TIM S.A.

Good morning, ladies and gentlemen, and welcome to ChinaSei 2024 Third Quarter Results video conference call. We would like to inform you that this event has been recorded and all participants will be in listen-only mode during the company's presentation. There will be a replay for this call on the company's website. After ChinaSei remarks are completed, there will be a question and answer section for participants. At that time, further instructions will be given.

Hello everyone and welcome to Team SA's Earnings Conference for the third quarter of 2024. Thank you for joining us. I'm Vicente Ferreira, Head of Investor Relations. This video shares the key highlights of our recent performance and the strategic initiatives we are implementing to continue our sustainable cash flow growth. Afterward, we will host a live Q&A session with our CEO, Alberto Grizzelli, and our CFO, Andrea Viegas. Before we discuss our results, I remind you that management may make forward-looking statements, and this presentation may contain them. Please refer to the disclaimer on the screen, also available on our Earnings Materials and Investor Relations websites. With that, let's move to our results.

Hello everyone, I'm Alberto Griselli, CEO of Team Brazil. Once again, we deliver solid financial and operational results in a quarter marked by cash flow generation. But before we discuss our results in detail, let me introduce a relevant part of our effort to improve our brand perception. In September this year, the Rock in Rio Festival took place. This is the biggest music festival in Latin America, lasting seven days and attended by more than 700,000 people. Tim is a master sponsor, which reinforces a connection between the company and music that dates back to 2003. Since then, we have kept this connection, but now we are expanding this as a platform to reshape clients' perceptions of our brand. Mobile network operates in extreme conditions during this type of event, so we used the music festival to showcase our 5G network strength and reliability while innovating in how we interact with our clients and prospects. This year's results were remarkable. Tim was the number one brand mentioned with enormous favorability and colossal brand exposure. We expect that investment like this will help us close the gap in brand perception and clear the way for future growth. Back to our financial results. In the third quarter, we achieved a 6.1% growth in service revenues, outpacing inflation and maintaining the sustainability of our revenue dynamics in face of already expected tougher second half of the year. Our revenues were driven mainly by mobile services, which expanded by 6.3% compared to Q3 2023. Mobile ARPU is an important lever, rising close to 5%, while postpaid customer base improved with migration and a new record low churn at 0.7%. Our EBITDA grew by 7.5% during the same period, with another quarter of margin expansion. After third quarter 2024, we have 13 quarters of expanding margins confirming our ability to push the boundaries of efficiency. Our proxy for operating cash flow reached a record high for a third quarter. growing above 20% year over year. As a percentage of revenues, we reached 25% in Q3 and more than 21% in the first nine months of 2024. We have the highest cash conversion in the industry. These solid financial results are accompanied by innovation in our offers, consistent infrastructure development, and improvements in our services. We continue to develop the 3B concept. So, to build the best offers, we focus on the best value proposition. As we promised last quarter, we launched the best control plans in the market. This comes as a part of a full revision of our post-paid portfolio, establishing new price points to facilitate upselling while reviewing benefits and smoothing customer journey. This proactive approach to managing our customer base is helping to increase loyalty and improve churn. Our post-paid customer base is sustaining a solid pace, growing close to 8% year-on-year and 2% quarterly. In prepaid, we launched a new proposition with adjustment to our go-to-market, aiming to improve our performance in this segment and to open opportunities for future growth. The second B of Best Network combines the largest coverage with the best quality and reliability. As you know, TIM is the only operator to cover all cities of Brazil with 4G and is also number one in cities with 5G, very close to 500 municipalities. We are widening our leadership in consistent quality and we ranked first in reliability, a key metric for customer experience and more important than download speeds. To deliver the best service, we work on addressing today's challenges while building an evolutionary path with artificial intelligence. TIM is increasing first call resolution rates and facilitating digital interaction to maintain service quality at the highest standards efficiently. Therefore, call center NPS is improving and we continue to outperform the sector in resolution rankings. Our AI initiatives continue to evolve. TIM AIX is 100% rolled out to more than 5,000 attendants. Speech and text analytics are producing insights into consumer complaints to improve and accelerate caring activities. Before Andrea joins us, I'd like to touch on an important topic for advancing our business. As we presented during our investor day a year ago, we have been working on expanding and developing new growth avenues, such as our digital ecosystem and our B2B. The expansion of this digital ecosystem is focused on verticals such as health, mobile ads, data monetization, and education, using partnership with consolidated companies. Through venture capital investments, we use our 5G funds with upload ventures to explore other segments with startups and scale-ups. Mobile ads and data monetization more than doubled the revenues in the past 12 months as we consolidate our position as a relevant player in these markets. In health, after the soft launch, we learned and adjusted the go-to market and now we are bringing roughly 20,000 new customers to our partner. In education, since the beginning of the partnership, more than 700,000 people subscribed to courses. Our fund now has two investees, with promising addressable markets to be explored. In the coming weeks, we will announce initiatives in a new vertical to open further opportunities for teams. Regarding B2B, we are accelerating our execution to develop new IoT markets in Brazil. We closed this quarter with more than 600 million reais in contracted revenues, with two very relevant new contracts signed. Additionally, we have a solid pipeline of potential clients for the coming months. Here we also expect to go beyond the already known agri, street lighting and highways vertical. Stay tuned for novelties before the year end. Now we move along to more financial details with our CFO Andrea.

