Telefônica Brasil S.A. (NYSE:VIV) Q2 2023 Earnings Call Transcript

Telefônica Brasil S.A. (NYSE:VIV) Q2 2023 Earnings Call Transcript July 26, 2023

Operator: Good morning, ladies and gentlemen. Welcome to Vivo’s Second 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 Instructions] [Foreign Language] We would like to inform you that all attendees will only be listening to the conference during the presentation. And then we’ll start the question-and-answer session when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during the 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 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 their respective forward looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the Company; Mr. David Melcon, CFO and Investor Relations Officer, and Mr. Joao Pedro Carneiro, IR Director. Now I will turn the conference over to Mr. Joao Pedro Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Joao Pedro Carneiro: Morning, everyone, and welcome to our second quarter 2023 earnings call. The presentation will be divided in two parts. First, our CEO, Christian Gebara will comment on Vivo’s operational and financial performance, followed by an update on the progress of our B2B and B2C Digital ecosystems and ESG initiatives. Then our CFO, David Melcon will walk us through our cost and CapEx evolution, net income, shareholder remuneration, and free cash flow generation. Christian, I hand it over to you.

Christian Gebara: Thank you, Joao. Good morning and thank you for participating in our earning call. We delivered a very strong result in the first like-for-like quarter after Oi Mobile’s acquisition in April 2022. Total revenues grew by 7.6% year-over-year, well above inflation, mainly driven by the Mobile Oi service revenue that was up 10.4%. This outstanding performance is a result of our best-in-class value proposition in mobile and fiber, which translates to an expansion of postpaid access by 4.8% year-over-year, and homes connected by FTTH by 15.1% in the same period. The robust operating performance combined with cost discipline enabled EBITDA to grow at double-digit pace, plus 11.1% year-over-year, contributing to a 120 basis point margin expansion in the period.

By summing up, a robust EBITDA expansion, if a reduced level of CapEx intensity, we were able to deliver exceptional performance in operating cash flow, which should total BRL6 billion in the first half of 2023, up 29.2% year-over-year. All these factors, allow us to reach BRL2 billion in net income in the first six months of 2023, an increase of 28.9% versus the same period of the previous year. As we keep on generating a massive amount of free cash flow as seen by the BRL5.6 billion produced year-to-date, we are committed to maintaining a strong level of shareholder remuneration. Up to July 12, 2023, we already declared BRL1.9 billion in dividends and interest on capital, while we also invested over BRL200 million to buyback our own shares.

Turning to Slide 4. We show how our strategic decision of investing in core products during the last year is enabling us to deliver above inflation top-line growth. Pricing rationality combined with continued upselling to postpaid plans allowed mobile service revenues to reach a 100% organic double-digit expansion in the first comparable quarter since the acquisition of Oi Mobile. On the fixed side, FTTH and Corporate Data, ICT, and Digital services continue to be the main growth drivers as we continue to capture the growing demand for high-quality connectivity and digital services in Brazil. As such revenues from these two business verticals are growing at rates around mid-teens, contributing to the positive expansion of our fixed revenues.

Moving to Slide 5. We can see the strengthening of our leadership in the mobile business. Despite the disconnection of almost 4 million inactive users received from Oi, we have consistently increased our market share since consolidation started. The better mix of customer coupled with our pricing strategy resulted in an 11% annual growth in ARPU with visible improvements also in the quarterly trends. While average spend increases, postpaid churn has reduced sequentially and reached its lowest historical level of 1% per month, which is almost half the level we had in 2019. These operational figures give us confidence that we continue to post strong results going forward. On Slide 6, we detailed the operational performance of the fiber business.

