Telefonica Brasil S.A. American Depositary Shares (Each representing One Common Share)

Good morning, ladies and gentlemen. Welcome to Vivo's second quarter 2024 earnings call. This conference is being recorded and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio. Para acessar nossa conferência em português, clique no ícone do globo ao lado inferior direito da sua tela zoom e selecione a opção Portuguese Room. Ao acessar a nova sala, certifique-se de mutar o áudio original. We would like to inform that all attendees will only be listening the conference during the presentation, and then we will start the question and answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry, and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference we have Mr. Christian Gebara, CEO of the company, Mr. Davi Malcolm, CFO and Investor Relations Officer, and Mr. João Pedro Soares Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Good morning, everyone, and welcome to Vivo's second quarter 2024 earnings call. Today, our CEO, Christian Jabada, will walk us through Vivo's performance in connectivity and digital services by business segment, B2C and B2B, as well as present our ESG advances. Then our CFO, David Melcon, will give more color on cost and CapEx management, free cash flow generation, followed by an update on shareholder remuneration for 2024. With that, let me turn the call over to Christian.

Thank you, Jean. Good morning, everyone. And thank you all for joining us today. We had another solid performance in the second quarter of 2024 with our main indicators such as total revenue and EBITDA growing higher than last quarter and is still well above inflation. Our customer base expanded in our main products. Postpaid access were up 7.2% and homes connected with FTTH grew double digit once again by 12.7%. In addition, Our total mobile access broke the 100 million mark, reinforcing FIBO's commitment with our purpose of digitalize to bring closer. Total revenues increased by 7.4%, mainly driven by mobile service revenues that were up 8.8% this quarter. Our robust top-line performance flowed down to EBITDA, which expanded 7.3% year-over-year in the quarter. By combining a strong EBITDA with capex-intensive reduction, operating cash flow totaled R$6.5 billion up to June, with margins reaching the mid-20s level, while free cash flow generation reached R$5.5 billion, representing more than 20% of the total revenues. Moreover, our net income expanded 8.2% over the year in the period, enhancing our profitability. These strong results reaffirm Vivo's solid position to continue delivering sustainable growth and returns while committing to maintain a high shareholder remuneration. On slide 4, we can see in more detail our consistent revenue expansion. Mobile service revenues that represented 65% of total revenue in the quarter grew at a fast pace due to solid commercial operating performance. The 3.9% fixed revenue growth was the highest since 2015, driven by a sequential improvement in FTTH performance with a 17.1% expansion and by an enhanced performance of the B2B segment. In combination with our broad offering of digital services, our leadership in fiber connection for homes and businesses makes it clear that we are on the right path for providing our top-notch services. This solid performance derives from our best-in-class value proposition for both B2C and B2B customers, combining connectivity with the broadest portfolio of services beyond the core. In Q2 2024, B2B digital services, summed with B2C new businesses, represented 9.9% of Vivo's total revenues, up 1.2 percentage points year-over-year, confirming the trend seen so far of de-escalating significance. Turning to slide five, we highlight the main levers of our ongoing growth in mobile, which basically consists in an outstanding combination of lower churn and higher ARPU. We now have 100.9 million mobile access, and the post-pay share in our customer mix continues to grow as this base expanded by an impressive 7.2% rate year-over-year. leading the segment to represent 63.4% of our total access by the end of June 2024. As Vivo is a unique position to meet customers' ever-growing needs for connectivity, we see them staying longer and spending more with us, resulting, for example, in increased upselling activity, both from prepaid to hybrid and from hybrid to pure postpaid. As such, our churn in postpaid remains under 1% mark, while we increased mobile ARPU by 6.3% year-over-year, reaching its highest level since 2019. Regarding our fiber operation, in June, we reached 27.3 million homes passed with Vivos FTTH, up 