Hello everyone, I'm Andrea Viegas, CFO of TEAM. I'm a pleasure to share that our performance continues to be strong, with a clear highlight on our cash generation capacity, as we had anticipated and communicated over recent quarters. Supported by solid revenue growth above inflation, our EBITDA demonstrates robust results, with a 7.5% increase and another quarter of margin expansion. After accounting for lease impacts, EBITDA after leases grew nearly 90%. Our tower decommissioning project no longer has a material impact. A few towers remain to be financially decommissioned, with fines still to be paid. However, these numbers have significantly decreased. As a result, the EBITDA after leases margin expanded by an additional percentage point year over year. Driven by TEAM's overall strong performance, our net income saw double-digit growth when compared to 30.23, despite a lower interest on equity. Additionally, operation cash flow grew over 20%, with margin expanding to 25%. Despite the country's challenge with forest exchange pressure, we managed to maintain our CAPEX levels within guidance bands. Our 9 months results are also quite positive, with operating cash flow nearly 30%, growth and exceeding 21% as a percentage of revenue. This 30 quarter confirms what I highlighted in our previous call. Seasonal negative impacts on working capital and CAPEX have indeed reverted. Even with nearly R$ 2 billion in debt and interest payments, we generate almost R$ 2.3 billion in cash before dividends. These results underscore the strength of our strategy, and I'm confident we are on track to meet our year-end guidance, even with a more challenging comparison base in the second half. Now back to Alberto.

To conclude our quarter discussions, it is worth recapping some developments in the past three months. We saw some new pricing movements from our peers, but competition remains healthy and we believe it will remain like that. So much so that we reformulated our postpaid portfolio without using the pricing lever to improve the value proposition. We are carefully looking into our prepaid dynamics and adjusting our offer and go-to-market to regain momentum. We will implement our Gen-I use cases that prove to be promising for our customer experience and efficiency. We will keep developing our business while caring for our people, society and the environment. The third quarter was marked by outstanding cash flow performance. We were also pleased with the post-pay contribution and the efficiency of our operations. We are positive we will deliver on our promises on all guidance lines. Therefore, out of our three-year guidance we gave, We confirm our intention to distribute an additional 2.7 billion reais in shareholder remuneration between dividends and interest on equity, totaling 3.5 billion for 2024. The journey towards our aspiration of becoming Brazil's most preferred mobile operator requires firm commitment and consistency. I'm sure we have the right people to deliver this throughout hard work, creativity and discipline. Now let's move to the live Q&A session.

Thank you, Mr. Alberto. We'll now start the Q&A session for investors and analysts. If you wish to ask a question, please press the raise hand button. If your question has already been answered, you can exit the queue by clicking on the same button. You can also send written questions throughout the Q&A option. Wait while we pull four questions. Our first question comes from Marcelo Santos from JP Morgan. Please, Mr. Marcelo, your microphone's open. Thank you.

Hi, good morning, Alberto, Andrea. Thank you for taking my questions. I have actually two. The first question is on prepaid. I wanted to get a better assessment on how do you think you're doing in this market? Like, are you losing space? You mentioned in the release some lower recharges in some group. So just wanted to better understand the performance. The second question is more in general about mobile service revenues. Not all the peers reported yet, but you have been growing a bit below peers. So just wanted to understand the elements here. Do you think this is more of a value-added service if you're growing a bit less, or is this more on the prepaid that's dragging you? So just wanted to get your assessment. Thank you.

