Good morning ladies and gentlemen. Welcome to TIM S.A. 2022 Fourth Quarter Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company’s presentation. There will be a replay for this call on the company's website. [Operator Instructions] We highlight that statements that may be made regarding the prospects, projections, and goals of TIM S.A. constitute the beliefs and assumptions of the company's board of executive officers. Future considerations are not performance to warranties. They involve risks, uncertainties, and assumptions as they refer to events that may or may not occur. Investors should understand that internal and external factors to TIM S.A. may affect their performance and lead to different results than those planned. [Operator Instructions] Now, I will turn the conference over to the CEO, Mr. Alberto Griselli, CEO of TIM S.A.; and to Ms. Vicente Ferreira, Head of Investor Relations, to present the main messages for the fourth quarter of 2022. Please Mr. Alberto, you may proceed.

Good morning, everyone. Thanks for attending our results conference call. 2022 was a year relevant transformations in a volatile environment that require much focus on execution to deliver what we promised during the TIM Brasil Day. Looking at our results and what we accomplished, I'm sure we did a great job. Our plan to be the next generation team is at full speed. Let's recap some of those milestones of 2022. In April, we closed the deal with Oi and we started the immense job of integrating the assets with both. In June, the Reclame Aqui web portal recognized us for our customer service excellence. We were also awarded the Great Place to Work certificate. In July, we started with 5G journey for real. Brazil was the first capital to be covered and we were the first operator to implement a standalone 5G network in Brazil. In the subsequent months, we leveraged 5G to differentiate in Brazil from our peers and to reinforce our innovation positioning. We went for an all-in coverage approach in key Brazilian capitals. We showcase the 5G experience in key events and locations such as Rock in Rio and the Maracanã stadium. In the business pace, we pioneered partnership with industry leaders in several verticals such as agro business, automotive, and logistics. During the year, we became the operator with the broadest mobile coverage in Brazil. Those achievements and many others were accompanied by a robust set of financial results. Our top line grew close to 20% year-over-year. Our EBITDA also presented significant momentum, closing the year growing more than 17%, compared to 2021. This performance led our margin to exceed 47%. The proxy for operating free cash flow rose more than 26% yearly, which helped us to fulfill our promise of BRL 2 billion in…

Thank you, Alberto, and good morning, everyone. As explained earlier, the fourth quarter, as well as the full-year figures point to robust performance in all relevant lines of our results. Even in the face of important challenges, such as the high inflation level in early 2022. This is the proof of TIM’s resilience and effective execution. Our OpEx line was impacted by this inflationary environment, as well as other elements such as temporary service agreement with Oi, additional costs, and expenses due to a more extensive customer and infrastructure base and the rental costs for the [fiber last mile] [ph]. Those elements are not new and we've been talking about them for the entire past year. They drove OpEx to rise more than 20% versus 2021 in the quarter and for the full-year. The good news is that most of those adverse effects will dissipate in 2023 because we will not face the same cost pressure from the TSA or because we will be comparing apples-to-apples under the FTTH asset light model. We also expect to start grabbing the additional opportunity to take the former Oi clients to the same level of digitalization as our team customers. In this context, fourth quarter EBITDA sustained an excellent performance, growing close to 20% year-over-year combining organic evolution and M&A contribution. As for the full-year, EBITDA rose more than 17% margins stood at 50% in 4Q and 47.4% in 2022. If we excluded the impacts of I-Systems' rental costs, the EBITDA margin would have been 51.2% in the quarter and 49% for the year. As we discussed in prior quarters, TIM Brasil is passing through transformations that impose transitory impacts on its results. That's precisely the case for our below EBITDA lines. They are receiving additional pressure from the leasing contracts we got…