In the last 12 months, we added 3.7 million fiber to the home premises which now totals 24.7 million homes in 439 cities throughout the country. In the same period, we continue to lead the market in terms of net additions, connecting 760,000 homes to reach a total of 5.8 million customers, an increase of 15.1% year-over-year. Besides being the absolute leader in fiber with the largest FTTH footprint, we’ve been extremely successful in reducing its FTTH churn, having reached in the second quarter ’23, its lowest level ever, after reducing it by 20% since 2020. This demonstrates that the unmatched quality of our services, here represented by the elevated and growing average speed of our FTTH customer base, coupled with the strength of our fiber mobile convergent offer, are elements that we continue to give us the edge to maintain the fiber differentiation and leadership.

Going to Slide 7. We’ll give an update on recent changes and results related to our portfolio. First in prepaid, we increased the level of our minimum top-up by 25% from BRL12 to BRL15, aligning this amount if the price of the entry-level plan we have in our Vivo Pre Turbo offer. This movement simplifies the prepaid portfolio structures and help us continue to prove the pre to postpaid upsell lever by reducing the price gap from prepaid to hybrid. In Hybrid, we launched three new offers that bundle connectivity with health and entertainment options. Vivo Hybrid helps — will help us scale Vale Saude, a healthcare start that we acquired last quarter and to prove our value proposition by providing our customers access to a wide network of health service providers with national coverage.

Moreover, Vivo Hybrid with Netflix or Vivo Play strength our portfolio with broad catalog of content that contributes to reduce churn and increase customer lifetime value. Lastly, you can see that Vivo Total, our convergent offer that bundles FTTH with postpaid continues to gain relevance. Today almost 80% of the FTTH sales in Vivo’s own stores originated by Vivo Total. This offer has an incredibly low churn of 0.39% per month, demonstrating the power of a single plan that can fulfill all of our customers connectivity needs inside and outside their homes. Turning to Slide 8. You can see the evolution of our Digital B2B services which are asset light and this help improve Vivo’s return on invested capital. During the last quarter, the revenues from these services added up to BRL800 million.

Most of these revenues are recurrent and as such, we have been able to maintain an annualized growth level of around 30%, even though in some quarters, we may see lower or higher growth rates, depending on the capture of one short revenues. I’m proud to share that Vivo was recently recognized by Microsoft as its partner of the year 2023, demonstrating how successful our partnership is in Brazil as a reseller of solution, such as Cloud, Azure, Microsoft 365 and Microsoft Teams to company of all size. We are the first telco in Brazil to receive this important recognition. Moving to Slide 9. We update you on the evolution of digital services in the B2C segment. On the left-hand side, you can see that in the second quarter of 2023, financial services generated BRL95 million in revenues, up 39% year-over-year.

Here we have an important contribution of Vivo Money, our 100% digital credit product that ended the quarter with a portfolio of BRL275 million, up 3.6 times year-over-year. Another important pillar of the B2C ecosystem is the distribution of video and music OTTs through our invoice bundled with connectivity plans or on a standalone basis. We currently build 2.5 million OTT subscribers, having generated BRL137 million of revenues in the quarter, up 35% year-over-year. Vivo clearly stands out in terms of partnerships with content providers, allowing us to increase our share of wallet and customer retention. Let’s move to Slide 10. On ESG, we highlight some initiatives across all fronts. First on environment. We ended up the quarter with six tons of electronic waste recycled with the Vivo Recicle program, targeting to double this amount by year-end.

The Distribution Generation Program continues to evolve as we already have 59 functioning renewable power plants. It spreads throughout the country, taking us closer to our goal of 85 power plants. On the social front, we see the results of the actions we’ve been taking to foster diversity in the company. We launched the Jovem Aprendiz Program 2023 that targets public with 16 to 22 years old and removes any age limitation in the case of professionals with disabilities and directs 50% of the vacancies to black people. These initiatives together with others, contribute to the increase of diversity in the company. By the end of June, black people represented 41.2% of our workforce, a 7.6 percentage point increase versus December ’22. In addition, Vivo sponsored for the second year in a row, Sao Paulo’s LGBT+ Pride Parade.