10.7% year-over-year, getting closer to our target of covering 29 million premises by year-end. Even though our footprint expansion remains accelerated, we have been able to increase our homes connected as a faster clip, up 12.7% to 6.5 million users after adding 199,000 new access during second quarter 2024, making it our best quarter since 2022. Besides spending up our customer base growth, we are also accelerating our ARPO expansion. FTTH ARPO reached R$90.9, growing 4% from last year's second quarter. In addition, Vivo Total, our convergent offer that combines fiber and mobile in a single plan, maintains its excellent performance. In June, we reached a total of 1.8 million fiber customers on Vivo total, more than doubling the number of users year over year, as 85% of our new fiber sales at our stores are being done through this plan. VivoTotal brings benefits both to our fiber business, as the FTTA churn is one percentage point lower than what we have on standalone fiber, and to our mobile business, as we have seen migrations of hybrid customers to VivoTotal offers soar 90% in an early basis. Thus, we are in a privileged position to reap the benefits of convergence as the only player that can offer a combined fiber and mobile plan on a nationwide basis. On slide seven, we can see the steady evolution of our B2C revenues in the last 12 months that represented around 74% of Vivo's top line. B2C revenue grew almost double the inflation in the period because of our second-to-none connectivity that is being complemented by the advance of our new business portfolio. Revenues coming from these services summed up 1.5 billion reais in the last 12 months, up 35% year-over-year and representing 2.8% of our total results. This quarter, we are including information on health and wellness vertical, represented by Vale South Sempre and Atma. our meditation and mindfulness app. Over the last 12 months, health and wellness revenues amounted to 37 million reais, backed by a solid performance of Vale Saúde, which currently has 321,000 subscriptions with growing usage rates. We also continue to develop the existing vertical and such, and as such, we just launched two new financial services products. PIX Parcelado, which allows our customers to make payments in installments using PIX, and a secured credit product linked to the funds users can withdraw from their FGTS on an annual basis called SACI Anniversario. Moving to slide 8, we detail the B2B performance with revenues up 7% year-over-year. The result was driven by the complete portfolio of digital services we offer to our clients that generated 3.6 billion reais in revenues over the last 12 months, up 19% in a year to already represent 32% of our B2B business and almost 7% of Vivo's top line. In the second quarter of the year, we reinforced our leadership in B2B by constantly bringing innovation, such as customized private network solutions for some of the most relevant companies of Brazil, as well as being a strong provider of agribusiness solutions. To boost our portfolio and reinforce our team and operations in digital services, we acquired IPNet, a company that specializes in leading company cloud transformation by implementing solutions from Google, having generated R$ 218 million in revenues last year, up 35% year-over-year. Regarding the ESG agenda, we have some important messages to share with you with the purpose to develop an increasingly more sustainable operation, and we anticipate by five years our net zero target. The company intends to reach zero net emissions by 2035, a challenge considered unprecedented for large companies in the sector. As a contribution to the circular economy, Vivo plans to considerably increase the volume of accumulated electronic waste collected from consumers going forward, collecting an additional 225 tons by the end of 2035. To reinforce our diversity pillar, our target for 2035 is to have women occupying 40% of senior leadership roles and 45% in overall leadership. The company also intends to reach 40% Black people in leadership positions and 45% Black people in the general workforce. In social, we had the 25th anniversary of Telefonica Vivo Foundation always keeping its purpose of educate to transform, digitalize to bring closer. With our latest volunteer day mobilizing more than 10,000 employees and their families benefiting over 40,000 people. During the quarter, Telefónica Brasil received several recognitions related to ESG, of which we highlight the best in telecommunications technologies and media, a category in the 2024 ESG Awards by Izermi Magazine. Now, Davi will comment on our financial performance.