Thank you, Vicente. 2022 was a remarkable year for us at TIM Brasil. The number of things we were able to deliver maintaining high standards and with great financial results is something to celebrate. We fulfill our promises to the market and our stakeholders. The entire set of goals we established in our guidance in May during the TIM Brasil Day was achieved. Double-digit service revenue growth, check; double-digit EBITDA growth, check; investment of [BRL 48 billion] [ph], check; free cash flow margin above 24%, check; in-depthness below 2x EBITDA, check; and 2 billion in shareholder remuneration, finally check. Those accomplishments confirmed that the first step to building the next generation team was taken and we are on the right plan to transform in this company into the best mobile operator in Brazil. The second step starts in 2023 and will require the same level of focus and commitment for the entire company. Nonetheless, despite the tough comps, our updated plan points to a better overall business dynamic when compared to our regional expectation for 2023. We are forecasting a significant expansion in free cash flow margin, some improvements in EBITDA margin, both driven by efficiency and synergy that will improve transfer revenues, OpEx, CapEx, and leases. Making sure our shareholder remuneration will benefit from those gains means at the core of our equity story. Stay tuned for February 14 when we will share our renewed guidance with the market. I'm reaching the end of my comments, so I want to share how grateful I am to close this first year as CEO of this fantastic company. No doubt that building this new chapter in team history is taking a huge effort, but I'm very confident we will get there. That is why I need to share this special moment with the entire team and thank them for the outstanding work and commitment. Looking back, it was worthwhile going the extra mile. With no further delays, let's open the floor for questions. Please operator.

Thank you, Mr. Alberto. [Operator Instructions] Our first question comes from Bernardo Guttmann with XP. Please Bernardo, you may proceed. The first question will come from Marcelo Santos with JPMorgan.

Hi. Good morning. Can you hear me?

Hello.

Okay. I hope you can hear me. The first question I wanted to ask is about the competitive environment in the mobile. So, if you could please comment on how pre-paid, post-paid and hybrid are going to be great? And the second question would be about the impacts of Power decommissioning in 2023, how could we expect the impacts to be divided during the quarters of the year in terms of the financials? How much – what's the likely distribution of that impact? Thank you.

Okay, Marcelo. So, let me take these two questions. So, on the first one, regarding the competitive environment, I think that when you look at the past months and you look at the overall dynamics, both for prepaid and postpaid that the market has been relatively rational [indiscernible], I would say over the last 18 months. We expect this trend to continue. As you know, this is a market where – as a sector, we were unable to pass through inflation for many, many years to the entry prices. And there are some positive updates in – so we did a prepaid price adjustment starting last year as we discussed in in previous calls and this already benefited our top line growth for prepaid. And for post-paid, there are some positive news that came along this week actually. There are some price adjustment happening, the market leader updated its control and postpaid prices. It was something that we were assessing also internally on our future plan. So, overall, I think that this rationality is going to stay in the coming months. When it comes to the lease, the commissioning plan, here it's – so as you know, we got a quite ambitious decommissioning plan that started in October last year with decommission a bit more than 500 towers in 2022 starting October and we plan to decommission another 3,000 towers in the course of 2023. Now, how does it work? There is a physical activity that is required basically to dismantle the equipment that is placed on the tower. And these results are in an economic saving after a few steps that are in between the physical decommissioning and the actual recognition of the saving. In-line of principle, I think we can say that it takes roughly three months to move from the physical decommissioning to the financial impact. So, when you look at the quarter, which is the question that you asked, you will see the number ramping up over time. So, as we move forward with the physical decommissioning, with the delay of roughly 90 days, on average, you will see this appearing in our lease payments. So, the first quarter is going to be the full value. And when we move to the last quarter, in the last quarter, we will accumulate the saving of the physical decommissioning of the [Reclame Aqui] [ph] portal. So, you can monitor the effectiveness of our plan looking at the decrease of the lease cost on a quarter-by-quarter basis.

Perfect. Very clear. Thank you.

The next question comes from Freddie Mendes with Bank of America.

Hello, good morning, everyone. Can you hear me? Hello. Good morning, everyone. Can you hear me?

Yes, Fred?

Okay. Perfect. Sorry. Okay. I have two questions here. The first one is about the effective tax rate. In our calculation here for this year, it remained at single digits. And obviously, you still have the IOC for 2023, a few fiscal benefits. So, if we can expect this line to remain somehow similar, 2023 over 2022? And then the second one is about CapEx. I know obviously you have the guidance, but just wondering in this scenario that we are seeing with this macro that is more challenging if there is room to reduce CapEx for 2023? Thank you.

