Telefonica Brasil S.A.

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil fourth quarter of 2021 earnings conference call. Today with this, representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company, Mr. Davi Melcon, CFO and Investor Relations Officer, and Mr. João Pedro Carneiro, IR Director. We also have a simultaneous webcast with slide presentation on the internet that can be accessed at the site www.telefonica.com.br.ir. There will be a replay facility for this call on the website. After the company's remarks are over, there will be a question and answer session. At the time, further instructions will be given. Should any participant need assistance during the conference, please press star zero for an operator. Before proceeding, let me mention that forward-looking statements are being made under the saving harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the company's future results and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. João Pedro Carneiro, Investor Relations Director of Telefonica Brasil. Please proceed.

Good morning, everyone, and welcome to Telefonica Brasil's earnings call for the fourth quarter and full year of 2021. Today's call will be divided in two parts. First, our CEO, Christian Gebara, will present Vivo's main financial and operating highlights, as well as an update on the digital ecosystem and ESG initiatives. Then, our CFO, David Melcon, will give you more information regarding our cost and capex structure, net income, shareholder remuneration, and free cash flow. Now, I pass it over to Christian.

Thank you, Oswald. Good morning, everyone, and thank you for joining our call. On Light Trip, we start with the main highlights of a quarter that closed 2021 on a very positive note. In the fourth quarter, we achieved our largest ever customer base with 99 million access as our boss base reached the historical mark of 50 million customers. While the homes connected with FTTH soared 36% year-over-year to 4.6 million, With Vivo registering over 1.2 million net additions in 2021, 37% more than in 2020. Our strong operating performance allowed us to unlock positive year-over-year evolution across all lines in the fourth quarter of 2021, as we were able to grow total, mobile services, handset and fixed revenues, as well as EBITDA, net income and free cash flow. On the revenue side, the fixed services grew 0.8% year-over-year, confirming that we were able to revert the negative trend that for several years pressured the top line of this business, with our core fixed revenues increasing 13.7% year-over-year, driven by a 31.2% growth of our FTTH revenues. In mobile, Our revenues expanded 3.7% year-over-year in the quarter, with handsets up 8.8% and services growing a solid 3.1%, led by the acceleration of upsells within our customer base and improved post-paid portability figures. Our EBITDA grew 1.2% year-over-year in the fourth quarter of 2021. as our revenue acceleration was able to offset impacts stemming from double-digit inflation recorded in 2021. As a result, EBITDA margins stood at 42.9% in the quarter. Finally, as our bottom line for the quarter doubled in comparison to the fourth quarter of 2020, we were able to register a net income of R$ 6.2 billion in 2021, up 30.6% through the year, which will be fully distributed to our shareholders. On top of that, we bought back 500 million reais of our shares during the year, leading to a treasury position of 14 million shares by year end, which were canceled in February 2022. Now moving to slide four. In the fourth quarter of 2021, our total revenues expanded 2.8% throughout the year, driven by The 6% increase seen in our core business revenues, which represented over 90% of our top line in the period. Our complete and up-to-date portfolio of connectivity and digital services solutions, which is fully meeting the demands of our B2C and B2B customers, has been generating top-notch results and will continue to drive our business forward over the next quarters and years. Let's move to slide 5, where we detail the evolution of our mobile revenue in the quarter. In terms of mobile services revenues, we had our best fourth quarter performance since 2017, with an expansion of 3.20% year-over-year. While we were able to maintain Prepaid revenues flat over Q4 2020, our Postpaid business expanded 3.9% year-over-year, led by the rational and value-driven approach towards our offer portfolio and increasing customer base. As a result, Postpaid accounted for 81% of our mobile service revenue in the quarter, a very valuable asset in periods of high inflation, since we have historically been able to pass through inflationary effects to our Postpaid customers on an early basis. and Headsets were able to grow revenues by 8.8% during the year in Q4 2021, positively impacted by successful Black Friday and Christmas campaign. As a result, our total mobile revenues expanded 3.7% during the year in the quarter. On slide 6, You can see that Vivo closed another year as a mobile market leader with the highest sharing