn market, it's quite dynamic. So you've got people that improve their, let's say, economic conditions and therefore are more where we have the opportunity to move them up. So if you consider the macro environment, the fact that the purchasing power of Brazilians over time is going to improve according to the scenario that we are looking at today, and the dynamism of that specific segment, I think that we will continue to migrate prepaid to control customers at the speed that we are used to in the last 12 months. Clear. Thank you very much.

Our next question comes from Marco Nardini from XP. Please, Mr. Nardini, your microphone's open.

Hello, good morning. Thank you for taking my questions. I actually have two here on my side. This quarter, you delivered a solid EBITDA margin alongside the highest ARPU and also reported strong guidance in top-lining EBITDA growth going forward. Could you provide insights into the expected margin dynamics for the upcoming quarters of 2024, please? And my second question is regarding fixed broadband. I understand that you reported 9.5% growth in Team Ultrafibra, but its contribution to consolidated revenues remain relatively low. What do you expect on fixed broadband growth in 2024? Can you expect some M&A here, or do you believe that there's still room within this asset-light model? Thank you.

I will ask Andrea to address the first one and we'll take the second one.

Hi, Marco. In relation to the EBITDA margin, we still want to continue to grow, but especially in the EBITDA after lease margin. There, we expect more results because the decommission and all the... These effects that we already mentioned. But we will continue with our focus in growing with more productivity. Sorry, productivity.

And just to add it up, you know that the, let's say, cost control, productivity, discipline, capital allocation is something that is really in our DNA. So we got the revenues growing above inflation. So some variable costs are related to that. We got a scenario of lower inflation, at least versus previous years. And you got our commitment to increase inflation. operating free cash flow at the end of the day. And this then will be broken down at the bidder level and the bidder after lease level and the capex in terms of capital allocation. Going to your second questions in terms of broadband, let me take a step back in terms of where we stand or what we see in terms of market dynamics, where we stand. So when you look at broadband, You know that basically we got a 2% revenue share in that specific market. And that is quite competitive at this point in time. One of the large players just lowered prices a couple of weeks ago on the entry levels plans. And so the market remains competitive. We don't see any impact on not being convergent at this point in time. And this is primarily because the market is highly fragmented. And so more than 50%, say almost 75% of the market share is in the hands of a single business ISP. So convergence is not a problem for our mobile business. And at the end of the day, we are sort of a pure mobile company because it's the majority of our revenues and profits and cash flow come from mobile. But we are underrepresented on broadband. Given the strength of our brand and the credibility of the team, broadband is a nice adjacent market for us where we could command a higher revenue share or market share. But we are not just looking for revenue growth. We are looking for revenue growth and something that is, as a business, accretive to our profitability and margin expansion. So in a context of market dynamics that are quite competitive, this is a bit more challenging value proposition. So if you look at, for example, the evolution of our net additions, Over the last months, you will see that we decreased them a bit. And this is primarily because we decided to optimize our commercial footprint, taking away some of our, let's say, partners that were a bit more pushy and therefore didn't ensure the level of quality of gross addition that we are after. So we are rebalancing a bit our commercial footprint. And that impacts the gross additions when you do a measure like that. And the positive impact, which is churn reduction, is going to happen a few months down the road. So we are not looking just for growth, but we are looking for profitable growth as and the market conditions today make this a bit more challenging. Nonetheless, we think we have a quite distinctive approach. If you look at our ARPU, it's the highest in the market. If you look at our NPS, it's the highest in the market. If you look at third-party measurement of quality of service, especially network reliability, according to OpenSigna, we got the highest consistent quality. And so we are defending a more niche value proposition that better ensure a balance between growth and profitability. Of course, as we share in November, we are open and we are active. We have an active stance on non-organic opportunities. And so we are looking at that. And if something attractive comes along, we will look at it.

Perfect. Thank you.