Thank you, Marcelo. Hi, everybody. So let's go with the first one that is somewhat related to the second one. So when it comes to prepaid, so what we are observing in this quarter, in these last three quarters, that we are sort of going sideways. So if you look at our prepaid revenues, you will see quite similar numbers, quarter one, quarter two, and quarter three. And if you look at our competitors' numbers, you're likely to see a quite similar pattern. When you look at the year-over-year performance, we had quite a good 2023 on prepaid. And therefore, the comparison, it's a revenue decrease on quarter-for-quarter starting second quarter this year. And this is basically due to a few factors. So let's recap what happened in the last quarter of last year when we did some price adjustment across the board. Once we did this price adjustment across the board, Basically, we made two things. We created a sort of a better incentive to migrate from prepaid to control. And so in this 2024, we have a faster prepaid to control migration so far. And this is, of course, impact our prepaid revenues. At the same time, we found out some less frequency of recharges in specific group of prepaid after the price adjustment. And so a sort of negative elasticity that created a negative impact on our prepaid revenues growth potential. And so we got something that is intended and something that was not intended. And this explains our prepaid performance in the first quarter, second quarter, and third quarter. A couple of months ago, we launched an upgraded value proposition to improve our prepaid performance going forward that is basically centered around three concepts. The first one is to be more appealing. on prepaid in the market space. So if you look at the prepaid offering, it's quite similar and it's been quite similar for a while. So we put on the market some innovation to be more appealing. The second one is to increase the frequency of recharges for some specific groups. And it's primarily related to the WhatsApp benefit that we included. And the third one is to stimulate the download and usage of our AppMule team, which brings to us basically two benefits, an increased set of communication mechanisms and a better cost to serve. So when you look at the prepaid performance, what is driving this is prepaid to control migration on one side and on the other side, the lower recurrency on specific lower income subsegments of prepaid. So this is for the first question. When you move to the second question, you look at our overall revenue performance, you would see that we are quite on the right track on postpaid in line with our peers. And what is dragging us at a lower speed versus them is primarily the prepaid performance for us. So what I've just said to prepaid impact our overall revenue profile. And that's the reason why We have been launching a new value proposition to capture the opportunities that we have on prepaid. Of course, then you have other revenue opportunities that are primarily related to our customer platform strategy and the business segment that are creative on our revenue growth. Perfect.

Thank you very much. Yes, very clear. Thank you.

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. So two questions from our side. The first one would be on the postpaid side. Now, if you could give us an updated view on how you are seeing competition in postpaid, especially at the lower end of postpaid, the controller plans, where you have been carrying out prepaid to postpaid migrations and also recently launched a new plan portfolio. And my second question would be on the mobile advertising initiative. If you could give us a bit more color on how that has been evolving and how it is being operationalized. In particular, what are the most common ways you usually display the ads to clients if it's mostly commonly done via Facebook? push notifications or via videos that they can watch or other methods, and on whether your strong growth there in mobile ads has been more concentrated in your own ad inventory or on sale of third-party inventories. Those would be my questions. Thank you very much.

Mr. Roberto, your microphone is muted.

Okay. Can you hear me now? Is it okay? Okay. Yeah, it's working. Okay, so let's go on postpaid, the first question, and the competitive dynamics over there. So on pure postpaid, that's roughly the higher postpaid plans with an initial price point of around 110, 120, we see quite a rational environment. So there are not big movements or updates there. Okay. And if you look at what we define as the mid-postpaid or entry-postpaid, which is the control plans or hybrid plans, we have been executing a price adjustment front book and back book in between the first quarter and the second quarter. Another competitor did something quite similar, a quite similar time period, so in between the first quarter and the third quarter. And Claro did the same sort of movements at the beginning of July, and they decided to roll it back at the end of July. So they went back to where they were before the upgrade. I would say that is something related to something that didn't work out. So once you do a price adjustment, you are intentional on that. So the fact that they went back signal to us something that it didn't work out on their side. But the price differences is quite thin among the big players. And what happened, and it's been on the press and your reports over the last few days, is the launch of an MVNO by NewBank with a position on the offer in this group of controlled sort of prices. And they're a bit more aggressive versus us. We tend to look at this offer as a BTL offer that they intend to cross and upset to their customer base. And to this respect, this offer is quite similar to our BTL offer. So it's a bit more aggressive in prices, but the offer itself doesn't present at this point in time nothing special. When you look at our strategy, we are committed to the overall more for more approach. And to give you an example, Victor, we just launched our Black Friday value proposition for control, whereby we are not touching the price. What we are giving to our customer is an extra benefit if they subscribe to our promotion. What is this extra benefit? It's one year of Netflix subscription. So we keep on playing on our side the more for more approach. And the Black Friday campaign that we just launched, it's a confirmation of this. If we go to your second question, which is related to mobile advertising. So the first point is today is primarily on our own inventory. So we are working on our own channels. And these channels are primarily our app. Another subset of app that we have, our one-to-one communication mechanisms and the captive portal that is where the customer go when they finish recharging. And the format is variable depending on the channel. So you can have video in some of them, like the Apple captive portal. You can have images. You can have just simple messages. And so we have been working over the last year to build inventory. And we have been working to create the pipeline of advertisers, have been working on showing the advertising, the efficiency of our communication mechanisms and inventory. And this has been working quite well. And that's the reason why we have been able basically to expand the inventory within our own perimeter. So not upside for the time being and capturing more customers and more clients on our site.