Thank you, Christian, and good morning, everyone. First, on slide 10, we can see our cost evolution. Our OPEX growth was driven mainly by our strong commercial performance, but also by some expected volatility in the other revenues and expenses cost line. The increase in cost of services and goods sold was driven by greater revenues from digital services and sales of consumer electronics, which have lowered EBITDA margin but demand no capex and help us to reduce churn and extend our customers' lifetime value. The evolution of cost of operations was mainly related to the higher commercial activity seen in the period. But I would also like to highlight that during this year, we have had reduced sales of real estate and network assets, as well as lower tax recoveries in comparison to the previous year. As a result of other revenues and expenses line shifted temporarily to the negative territory this year, impacting the year-over-year comparison. If we exclude this line from our OPEX, our EBITDA grows 10.6% year-over-year, leading to a margin of 40.8%. It's also important to highlight that during the second quarter, Vivos reached an agreement with Anatel and other parties to propose a migration to our Sao Paulo fixed-voice concession to an authorization regime. This agreement, if approved by all stakeholders involved, will enable us to dedicate investment to enhance the digitalization of Brazil through the most up-to-date technologies, while also bringing more efficiency to our operations. Turning to slide 11, CAPEX totaled 4.2 billion Reais in the first semester, resulting in a reduced capital intensity year-over-year. we continue to direct most of our CapEx to grow technologies, reinforcing our 4.5G coverage leadership while accelerating investment in 5G that already covers 50% of the population. By combining our strong operational performance with an efficient CapEx allocation, we recorded a robust operating cash flow of 6.5 billion reais in the first half of the year, growing 9% year-over-year, contributing to reach an all-time high operating cash flow margin of 24% in the last 12 months. When adding leased expenses, the performance is even better, as we expanded 10.2% to reach R4 billion in the first semester of the year. Moving to slide 12, net income expanded 8.2% year-over-year in the first semester, reaching more than 2 billion reais. If we consider just the second quarter of the year, we grew 8.9%. Vivo's cash position at the end of June this year surpassed financial debt by 2.3 billion reais. Even considering leases, leverage remained low at 0.5 times EBITDA. Free card for generation reached 5.5 billion reais in the first half of the year, leading our free cash flow yield to reach double digit levels over the last 12 months. Vivos robust cash generation relative to its market value and its revenue give us important flexibility to dedicate resources to growth, maintaining attractive shareholder returns. Now moving to the last slide where we update you on the path to comply with our shareholder remuneration guidance. So far, during this year, we pay out over 4.1 billion reais to our shareholders, summing up the 2.2 billion reais of interest on capital declared in 2023, the first installment of the capital reduction, which announced amount to 1.5 billion reais, and share by bucks that already surpassed 400 million reais going towards the 1 billion amount we have in the current program. This put us well on track to deliver a payout of at least 100% of the net income for the year. In addition, during this year, we have already declared an extra 1.5 billion reais of interest on capital based on the profit recorded so far this year. These initiatives reaffirm Vivo's unique position as one of the top Brazilian companies regarding growth, profitability and shareholder remuneration. Thank you. And now we can move to the Q&A.

We are going to start the question and answer section for investors and analysts. If you wish to ask a question, please press the button raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Our first question comes from Daniel Federle with Bradesco. You can open your microphone.

OK, good morning, everyone. Thank you very much for taking my questions. My first question is regarding mobile plans. We have been seeing plan prices being quite healthy over the past few quarters. So my question is to understand what is your what's the main barriers for increasing prices even more significantly. It's more like the competitors' prices or any budget constraints from consumers. That's the first question. And the second question regarding digital services, I would like to understand how confident is the company that Vivo could become like a relevant player in digital services, that that could be a profitable business because it's It's clear the competitive advantages of Vivo in the traditional mobile, telephone, telecom business, but it's not so clear the competitive advantages in this digital services. So I'd like to know how profitable, how confident are you in the future? Thank you.

Okay, Daniel, that's Christian.