Once again, if you wish to ask a question, use the raise hand button or type it down on the Q&A button. Wait while we pull four questions. Our next question comes from Carlos de Liguerida from Itaú BBA. Please, Mr. Carlos, your microphone is open.

two questions here um very we will mr carlos we lost your the beginning of your question please if you can repeat so sure sure i was just reading them uh thank you the the first question is um on the on the equipment side that i understand obviously it's a small part of the business but i was just trying to understand you do seem to have in the fourth quarter a nice increase in the volume of hands that sold yet the revenue contribution is actually lower year over year But on the full year, you actually have the opposite dynamics. You have lower number of handsets and an increase in the product revenue. So I understand handsets are not the only equipment that you sell, but if you could talk about a little bit of how to reconcile this and what to expect going forward. And secondly, double-clicking on broadband, on fixed broadband, I mean, is the penetration that you have of customers over total home space is relatively low. And I don't know if you conceptualize target penetration rates as a target for Tim, but if you could talk about if you have this metric in mind as a target number in the near future or in what timeframe, that could also be very helpful. Thank you.

Okay, so I will go with the first one on a more commercial terms and I will leave Andrea to comment on the numbers that you see. So when it comes to our commercial approach on handsets, so basically we implement our commercial policies with three potential benefits in mind. So the first one is is being attractive to competitors' customers. So basically, we want to put together a nice offer for potential customers interested to switch. So this is the first objective. And this is, for example, the Apple One initiative that we launched the third quarter last year. The second objective that we are looking at is we want to increase the lifecycle of those customers in our customer base that decide to apply to that specific offer with the handset included. And the third one is the ARPU uplift. So generally we tend to apply subsidies in the highest plants because we can generate the art to uplift. And we know that the quality of these either acquisitions or let's say not retention is cross selling to our customer base have the best quality. And so in the quarters, we generally put together these three components depending on the moment. And specifically in the last quarter, we've been a bit more aggressive on subsidies and the specific performance of that quarter. And because we are always assessing how it goes and if we need to do some fine tuning or adjustment to our commercial strategy. And if you look at the overall numbers of the years, I will leave this to Andrea.

Yes. In the last quarter, we have this seasonality because consider that we have the Black Friday and the Christmas period. So we concentrate subsidy in this part of the year. When you look for the total year, we have more volume this year related to 2022. So for the full year, we have an increase in revenue and cost. For the four quarters, we have the seasonality of these two big commercial points.

Carlos, going to the second question was about penetration of broadband. Yes. So when you look at our model, which is basically an MVNO of broadband, right? Because we operate on an asset-light model. And one of the benefits is that generally, we are less interested with occupancy rates because these are not part of our contracts and this is actually an advantage. So we can operate on a larger footprint. So it's like we launch a large network and we take the customers on a larger footprint without having the need of increasing penetration and take-up rates on the specific district of that specific city and that generally puts a lot of commercial pressure on filling up the network quickly in order to have payback. So this is actually one of the main benefits of the asset-light model. And this is also the reason why we are rebalancing a bit our go-to-market approach in terms of commercial networks, because we want to rely more on a pull component versus the push component. So not having the need or the... We don't need to be worried on filling up the network very quickly. We generally want... uh to have a mobile-like go-to-market approach which is quite aligned to what we know how to do well and at the end of the day this ensure quality that ensure a better trade-off in between revenue growth and profitability that's super clear i really appreciate your comments and i will also praise the formatting like very efficient good to see you everybody thank you thank you

Our next question comes from Fanny from HSBC. Please, Fanny, your microphone's open.

Thanks, everyone, for taking my questions. So I have a couple of questions. The first one is related to your, you know, shareholder remuneration, which you said you'll disclose on the 7th of March. So I'm trying to understand if there are more decision points to be made. Or in a sense that, do you already know the decision and you're just going to take some time before revealing the decision or you're still waiting for some other actions happening outside to finalize the shareholder remuneration?

We are finalizing, Fanny, the number in the discussion that we have internally. And the message here is that we, in the previous guidance, we say that continuous improvement ensure all the remuneration. So this is what we have been doing over the last many years. We moved from 1 to 2, then 2.3 in November. Since our plan was going faster in respect to what we initially planned, we moved from 2.3 to 2.9. And so we are entering 2024 at a faster speed. And we are finalizing the number and we just communicate the new floor the 7th of March. Thank you.

Yeah, thanks for that, Alberto. The second question is largely related to your operating free cash flow after leases. The margin is at around 18% this year, and your guidance suggests that it will go up significantly in the next two to three years. So what do you think where you could be comfortably saying that your margin would be in two to three years' time?