Inside the company, we also had an increase of LGBTI plus self-declared employees, which totaled 8.5% of our workforce, up 2.5 percentage points in six months. Finally, on governance, the Application Security and Data Protection Monitoring process were certified by ISO 27.001, demonstrating our alignment with international standards and reference for information security management. Moreover, Vivo was recognized by Merco as the leader in ESG responsibility in this sector, recognizing our efforts to build a sustainable company. For more information on our ESG practice, I invite you all to check out our 2022 integrated report available on the Investor Relations website. Now David will take us through the financial highlights of the quarter.

David Melcon: Thank you, Christian, and good morning, everyone. On Slide 11, you can see our positive cost evolution. Cost of service and good sold, which represent 30% of total OpEx, increased 6.4% year-over-year, reflecting the higher revenues from B2B Digital solutions and handsets. The most representative part, cost of operations were up 5% year-over-year, a much lower piece than in the last quarters. This better performance is linked to the completion of Oi Mobile asset integration and our continuous efficiency and digital initiatives. In commercial and infrastructure expenses, we no longer have the transition service agreement with Oi, which represent BRL147 million over the last 12 months. Personnel cost is still impacted by insourcing of activities in critical areas and greater commercial activity in B2B.

Lastly, provision for bad debt increased in the quarter due to the specific cases in the large corporate segment that should be normalized in the second half of the year. In B2C, provision for bad debt remains stable, demonstrating that our customers prioritize the payment of their bills with Vivo. Moving to Slide 12. In the first six months of 2023, we have invested BRL4 billion, a decrease of 9.3% year-over-year, which represents a CapEx to sales ratio of 15.9%. This figure demonstrates that we are on the track to keep 2023 CapEx below BRL9 billion as guided at the beginning of the year. Despite this CapEx reduction, we continue to invest in top-tier technologies such as 5G and fiber. As of June this year, Vivo was the 5G leader in Brazil with 112 cities covered with the new technology.

Our operating cash flow expanded by 29.2% year-over-year in the first half of 2023, not only due to the CapEx, reduction but also driven by double-digit EBITDA growth. We continue to see opportunities to optimize our capital allocation as the mobile traffic begins to flow from 4G to 5G and synergies from Oi’s decision start to materialize. Turning to Slide 13. On the left-hand side of the slide, you can see the evolution of our net income that added BRL1.1 billion in the second quarter this year, a growth of 47.2% year-over-year, reaching BRL2 billion in the last six months. This solid financial performance allowed us to declare until July 2023, BRL1.9 billion in dividends and interest on capital and to invest a additional BRL213 million to buyback our shares.

On July 18, we concluded the payment of the 2022 base shareholder remuneration with a cash outflow in the amount of BRL1.8 billion. We remain confident that Vivo would continue to be best position in the sector to translate this strong operating momentum into an attractive shareholder remuneration. Lastly, on Slide 14. Our free cash flow generation remains extremely strong with BRL5.6 billion generated in the first half of the year, expanding 21.7% on a yearly basis. This translates into a last 12-month free cash flow yield of 11.5%. These outstanding results coupled with efficient financial management, allowed us to maintain a solid balance sheet and control levels of financial debt in this high interest rate environment. Thank you. And now we can move to Q&A.

Q&A Session

Operator: Thank you. We are now going to start the question-and-answer section for investors and analysts. [Operator Instructions] Our first question comes from Marco Nardini from XP. Please, Mr. Marco, your microphone is open.

Marco Nardini: Hello, Christian, David and Vivo team. Thank you for taking my questions. I actually have two here on my side, if I may. The first one is, whether you could give us a quick update on the ongoing status of the capital stock reduction by up to BRL5 billion? And the second one is regarding the FTTH expansion. If you could comment on the positive — the competitive environment in FTTH? So even though we saw once again a strong performance in top-line growth this quarter, it was a slower pace than in Q1. Can you please advise us further details on that, please? And perhaps a comment on where are you in American merger and what possible impacts mostly in Sao Paulo region, which perhaps fierce competition, please? Thank you.