Okay, I'm trying to answer both questions. The first one, I think we are beyond just a strategy that's based in price increase. We had some price increase driven by the inflation of the period. So we did that for part of our pure plus paid and hybrid in April. And the prepaid was last year when we increased in November, when we increased the price of the 15 days promotion that we have. from 15 to 17 reais. What we've been showing at the market, and I think we've been very successful, is the combination of services. So we are driving the market to convergence, convergence of fiber plus hybrid or pure phosphate. So if you look at the number of VivoTotal customers that we had, one year ago was 0.9 million customers. Now we have 1.8 million customers. Look that we drive not only the churn down of the postpaid that it's below 1%, but also in the fiber, when you consider the customer that is in vivo total, the churn is one percentage point lower. than it is when it's a standalone fiber. Moreover, when we talk about totalization, now in this case, I'm talking about a plan that is fixed in a mobile, but also being very successful adding video OTTs to our offering. So mobile and fiber. So we have 2.7 million subscriptions of video OTTs and music. Only to give you some examples, of the way that we are driving here our customer base of around 60 million customers to try to increase their lifetime value with more services and reducing, of course, churn and using all our platform and channels that we have that drives our acquisition cost in a very low level. So I hear it's that the combination of things that we are doing that being a successful story for Vivo, not just based on price increase. In talking about the new business, I think here, I don't know if you're focusing more in B2B and B2C, but I want to talk about both. If I add the digital service or B2B, With the new business that we call B2C, we are talking about around 10% of our revenues coming from these businesses. So for me, it's already a success. It's a success standalone, but more importantly, it's a success keeping customers loyal to Vivo. And here I think we have some advantages to start with. We have a customer base, talking about around 58 million customers in B2C, 1.7 million customers in B2B. Talking about the channel that we have, 1.8 thousand stores in B2C, 5 thousand sales reps in B2B. VivoApp, 23 million unique users, a brand, billing capability, and many other interaction points that we have with customers through call centers, technicians, and you can name it. No, I don't think there is anyone so present nationally speaking with so many channels as Vivo. So the results are the ones that we are giving. In the B2C, new businesses grew 35%. So we are opening up some of them, FinTech. We open up also the video and music OTT that I mentioned to you before. We just started opening health and wellness. That is small, but it shows like the optimistic view that it can grow much more. So these are some examples of the service that we are seeing and already representing 2.8% of our revenues with no capex. So it's important because these revenues they bring not only loyalty, but they bring growth without consuming francs and capes. In the B2B, I think it's already a very clear, proven story of success. That's why we bought Vita some time ago. Now we bought EPNet. EPNet is bringing more than 200 million revenues and a growth of 35% in the last year. It's bringing 280 people that will complement our team very specialized in the sales of cloud. And in this case, also expanding our portfolio more to Google rather than just Amazon and Microsoft. And then we can give also other examples in all the other lines of our digital service or B2B. So it's a growth of 19% representing double digit growth for the last quarters. And I think that's also a very positive also sign of a successful strategy. And again, protecting our customer base that is very well segmented. We're talking about the SMEs. Then we have what we call the inside sales in one, top and corporate. Some of them are also divided by vertical. So that's a long story. So just to summarize, I understand that that's the right path to follow. And that's what we're going to keep doing as Avivo.

Very clear. Thank you. Congratulations.

Thank you, Daniel.

Our next question comes from Leonardo Olmos with UBS. You can open your microphone.

Hi. Can you hear me well? Yes. Yes. Because I can't hear you. I'm not sure you can hear me. I'll make the question anyway.

Leo, can you hear us?

Thank you. Thank you for picking my question. Congratulations. I got one question centered on the net income. As you mentioned before, net income is still the main reference for dividends. Could we discuss alternative non-operating drivers of net income? For example, number one, an eventual profit from the sale of reversible assets. Could you discuss that? Could you quantify it? How many assets, what's the amount value of that? Number two, a potential reversal in the concession liability. So you have liability related to the concession with Anatel. If you leave the concession, could that turn into a profit, something that could allow you to pay more dividends maybe next year? And not just when you got that extra 1.5 bill. And number three, if you could discuss a little bit the tax recoverable, because this quarter will have a little bit less, and I know you have many quarters with very strong numbers, but could you discuss how to expect this figure to behave in the second half of 2024? That's it. Thank you.

Okay Leo, thank you for the question. So first of all regarding the migration from concession to an authorization, unfortunately we still cannot disclose any impact as it needs to be finalized. So we hope that we can discuss some numbers perhaps in the fourth quarter once it's approved. But moving forward, I think the opportunities that we might have in the future is, as we have already explained, that we will have other businesses coming in on top of the traditional telco that we have no capex consumption. And of course, in terms of absolute numbers, the BDA, we are expecting to continue growing. that will be obviously an upside. Also, in terms of interest rates, as you know, we hope that could be a reduction in the future that could also bring some benefits on the top line, particularly if we are talking about the leases, which is our main debt that we have. And also regarding income tax, as you can see, the income tax rate that we had in the first and the second quarter, even though it's consistent in both quarters, around 27%, is still high than in previous quarters, particularly previous years. So there is some sectionality. that we hope that, I don't know, it could be in the second half of the year, but looking forward, we see that the income tax rate should have a reduction. Particularly, we also depend on interest on capital that we will declare. So this is on the net income. And regarding the tax assets, so we have here two things. One is the first one that has a positive impact on the working capital. These are consistent with previous quarters. As you can see, we have positive working capital mainly coming from the postponement of the payment of VSTEL, but also some recovery of the assets, particularly in tax assets. But talking about the line of other costs and other revenues, they have to do with recovery of assets, taxes that are not yet being recognized in our balance sheet. That this is always an ongoing process that we monitor very closely. And we hope that in the following quarter we will continue with the trends we have in the past. We cannot confirm what will happen in the third quarter or fourth quarter. But looking forward, we see a consistent evolution of those lines.