Very clear. Thank you very much.

Our next question comes from Gustavo Farias from UBS. Please, Mr. Farias, your microphone is open.

Hi, everyone. Can you guys hear me?

Yes, it works.

Oh, good. Well, thank you for taking my questions. Two from my end. The first one on prepaid and in the light of a less frequent recharging, recharges in the prepaid market. Do you guys see any impacts, relevant impacts of bets in prepaid? And my second question, if you guys could give us more color on the increase in leasing expenses quarter over quarter. Thank you.

So Gustavo, let me take the first one and then I will pass the second one here to Andrea. So on the first one, the less frequency for prepaid, it's related to a sub. So when you look at prepaid, you basically have different groups of customer in terms of profiles. So from one side, one extreme, you have a lower income customers. And on the other side, the opposite side, you have people without any economic restriction, but people that prefer to pay on a prepaid mode. And so when I say that there is less frequency, the less frequency tends to impact the lower income segments. And in our view, it's related to the price adjustment that we did last year. The bad impact, we don't have any data that suggests that that is impacting in a negative way the profile of our recharges.

Hi, Gustavo. Related to the leases, we already expect an increase in the second half of this year. We have this increase major for three points. The inflation adjustment related to our regular contracts. We also have new sites. that came from our 5G expansion. And also we have new contracts such as the solar, the energy contracts that we have that also impact in this. What we are working is in continuous to generate efficiency in this line and we expect this line grow the growth of revenue will be higher than the growth of this list. So for the next quarter, we still have this impact, but the expectations should be under the control and lower than the increase of the revenues.

Thank you very much.

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

Thanks for taking my questions. So the first question is regarding how you're placed for price readjustments next year, considering that Claro has taken back and rolled back its price readjustment this year. And the second question is regarding CapEx guidance, specifically for 2025-26 with the recent depreciation of BRL versus USD. Do you see a risk to the guidance?

So I got the first one, which is on price adjustment for next year. I'm not sure I got the second one correct. You got it? Okay. So on the first one, when it comes to the price adjustment, so the idea for next year is to repeat what we did this year in between the first quarter and the second quarter, which is finally what we call the front book price adjustment and the back book price adjustment. Okay. And of course, the distinction about these two is the following. We have been doing this year in 2024 and 2023, the two movements together. So we increased the back book prices and the front book prices. And for next year, when it comes to the back book prices, we're going to execute it anyway. as we were executing beforehand. When it comes for the front book price adjustment, this, of course, it's impacted by the overall movement of the industry. Now, if you look at, so on Postpaid, we feel pretty comfortable that we are at the right price point, so we should be able to execute both together. For control today, we are at the price point where Vivo is at 60, we are at 57, and Claro is at 55, so like the entry prices. So they're very close to each other. We, therefore, are 100% sure on back book price adjustment and likely to do an inflationary adjustment also on front book prices as we did in 2024 and 2023. given the current competitive environment.

Related to the CAPEX, we are in line with what we expect. CAPEX, the vision of a quarter is not the big vision. We have to see the full year. And although we have a lot of efficiency generated by our contracts with 5G, we expect to maintain our guidance in the CAPEX of full year. I don't know if I addressed your question correctly.

No, so my question was that since BRL has been depreciating, Brasilia has been depreciating versus USD, does it impact your capex guidance, especially in 2025 and 2026?

Oh, okay. The exchange rate we have, we are in the good place related to our contrast, the band that we have for exchange rates. Until now, we have no impact related to the dollar. In 2025, we are working with the same range and we... For now, with this exchange rate that we have now, we don't see any impact for 2025.

Maybe it's worth adding, Fanny, that we just closed a new round, a big RFQ with the 5G providers, which is a big chunk of our capex or network capex a couple of months ago. And so the bans that we are looking at and we have, they are bans that are compatible with the current exchange rates, of course. If they change a lot, then we may have an impact. But in the current status, we are okay, even because we just closed the contract for the next three years. And so the real was sort of already depreciated versus U.S. dollars. Thanks, very useful.