Well, we're expecting that we will grow in the coming years. So like we put in the guidance in a double-digit growing, but what we expect is the continuance of the growing in the coming years.

If I may, André, I think we have released a pretty broad guidance as we usually do. We have five to six KPIs that are We expect at least to help you to model our business. Of course, unfortunately, we cannot give guidance on every single KPI. So this one we are missing. Funny. We'll let you guys calculate that. But considering what we expect on revenues, considering what we expect on EBITDA and It's not going to be that tough. And if you guys need any additional help on qualitative elements, we can give that to you in the coming weeks. So it can improve the way you calculate any other metrics.

Perfect. Yeah. Thank you, everyone.

Thank you, Fanny.

Our next question comes from Gabriel de Lima from Morgan Stanley. Please, Mr. de Lima, your microphone's open.

Thank you. Two questions on my end. First, anything you're seeing in the first quarter of 2024 that is worth highlighting in terms of the market? You already did the, you have the offer of the test drive for some time. Just wanted to get some color how you're performing. And the second question is a follow-up on the M&A question. When you say you're active, you mean that you are looking at everything in the market or your approach is to smaller companies and things like this? Just wanted to get a sense if, for instance, the oil assets that are on sale is an opportunity for China as well.

Okay, so let me go with the first question. So when you look at the first quarter, you know, the first quarter is generally a very seasonal quarter because you've got people coming back from holidays in January. We've got an early carnival in Brazil in February. And so everything is moving ahead according to our plan. So no specific, let's say, element of discontinuity versus what we saw in the first quarter in previous years. What we have versus last year is that at this time last year, we didn't have any communication or commercial activities going on. So, if you look at what we did in 2023, in the first quarter, we were not having specific campaigns. In this quarter, on the opposite, we have what we call a summer campaign, which is the Z-delivery campaign, and we announced the partnership in November. We are implementing it now in January because it fits well with the necessity of recharge and getting a cold drink associated. So we have more commercial activities on our side. We just launched delivery. Results to date are pretty good. And when it comes to the test drive, Let me elaborate a bit on the commercial intent of that campaign. So when you look at our positioning on the quality of service, basically you can see that we closed over the last years the gap that we have with our competitors in terms of quality, actual quality delivered to our customers. and we have been consolidating since June last year our position in leadership and we look at this KPI which is called Excellent Quality of Service as the main indicator is measured by OpenSignal. Now, nonetheless, there is a mismatch that exists between our actual performance and the perception of our customers. And so when you look at the communication initiatives in the marketplace, every competitor has its angle. And so we are looking always to different angles to market our network superiority. in coverage, in quality, in 5G. And the test drive, it's one element of the strategy. So it's a new sort of communication campaign that whereby basically we put the final test on consumer hands. And so we invite customers to test our network. It's more of a communication, let's say original communication campaign than a product where we want to do a lot of gross additions. Of course, every time there is an event with a significant number of customers, and we generally use to put this in place, the response is quite nice, but it applies on specific circumstances, like, for example, Carnival in a few days. And so this is for the first quarter, a commercial activity. Let's put it this way. Going back to our active stance. So in this point in the market, basically you've got... a lot of companies that are out for, they want to be acquired by somebody. And so it's not like we are looking out and we are reaching out to buy somebody because there are a lot of people that are looking to be acquired. And so what we are doing is that we don't need to go actively outside looking for targets because they are all coming to us. And so we are analyzing all the opportunities that are presented to us with the caveats that I mentioned in the previous questions whereby the market is actually not quite attractive. It's full of players. We like to be a pure mobile player at the end of the day. I think that our strategy is quite neat. We got a growth opportunity in front of us and we can capture it when we want. But it's not just a revenue growth opportunity. It needs to be to us an opportunity to increase revenues and free cash flow margin at the end of the day.

Christo Clear, thank you.

Our next question comes from David Lopez from New Street Research. Please, Mr. Lopez, your microphone is open.

Hi, hello. Thank you for taking my questions and congratulations on a solid set of results. Just add one on the balance sheet, please. Your net leverage is quite low now. I was wondering what is the optimal leverage in the future? I know you cannot comment much on the shareholder remuneration today. But should we expect leverage to continue to go close to zero, or is it going to go up at some point? And what would be the optimal level, please?