Next question from Marcelo Santos with JP Morgan. You can open your microphone.

Hi, good morning. Thank you for taking my questions. I wanted to focus on broadband. So the first question would be, you had an increased space of broadband ads. If you could deep dive a bit on that and Maybe discuss, is it more like more gross ads? Are you capturing more or is it like lower churn? So just trying to understand a bit better this evolution, which was interesting. And the second question also related to broadband is you had a pickup in the FTTH ARPU. So if you could discuss a bit the trends, is this a better behaved competitive environment or is like more internal, like your users upgrading more? So just wanted to get a bit more information on the ARPU as well. Thank you.

Thanks, Marcelo. This is Christian. Yes, I think what you see here is a result of a very well established and executed strategy. So there are many reasons to show why we are performing well in FTTH. We reported revenues of 1.8 billion reais in quarter. So in the FTTH homes pass, We grew 10.7%. So now we ended the quarter with 27.3 million home passed. And we grew more the connectivity of these customers using this network. So we went from 5.8%. to 6.5, so like the penetration is now 24%, that's 0.4%, 0.0 of a year. Again, I think Avivo stands out as having the best quality, best channel, best customer experience, and also the possibility, as I told before, of combining more services to the same customer. So if you look at the sales of FTTH that we have in our stores, On stores, 85% come in Vivo Total. So Vivo Total from 0.9 to 1.8. And the market in the last quarters, even if net ads of the market was not that high, ours is the highest among the last six quarters. If I look to second quarter 2023, Our net ads was 158,000. First quarter, 24 is 173. Second quarter is 199. And here is a combination of ads, as you mentioned, and also reduced churn. No churn for these customers. The 1.8, the one that has Vivo total is one percentage point. lower than the churn of the standalone customer. So I think we have here many, many assets that differentiate our offer from others. And that's why you are also able to have the ARPU increase because people are willing to have higher speeds. People are willing to have more services combined into their fiber. So I think that's a combination of many factors that drive our preference and drive also our ability to have more of the wallet of the customer, more share of wallet because we offer more and some places we offer things that others cannot offer. I don't remember the second question was related to the ARPU. I think the ARPU I just replied is that I think it is a result of a better customer experience. I think there is a search for excellence of better quality and Vivo presents it. We have a better service installation and maintenance. And also, of course, there is a requirement for more speed. for more Wi-Fi in the rooms and in the different rooms in the same home. And also there is the ability to add to fiber OTTs and other services.

Thank you. Thank you very much, Christian. Very clear. Thank you, Marcelo.

Next question from Bernardo Gutmann with XP. You can open your microphone.

Hi, good morning, everyone. Thanks for taking my question. Actually, I have two on my side. The first question is related to competition in the mobile segment. We have been monitoring the launch of new offerings from some regional players. Have you noticed any signs of irrationality in these offers? Anything that could be a concern for the current favorable dynamics? And my second question is regarding the migration process from concession to authorization. What are the economic benefits that we can expect in terms of the company's OPEX and CAPEX run rate? And what's the expected timeframe for regulatory approvals? If you can give us any color here, it would be great. Thanks.

Well, Bernardo, we have a very competitive mobile market. We have, as you know, we have competition in every place, not only for the main operator, but also some local or MVNOs that you know that we already have in the Brazilian market. So what we're trying to convey here and that our strategy is based more in a customer focus and ability to drive more servers to the same customer. We have an average 1.4 service per customer. That is a service can be fiber and mobile would be two services, fiber and OTT or video would be two services. So what we're trying to convey is that our focus is in maximizing the relationship that we have with our customers offering a value proposition that in this moment, I believe nationally speaking, is unique. And that's what's been driving our results in net ads, is driving our results also in gross, and in turn is driving our results in better NPS, is driving our results in increase in revenues in every single line as we presented this quarter that we grew in fixed, in mobile, postpaid, prepaid, B2B, B2C, consumer electronics with smartphone, without smartphones, and all new business, both from B2B and B2C. That I think is unique. And that's a combination of the assets that we have, not specifically discussing an offer of a mobile operator in a specific region. And going to the second one, and we have some milestones to get the migration approved. We are now... waiting for the public prosecutor's office of TCU that will present the inform and go to the rapporteur minister. We will have them 30 days plus 30 days to present to the plenary. And once it's approved there, we do need, I think, still the approval of AGU, and then we are done. So don't have a specific date. if all the timing are in the maximum and are completed with no other intervenience, we could get to an agreement in October. After that, there are many things related to the concession that we're going to also opening up once we have it approved, that we could share with you in the next quarters. More related to people working the concession, investment that we have to do in legacy technology that we don't have to do anymore, a real estate that we could be able maybe to not use anymore and sell once we don't use it for the service that we need to provide. There are many, some of hidden costs and investment that we're going to have more clarity once it's approved to share with you. And of course, we have the investment that is part of the agreement in five and 10 years related to the possibility to migrate.