Okay. Fred, let me start with the CapEx question and then we'll move – I will ask Vicente to answer the tax rate question. So, on the CapEx one, as you know, our CapEx last year and this year has been impacted by, let's say, a few things that are one-off like the – primarily the Oi integration. We're talking about something like 500 million divided in between 2021 and 2022. And of course, the deployment of 5G technology that at the beginning, you see the CapEx that we deployed for a quick start while the revenue tends to build up later on in time. So, when we commented in the previous quarters, we already say that one of – when you look at the Oi acquisition, one the most important synergy comes from the infrastructure side. So, we acquired frequencies and we closed the gap that we had. And this frequency and towers that we are getting from them contributes something like 70% of the overall synergy back. Then we also commented that the deployment of 5G is driving 4G offload in excess of what we initially expected. So, when you sum up these two main drivers, so three actually. The one-off nature of [indiscernible] investment that we had in 2021 and 2022. The fact that we closed our frequency gap with the acquisition Oi Assets and the fact that 5G is delivering 4G offload faster than we expected. We already signal that we were expecting CapEx efficiencies already coming in the following years. So, what we are talking here, it's a nominal reduction in CapEx driven by these effects, that are industrial effects. And therefore, anticipating some of the previous planned targets like going below the 20% marker of CapEx on revenues. So, the main dynamics are there. So, the synergies from Oi are materializing. The 4G offload is happening faster than we expected and the one-off costs that we incurred to integrate Oi basically are one-off and so we won't be present in the following years. This will result in increased CapEx efficiency and you will see the number in a couple of days.

Hi, Fred. This is Vicente. So, regarding the effective tax rate, first of all, I think it's important to highlight that we don't have a specific guidance for effective tax rate. So, let's talk just about the drivers. So, what is driving our effective tax rate today is, as you well mentioned, is interest on capital. Some credits that we have such as Sudan, [Sudani], and other related to prior credits. So, basically, the drivers will remain the same in 2023. We don't expect any specific change in regulation or our taxation rules for this year. So, the broad framework that is driving our effective tax rate is going to be pretty much the same. So, that's basically what we can say right now.

Perfect. Super clear. Thank you, Alberto. Thank you, Vicente.

The next question comes from Bernardo Guttmann with XP.

Hello. Can you hear me now?

Yes, Bernardo. Now we hear you.

Hi. Great. Hi, good morning everyone. Thanks for taking my question. I have one question related to the fiber business. The company accelerated a launch this month, several cities in Paraná. I suppose that most of these cities are through the [Vital] [ph] network. In this sense, I would like to understand, if this is the pilot project and what's the roll-out strategy to this new partner, which regions should you focus on? Since [indiscernible] has a very large popularity, so how to scale faster through this new model? Thank you.

So, Bernardo, as you correctly pointed out, we are now working with two partners, I-System and [Vital] [ph]. So the strategy is sort of an unchanged. So, I-System is focusing on deploying new clusters building up fiber. We launched last year a joint [venture] [ph] and then we launched a [indiscernible] more recently. And so, the plan here is to deploy the new fiber deployment, generally speaking, where we do not find additional near-term networks, because we think this is an efficient way to move forward. The [Vital] [ph] partnership, it's a growth of optionality that we negotiated last year, whereby we can have access to a larger footprint because the fiber is already built up and generally always their main tenant. So, you are correct. We launched a pilot a few weeks ago in an area where we have a stronger commercial spending because we launched in Paraná. So, as you know, Paraná, it's a place where our – we are leader in mobile, both on postpaid and prepaid. Our brand recognition is high. Our commercial capabilities are quite strong. And so, we are piloting a new approach where we can address a larger area. So, this 30 something cities all at once. So far, we launched a few weeks ago. So far, the pilot is proving in-line with our expectations. And I think that we're going to be able to share with you a bit more detail in the next quarter when we, let's say, we consolidated the results. So far, the launch of the new brand and the offering and the commercial network is proceeding very well, but it's sort of early stages because we launched just a few weeks ago. But the idea is to use Vital as a complement to I-System, where I-System doesn't have coverage and doesn't plan to put coverage.

Very clear. Thank you, Alberto.

The next question comes from Victor [indiscernible] with Credit Suisse.

Hi, good morning, Alberto, Vicente. I have just one question on mobile competition. We recently saw some competitors increasing the offers and store prices. And we want to just to take your sense if you plan to follow [indiscernible]?