Christian Gebara: Hi, Marcelo, that’s Christian. No — so, as you may know, we have asked Anatel for the authorization of the reduction that you mentioned. The request was filed on February 15. It’s already being analyzed by the technical area and the Anatel’s attorney. Now it’s the process that we go to the Anatel’s council and then it’s going to be voted. So we are very confident that about receiving the approval, that we received the approval, and because we have a very robust financial position. So after that we can comply with all the necessary steps to — for this kind of operations, such as our General Shareholder Meeting and a period from a position of creditors. So we are confident and optimistic about the timing. It’s now we’ll wait for the process to go on and as soon as we have any news coming from Anatel, we will let you know. So I think that was the first question, Marcelo, can I go to the second one.

Marco Nardini: Yes, please.

Christian Gebara: Sorry, Marco. [Foreign Language] So I don’t know specifically what you wanted to ask about, but let’s talk about consolidation in the market. Now we see it’s a very positive outcome. As you know, Brazil has so many players. We didn’t know, we talk about like more than 5,000 ISPs. So any type of consolidation, it’s very like positive. We are not worried about competition, I think consolidation could be good for the market, because in some regions, these ISPs are competing against each other. So we have more players. So if there’s consolidation, maybe we’re reducing the number of national players where we have to face every time you enter a new city. We are confident that our strategy is the good one. We continue to grow, as you could see the number of home passed.

Now in the last year, we went from the last quarter of 2022 to 21 million up to 24.7 million. The number of homes connected was 5 to 5.8 million, is almost 800,000 new customers that we could get. So we continue to be the number one in net adds of this business in Brazil. Again it’s realistic to imagine that we’re going to see more consolidation. We are very attentive to all movements and to all targets that we could see in this market, but we need to find targets that — few — all our requirements, technical requirements to start with. Then there are physical requirements and of course there is overlap of the network that we have. So — and the price that we’re willing to pay considering that we have economy of scale to build network. We have economic scale to connect customers.

So when we put everything in balance, we haven’t found anything that could fit all the requirements that we have. So continue with our plan to reach 29 million homes passed by the end of 2024, continue to connect customers in a very accelerated pace as we have been doing in the last quarters, and very focused on the quality of our connection. I also wanted to highlight that 93% of FTTH gross adds that we had in the period were in speeds that at least 300 megabytes, that’s not everyone who could offer that. We also wanted to highlight this quarter, the lowest churn that we had over the last three years. And finally, you also highlighted the 80% of the sale of FTTH in our stores came into the Vivo Total convergent offer.

Marco Nardini: Perfect. Thank you, Christian.

Christian Gebara: Sorry, Marco, because I called you Marcelo before. Thank you.

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

Marcelo Santos: Good morning, Christian, David, Joao, thanks for taking the question. I wanted to touch upon mobile. So it was a very strong quarter. I wanted to first — the first question will be about the prepaid pricing. You made an adjustment, an upward adjustment on the pricing. Are you happy with the way prices are today? Do you see more room for increasing? How do you see — in the past you were vocal that you thought there was room to increases in the market as a whole. So I wanted to get your opinion, now that you’ve made this important change. And the second question is regarding the postpaid and hybrid users. Are there still some users who are not increased in price that you still have to increase during the rest of this year or are you done with price increases for your current base on postpaid and hybrid. These are the two questions.

Christian Gebara: Thank you, Marcelo. No, I think the price increase that we had in this first six months are the ones that we had for the year. What we’re doing here is, upselling within our customer base, that is something that we always do. I think also we highlighted the new plans that we had for hybrids, that we are now blending with the service either health or entertainment and we have new things to come up in the next quarter. So — and the strategy also to migrate the postpaid upselling, especially when they acquired 5G smartphone. Today we have 22% of our customer base in pure postpaid with 5G and also migrating them to the Vivo Total when they don’t have the fiber with us. So that’s the structure going forward. And of course, we’re going to keep doing the annual adjustment when it gets to the time.

