Telefônica Brasil Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 12 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to Vivo's 4th Quarter 2023 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.

Operator

To access, you can press on the globe icon located on the lower right side of your zoom screen and then choose to enter the Portuguese room. After that, select mute traditional audio for a better experience. We would like to inform you that all attendees will only be listening to the conference during the presentation. And then we will start the Q and A session 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.

Operator

These statements may involve risks and uncertainties as they relate to future events and therefore depends 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 Jabara, CEO of the company Mr. David Malcolm, CFO and Investor Relations Officer and Mr.

Operator

Joao Pedro Suarez Carneiro, IR Director. Now I'll turn the conference over to Mr. Jerome Pedro Suarez Carneiro, Investor Relations Director of Vivo. Please, Mr. Carneiro, you may begin your conference.

Speaker 1

Good morning, everyone, and welcome to Vivo's 4th quarter and full year 2023 earnings call. Christian Gibana, our CEO, will walk us through Vivo's operational and financial performance, followed by an update on our digital ecosystem and ESG evolution. Then, David Melcon, our CFO will go through our cost and CapEx management, free cash flow generation and outlook for shareholder remuneration. With that, I turn the call over to Christian.

Speaker 2

Thank you, Joao. Good morning, everyone. I hope you all had a great start to 2024. Firstly, I would like to invite you all to join us for our Vivo Day that will be held during the morning of March 5 at Teatro Vivo in Sao Paulo. The event will be an excellent opportunity to hear from Vivo's top executives about our strategy for the next few years.

Speaker 2

We look forward to seeing you there. Now moving to the results, we closed out the year with another record breaking quarterly performance. Our customer base totaled 113,000,000 access, one of the largest among all Brazilian companies, with postpaid and fiber continuing to expand, allowing for sustained real top line growth. Total revenue increased by 6.9% year over year in the 4th quarter and 8.4% in the full year. Looking at mobile service revenue, the performance was even better, up 8.7% in the last quarter and 10.8% in the year.

Speaker 2

We are able once again to combine growth with improved profitability. EBITDA grew 9.9% year over year in the quarter, thus closing the year up 10.6% versus 2022. As a result of EBITDA expansion and CapEx intensity reduction, core operating cash flow accelerated to R12.4 billion dollars in 2023, while free cash flow generation expanded double digit on an annual comparison to BRL8.1 billion. Bottom line performance was also a highlight as net income hit BRL5 1,000,000,000 in 2023, up 23%. This strong result gives us further confidence to maintain a robust level of shareholder remuneration as David will detail later.

Speaker 2

On Slide 4, we show our consistent revenue expansion. In the mobile segment, that represented over 70% of total revenue in the quarter. We saw an increase of 8.4% year over year as Vivo is in the best position to meet customers' ever growing needs for connectivity and tech products. Fixed revenues fueled by fiber continued to show a positive evolution as we outpaced our market in connecting homes and businesses with FTTH and offer the broadest portfolio of digital service, we see a clear path to maintain this trend going forward. Moving to Slide 5, you can see the enhancement of 2 key mobile KPIs, churn and ARPU.

Speaker 2

Postpaid churn reached its lowest historical level, 0.97 percent per month, demonstrating the result of offering the best in class value proposition. At the same time, Postpaid continues to gain relevance within the overall mix, and we have increased the penetration of digital service across our customer base, resulting in ARPU growth of 8% year over year, reaching its highest level in the last 4 years. The accelerated adoption of 5 gs will be another driver supporting further demand for mobile connectivity. During the Q4 of 2023, 5 gs ready device represented 89% of all smart sold by Vivo and more than 30% of pure postpaid customers already had a 5 gs ready smartphone. We expect this ramp up to continue in 2024 with more and more customers having access to the benefits of this technology.

Speaker 2

Turning to slide 6, we comment on Vivos Fibers operation. We have the largest and fastest growing FTTH footprint with available to 26,200,000 homes and businesses throughout Brazil. By the end of the year 2024, our target is to reach 29,000,000 homes passed. During 2023, we led the market in add additions, connecting almost 700,000 fiber customers, while improving FTTH ARPU evolution as well. Moreover, Vivo Total, our convergent offer that combines fiber and mobile postpaid services totaled 1,300,000 customers, more than double than previous year.