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

Hey, thank you for thinking of my question. Good morning, Alberto. Good morning, Gene. My question is on 2025 growth. Considering the macro and considering the new plans launched by Moobank, do you see risks of growing above inflation next year? And what's your thoughts on growing above inflation for 2025?

Well, Gabriele, our plan is to grow above inflation. And so far, we see the elements in place to be able to grow above inflation. So the growth is primarily driven by, if you look at postpaid, you look at an increase of customer base, an increase of ARPU, which is in turn related to the price adjustment increase. and we are planning to do this price adjustment as just discussed on Fanny's question. And if you look at our performance on postpaid, you will see that we have a growth driven on postpaid primarily on customer-based growth and ARPA growth. So I don't see this changing next year. On prepaid growth, we put in place the efforts and the commitment to the parts to improve our performance. What I already mentioned, if you look at quarter on quarter, you will see that we are going sideways. And what we are looking at now, it's a month over month increase. And so we launched the offer a couple of months ago. It generally takes a few quarters to kick off. So we're looking now at the operational KPI and we are positive on a number of them. So the trend should improve going forward. And we have another set of revenues, like the customer platform revenues and the B2B revenues that is increasing constantly over time, not only in the contracted revenues, but also in terms of the plan that we are looking at. And so when you look at the inflation projection for next year and the efforts that we are putting in place, we are still comfortable that we are going to grow significantly. above inflation as in our current guidance, that for next year is in between 5% and 6%. Just remember what is our target. So for this year was in between 5% and 7%, and starting next year is between 5% and 6%.

Pretty clear. Thank you.

Our next question comes from Emilio Rinconi from Itaú BBA. Please, Emilio Rinconi, your microphone's open.

Hi, this is Carlos Learreta, actually. Thank you and good morning for taking the questions. So I have two on my end. The first one is... We'd love to hear your thoughts on the evolution of the customer from prepaid to controlled to postpaid. Maybe if you can talk a little bit about the percentage of people who move to controlled and how many of those eventually maybe move to pure postpaid. And what are the difference in churn rates between Controlli and Pure Postpaid? And how also price sensitive the two different types of Postpaid consumers are? That'll be the first question, please. And on the second one, maybe for Andrea, you know, the OPEX control has really been remarkable. And I Aside from what you just mentioned, Alberto, about the above-inflation ARPA increase for next year, is there any further room that you can see for savings in OPEX so you can deliver further margin expansion? Thank you. I think you're muted, Alberto.

Carlos, I'm with you now, right? Yes. So let's take the first one. So when it comes to prepaid to control migration, it's a good proportion of our net addition today. So it's something that represents, I would say, on average, something like 50% of our overall number is growing double-digit year over year. And one of the stimulus to that is the fact that we price adjust prepaid and the fact that we are quite able to select the right customers to migrate from prepaid to control, as well as control to control and control to pure postpaid. So when we design these migrations, what we look at is a very huge number of subgroups. We are talking about 10s. And for each of them, we provide the starting point and the ending point, which is different among different groups. So we've got quite different landing point in terms of pricing and benefits. The way we design this migration strategy, it's... roughly the following. We look at hard to increase, which is one of the drivers, and we look also at not increasing share and bad debt. So that's the reason why we got all these sub-segments and that our marketing is working on the time. We select a group of people, we start migrating people from that offer to another one, We look at the overall effect in terms of ARPU, churn, and bed debt, and when we find a favorable equation, we scale it up. So we do the ARPU increase being quite cautious with potential negative impact of churn and or bed debt. And so it's fine-tuned and optimized on a daily basis by our marketing team. And so this is the way we look at that. And that's the reason why we keep on growing revenues without growing either debt, which is quite stable at 1.9% of revenues, or churn, which is at record low. So we do this in a cautious way to increase the accretiveness of revenues but without impacting negatively our cost or our other operational KPI lecture. So like creating a washing machine. Carlos, that was clear. It was a little elaborated. I'm not sure I got the points that you were after.

Yeah, I mean, on the first one, very clear. Thank you. And then on the second one, it's just thinking about potential margin expansion for next year. I was saying that the OPEX control has been very remarkable. So maybe you can shed light into what items within OPEX you can maybe have a little bit of control to take them down so you can deliver the actual margin expansion, aside from the above-impression pricing, please.