Regarding the prepaid that you asked before, what we — the new pricing strategies for the top-up, so we now have a face value for top-up. We had a face value, the minimum one is of BRL12 and we move to BRL15. That matches with the current offer that we have for bi-weekly BRL15 prepaid offer. We are considering because, you know as we were able to pass through inflation in Hybrid, in the postpaid, we are considering the possibility of doing that also in the prepaid. That would be change in the promotional price. So far what we did was the face value of the top-up.

Marcelo Santos: Okay. So we could see improvements in the rest of the year in this prepaid line? Postpaid and control you already done for the year, but prepaid, there’s a room. Just…

Christian Gebara: Yes. Prepaid, yes, there is room. Hybrid and postpaid, again, there is room for doing adjustment in the offers, not increasing price adjusting offers with more value-added services, new offers, blending with fiber or adding digital services to the offer. And again, always, we will keep migrating prepaid to hybrid in a very accelerated way that’s also contributing to the revenue movement.

Marcelo Santos: Perfect. That’s very clear. Thank you very much.

Christian Gebara: Thank you, Marcelo.

Operator: Our next question comes from Andre Salles from UBS. Please, Andre, your microphone is open.

Andre Salles: Hi, good morning, Christian, David, Joao. Thanks for the presentation. Congratulations for the results. I have two questions here on my side. When we look at the ARPU and churn dynamics during the quarter, we see a very positive print. And my question is how to read this, if there are any circumstantial aspects here positively affecting this behavior or we can interpret this as a more structural feature of the market going forward? And my second question is related to the B2B market, B2B revenues here. As Christian mentioned during the call, there are some one-shot revenues in this line. My question is, how can we see — if we can have additional color on the recurrence of B2B revenues out of the BRL800 million that you had in the quarter, how much of that is related to one shot projects? That would be from my side. Thank you.

Christian Gebara: Andre, I thank you for your comments in the beginning. Let me go to the B2B. Yes, it’s a small piece, is one shot. Most of our revenues is recurrent. We highlighted that there is still business of one shot because sometimes you have big deals that may change a little bit the growth pattern, either in a positive or negative, depending on the quarter that we’re comparing with. But most of it is in recurrent basis and there is a big change in the mix. I think some years ago, we had a bigger — a larger concentration in one shot. Now is the opposite, It’s a very large concentration in our current. So we don’t open up at the moment what is one and two, what’s the other. But I can tell you that because you — that’s why we also wanted to highlight the last 12 months quarter-by-quarter, the evolution of over 30% because most of it is recurrent.

The changes that you may see, that sometimes big deals coming up with one shot, but most of it is recurrent. In the second question, I think you were relating to the ARPU of the mobile, isn’t it?

Andre Salles: Yes, yes. That’s it.

Christian Gebara: I think the ARPU in the mobile, there are many things contributing to that. Of course, there is price increase that we talked before. There is a lot of positive migration, prepaid to hybrid, that we continue to do that in a very accelerated way. There is also contribution of digital services blended with both hybrid, now that we started selling and the postpaid. When we talk about the 2.5 million customers that we have with digital services, they are a combination of standalone, but also a lot in bundled with postpaid and also bundled with fiber. So ARPU has also been positively impacted by that. And there is also a part in movement that is positive from our side — to our sites. So it’s also contributing to the growth that we see in the ARPU and also the reduced churn.

I think the reduced churn are a combination of many other factors of our perception of superior quality in all senses from network to customer services, but also in the strength of our brand. The brand that has also been gradually more associated with a digital player. That is putting customers in the center of this ecosystem. And we’ve been able to increase lifetime value and their lifetime value is increased by more services, but also for the loyalty of these customers in our customer base.

Andre Salles: Got it. Christian. That was very clear. Thank you.