Speaker 2

This unique value proposition puts Veeva in a privileged position to address the opportunities around convergence and the recent demand for this product is a positive indicator of its potential going forward. Moving to Slide 7, we show that digital B2B service is summed up to R3.4 billion dollars in 2023, up 25% year over year. During the last 3 years these services increased its relevance over Vivo's total revenues from 3.3% in 2020 to 6.5% in 2023. We see room for this to continue as Vivo has the best B2B sales team and portfolio of solutions to help Brazilian companies of different sizes and sectors in their digitalization process. Recently, the Brazilian mobile industry launched 3 anti fraud network services and became a pioneer of Open Gateway with a global initiative led by the Telecom Center in collaboration with GSMA aimed at transforming Telco's network into programmable platforms through standardized APIs.

Speaker 2

The APIs launched by Vivo and our peers are focused on combating digital fraud in financial institutions such as banks and Fintechs through number verification, swim swap and device location. The GSMA Open Gateway ecosystem in Brazil will experience significant improvements throughout 2024 with new partners joining the initiative. Moving to Slide 8, we bring an update of some of the key new sources of revenues in B2C. Financial Services revenues totaled BRL403 1,000,000 in 20.23, which represented 0.8% of Vivo's total revenue, up 36% year over year. One of the highlights was Vivo Money that finished the year with portfolio of million in personal loans, doubling versus the previous year.

Speaker 2

There was also an expansion of the smartphone insurance customer base that grew 20% year over year and now offers coverage for over 300,000 devices. The distribution of video and music OTTs through our invoices generated BRL563 1,000,000 in revenues during this year, corresponding to 1.1% of Vivo's total revenues. These partnerships with the main content providers keep on contributing to differentiate our offer, increase our share of wallet and decrease churn. Throughout 2023, we expanded our consumer electronics portfolio beyond smartphones, comprising of 6 different categories: accessories, smart homes, games, wellness, audios and notebooks. This complete portfolio boosted our Black Friday sales and about the main driver for the 52% revenue growth.

Speaker 2

If we sum up revenues from financial services, OTTs and consumer electronics, they totaled R1.3 billion dollars or 2.6 percent of Vivo's total revenues in 2023. We are confident about the evolution of these initiatives, and we will give you more details at our upcoming Vivo Day. Turning to slide 9, I'm proud to share more important recognitions of our commitment to ESG in the year that marked our 25th listing anniversary in B3 and New York Stock Exchange. Vivo was considered the most sustainable company in Brazil by B3 Corporate Sustainability Index. We were also ranked as one of the most sustainable companies in the world by the S and P sectorial ranking and by Corporate Knights.

Speaker 2

On the environmental front, Vivo reduced emissions from its operation, scope 12, by 90% since 2015, reaching the first target of our net zero plan. As a result, during COP28, Pivu received the Climate Guardian Award. Moreover, we were successful in making our team a better reflection of Brazil's diversity, with 37% of executive leadership positions occupied by women and 42% of employees self declared black. Now David will comment on our financial performance.

Speaker 3

Thank you, Christian, and good morning, everyone. On Slide 10, we break down our cost structure into 2 parts. 1st, cost of services and goods sold increased 2.6% year over year, reflecting higher revenues from the sale of customer electronics and the acceleration of B2B revenues. Then, cost of operations grew 6% year over year as costs related to the higher commercial activity and customer base expansion were partially compensated by our continued focus on digitalization and streamlining. I would also like to highlight that during the quarter, we registered a positive net effect of BRL 292,000,000 related to the renegotiation of tower leasing contracts coming from the OE mobile acquisition that was partially offset by lower levels of tax recoveries and sale of legacy network equipment on a year over year basis.

Speaker 3

As a consequence of this leasing renegotiation, we have canceled all the unused towers acquired from Oi, corresponding to 70% of the sites coming from this transaction, reducing our IFRS 16 debt and enabling savings that boost our free cash flow from 2024 onwards. Overall, total costs were up 4.8% year over year, well below the evolution of total revenues, translating into a strong EBITDA margin of 42.5%, up 1.1 percentage point. This improvement in Vivo profitability reflects our commitment to cost efficiency. Turning to slide 11, we closed out the year with CapEx below BRL 9,000,000,000 as guided, which translates into an important reduction of our CapEx to sales ratio, dropping from 20% in 2022 to 17% in 2023. This unique combination of reduced capital intensity with improved profitability translated into a strong 26.7 percent year over year operating cash flow growth that led us to the highest operating cash flow margin ever at 23.7 percent.