Very clear. Thank you, Christian.

Thank you, Bernardo.

Next question from Victor Tomita with Goldman Sachs. You can open your microphone.

Hello, good morning, all, and thanks for taking our questions. First question from our side would be on prepaid. if you could give us an update on how you are seeing trends for ARPU and for recharges in prepaid specifically. And second question from our side, if you could give us an updated view on how you are thinking about M&A generally, both on the broadband side and on the B2B side. And on the B2B side in particular, if you see room for further acquisitions similar to Vita IT and IPNATs, or more B2B companies with a different profile from those two? Thank you.

Prepaid, I think the market is performing in a very good way. As I said, we increased our offer by weekly offer to R$17. We are trying to bring more innovation to our prepaid segment. So we are bringing like incentives of higher top ups. We've also some loyalty program related to that. That is one of our investments in CRM bonus, the value bonus. So what we saw in the last quarter was an increase in in our revenues of 4.9. So it's very good growth above inflation. And also the churn is very low. And what we've been doing in prepaid also is our ability to continue to migrate prepaid to hybrid that we're doing in a very successful way and now we're also doing a very successful way the migration from hybrid to pure phosphate a hybrid to vivo total so we keep with the movement of the market being very attentive and also trying to bring more value to the hybrid and bringing customers from prepaid to hybrid not only this the standalone hybrid but hybrid plus So hybrid plus Netflix, hybrid plus Vale Saúde, hybrid plus VivoPlay, hybrid plus the VivaE, the education platform that we have. So that's the way, again, working on the customer, trying to bring more value out of our relationship. Related to M&A, we are always looking at opportunities in the broadband. So far, nothing to share rather than what was already shared. Again, we need to find the right pricing, the right footprint, the right technical quality presented in the network and in the CPE. And of course, the price that convey. You can understand that we already have 27 million home paths. We're going to get to 29 million at the end of the year. We have the ability to use neutral networks by Brazil and others available in the market. So there is always different alternatives, organically, neutral network, or if you find one asset that comply with all our requirements, we always have the opportunity and the flexibility because of our balance sheet to be active in this field. In the other M&As, EPNet is a great asset. Very happy to successfully acquired this company. It's a company with more than 200 million reais in revenues, but more importantly, is a successful company that has 260 specialized employees. 140 Google solutions experts that give us also more room to expand Google penetration in Google, not only the cloud, but the workspace as well as a competition to office and also give us more portfolio to offer not only to large corporations, but also to SMEs that today are investing in cloud solutions as well. We are always looking at opportunities in the different areas of B2B, other cloud company, some IoT, cybersecurity, it will depend. It can be a full acquisition as we did in EPN and Vita, could be an investment through Vivo Ventures. or could be a partnership in a more exclusive way. So we are very optimistic about the ability that we have to grow, bring into the table our customer base, again, 1.7 million customers in B2B, 5,000 sales reps, and all the power assets that Vivo put on the table. Just to give another example that is not an acquisition, but it's a JV in energy that we just launched with Outing. They're called Good Energy. That is a company that already started with successful results that in the future they will be able to share more. But it's also taking advantage of the market. And also, again, outing brings the energy and we bring the channel and the relationship for our customers.

Very clear, Christian. Thank you very much. Thank you, Victor.

Next question from Luca Brindim with Bank of America. You can open your microphone.