Christian Gebara: Thank you, Andre.

Operator: Our next question comes from Fredi Mendes from Bank of America. Please, Mr. Fredi, your microphone is open.

Frederico Mendes: Thank you. Good morning, everyone. I have two questions here as well. The first one is the working capital. Once again a very positive dynamics, and once again, you’re generating more cash than earnings. So I’m just wondering how we should expect this line will be forward because mainly inventory and other assets that you reduced. So how should we expect this line for the second half? And then the second one, I think Christian already mentioned. But I mean there was a small decline in the ARPU for the FTTH. I mean nothing major from BRL90 to BRL87, but I am just wondering if this is a change, somehow a change in the competitive landscape or that’s basically you are expecting to more series, new series, then you will have any impact on ARPU. Thank you.

Christian Gebara: Fred, I will go to the second. Okay. I’ll let David answer the first one. No. Yes, it is new cities that we are entering. Sometimes we enter with some promotions to get into the new city and that is impacting, but nothing that will be permanent. It’s much more than we expanded so much the number of premises in the last year, being able also to be entering in cities with a very positive commercial traction. So that’s why revenues are being in this space of 14.3% growth reaching BRL1.5 billion in the quarter. The level of net ads have been the one gaining — absolute numbers. The largest amount of net adds. So again it’s a strategy to go in. The trend, we cannot talk about it, but we’re positive that it’s momentaneous and that we’re going to be able to capture more customers, keep the churn reduced as the way it is, and adding digital services on top of.

So that’s also good one. Also, the strategy in TV is being very, very successful. The possibility of blend IPTV for those who only want this, saving as CapEx for those who don’t want it and adding OTT on top of fiber. So that’s what I can share with you in the moment. But again, BRL1.5 billion already of revenues per quarter in FTTH with a growth of more than 14%. I’ll let go David go to the first. We have more in the second. I’ll further come back.

David Melcon: Hi, Fred. I am talking about the first question. I mean during the last few years, you have seen, we have shown a consistently very strong free cash flow now and some of the quarters, this has been also helped by a positive working capital. So particularly this quarter, we have a positive impact, and let me summarize what are the main drivers. The first one has to do again with the tax asset that we have in our balance sheet that we are monetizing. Just this quarter, this represents around BRL300 million related to ISMS, but we still have around BRL150 million that will come through cash in the third quarter. So this will affect also to have a strong free cash flow evolution. The second one have to do also with FISTEL.

As you know, we haven’t paid this year. So this will generate again BRL700 million. So a positive working capital during the whole full year and also in the quarter could be around BRL200 million. The third one has to do with inventories. If you look to the levels of inventory that we have in March and the number we have now in June, this has reduced in more than BRL300 million. Thanks of the management that we are doing on inventory. And this management should continue. So again, this will continue to bring some opportunities. And again, the rest of initiatives that we have around our growth part, particularly to monetize the rest of the assets. So it’s difficult to foresee, but could be precisely the next quarter the working capital. But overall, what we can say that, we continue focusing on generating strong free cash flow and this should continue for the coming quarters.

Frederico Mendes: Perfect, very clear accretion, David. Thank you. if I just may a quick follow-up on financial service, I know it’s a small line but it’s landed. We see a lot of potential. Year-over-year the growth is strong, but quarter-over-quarter it’s basically flat on the second quarter. So just wondering if you’re making any type of adjustment in the product or anything or if you kind of reach a level that we think is, this is the level that should be and we are just — any view here, I think, would be great.

Christian Gebara: Fred, I get this one. We highlighted the financial service revenue and then we’ll talk about the Vivo Money and all the loan platform. The financial services revenue, it’s not only Vivo Money. It’s a series of business in different states of maturity. One of this business that is related and responsible for social part of this revenues is the advanced of credit to prepaid customers. When they run out of a balance or data package, we advance some credit to these customers. As there’s like a greater effort to migrate these customers to hybrid and postpaid plans, it ends up affecting the revenues coming from this type of services. So important to see, because it’s also part of the contribution that we had when you see this quarter over quarter.