Speaker 3

We are positive about the CapEx outlook as we shut down legacy technologies such as copper, 2 gs, 3 gs and focus on investment on future proof networks like fiber and 5 gs. Additionally, revenues from new businesses are CapEx light and contribute to a lower CapEx intensity. Moving to slide 12, we show the progress of Vivo profitability metrics. Net income was 23% higher than the previous year, reaching BRL 5,000,000,000 in 2023, and free cash flow generation grew double digit, reaching BRL 8,100,000,000. This improvement in our cash position, combined with the payment of senior debt and 5 gs license obligations, allow financial net debt to reduce substantially in comparison to the previous year.

Speaker 3

Even if we include IFRS 16 leases, leverage remained well controlled at 0.7 times EBITDA. All these metrics demonstrate how robust Vivo's financial position is, placing us in an unmatched position that combines growth with profitability. Now let's move to slide 13. Here we detail the components of 2 23 shareholder card remuneration and our guidance for the period 2024-twenty 6. Throughout 2023, we paid BRL 2,500,000,000 of interest on capital, BRL 1,800,000,000 in dividend, and we executed almost BRL 500,000,000 of our share buyback program, totaling BRL 4,800,000,000 in shareholder remuneration.

Speaker 3

In December 2023, we canceled 11,000,000 shares corresponding to 0.7% of the Company's total share, in addition to the 13,000,000,000 shares already canceled in February 2023. In November 2023, we released to the market a formal guidance of our commitment to pay to shareholders a value equal to or greater than 100 percent of net income in 2024, 2025 and 2026. The distribution of resources to shareholders will be through dividends, interest on capital, capital stock reduction and share buybacks. The first tranche of the capital reduction in the value of BRL 1,500,000,000 was approved at the extraordinary shareholder meeting held on January this year and will be paid before the end of July 2024. As you can see, Beboe finished the year in a stronger financial position and with several instruments to consolidate its position as a leading company in terms of growth, profitability and shareholder remuneration.

Speaker 3

Thank you. And now we can move to the Q and A.

Operator

Thank you. We are now going to start the Q and 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 leave the queue by clicking on the same button. Wait while we pull for questions.

Operator

Our first question comes from Freddie Manges from Bank of America. Please, Mr. Mendes, your microphone is open.

Speaker 4

Thank you. Hello. Good morning, everyone, and thanks for the call. I have two questions here. The first one related to the working capital.

Speaker 4

There was a major decline quarter over quarter. That's basically like BRL900 1,000,000 in the suppliers' line. I think that was the main driver for the negative working capital. And my understanding is that you guys opted to pay to prepay some contracts due to better financial conditions. So just trying to understand this move.

Speaker 4

I think it happened also in the 4th q22, but not at the same magnitude. So just trying to understand what happened and what we can expect next on this front. This will be my first one. And then my second one related to the line orders. Just to understand this renegotiation of towers related to the OS deal, If this is a benefit that we could continue to see forward, that's basically something that only happened in this quarter.

Speaker 4

Anyways, and I think any explanation on this line will be very helpful as well. Thank you very much.

Speaker 3

Well, thank you. Thank you, Fred. So regarding the first question on the working capital, look, during the last few years, we have consistently show a very strong free cash flow. In fact, this year, we grew almost 12%. However, if we look across the quarters, there is always some seasonality impacting mainly the last quarter of every year.

Speaker 3

So if we look specifically this year, the last quarter, as you say, there is some payments more payments on to suppliers at the end of the year, but this is a normal business that we normally do. And this is also impacted by lower taxes recovery that we had in this period. So it's important to look at the working capital in 12 months basis and not just for single quarters. So for the future, I would say the sustainability of the cash flow is mainly on the back of a very strong EBITDA that we had also this year, and this is what we had over the last few years. Also reduced CapEx intensity, That is also what we expect also for the future.

