3q16 results presentation

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Results Presentation

Investor Relations

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Draft - Highly Confidential

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Investor Relations

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3Q Main Messages

Source: Company, except where otherwised indicated ¹ Normalized for towers sale and other effects

An encouraging macro environment…

Inflation relief (12M IPCA)

…with operational improvement… and consistent rebound on financials.

• Financial performance changing trajectory

• Widening EBITDA minus CAPEX

• Solid normalized1 EBITDA Margin at 33.4%

• Defending prepaid leadership while pushing on postpaid rebound, backed by the largest 4G network

43% 50%

3Q15 3Q16

Data user penetration over total base (%)

VAS over Mobile Service Revs. (%)

Postpaid monthly net adds (thousand lines)

39% 46% Dec/15 Sep/16

65

81 Consumer confidence

Industry confidence

76

88

Dec/16

~7%

Dec/15

~11%

• GDP growth for 2017 at ~2%

• Interest rate started dropping

• Fiscal measure to control indebtedness

2016YTD = 658k

Dec/15 Sep/16

277

479

3Q15 4Q15 1Q16 2Q16 3Q16

A Better confidence (points)

-7.2% -8.7% -9.2%

-6.8%

-3.0%

3Q15 4Q15 1Q16 2Q16 3Q16

Mobile Serv. Net Revenues (YoY%)

Normalized1 EBITDA (YoY%)

Strong cost efficiency

-2.7%

-5.3%

-13.5%

-6.5%

0.5%

3Q15 4Q15 1Q16 2Q16 3Q16

+3.4% QoQ

+8.2% QoQ

Source: FGV

Source: Anatel Source: IBGE and Central Bank estimate (Focus)

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Investor Relations

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-5.9%

-1.8%

3.0%

7.0%

12.3%

3Q15 4Q15 1Q16 2Q16 3Q16

13.8

14.2

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Business key performance indicators at a better pace

An improved customer base profile

Postpaid base (mln users)

58.8

49.0

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Postpaid mix at 22.5% of total base; up from 19% in 3Q15

Bad debt & SAC under control

Bad debt (% of gross revenues)

SAC (per gross adds;

R$; YoY%)

Prepaid transformation

defending leadership

1.0% 1.3%

% of bundled/ recurring offer users

Total ARPU growth (YoY%)

Prepaid base (mln users)

Strict disconnection policy

SIM card consolidation

Migration pre-post

ARPU continuous improvement

35.2 28.2

3Q15 3Q16

-20%

ARPU

post vs. pre

~4x

Avg. Recharge (R$)

Postpaid mobile number portability (thousand lines)

sep/15 dec/15 mar/16 jun/16 sep/16

15%

34%

3Q15 3Q16

Source: Anatel

Source: Company, except where otherwised indicated

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Investor Relations

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Price reposition along with better competitive ambient

Gross Churn ARPU

Source: Company

Prepaid

Gross Churn ARPU

Controle

Gross Churn ARPU

Postpaid

More for More Approach

Repositioning Prices

o Infinity:

More data packages

o TIM Pré:

More bundles

o TIM Controle:

New entry level: TIM Controle Light Fatura

o TIM Pós:

4G handset + data + voice = bundle

o Infinity:

Voice & Data (each):

R$0.75 to R$0.99

o Old Controle plans:

R$32.0 to R$35.9

o Postpaid:

Roaming Data Packages

Offer Evolution

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Investor Relations

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A closer look at data evolution

Value Added Service Net Revenues

(R$ mln; YoY%)

VAS ARPU

(R$; YoY%)

Smartphone penetration

YoY growth of customers using

4G devices

YoY growth of blended BOU

(763 MB)

Bytes of use (BOU) (bytes of use per data customers in 3Q16)

Base per technology

(mln customers; YoY%)

1,407

1,603

3Q15 3Q16

+14%

Data +

Content

SMS

46% 39% % of Mobile

Service Revenues

-32%

+20% Monetizing

4G

18.4%

30.6%

6.4

8.3

3Q15 4Q15 1Q16 2Q16 3Q16

2G

3G

4G

+65%

+3.6x

Source: Anatel

Source: Anatel

Source: Company, except where otherwised indicated *Aug/2016

4G devices data traffic

(% over total traffic)

33%

53%

aug/15 dec/15 apr/16 aug/16

13.7

33.6

16.0

3Q15 4Q15 1Q16 2Q16 3Q16

3G

2G

4G

-17%

-40%

+170%

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Investor Relations

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924 710

1,184

975

1,168

1,122

YTD15 YTD16

Further advancing on infrastructure

Range benefits of 700MHz

• 1st wave: leading 4G coverage through refarming of 1.8Ghz until…

2nd wave: arrival of the 700MHz

• Focus on high capacity backhaul in main cities

• Focus on customer experience using Big Data to control Performance

indicators (versus technical ones) and Customer Profile (predict rather

than react)

Total Capex evolution

3Q

2Q

1Q

2,807

3,276

4G on technology

Capex

1.3x 1x 1.18x 2.9x 3.5x

2,500 MHZ

2,100 MHZ

1,900 MHZ

800MHZ 700MHZ

Number of

Sites (000)