We migrated more customers or prepaid didn’t ask for so much advance of credit, so that impacts the revenue that we capture. Also in the last quarter, we were a little bit more conservative in the credit concession in the Vivo Money. Although, we increased the number of customers getting credit. We were more conservative in the type of customers that were given this loan. Going forward, we are very confident, confident because, we see a perspective of going back, being more aggressive in the credit concession. using the Vivo Money and also because we are developing new products in this credit portfolio. There’s a consortium. There is one related to peaks. There are many things that come up to the market in this next quarter, giving us more opportunity to increase the reach of our credit portfolio, and also leveraging on the customer base that we have, the big data that we have, all the points of interaction that we have with these customers.

So we are confident that this figure will go up because, Fred, all the mix that we have announced so that have to put in this account as well. The insurance, there is another business that is bringing some results to the revenue pool of financial services.

Frederico Mendes: Perfect, very clear. Thank you, Christian.

Christian Gebara: Thank you, Fred.

David Melcon: Thank you.

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

Vitor Tomita: Hello, good morning all, and thanks for taking our questions. Two questions from our side. The first one following up on the fiber expansion point. Could you give us some more color on the typical profile of the new cities that you are entering with fiber at this point of the expansion? How large are those cities? What type of competitors are usually active in those cities? And the second question from our side would be on personnel expenses. How advanced is the process of insourcing internalizing critical areas at this point? If I recall correctly, this has been impacting personnel expenses for about a year now. So at this point, should we expect personnel expenses to be more stable from now on or should they still increase to some extent? Thank you.

Christian Gebara: Sure. It’s Christian. Thank you for the question. The fiber expansion, I think, now there is less related to new cities, although we do new cities for FiBrasil. FiBrasil is where we are expanding greenfield footprint outside the state of Sao Paulo. So we do that in cities, depending on the state, but around 100,000 inhabitants. Some of them can be little bit smaller. We just launched one, it’s Espirito Santo, that was smaller than 100,000, but much closer to 50,000. So some cities where we’d see the opportunity to fiber expansion and also very based on the market share we have in postpaid or in prepaid and also that depends. But what we’ve been doing also is expanding our footprint in cities where we already present.

So we do that in larger cities. We do that in capitals. We do that in other cities that are very relevant in the state of Sao Paulo and sometimes we just not only expand coverage with fiber or we do also more overly both in FTTC that we have outside Sao Paulo and some capital or also in cities in Sao Paulo where we still have copper. So it’s a combination of three. We are more focused now in expanding footprint where we see more value of customers rather than having a number of many, many cities. But again, keeping the 29 million home pass, but in the combination of the three strategies that I said, few greenfields that is basically outside Sao Paulo, then by FiBrasil, FTTC overlay copper — overlay or expansion of fiber in cities where we already have presence.

Have I answered you, Vitor, and then I’ll go to the second one.

Vitor Tomita: Yes, it’s very clear. Thank you.

Christian Gebara: And the second one. Vitor, we are still analyzing in sourcing and — in especially in three different areas, B2B that we’ve been increasing our digital services business and managed service capability. So we bought also like the company that we said last year. Vita IT. Vita IT, we bought especially because they had a very strong team focus in Cisco’s implementation. So that also blended with our team that we have already doing network managed services. We increased our capabilities and that’s the focus that we had when we do these type of acquisition or when we hire new people. So B2B is one area Managed services both in networks, but also in digital services, cloud, cyber or IoT. The second one is IT. IT and digital.

So we are like — some factors that we had externally, we are then bringing the people inside and being in sourcing them because we’ve been very focused on deploying, not only in our new architecture of IT but also deploying new channels as we are doing that, we are revamping our Vivo App, also e-commerce from marketplace. And the third one is new businesses. As we are expanding health, we were expanding education. We’re expanding in smart homes and we are expanding in many other education. I think I had mentioned before, financial services. We are trying — also hiring people with special knowledge on this new sectors to be part of our team. So it’s the streaming areas, but it depends case by case.