Speaker 3

And also, in terms of control on IFRS 16 payments and finally tax payments that we are also controlling, thanks to acceleration also on interest on capital that we declared this quarter and we'll continue doing it. So this is on the first one. Regarding the second one, Fred, on the other revenues. The other revenues and cost include several items and again also show some volatility during the quarters. This quarter, the main one, as you say, have to do with the towers.

Speaker 3

But even if we look to the total amount, this quarter, we have BRL349 1,000,000. But if we look to the Q4 last year, the number was also above BRL300 1,000,000, no, it was BRL303 1,000,000. So this quarter, as I say, is mainly is the negotiation of towers that is also compensated by other less positive coming from taxes and lower network equipment sales that we have previous year and we didn't have that one. So for me, the most important, even if you strip out the line of further revenues and cost this quarter and also the previous year, the EBITDA growth for the quarter will have been similar to the reported amounting to around 9.6 percent. And if you do the same for the full year, the EBITDA growth would have been exactly the same 10.6 percent.

Speaker 3

So this is something that is very is if you look to the seasonality that we have every year, but at the end of the day, our growth is mainly on the sustainability and the strong performance of the commercial side.

Speaker 4

Perfect. Super clear, David. Thank you, Christian, as well.

Speaker 2

Thank you, Andreas. Thank you.

Operator

Our next question comes from Marcelo Santos from JPMorgan. Please, Mr. Santos, your microphone is open.

Speaker 5

Christian, Davy, Joao. Thanks for the opportunity to ask questions. I think, David, you mentioned in your explanation on the future free cash flow to the Fred question that you expect lower CapEx intensity. Could you please is it possible to share a bit more light on what do you expect CapEx to behave? Your plan to deploy Homes Pass, I think it ends next year, right?

Speaker 5

So you're close to getting to your goal. How would CapEx behave after that? So any color there, I think would be interesting. And also on the margin outlook, you had a strong margin this year. There were some effects in the other line.

Speaker 5

But as you mentioned, if you exclude the other line, also you the EBITDA increased well. How do you see margins going forward? Is there room for some expansion of margin in the coming years? These are the two questions. Thank you.

Speaker 2

So I would take this one, Marcelo. Thank you for the question. Regarding CapEx, we are not giving a number for the year. I think what I want to highlight and regarding the CapEx intensity reduction that we mentioned is that in 2022, last year, I think we highlighted that we had an extraordinary year because we had to integrate the OI customer base and we had some of the auctions obligations that impacted the CapEx that was higher. That was 9.5 that we had in the 2022.

Speaker 2

And then we said that in 2023, our caps would reach maximum of BRL 9,000,000,000 and few fields was EUR 8.96. That's the reality of the CapEx. And if you look at the intensity over sales, we went in 2022, 19.8 percent and ended 2023, 17.2%. That's the trend that we see going down CapEx intensity over sales. We're not giving a number, but we are giving like this trend that is going to be negative in the sense of reducing CapEx over sales.

Speaker 2

Here there the impact of growing sales as well, that's also benefiting and we are also doing what you just described, reaching 29,000,000 home pass by the end of this year. That's the plan that we have for the year. We continue expanding 5 gs. We continue to connect customers over the network. We had like the net adds of 700,000 customers in fiber now reaching 6,200,000 customers connected with Vivo Fiber by the end of last year and we continue being very attractive commercially and responding to the demand that we have.

Speaker 2

So that's more or less the highlight that we have for the CapEx. And then if you have additional question, I reply. Regarding the margin, we are not talking about the EBITDA margin. I think also some of your colleagues also gave a very good report on operating cash flow margin. That's our focus here because we are combining services with higher margin with others, with lower EBITDA margin at the digital service that I described before, but with no CapEx involved.

Speaker 2

So here, what I think we just highlighted in this call as well is that we went for an operating cash flow margin of 20.3 percent in 2022 to 23.7% in the end of 2023. So we have the objective of continuing to grow revenue and EBITDA in absolute numbers and also the objective of improving operating cash flow margin.

Speaker 5

Okay. Thank you. Very clear.

Speaker 2

Thank you, Marcelo.

Operator

Our next question comes from Eduardo Ruby from UBS. Please Mr. Ruby, your microphone is open.

Speaker 6

Hi, good morning everyone. Thank you, Christian, David, Joao. One question from my side. We saw cash lease and expense have risen quarter over quarter, but there was a reduction looking year over year. Could you give some more color on this number going forward, considering negotiation with contracts with towers, please?