Hi, good morning, everyone. I have two questions here from my side. The first one regarding net ads on mobile, Vivo has maintained a very solid pace for the past few quarters, but also when we look at a consolidated market, the market itself has been growing a lot for the past few quarters. So how can we think about that going forward? What have been the main drivers for that and if that should continue or not? And the second one on margins, EBITDA margins, how can we think about them going forward as well? Is there still room for expansion? Should we continue to see margins growing for as long as we have this solid top line growth? And how do you guys think about the margins in the long run? How high can it reach? So those would be my questions. Thank you.

Luca, Christian here. I can answer from Vivo. I think the market is also being, I think, more see the opportunity of migration prepaid to postpaid in a more positive way. In our case, for you to have an idea, if I look the number of access, we went from 97.8 to 100.9 total mobile access. Prepaid, I went from 38.1 to 37. It's a 2.9% reduction in the prepaid access. On the other hand, in the postpaid, we came from 59.7 to 64. It's a 7.2% growth. That is our ability to migrate customers from prepaid to postpaid. And of course, to attract customers from others. But as you asked about the market as a whole, my answer would be the ability of migrate prepaid to postpaid that is driving and that adds up for the market i don't know if that was the question i will hand it over to the view for the ebitda one hi luca thank you for for the question so regarding the the margin of the vdamp i mean as you know the

two elements. One is the line of other costs and revenues that this quarter was slightly worse than the one we had previously because there is some volatility. So if we exclude this line, you will see an improvement on the bid margin that will go to 40.8%. So there will be almost one point improvement, even though the new revenues are coming with a lower EBITDA margin. but with no capex, no? So, but we prefer to look to the margins at operating cash flow level, no? Because as I said, those new businesses are coming with no capex. And here you can see that we are in a very good momentum now. We have an operating cash flow margin just in the quarter of almost 23% margin. And if you look to the last six months, we are almost on 24%, no? And this quarter, we have also started to show operating cash flow after leases, also the margin, as you can see that we have on the highest levels over the last couple of years. So in summary, we still have a level to pull to continue improving some of the margins. and prefer to look to operating cash flow margin and operating cash flow after leases. So this is our view and we are not giving guidance, but we are positive about the opportunities to keep improving the trends.

Okay, very clear. Thank you for the answers.

Thank you.

Next question from Fanny Kumar with HSBC. You can open your microphone.

Hello. Thanks for taking my questions. My first question is regarding your migration from concession to authorization. So once the migration is completed, do you see a need or an opportunity to invest more in the concession areas, to invest more fiber in these areas? And how would that impact the CAPEX? My second question is that how robust is your guidance in terms of shareholder remuneration considering that you're looking at several M&As and probably the concession to authorization migration? Thank you.

I don't know if I got the second question. What is the second question?

Okay, the second question is how robust is your guidance and does it consider the concession to authorization migration already? So, or like if the concession to authorization migration goes ahead, does it pose a risk to the guidance for dividends?

The guidance we have, it doesn't change if the migration is 100% or more of our net income. That remains the same. Regarding the first question, if I understand it well, once we migrate, we're going to need to keep some cities in the state that we need to keep the fixed telephony service. It's a small amount of cities. that we need to keep as more locations than cities, that we need to keep until 2028 because these cities or these locations, they don't have any other voice alternative that we could fulfill with a mobile solution or we need to keep the fixed telephony solution that we have today. Apart from that, all the rest, that is the vast majority of the state, We have our freedom to do whatever we want. And of course, our fiber strategy is based in other elements, not only just the migration. And we would try to capture as much as we can fiber migration as we've been doing along the years, regardless of the concession. So if you look at our network today, she's 27 million home pass. the important part of this network is in the state of Sao Paulo. And that is our replacement of copper by fiber. We're going to continue to do that. Or we're going to do use of any other network that we have there. But it doesn't change anything with the immigration. The immigration only oblige us to keep few locations where we need to keep until 2028 you know if that was the question but uh that's the way we're gonna pursue sure i think that was pretty clear yeah thank you next question from carlos de ligarita with itaubba you can open your microphone

Thank you for taking the questions. Just two brief ones on my side. The first one is, can you remind us of the exposure to FX depreciation? I assume most comes from the hands at cost, but I'd like to have some color on that, please. And the second one, more than a question, I'd like to hear more color. about the financial services that you provide. I know, well, in the investor that you talked about requesting a license. So I'm just wondering what other services can you offer? You know, what's the opportunity there that you're identifying? Thank you.