total, postpaid and prepaid lines. Our reinforced leadership resulted from a 6.9% year-over-year increase of our mobile access base that led us to register our largest ever number of mobile customers, 83.9 million. The growth came mainly from our postpaid base that expanded 10.6% year-over-year, while our prepaid lines grew for the second year in a row, up 1.9% versus 2020. On the right-hand side of the slide, we highlight some interesting aspects that underscored our solid operating mobile performance in 2021. Even though we increased hybrid plans' price in the third quarter of 2021, Our fourth quarter postpaid chart remained quite stable, at a low 1.3% per month figure, up only 0.1 percentage points versus the previous quarter. The hybrid price increase not only helped in unlocking a positive revenue performance, but also prompted part of our users to upgrade their plans to our pure postpaid offers. seen by 87% year-over-year increase in hybrid to pure postpaid upsells in the quarter. Moreover, our premium value proposition of innovative offers aligned with customers' demand for connectivity and digital solutions, as perceived by 1.3 times increase of data consumption in 2021, allow us to register in the fourth quarter a number of postpaid net ads coming from other operators that was three times higher than in the fourth quarter of the previous year. Moving to slide 7. In the first two months of 2022, both Anatel and Cade approved the transaction involving the acquisition of assets from OIS mobile business by Vivo, TIM and Claro. This will be a transformation operation for the Brazilian telecommunication sector, allowing for an overall improvement of quality for mobile users, especially those coming from OIS network, while enabling The creation of a fiber infrastructure player. The closing of the transaction is expected to happen over the next months, with Vibo committing to pay approximately R$ 5.5 billion, fully funded with our own cash, to acquire a portion of access comprised of 43 MHz of spectrum, around 10.5 million mobile customers and 2.7 thousand sites. Over the coming weeks, we will keep you posted on the next steps and synergies we plan to capture from these deals. On slide 8, you can see that our core fixed revenues expansion, which stood at 13.7% during the year in the fourth quarter of 2021, allowed our total wireline revenues to grow for the second consecutive quarter at a 0.8% pace. consolidating the turnaround of a business that represents one-third of our top line. All three components of our core fixed revenues grew at a double-digit rate in the fourth quarter of 2021. FTDX expanded 10.4% over the year, IPTV was up 13.3%, while data, ICT, and digital services increased 19.5%. As a result, the revenues steaming from our core fixed products already represent over 70% of our total fixed revenues, 8 percentage points above the fourth quarter 20th figure. We're certain this ongoing shift in mix towards higher quality and value-added products will be the driving force behind accelerated revenue growth rates to be achieved over the next periods. Going to slide 9. You will see that the revenues coming from our Fibre to the Home Network closed fourth quarter of 2021 at over R$ 1.5 billion, representing 13.3% of the total revenues we've registered in the period, after expanding at an average pace of 35.8% per year from 2019 to 2021. Our FTTH broadband continues to excel, as the demand for high-speed connectivity remains as strong as ever. In fact, the fourth quarter of 2021, the average speed of our FTTH customers was 188 Mbps, an increase of 77% year-over-year as half of our gross ads are currently coming from customers buying plants with speeds at least 300 Mbps. Moreover, Fiber adoption should be further sped up by the recent launch of our fully convergent FTTH Plus mobile post-paid plan, Vivo Total, that offers attractive benefits to clients that want to enjoy the best, most reliable data experience in and out of their homes. As a result, we are posed to continue posting strong revenue performance in fiber will be further enhanced by the price up that we plan to implement during the year for our FTTH customer base. On slide 10, we show the evolution of our Fiber Home Pass and Home Connected numbers, keeping Vivo on track to hit the 2024 target set for the FTTH business. We closed 2021 with 19.6 million homes passed with fiber by growing our network to 3.9 million new premises, increasing our footprint 25% year over year. This robust expansion allowed us to register our highest ever number of FTTH net ads over the course of a year, with 1.2 million new users added to our base, which is now composed of 4.6 million access, growing 36.4% year-over-year. As the year-over-year expansion of our user base exceeded the footprint growth, in 2021 we were able to accelerate our FTTH take-up rate by 2 percentage points to 23.5%. We intend to reach, by the end of 2024, a take-up rate of around 30% over the 29 million on past we planned to have by then. The footprint and user base growth will