Speaker 3

Eduardo, thank you for the question. Look, we expect the IFRS 16 debts related to the CapEx under control. So what we are focusing on this year, we have renegotiated the sites acquired from Oi that we have canceled 70% of those 2,800 sites that were acquired. So we are keep analyzing opportunities to also to reduce these IFRS 16. So for example, the network sharing with TIM is something that is bringing efficiencies to reduce infrastructure costs.

Speaker 3

And also on we keep exploring alternatives to optimize both the monetary costs through the negotiation with the towers company, but as well as being more efficient on the deployment of the new sites that we are currently doing around the 5 gs deployment. So this is I cannot we cannot give you what any guidance on what number is going to be, but what they say, this is very relevant for us. So under control, and we are optimizing on a quarterly basis.

Operator

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

Speaker 7

Hello, good morning all and thanks for taking our questions. Two questions from our side. The first one is on broadband. If you could give us an update on how you are seeing competition in the broadband market, and if you are already seeing some, reduced aggressiveness from broadband competitors. And my, our second question would be on M and A, if you have any updates on M and A strategy for the fiber segment considering OE and other potential targets that might be on the table right now.

Speaker 7

Thank you.

Speaker 2

So, Peter, yes, the fiber market continues to be very competitive. Now as you know, we have, like, like, 1,000 of players in the different cities of the country, and we have like different type of competitors depending on the geography. It didn't stop us to continue with our strong strategy of deploying our pass, so that was a good year that we increased the deployment. But more importantly, I think Vivo was the leader in headcounts of the markets. So it was positive for us as well.

Speaker 2

So we increased our customer base and more than 700,000 customers during this period. At the same time, we are also able to increase ARPU that also show that we are very rational in our strategy. We increase ARPU with like higher speeds and also blending with the connectivity digital services. Now I also described during my speech that we have been very strong in deploying OTTs together with fiber and mobile, so that's also improving our profitability. Also highlighting here that our convergent offer, mobile plus fiber was also a great hit of this year, so increasing more than 2.3 times the number of customers already in this plan that we call Vivo Total.

Speaker 2

So competition will be there, but I think we are like standing out for quality, for channel, for support and of course for combining more services to the same customer. Regarding M and A, every call there is something like there's something new about like targets that are on sale or trying to be bought by anyone. So we are always looking at everything that is the market being the leader, not having the network that we have and having the number of customers and revenues coming from this business, of course, we are always checking the available assets in the market. Here there are many considerations to take into account, overlap, the quality of the network and in the case that we just described, there is also the client Corfernoi here is more complex because the company is in the judicial recovery plan that is we need to understand everything and the impact of having again a new PI in this new plan and how this is going to be evolving as a client co perspective. But secondly, we need to understand the relationship of the client go with the fiber the neutral fiber network that they are connected to.

Speaker 2

So the year there is a commercial agreement that we don't have a visibility that needs to be understood to understand better if it's attractive or not for Vivo.

Speaker 7

Thank you very much. Very clear.

Speaker 2

[SPEAKER PIERRE YVES LESAICHERRE:] Thank you, Peter.

Operator

Our next question comes from Marco Nargini from Chesapeake. Please, Mr. Nargini, your microphone is open.

Speaker 8

Hello. Good morning, Christian, David. Thank you for taking my question. So quick follow-up here regarding fixed broadband in the last question. It's impressive to see that you grew 3% year over year FTTH ARPU.

Speaker 8

Can you comment on churn here please after price increases? And what do you expect on fixed broadband growth in 2024, both in terms of customer base and price adjustments, if there's still room, please? Thank you.

Speaker 2

So Marco, we don't give the number of churn, but it's in the minimal level, historical level. So we are very strong in controlling churn. So churn is not an issue at the moment for us in fiber. ARPU is being increased by the penetration of higher speeds. As I also mentioned before, people this service became essential.