Hi, David. Yes, our leverage is really very low after the acquisition of Oi. And we are in this very good results. For now, we will still continue the same path. Of course, we will have some discussions about what happens if we have a change in the income taxes from the government. And when we have this information, we will start some some position about our capital infrastructure. But for now, we are not thinking about changing our leverage situation.

Maybe it's worth adding, David, that there is another discussion that you guys are quite interested in being quite interesting in the previous month. In the previous quarter, that was the interest on equity. And that could be a trigger to rethink something since the discussion now has been... postponed for potential implementation at the earliest in 2025. That's another element that is part of our discussion that when we look at that, and today we got a pretty nice instrument. to address effective tax rate and support our increasing short-holder remuneration. And of course, there's been a lot of discussion here if this instrument was going to exist in the future or being modified in the future. And so this is something that has been studied internally, but since, let's say, the discussion now is being postponed, it's something that is going to be probably discussed again throughout the 2024. when we see progress in the government news on this front, let's put it this way.

Okay, thank you very much, very clear.

Our next question comes from Philip Chang from Sintander. Please, Mr. Chang, your microphone is open.

Hi, good morning, everyone. Thank you for taking my question. Quick question on my side. I just wanted to understand if there's any update on the Fistel payment discussions and if you are still working with the base case of not having to pay Fistel this year. So just wanted to see if there's any update there. Thank you.

Hi, Shane. We are still in the same position. Nothing changed related to the Fistel payment. So we will maintain our previous position.

Perfect. If I may just do one quick follow up. I just wanted to understand in the mobile segment how the performance has been on the high end consumers, right? Just wanted to understand if given that you have now the highest startup in the market, How do you see your relative performance among high-end customers, right, pure postpaid, if you have been able to gain a lot of traction there? Has this been an important driver here for ARPA expansion? And eventually, if we should continue to see this as an important driver for service revenue growth going forward?

This is a very good question because at the end of the day, when you look at post-pay, we got 22% market share and market leader is 44. So this is an area where we can grow. I mentioned in a previous answer that we are doing quite well. So if you look at that, when you look at post-pay, we divide the plants in two families. One, we call it internally like pure postpaid, which is basically something above 100 reais. And the other one is hybrid plants that we call internally controlled. And we have been growing double digit on the pure postpaid plants. And all the efforts that we are doing on our commercial strategy that is based on the famous 3B, best service, best network and best offer is exactly to increase the perception among the high value customers that we have these 3Bs with us. and therefore to attract them. So it's a journey because to change perception, it takes time. We are putting all the elements together and like in the test drive that I just mentioned in the previous question to Carlos, basically we are working to improve our position in the high segment. And when you look at the hard number, It looks good because we're going double-digit, but I think there is a long journey to go in front of us. When you look at, additionally, some of the things that we have been doing on our offer, the Apple partnership is exactly driven by... our intention to increase the perception with high value customers. When you look at, you live in Brazil, so if you fly domestic Gol and Latam, our Team Black customers, so Team Black is the high level plant family that we have here include free communication in the flights on us. If you look at one of what was considered, let's say, a gap in our high postpaid plans offer that was international roaming, we closed the gap last year and now we got the most attractive international roaming offer. So we are doing a number of initiatives to sustain our quest to increase our position in the high-end customers.

Very clear. Thank you, Alberto, Andrea, Vicente and Luisa, and congratulations on the strong fourth quarter results.

Thank you.

thank you lindsay ladies and gentlemen since there are no further questions i'm returning the floor to mr alberto grisali for his final remarks please mr grisali you may proceed

So guys, thank you to everybody for staying with us. I hope you like the new format that we put together. I invite all of you to participate to the new group, to Telecom Italia Group Capital Day, the 7th of March. And I'm looking forward to meeting all of you in the one-to-one meetings that we have in the following days. Thank you, everybody. And have a nice carnival for those living in Brazil.

Bye-bye.

This thus concludes the fourth quarter of 2023 conference call of ChinSA. For further information and details of the company, please access our website at chin.com.br. You can now disconnect from now on and thank you once again. Have a wonderful day.