Hi, Carlos. Working in efficiency is always, it's a continuous acting in team. We are always looking for another opportunity. And now we are working with some trials, reference to artificial intelligence, to work especially in the maintenance of the network, and the caring of the customer, the call centers. So we always try to find another opportunity. Of course, we already have a very high margin, but our intention is to continue to grow the OPEX low than the growth of the revenue. So room for improvement we are always looking for. And our focus is to deliver, at least maintain the pattern that we have. And especially in the, we think we expect to increase a little bit our margin.

Carlos, if I may add, if you want to look at the different categories we are looking at, you've got discipline, so having everybody committed to spend something and deliver something on top of the expenditure. And then we have the technology that Andrea just mentioned, like artificial intelligence is the last wave that we are implemented. So where we stand, we demonstrated that we have the efficiency on a limited scale. And so we already moved this year from limited scale to full deployment. And so we are working to capture this energy at full scale. The third levers that I think is worth mentioning is the continuous make versus buy decisions. And, for example, we implemented in the past several business process outsourcing initiatives for tower, fraud, and billing. We just closed another one for a piece of our infrastructure services and working on another one on customer value management. So it's discipline, it's technology, and it's this constant review of make versus buy activities in search of productivity increase and quality increase.

That's super helpful. Thank you for your answers.

Our next question comes from Daniel Fiderle from Bradesco PPI. Please, Mr. Daniel, your microphone is open.

Good morning, everyone. Thank you very much. Alberto, do you see room for making plans more simple, like easier to understand or removing SVAs? And do you see any reason for making them simpler this way? Additionally, if you see room for any significant improvement in the customer experience in-store and in the app, and what the timeline for making those experiences much better if it's something that takes time or that you could change from one year to the next. And the second question is, given that we have new players coming to the markets, pure mobile players, how do you see the importance of a convergence offer like bundle or fixed and wireless? Thank you.

Let's go to the first one. When it goes to the quality of the service that we provide, this is an imperative of our strategy and an important element of the more for more strategy. So we say, okay, if we compete less on price, of course, we need to compete more on the perceived quality and value perceived by the customers. So when it comes to the more formal strategy, what we have been doing and what we did with the new postpaid portfolio, both pure postpaid and control portfolio that we just mentioned is we include benefits that the customer value, and generally this fall into the categories of bundle. And when we say that the customer value, we know that they value because we know how many of them are subscribing to something else versus a mobile service. So if you look at our presentation, you will see that in Postpaid, we have been growing this penetration 11%. And we say, okay, but what is the starting level? We are talking about something in the range of 30% to 40%, depending on the group, of bundle penetration in our customer base. So it's pretty high. And so customers value this. And this is about the benefits and the bundling of the benefits. The other thing that we are working, so it's not just perceived value but perceived quality, is to simplify a number of processes. And so when you look at the control plans and postpaid plans that we just reformulated, they have significant improvements in what we identified that we know that are some customers' hurdles. So it's a continuous process as we started years ago. And we keep on working every month to improve the customer experience. You see this reflected in the increase in NPS as is presented in our results. It's a long journey, but it's a journey that is critical to us. We've got different activities and levers that we are deploying to achieve our objectives. When you go to the app improvements, just an example that you mentioned, we are now working on a new app that we are going to deploy at the beginning of next year. And the app is the app and the captive portal. The captive portal is where you go if you are prepaid and you finish your credits. These captive portals is already being implemented this year, and the app with a much simpler interface and the better flow is going to be implementing at the beginning of next year. So this is part of our strategies and integral part, and we are quite committed to it. Just for you to have a reference, NPS is part of the management of the short-term incentive of all the leadership team and all professional in our company. So it's quite an important KPI. When you go to the second question, which is related to the pure mobile approach, I think that this is something that, like FWA, every year we check and recheck. And the convergence today in Brazil, it's sort of limited in scope and in intensity, depending on the segment we're disintended to and the geographical scope of it. At the end of the day, 65% of the broadband market is in the hands, on fiber, of somebody that don't have. a mobile value proposition. So it's offer driven by some players, but this player represents 35% of the overall offer. When you look at the potential results of a or a potential difference in results of a pure postpaid versus a convergent approach, I think it's important to mention that we are growing our postpaid customer base faster than the market leader. And so we don't see any slowdown in that. And when you look at churn, we are delivering the best churn ever. So from an overall strategy point of view, I don't think this is something that is impacting us now. And from a results point of view, I just confirmed what I said.

Thank you, Alberto.

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

Hi, good morning, everyone. Thank you for taking my questions. I have two here from my side. The first one, usually working capital has a positive dynamic for a team in the fourth quarter. I just wanted to confirm if that will be the case in a similar matter this year as well. And the second one, you had a very strong performance in other mobile revenues. This quarter, it was up more than 20% year over year. You mentioned it was related mostly to some IoT projects. So we wanted to understand a little bit if that is something recurring. Is that a one-off? And if there are other initiatives in this line that could be helping results going forward? Thank you.