Covered

Cities

3Q15 4Q15 1Q16 2Q16 3Q16

9,858

3Q15 4Q15 1Q16 2Q16 3Q16

-14.3%

YoY

Doing More With Less

13,302

Relative distance

21% 45%

2,084

2,800

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16e

Urban pop. covered

Urban pop. covered

746

>1,000

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16e

81% 91%

48% 72%

Source: Company

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Investor Relations

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49

46

8M15 8M16

Supporting network performance & quality indicator

Anatel quality indicators:

National Average

Claims at Consumer

Protection Agency (PROCON; accumulated in thousand)

Rio infrastructure in recent Forbes’

survey during the Olympics

Most recent figures Source: SINDEC/SENACON

-6%

“TIM took home the gold” ¹

¹ Link of the story: goo.gl/9RWskk

99.7% 99.8%

99.6%

99.8%

Jun-15 Jun-16

0.9%

0.6% 0.5%

0.2%

Jun-15 Jun-16

Data Accessibility (% of connections)

4G 3G

Source: Anatel (Most recent figures)

~90% Sites

connected with TIM’s

infrastructure

~40%* Traffic offload

through 4G

53% Data traffic

by 4G devices

+20% YoY of sites connected

with fiber in state capitals

(based on a survey from GWS)

Data Drop (% of connections)

*Main cities

Network

dissatisfaction among

postpaid users

-25%

nov/15 jul/16

Source: Company, except where otherwised indicated

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Investor Relations

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4,116 3,899

+19.8% -12.2% -28.4% +10.2% -37%

3Q15 InnovativeServices

TraditionalServices

Incoming FixedBusiness

Handsets 3Q16

Revenues: new trajectory confirmed

ARPU dynamics

Ex–MTR

Reported

Mobile Service Net Revenues (YoY%)

VAS over Mobile Service Net Revs. (R$ mln; YoY%; %) (R$)

-7.2%

-3.0%

-3.2%

0.4%

3Q15 4Q15 1Q16 2Q16 3Q16

Total Net Revenues Breakdown (R$ mln; YoY%)

3Q15 4Q15 1Q16 2Q16 3Q16

38.9%

45.8%

+20%

Innovative Services

-5.3%

Business Generated stable Revenues recovery on…

Higher postpaid mix

Higher penetration on data services

Improving macro conditions

A more rational environment

14.8

17.1

1.6

1.3 16.4

18.4

3Q15 4Q15 1Q16 2Q16 3Q16

ARPU OUT

ARPU IN

YoY

+12%

-19%

+16%

Source: Company

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Investor Relations

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3Q15 3Q16 955

968

3Q15 4Q15 1Q16 2Q16 3Q16

Opex under strict control amid ~8.5%* inflation

2,408 2,365

Normalized1 OPEX Evolution (R$ mln; YoY%)

-16.6%

Personnel , G&A and Others

Network & Itx

+1.4%

-1.8%

929

960

3Q15 4Q15 1Q16 2Q16 3Q16

Commercial & Bad Debt

+3.3%

2,820 2,597 -7.9%

COGS

Normalized1 Opex ex-

COGS

Process Driven

Market Driven

Traffic Volume Driven

*12M as of September/2016, last available data

Focus on

transformational

initiatives

Modest growth

despite solid

increase of

postpaid

Efficiency approach

on network cost

offsetting inflation

and growth

impacts

R$836 mln saving out of

R$1.7 bln target 2016-18

¹ Normalized for towers sale and other transformation impacts

524

437

3Q15 4Q15 1Q16 2Q16 3Q16

Source: Company

Normalized1 Opex (R$) (9M15) (9M16)

7.9 bln 9.1 bln -1.2 bln

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Investor Relations

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EBITDA back to positive growth

Normalized1 EBITDA-Capex

EBITDA Growth

(R$ mln; YoY%)

(YoY%)

Normalized1 EBITDA Margin (%)

Service EBITDA Margin

EBITDA Margin

EBITDA performance improving and better

margins backed by…

Well executed efficiency plan

Lighter impacts from MTR

Improved Revenues mix

(more data and less handsets)

-2.7%

0.5%

3.9% 2.3%

3Q15 4Q15 1Q16 2Q16 3Q16

Ex–MTR

Normalized1

31.5% 31.5%

33.4%

36.3%

34.4%

35.9%

3Q15 2Q16 3Q16 YTD 15 YTD 16

862

651

+32%

Normalized1 Net Income (R$ mln; YoY%)

175

200

3Q15 3Q16

+14%

Source: Company

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Investor Relations

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A virtuous cycle arises

•Deficit recovery

plan undergo

• Inflation towards

the target

Macro economy in

recovery process

A more rational

competitive

scenario

Business

reposition has

started

Solid infrastructure

supporting the

business

•Monetizing data

plans

•Better offers’

terms

•Moving on to data

centric

•Back again on

postpaid

•Close the gap on

3G while widening

on 4G coverage

• Focus on customer

experience

What to expect…

Execute on cost efficiency to deliver R$1.7 bln

savings in 3 years (leaner Company)

Capture data growth on 700MHz opportunity

Low frequency

High frequency

Revenue and EBITDA recovery should continue

EBITDA-CAPEX to widen

YTD15 YTD16

651 862


Normalized1 EBITDA

Capex

Normalized1 EBITDA -Capex

3,276 2,807

3,927 3,669

(R$ mln)

Source: Company