Hi, Carlos. I will take the first question. Regarding the exposure that we have to effects, there are mainly two parts. One has to do with the handsets. Obviously, we have some protections in terms of our global contract for being part of Telefonica Group. But in the case that there should be an increase in prices as a consequence of the effects, we will pass it to prices, to the consumer, as we believe that is normal practice. Regarding the rest of our operations, in summary, I would say that around 20% of our capex is is somehow linked to FX. But as I said, we have some protections. So it doesn't mean that we have an impact immediately. So we'll have an impact in the middle term. So it's a limited, a small exposure.

So Carlos, going to the second question in financial services. Now, what we just presented is that in the last 12 months, everything related to financial services no b2c basically uh it uh like it brought in revenues 450 million revenues in the last 12 months it is a growth if i compared to the last 12 months to the second quarter 2023 of 27 percent uh we have uh different products i will mention some of them uh the main one is what we call personal loan, or that was previously called Vivo Money. That's Vivo Pay personal loan. That's our personal loan that is available to Vivo customers. That allows the customers to hire a credit that ranges from 500 reais to 50,000 reais. It's 100% digitally. They go through the app. and they can ask for that. And of course, here, our ability to understand the customer's profile because they are customers that we know, it's what makes us able to have a very contextualized offer, minimizing risks, and being increasingly assertive when offering the right product to the right customers. In this platform, we reached in the second quarter, 446 million of reais that we lent to our customer base. We're talking about 60,000 customers that already accessed our long platform. That is an increase in the volume. If I compare to this 446 in one year before, it's 62% year over year. We still have a lot to grow. That's why we are launching new services One of them is a very specifically from Brazil called FGTS Birthday If Draw. That is a security credit product that's allowed for customers to anticipate their birthday if draw of our FGTS. That is the pension fund here in Brazil. And also we launched the PIX payable installments that you buy now, but you pay later. There is also a new services available that we are offering also. embedded in our app. We also have insurance. We started basically with smartphones. We have around 450,000 customers that have a smartphone insured by Vivo in partnership with Zurich. More than 28% of the smartphones that we sell in our stores, they go out with insurance, but we also see room to improve and increase even more and also launch other type of insurance, life insurance, bike insurance, pet insurance. We are organizing our portfolio and talking to partners to have a very broad offering and use our app, that is acquisition cost very low or zero, depending on the case, to reach these customers. Now, as I said before, we have 23, 24 million unique users in our app. So these are basically the key services in the VivoPay umbrella. That is our FinTech. And yes, we asked for an SCD license from the central bank. that allow us to do basically what we're doing, maybe more services in a more efficient way as we are scaling our portfolio. We believe that we can do that, not renting capabilities or license from others in a more efficient way.

Thank you for the call. I appreciate it. Thank you, Carlos.

Next question from Gabriel Vaz de Lima with Morgan Stanley. You can open your microphone.

Hi, guys. Thank you very much for taking my question. Just one on my side. Anything relevant that we should keep our eyes on third quarter? Any relevant trends that we should be looking at in fixed and mobile? And anything you can share would be very helpful. Thank you.

Gabriel, we've been showing quarter over quarter a positive trend in every line. And that responds to the strategy that we've been communicating to you in the last years. So we're going to keep driving the company the same way. Driving connectivity mobile and fixed. driving totalization of our customer base through a variety of products and services, expanding our new business and digital portfolio, being more efficient the way we relate to customers and bringing the OPEX through digitalization, being rational in CapEx in a way that CapEx over revenues continue to be in a decreasing trend, And also keeping the remuneration, as we said before, if 100% or more of our net income. That's what we could expect and that's what we are doing successfully over the last quarters.

The question and answer section is over. We would like to hand the floor back to Mr. Cristian Gebara for the company's final remarks.

Then once again, thank you all for participating for the great questions. We are all team here, again, available for any further question they may have. It's a very, very positive and strong quarter that we are very satisfied that we could bring you all the results that we're expecting. giving like all colors and all the detail of our strategy going forward. And again, looking forward to meeting you soon. And of course, waiting for the next quarter meeting in the next months. But before that, again, the whole team here is available for any specific question that you may have. Thank you again for participating.

Vivos Conference is now closed. We thank you for your participation and wish you a nice day.