Vitor Tomita: Clear. Thanks, again.

Christian Gebara: Thank you, Vitor.

Operator: Our next question comes from Carlos Sequeira from BTG Pactual. Please, Mr. Carlos, your microphone is open.

Carlos Sequeira: Hi, good morning, Christian, David, Joao, Gabriel, amazing numbers, I guess. My question if I may, is on the migration process, the concessions authorization migration process. We just saw Anatel’s decision, I think pushed by the TCU, raising the number, crazily raising the amount of money needed to migrate by almost 50%. I was just wondering, what’s your view on that? And what the plans are if Anatel really keeps a number there high, please? Thank you.

Christian Gebara: Carlos, thank you for your words. Carlos, here we are very positive about the possibility of finding a solution through the TCU, consensus instrument that is in place right now. The number that you mentioned, yes, it’s a very, very large number. We already argued about this number before the correction. The correction in our case was not the largest one. But it was of course. We went from 7.7% to 8.7%. We have another number, as you know, being discussed in the other arbitrage that we have. What’s also very, very large number. Here we are discussing the sustainability and even the equilibrium of the concession. And now with the possibility of putting these two discussions in one table, give us an optimistic perspective of finding a solution in the near term.

So rather than discuss just one number, I prefer now to focus on finding a solution, getting the two numbers together, and see a way for us to migrate from a service that one demand anymore and going through any or some type of investment. If there is anything, there still has to be invested considering this consensual agreement that we may reach. Focus on broadband or the services that are much more required by society nowadays. So anyway, I think there is this number of news, but there is also another good news that is the possibility of getting to a consensual agreement.

Carlos Sequeira: Okay, thanks. So in a way your feeling is that not really changed, right, the whole debate that was trying to do — to match the two numbers, right, that’s you on the table, nothing changes.

Christian Gebara: Yes, I think that’s a good thing that now we can discuss both at the same — because there was always this concern about the timing of this — the two discussions. Now — I think now we reached a situation where the two of them can be discussed together and that I think is the most positive outcome that we’ve got in the last weeks, the possibility of discuss the two of them together. And again, that also — that stopped everything and gave us a period of trying to get this consensus that I’m optimistic that we could get. So we get like a suspension of the arbitrage for the moment and even the timing that Anatel would give us, once the number that they have for the other part is approved by TCU, is also paused while we have just concession possibility on the table. So that I think is very positive.

Carlos Sequeira: Okay, great, thanks. Thanks, Christian. Thank you.

Christian Gebara: Thank you, Carlos.

Operator: The question and answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the Company’s final remarks. Please, Mr. Christian, you may proceed.

Christian Gebara: So, thank you, everyone, for participating. As you all state and all — extremely happy with the results that we presented, extremely positive results in all lines, and all of them well above inflation. Important also to highlight, note that is a quarter — like-for-like comparison with the quarter that we had last year that both of them already integrated the numbers coming from the Oi Mobile acquisition. This strong start of the year make us very comfortable about the full year outlook. On a stable macro scenario, we are optimistic about all evolutions, the revenue in mobile, in fiber, and also in Digital services, in B2B and B2C. The CapEx, we already gave the guidance that you know, should be below BRL9 billion and we continue to be focused on expanding 5G coverage, differentiating mobile Internet quality, besides security disruption and capturing of course all the opportunities that we see in the FTTH expansion, working on the customer base, being the customer much more convergent, being the customer convergent and with digital services, expanding lifetime value and focusing on reducing and reducing the churn.

So that’s what we have for today. We are open here, the whole team for any other questions that you may have. And thank you again for participating in our call. Thank you.

Operator: Thank you. Vivo conference is now closed. We thank you all for your participation and wish you a very good day.