Yes. Also, Victor, let's put this way. There was a sort of an initial answer of the first question. So, the – as I was mentioning, it's – in the mobile market, basically, we do, we implement a more for more strategy, generally speaking, of our customer base. To make this strategy sustainable in the long-term, of course, we're always discussing the opportunity to do this at the entry point as well. So, in stores, for example, on the websites. Also, because these prices have not been adjusted for many, many years now and so we are not be able to pass inflation always on a more for more approach at the point of sales. So, as you correctly mentioned, the market leader in postpaid made the change a couple of days ago this week. And we were planning, we were starting this opportunity ourselves, and I think that the market is going in the right direction. We pioneered some price adjustment in prepaid where we are, sort of co-leader starting last year and always on a more for more approach. Everything is going well. It's – we got the good effects on prepaid revenues. We don't see any counter effect in terms of share level. So, I think it's where the market is probably heading in the next month.

Great. Very clear. Thanks Alberto.

[Operator Instructions] Without any more questions from analysts, we will now start the public Q&A session from the webcast platform, and will be read by Mr. Vicente. Please, Mr. Vicente, you may proceed.

Okay. So, the first question comes from, mainly from [indiscernible]. And he goes, Oi subscriber cleanup, excluding Oi subscriber cleanup there was a 1 million postpaid subs versus negative versus 3Q 2022. So, 1 million of disconnections. What was the driver of this decline in subscribers? Please Alberto.

Okay. This is quite an important question because it give me the opportunity to describe in a better fashion the dynamics of our net additions. So, basically, when we look at this, we have a number of phenomena that are taking place. And so, the first one, let's put this way in our organic business. So, our organic business, let's put this pre-Oi is growing in net additions, constantly over time as it was growing in the first quarter and in the second quarter. Then of course, we got a new layer, which is primarily related to Oi in the fourth quarter, also to some cleanup that we do on our customer base. So, on the Oi side, basically, we have three main effects happening in the customer base. The first one is the cleanup of the customer base, which is around 5 million customers that we canceled in November. We basically finalized the cancellation, but as we migrated the customer to our own systems, there might be some fine tuning in the first quarter. The second one, which is also happening is related to the reclassification of control lines as prepaid. So, when you look at Oi customer base, they called, they labeled actually as control some customers that are actually prepaid in behavior. The number is in the range of roughly 1 million. And the profile of this customer is actually prepaid. So, this customer recharged to user service. Day spending is much lower, our control plans. And so, we are in the process of reclassifying these lines, control lines as prepaid. And this process is going to end up in the first quarter. The reason in the first clean-up scenario and in the reclassification scenario, no impact on revenues. Because in the clean-up case, there is no revenues at all. And in the reclassification, the revenues are maintained. It's just they appear prepaid rather than in control. And by migrating a control customer to prepaid, we are more effective in monetizing the prepaid customers as we move forward because our [BTL marketing] [ph] [indiscernible] action and offer are designed for that specific customer segment. In the third quarter, and so I finally get to the question that has been asked, the additional cancellation that we had are related to a couple of business contracts. If you look at the Anatel numbers and you split it up by consumer and postpaid and the business, you will see around 5,000 lines cancel. This is because – 500,000 lines cancel. This is because in the course of 2002 and 2001, some governments launched educational programs with a significant volume of lines at low ARPU. That was, sort of emergency contracts with a specific due date. We came to the end of two contractors, summing up to roughly half a million customers. And then as the last point, there is some clean up that we took the opportunity to execute on our customer base.

The next question comes from [Ryan Gomes] [ph] from [indiscernible]. I would translate his question. So, it's regarding bad debt. The bad debts seen in your balance sheet increased, and it was originated by clients from Oi or there was organic deterioration in the TIM clients?

Okay. So, in terms of the overall performance of bad debt, actually, our bad debt as a percentage of revenues decreased. And so, we see an improvement of the overall KPI. If this question is raised on an annual comparison, the recent increase because there are some adjustment that we mentioned in the last quarter of last year on a year-on-year comparison, but our bad debt performance is improving over time and therefore the weight of bad debt on our revenues is going down, accounts has been going down constantly in 2022. Now, when we look at the collection curves, and this is a very positive piece of information in terms of the health of our business, the collection curves have been improving over time, therefore, showing the ability of collecting money from our customers. The improvement of collection curves results and improvement of bad debt in terms of revenues is correct that the customer coming from Oi as a slightly higher bad debt versus our own customers, this is an opportunity for us to further improve bad debt by bringing the efficiency of our collection process to Oi customers in the course of this year.