Okay, Luca, so let me start from the second one, because you sort of, you already gave the answer also, besides the question. So other is something that is there to stay, it's intentional and it's part of our strategy. So when you go to others, you have a number of things inside, like the customer platform strategy, the IoT strategy. We discussed, I think it was the first quarter, the roaming revenues that, by the way, are coming because we have a better position in postpaid. So it's something that is growing. It needs to grow. It's intentional, and we'll keep growing. This is for the second question. For the first question, when you look at our dynamics, I would say it depends on what KPI you are looking at. So we are trying to balance revenue growth, margin expansion, and free cash flow growth. So we will see in the fourth quarter the same dynamics happening. And this is basically we're talking about revenue growing above the inflation and margin expanding and free cash flow growing. When it goes specifically to the revenue dynamics, what is likely to happen at this point in time is that you will see what we are seeing today. So we will see the postpaid performing well, the others keep growing, and the prepaid sort of going sideways. And it was going to be a tough comparison because in the last quarter of 2023, we priced up. And so our prepaid revenue line is likely to perform better. Sideline is probably not the right because there is some seasonality in the first quarter in November and December. But nonetheless, we got a difficult comparison because we priced up prepaid in the last quarter of 2023.

Related to the working capital, we have this particular dynamic that in the first half of the year, we have a negative working capital. In the second half, we have a positive. So this has always been like this. And I confirm that the fourth quarter, we will have a positive working capital. If you look out from the first one to the fourth, we come and increase the working capital. This is, like I mentioned, our dynamic, especially the dynamic with our major suppliers.

Very clear. Thank you for the answers.

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

Hi. Morning. Morning, guys. I have a few questions. One on pricing. Alberto, you mentioned that the price points in the Controlli package, they are very similar between Chin, Vivo, and Claro, and that's true. But then came Nubank and made an offer that is like 10 reais lower than than the cheapest one out there. So my question is, do you think this price point, usually controlling plans, especially the entry-level clients, they're price sensitive, right? Do you think this price at like 10 reais less would be enough to like change the price dynamics going forward? I mean, how do you see that evolving? I know maybe it's too early, I don't know, but just how you think about now that we have this this new guy out there. I know we have to blame Claude on that, but anyways, you know, it is what it is.

Well, so if you look at, if you do the comparison, like 60 versus 45, of course, or 55 versus 45, there is a difference. Now, I think that as always in life, you have different customer groups. So you've got people that value the more for more strategy. So the offers are not quite comparable because if you look at the, 55 offers, you go there are bundles like the Netflix bundles that I was just mentioning. And so there is extra value there. And we know that customers like that. Of course, there are a subset of customers that are more sensitive to price. And for these customers, this sort of offer may be appealing. But Cadu, you need to remember that you're comparing a BTL offer to what we call front book offer. We do have BTL offer. So when you migrate a prepaid to a control plan, you don't move it from 30 reais to 60 reais or 55 reais because this step is too big. So you've got a number of offers in between there. And therefore, I think it's fair to compare BTL with BTL. And if you do that, the gap is not that big. And therefore, we will need to see how this play off. For the time being, the scope is quite limited. If you are a customer, you want to change, you can make changes. A number portability is quite a difficult process. You don't make a number portability. You need to call. When you call, we know what to do. So I don't think that with what we have on the table today, the pricing dynamics will change.

No, perfect, Roberto. Okay. And another question that I always wonder, too, is, I mean, you're growing top line super nice above inflation for several quarters, which is amazing. We know how tough it is to grow. above inflation in this sector. But then there are other, maybe bigger growth opportunities out there on maybe broadband or B2B. How are you seeing these opportunities going forward? I think how meaningful you think that can be?