Speaker 2

So people are willing to pay more to have a better speed and also we are now driving also the market for a different conception of connected home or smart homes. So apart from just selling the connectivity, we want to sell also Wi Fi capability in different rooms that is also demanded by customers and we're going to go even further having connected devices for people who really want to have an automated home. Also, we are blending and putting together, as I said, video OTTs. That's something that is also being positive in the ARPU increase and also in the reducing churn as much as we are able to have more services to the same customer, of course, their desire to move from a different provider will be even lower. And again, the mobile and the people total is also another strategy that we have.

Speaker 2

Price related to fiber, we do annual increase as we normally do based on the inflation of the period. So nothing moved to share here. We continue to be very rational because we understand the investment is high and we need to return on this investment. So we continue with the same strategy.

Speaker 8

Perfect. Thanks.

Speaker 2

Thank you, Omar. Thank you, Oscar.

Operator

Our next question comes from Gabriel Vas from Morgan Stanley. Please Mr. Vas, your microphone is open.

Speaker 9

Hi guys. Thank you very much for taking my question. I just wanted to get a bit more color on what you're seeing in the Q1 trends for 2024. Any color you can share in terms of what you're expecting on growth and if you're still seeing a path for above inflation growth, that's it.

Speaker 2

Yes. Like we just had like 1 month and something. So again, we continue like with a good commercial momentum, but we're not sharing like numbers. So there's nothing different from what we ended the year. So it's a positive sign.

Speaker 2

So we continue to be optimistic about the year. If interest rates are going down, there is also maybe increased consumption in both B2C and B2B. I think also, Gabriel, we are giving a little bit more color on the VIVO day. So for the moment, we are not giving any trends.

Operator

Our next question comes from Carlos de Ligurita from Itau BBA. Please, Mr. De Ligurita, your microphone is open.

Speaker 10

Just two quick ones on my side. The first one on B2B revenue, obviously, you had a very good year in terms of growth. I'm wondering what's the driver behind that? Is it you're gaining new customers? Are you going to perhaps are you gaining contracts?

Speaker 10

What is your expectation for 2024? And secondly, we just haven't had

Speaker 4

a chance to discuss

Speaker 10

the JV without an Energia. If you can talk about that, what's the opportunity, the size? And I know Antel already approved it. So if you can talk about it, that will be great. Thank you.

Speaker 2

[SPEAKER JEAN FRANCOIS VAN BOXMEER:] Perfect, Carlos. So B2B here, it's I think we have a unique value proposition in B2B. First, there is, I think, no other company with the strength of our commercial channel. We're talking about more than 5,000 sales reps distributed among the different segments that we have here. We have segments in the size of the companies.

Speaker 2

We go from the small company to the largest companies of the country, but also we have also segmented by sectors. That is, I think, the new thing that we just did in the corporate customers that we go to banking or we go to industry or we go to retail and agro and maybe and there are others. So I think we have a very deep understanding of the needs based on the size and the vertical. That give us, of course, a relationship with customer base that is very difficult to replicate. And all these new services that we see in digital service that are cloud, cyber, IoT, big data, they are all based on the connectivity.

Speaker 2

So once we sell connectivity, we are the first one to be the technological partner of this customer to sell more things. And the net level of digitalization of Brazilian companies is still very low. So on average, we say that's 10% that these customers buy digital service coming from Vivo. So there is a room for us to sell much more or try to concentrate their purchase with Vivo instead of having it distributed among different players. So we are very positive.

Speaker 2

We've been showing numbers double digit growth quarter over quarter. We don't see any different sign to continue to grow, although now we come from a base volume very high compared to what we had in the past. So here B2B will grow in digital services and also we see good perspective in fiber and also other advanced connectivity that we see what we call data corporate data as one of the key core revenues for fixed and the growth that represented this quarter and this year. So here is also based in partnerships. We have our Telefonica Tech.

Speaker 2

There is a global company that we have replicated in Brazil that we have 3, 1 in cyber, 1 in cloud and 1 in IoT Big Data and also other partners. There are companies like Cisco, Microsoft among others that also are partners and they see the advantage of combining forces with us once we have the knowledge of the customer and again the commercial attractiveness and proximity that is needed to do this type of business. Regarding R and I think it's a good point. In December 23 last year, we announced the creation of the joint venture for Oren Energy. And here the focus is in the commercialization of customized solutions in renewable energy in the whole country.