come not only through our organic efforts, which will continue to command our fiber deployment, but also through FIBRAZIL, which should see an expansion of some 4 million homes passed over the 2022-2024 period. This will lead us and our InfraCo vehicle to triple the number of HPs it had by the end of 2021, allowing people to tap into new markets outside the state of São Paulo. Moving to slide 11. Last quarter, for the first time, we disclosed information about our B2B digital services that have been one of the main drivers behind our improved top-line performance. Now we will update the numbers and give additional information on cloud and digital solutions. We ended 2021 with 2.2 billion reais in revenues coming from the sale of services including in our digital B2B portfolio that is composed by cybersecurity, cloud, IoT plus messaging and digital solutions plus equipment. This amount grew 46% year-over-year representing almost 5% of our annual revenue base. A significant part of the growth came from the sale of cloud services. We registered around R$ 600 million in cloud revenues during 2021, which nearly doubled in size on an early basis. We provide our B2B customers with solutions from the main players in the cloud service landscapes, such as Microsoft, Amazon, Google, and Oracle. In addition, in 2021, we had our revenue coming from digital solutions and equipment growing 29% through the year, reaching R$ 780 million. Vivo counts on a large range of suppliers that fully meet the active demands of companies of all sizes, enabling us to be a one-stop shop for those investing in the modernization and digitalization of their businesses. Now moving to slide 12. Here we update you on some of the initiatives we have been developing to address the digital service opportunity on the B2C side. I started with our entertainment vertical, in which we partner with main OTTs available in the market, such as Netflix, Disney+, Amazon Prime Video, Spotify and Tidal, to complement Vivo's customer experience and access to content. We ended 2021 with 1.2 million subscriptions through Vivo of OTT content platforms, growing the number of access by 79% during the year. This includes both bundled subscriptions through our Vivo Selfie and FTTH plans and stand-alone purchases. In health and wellness, we just completed the rebranding of our Vivo Meditação app, which is now called Atma. With low investment in market, we were able to achieve 150,000 installations of the app, exclusively by leveraging Vivo's customer base. We plan to go further, and rebranding was the first step to accelerate the adoption of this app. In financial services, our 100% digital personal loan service, Vivo Money, broke the mark of R$ 30 million in credit conceded to our mobile customers, with originations and number of contracts seeing strong uptakes year-over-year, as we include part of our prepaid users within our targeting base. In education, We took another significant step in our partnership with Anima Educação by signing the contract for the constitution of a joint venture that will provide a lifelong learning platform with digital education courses focused on employability contributed to the development and improvement of the living conditions of its students. On slide 13, we present some highlights regarding our proactive approach to ESG-related topics. On the environmental front, we ended 2021 with over 9 tons of electronic waste collected at our point of sales, contributing to the safe disposal of those products. Moreover, we ended the year with 21 active renewable energy power plants on track to achieve the goal of 83 plants by the end of 2022, helping us to reduce in 19% the number of CO2 direct emissions On an early basis. Regarding diversity, we continue to move forward in increasing the representation of multiple groups within our workforce. By the end of 2021, 29% of our leadership was composed of women. Looking more broadly of our total workforce, 30% of our employees are black, while 4% are also declared to be LGBTI+. We also play an important role within Brazilian society, not only by providing connectivity and stimulating the digitalization of the country, but also by sponsoring education through our Fundação Telefônica Vivo, which benefited 2.7 million people in 2021, with investments of more than 64 million reais. The efforts we take towards growing sustainably and with great emphasis on enhancing social equality Through representation and education, yielded us with a series of acknowledgments, both on local and global basis. Locally, in B3, we ranked as the third company with the highest score among all EZ applicants, while also being the only telecom company chosen to be part of the newly created PlaceBridge to Work Index for our segment. In addition, we became part of a Bloomberg's Global Gender Equality Index while being the best telco Latin and participated for the second year in a row in the S&P Global Sustainability Yearbook. Now, I hand it over to David to take us through the financial highlights of the quarter.