So let's start. The two that you mentioned, they are both meaningful. So let's start with the B2B one. So the B2B one, if you look at the contracted revenues, we are accelerating quite fast. We have a robust pipeline. We got a lot of actions going on. We identified nice verticals where we moved first. We got some kind of advantage. And when you look at that, you have the organic opportunity and you have the opportunity to enhance the our set of capabilities to capture a wider set of the B2B revenues. And this could go, as we say on our investor day and in many meetings, through organic growth, which is material, and non-organic growth also, to enhance the set of capabilities that will allow us to provide a larger portfolio. So on B2B, I think that the answer is quite straightforward. It is important for us. It's an important pillar of our strategy. We are pursuing it with assertiveness and we want to succeed in that. When you go to broadband, the answer is a bit more complex because you have a marketplace which is quite competitive. It keeps being competitive. And as a matter of fact, competition is expanding because you have two levels of competition. You've got the national level, whereby everybody's sort of stable with the entry with the price at around 100 reais. per subscription. But when you go on the regional level, you have a number of municipalities where the price competition is quite strong and you see prices going down to 50 reais or something like that. Then the number of places where this is happening is increasing. So you have a situation whereby the market environment is not attractive because of a lot of competition that is pressure in churn and ARPU. So the point is, we, of course, have the opportunity to grow in a space where we have 2% market share, but the time is not right now to accelerate. And that's the reason we maintain ourselves selective here. And when it comes to non-organic opportunities, they need to have a strategic fit at the right price. So it's something that I think it's less relevant in the short term versus the B2B focus that I just mentioned.

Perfect. That's very clear. And if I may, one last question on CapEx for Sales. And, you know, it has been falling part of the quarter year after year, right? I mean, we've been seeing that happening. not only team, other companies, other geographies as well. In your case, we are probably, you know, this year, maybe CapEx sales will be a little higher than 17%, somewhere between 17, 17 and a half. How low you think you can get? I mean, looking longer term, right? I mean, can it, you know, can it be like around 15? What is the number that you think it's a reasonable number for CapEx sales going forward, please? I know it's not a direct question. It can be anything, but

It's an idea. So the floor, if you see, I remember that a couple of years ago we were discussing with investors, well, it's very difficult to go below 20%, and we went below 20%. And now we close 18.9%. We are going down this year on a point likely. We see that our CapEx are quite under control. So when we look at CapEx, you know, you've got – you got the situation whereby we want to deploy our CapEx and we want to maintain our lead in terms of network quality and reliability. And so we want to do both things together. And it's playing quite nicely on our side because in terms of coverage, we sort of did a big chunk of the job already because we are the only operator with CapEx. 100 municipality covered with 4G. The second one, I think it's, if you are a 5,570 municipality, the second one, I think is 4,900. So there is a big gap. On 5G, we are deploying faster. And so, you know, everything that we are doing is to increase quality and we are doing it. We are managing to keep a lead. And with the last negotiation we have with our vendors, we have an extra bundle of security that the intensity that we have today, it's good to increase and to maintain a competitive advantage as we have today. We didn't have this in the past. So it's more an effort of communicating this to the customer base rather than delivering it on a technical point of view. So, to make the story short, basically, we see our cap is constant over the next years with revenue growing. And so, if you do the math, you will see that the ratio will keep going down in the next, in the medium term, in the next two to three years. And so, I don't see significant risk that may derail this trend.

Perfect. Thank you very much. Thank you, guys.

Once again, if you wish to ask a question, please press the raise hand button or send it in written form via the Q&A button. Wait, I will pull four questions. Our next question comes from Gabriel Guzan from Citi. Please, Mr. Guzan, your microphone's open.

Hello, a quick one on my side. Kind of inverting the question from Carlos on broadband. If it doesn't make sense to invest and grow more in this market, would it make sense to sell this operation to someone else, help the leverage, the parent company, special dividends and things like this? Thank you.

Well, today we got an optionality at the end of the day, right? So we are a telco player. We have 2%, so we got a quite credible brand. We got a huge customer base. We got a quite widespread commercial network. So if you look at broadband, it's an adjacency that we may pursue with sort of ease. given our set of competencies. So it's an optionality. If we get to the conclusion that broadband, the current context won't change, we may want to sell it. But at the end of the day, if we don't see from a consolidating point of view quite an attractive market, that would be valid for selling as well. So we see the market consolidating in the future on the service call level and on the network call level. And we believe that we can play a part on it. And if we change the mind in terms of we don't want to play a part on it, the sell could be an option.

Perfect. Thank you.

Ladies and gentlemen, since there are no further questions, I will return the floor to Mr. Alberto Grizzelli for his final remarks. Please, Mr. Alberto, you may proceed.

So everybody, thanks for staying with us today. So we are nine months into the year. We have been delivering across the board in terms of revenue growing above inflation, margin expansion, expanding at the beta level, beta after lease level, and the free cash flow level. We've got a sound strategy going forward. We've got two months to go to finalize this year's results. I want to thank the entire team for the effort so far and the last couple of months to conclude 2024 according to our plans. Thank you, everybody.

This thus concludes the third quarter of 2024 conference call of Chinase. For further information and details of the company, please access our website at tint.com.br.ir. You can now disconnect and thank you once again.