Speaker 2

ORE is a key player in renewable energy and also in commercialization. And again, they want to leverage on our scale and our relationship with customers and our digital penetration to distribute capacity in the free energy market that we see in some segments of B2B. The market opened last year, it's going to open more this year and hopefully it's going to open even more in the following years reaching the B2C and we want to be positioned to that. So I think when you connect your home or you connect your office, again, the second thing that we may be worried about is the energy that we have because there is savings here and also there is this approach to have sustainable energy at home or in the office. So we started with a pilot, it was very successful.

Speaker 2

Now we're going to continue as the marketing is going to be opening up year over year and that's going to be more details in the future with the JV is going to be independent company, but have its own brand and we are very positive there is a lot of companies that we can reach more than 7,000 large companies, including factories, offices and commercial establishments that could be approached by us and in the future even more if the market open up and again, considering that we believe the B2C will be a target in the future.

Speaker 10

Thank you for your comments.

Speaker 2

Thank you.

Operator

Our next question comes from Felipe Chang from Santander. Please Mr. Chang, your microphone is open.

Speaker 11

Good morning, Christian, David and Jean. Thank you so much taking my questions and congrats on the good Q4 results. 2 on my side, if you could first comment on the churn levels spread for the postpaid segment. We have been seeing a consistent improvement. So just wondering what are the main drivers here for this improvement in churn, which is at a historically low level?

Speaker 11

And what should we expect, right, for 2024 if there is more room for improvement in this sense? And my second question is related to price increases in mobile. If you could also make a comment on expectations for 2024, if you continue to see room for price increases above inflation and what should the schedule look like if price increases should mostly be concentrated in the first half or second half of the year? Thank you.

Speaker 2

So Felipe, thank you for your question. Yes, you're right. Churn has been going down. If you look at end of 2019, we had 1.65. If you look at the end of 2021, we had 1.3.

Speaker 2

And now if you look at the end of 2023, we have 0.97. Here, I think, is a reflection of the right strategy that we have to focus on customer rather than the adjusting product. Although we have like the best network in 3 gs, 4 gs, 5 gs, we also are trying to combine more service to the same customers and also improving the experience that they have when they deal with Evos. So that's a reflection of the Evo Total. As I said, more 5 gs together more postpaid together with fiber, also the inclusion of value added services that make it more attractive.

Speaker 2

And again, given the best experience of our customer through physical channels, but also for the digital channels, I think that at Vivo, we have more than 23,000,000 customers that use it on average 4, 5 times. And I think that gives also a very good experience. And also the brand is being recognized as the brand that not only is a great brand in telco, but also is a great brand beyond the sector and being the number one ESG also give this recognition and I think that may make us even more inspirational as a brand. So going forward, of course, our objective is always to control churn. We want to expand lifetime value.

Speaker 2

We want to have more customers in a lower acquisition cost, and that means offering more for the customers going beyond telco. It's important that our strategy is going beyond telco offering more services. So that also relates to your second question. We're going to do price increase based on inflation in the period that we normally do. We normally do 1st semester part of the customer base, we do 2nd semester in August, other part of the customer base.

Speaker 2

But apart from just price increase based on inflation, we want to have new services that include packaging. Also, we're in control in the hybrid. We have the Health 1, the Education 1, the VivoPlay 1 that is going up our price spread from like $50,000,000 or $52,000,000 to $75,000,000 $78,000,000 depending on the plan that we have planned that with this connectivity. So the strategy is adding more service to the customer base rather than just increasing price based on inflation.

Speaker 11

Perfect. Very clear. Thank you so much, Christian.

Speaker 2

Thank you. Thank you. Thank you, Filippo.

Operator

Thank you. The Q and A session is over. We would like to hand the floor back to Mr. Christian Zubara for the company final remarks. Please Mr.

Operator

Gerbada, your microphone is open.

Speaker 2

Okay. Thank you so much for all of you that like followed our call. We are like as we said in the beginning, very happy with the results that we presented for last year in the quarter and in the full year, confident about the perspective of this year and we're going to give more details about our strategy and the trends that we see in our Vivo Day. So I'll wait for all of you to be there and we're going to be a good group of executives of the company presenting our vision. So thank you again and any doubt that you may have, our team is here always available to answer you.

Speaker 2

Thank you.

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Earnings Conference Call
Telefônica Brasil Q4 2023
00:00 / 00:00
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