Thank you, Alberto. We have I think an additional question from our webcast. This comes from an individual investor called [Bruno Caldera] [ph]. He's congratulating our results and he's asking for additional information guarding the Vital contract. Alberto, if you could elaborate a little bit on that, please?

Well, Bruno, there is not much actually that I can share on this contract because it's a commercial contract that is specific to us. I would say that we have a contractor that provide us a payback, which is in-line with our business plan and expectations. So, we closed what we think is a very good contract with Vital. And – but in terms of specific numbers of contractual terms, unfortunately, we do not share these with the market. An important point that is worth mentioning is that since we are second tenant, we do not have volume commitment or obligations with our partner.

Okay. I think we have an additional one coming from [indiscernible] UBS. And it's regarding indebtedness level. This level of indebtedness close to 1.4x that you see as ideal in this moment for the company or do you believe that you could have room for improvement or allocating capital differently going forward? I will take this question. Well, [indiscernible], we will actually – this 1.4x net debt-to-EBITDA ratio is below what we expected in the beginning of the year. Is actually below even what we expected for 2024. So, we are ahead of schedule in terms of deleveraging the company. Of course, we will have – we expect to improve significantly our free cash flow. This can be to opportunities for us to either have a better indebtedness level, as well as distributing more to our shareholders. I think Alberto already mentioned this during the call. So basically, that's what we can say right now. Again, on the 14th next week, we'll be able to disclose more information regarding guidance and future expectations, but for now, I think that's it. The second question that comes from [André] [ph] is regarding the rollout of 5G. And it's – as we move to smaller cities, do you see possibilities of using other technologies such as [fixed-Vital] [ph] access to complement the coverage of a fixed broadband? Do you want to take this one Alberto?

Yes. Yes. So, when it comes to FWA, we explained the way we look at it in our Investor Day in May last year. I think that there are a couple of opportunities here. The first one and the initial one is on B2B. So, as you know, the first point is to have coverage. And so, we at TIM as we mentioned, we will enter with an all-in coverage approach in main capitals. So, for example, if you take Sao Paulo or Rio de Janeiro, our 5G coverage is already a pretty widespread. That we cover the big majority of the population and every districts in the city. There, the opportunity is already existent. We are already leveraging it in the business case. So, for example, we closed [indiscernible] an agreement with Itau to put FWA in all their branches in some of their branches, and so we are working actively to extend this approach in the business segment. In the consumer segment, besides coverage, that is addressing some of the key capitals, one other aspects that today limits the adoption of SWA is the availability of CP at affordable prices. Now, given to the increase of scale around the globe and the commitment of some equipment manufacturer in Brazil, to reduce prices, this barrier is likely to be addressed by the end of this year. At that point, we will be in the position to leverage this opportunity in the consumer segment where we already have coverage. And this is not necessarily just suburban areas, but could be capitals as well. So, it's something that we're going to put in our pipeline likely at the end of this year to be commercially active in 2024. That is something that we are looking for. And it could be interesting as a mobile complement and complement to fiber.

Okay. We have no further questions from our webcast platform. So, we are closing the Q&A session right now. We'll pass the floor again to Alberto for him to wrap up his comments. Please, Alberto.

Thank you, Vicente. Well, everybody. I think it is fair to say that we enter 2023 as a bigger and more robust TIM Brasil in a more favorable Telco environment and with a significant cash flow expansion opportunity, in front of us. In a couple of days, we are going to share with you the updated guidance. And I'm very confident that we will deliver those guidelines once again this year. I look forward to meeting some of you in the one-to-one meetings in the coming weeks, and thank you for attending our conference call.

Thank you. Thus we conclude the fourth quarter of 2022 conference call of TIM S.A. For further information and details of the company, please access our website tim.com.br/ir. You can disconnect from now on. Thank you once again, and have a nice day.