Telefônica Brasil S.A. (NYSE:VIV) Q4 2023 Earnings Call Transcript

Telefônica Brasil S.A. (NYSE:VIV) Q4 2023 Earnings Call Transcript February 21, 2024

Telefônica Brasil S.A.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to Vivo’s Fourth Quarter 2023 Earnings Call. This conference is being recorded and the replay will be available at the company’s website at ri.telefonica.con.br. The presentation will also be available for download. This call is also available in Portuguese. [Operator Instructions] Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company’s business prospect, 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 result to differ materially from those expressed in the respect to 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. João Pedro Soares Carneiro, IR Director. Now, I’ll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Please, Mr. Carneiro, you may begin your conference.

João Pedro Soares: Good morning, everyone and welcome to Vivo’s fourth quarter and full year 2023 earnings call. Christian Gebara, 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.

Carneiro: Good morning, everyone and welcome to Vivo’s fourth quarter and full year 2023 earnings call. Christian Gebara, 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.

Christian Gebara: Thank you, João. 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 5th 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. 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 million 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 fourth 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. 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, operating cash flow accelerated to R$12.4 billion in 2023, while free cash flow generation expanded double-digit on an annual comparison to R$8.1 billion. Bottom line performance was also a highlight, as net income hit R$5 billion in 2023, up 23%. This strong result give us further confidence to maintain a robust level of shareholder remuneration as David will detail later. 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 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 continue to show a positive evolution, as we outpace their 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 two key mobile KPIs, churn and ARPU. Postpaid churn reached its lowest historical level, 0.97% 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 four years.

The accelerated adoption of 5G will be another driver supporting further demand for mobile connectivity. During the fourth quarter of 2023, 5G ready device represented 89% of all smartphones sold by Vivo and more than 30% of pure postpaid customers already had a 5G ready smartphone. We expect this ramp up to continue in 2024, with more and more customers having access to the benefits of this technology. Turning to Slide 6, we comment on Vivo’s fiber operation. We have the largest and fastest growing FTTH footprint, which is available to 26.2 million homes and businesses throughout Brazil. By the end of the year 2024, our target is to reach 29 million homes passed. During 2023, we led the market in net 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 1.3 million customers, more than double than previous year. This unique value proposition, puts Vivo 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 services summed up to R$3.4 billion in 2023, up 25% year-over-year. During the last three years, these services increased this 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 solution to help Brazilian companies of different sizes and sectors in their digitalization process.

Recently, the Brazilian mobile industry launched three anti-fraud network services and became a pioneer of Open Gateway with a global initiative led by the telecom center in collaboration of GSMA, aimed at transforming telco’s network into programmable platforms through standardized APIs. 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, SIM swap and device location. The GSMA Open Gateway ecosystem in Brazil, we experienced 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 R$403 million in 2023, 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 a portfolio of R$358 million in personal loans, doubling versus the previous year. 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 R$563 million in revenues during this year, corresponding to 1.1% of Vivo’s total revenues. This partnership 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 six different categories, accessories, smart homes, games, wellness, audios and notebooks.

This complete portfolio boosted our Black Friday sales and was the main driver for the 52% revenue growth. If we sum up revenues from financial services, OTTs and consumer electronics, they totaled R$1.3 billion, or 2.6% of Vivo’s total revenues in 2023. We are confident, of 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&P sectorial ranking and by Corporate Knights.

On the environmental front, Vivo reduced emissions from its operation Scope 1 and 2 by 90% since 2015, reaching the first target of our Net Zero plan. As a result, during COP 28, we’ve 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.

David Melcon: Thank you, Christian and good morning everyone. On Slide 10, we break down our cost structure into two parts. First, 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 R$292 million, related to the renegotiation of tower leasings contracts coming from the Oi Mobile acquisition that, was partially offset by lower levels of tax recoveries and sale of legacy network equipment on a year-over-year basis.

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 reflect our commitment to cost efficiency. Turning to Slide 11, we close out the year with CapEx below R$9 billion 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% year-over-year operating cash flow growth that, led us to the highest operating cash flow margin ever at 23.7%.

We are positive about the CapEx outlook, as we shut down legacies technologies such as copper 2G, 3G and focus on investment on future proof networks like fiber and 5G. 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 R$5 billion in 2023 and free cash flow generation grew double-digit, reaching R$8.1 billion. This improvement in our cash position combined with the payment of senior debt and 5G licenses obligations allow financial net debt, to reduce substantially in comparison to the previous year. Even if we include IFRS 16 leases, leverage remain 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 2023 shareholder remuneration on our guidance for the period 2024-2026. Throughout 2023, we paid R$2.5 billion of interest on capital, R$1.8 billion in dividend and we executed almost R$500 million of our share buyback program, totaling R$4.8 billion in shareholder remuneration. In December 2023, we canceled 11 million shares, corresponding to 0.7% of the company’s total share, in addition to the 13 million 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% of net income in 2024, 2025 and 2026.

The distribution or 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 R$1.5 billion 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, Vivo 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. Thank you and now we can move to the Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Frederico Mendes from Bank of America. Please, Mr. Mendes, your microphone is open.

Frederico Mendes: Thank you. Hello. Good morning, everyone, and thanks for the call. I have two questions here. The first one related to the working capital. There was a major decline quarter-over-quarter, that’s basically like R$900 million 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. I think it happened also in the 4Q ’22, 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. Then my second one related to the line orders. Just to understand this renegotiation of towers related to the Oi deal, if this is a benefit that we can continue to see forward, or that’s basically something that only happened this quarter?

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

David Melcon: 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. So if we look specifically this year, in 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 do 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 a 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. 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 declare, 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 costs 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. But even if we look to the total amount, this quarter, we had R$349 million.

But if we look to the fourth quarter last year, the number was also above R$300 million, no it was R$303 million. So and this quarter, as I say, it’s 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 costs this quarter, and also the previous year. The EBITDA growth for the quarter would have been similar, to the reported amounting to around R$9.6 million. And if you do the same for the full year, the EBITDA growth would have been exactly the same R$10.6 million. So this is something that is very – is to look to the rationality 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.

Frederico Mendes: Perfect. Super clear, David. Thank you, Christian, as well.

David Melcon: Thank you.

Christian Gebara: Thank you, Fred.

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

Marcelo Santos: Hi, good morning, Christian, David, João. 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 we expect – how do you expect CapEx to behave – your plan to deploy homes passed, I think it ends next year, right? 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 effect in the others line, but as you mentioned, if you exclude the other line, also the EBITDA increased well. How do you see margin going forward? Is there room for some expansion of margin in the coming years? These are the two questions? Thank you.

Christian Gebara: So, I will 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 mention 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, now that was 9.5% that we had in 2022. And then we said that in 2023, our CapEx would reach a maximum of R$9 billion and if your stand was R$8.96 billion. That’s the reality of the CapEx. And if you look the intensity over sales, we went in 2022 19.8% 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.

Here, the impact of growing sales as well, that’s also benefiting and we are also doing all you just described, reaching 29 million home passed by the end of this year. That’s the plan that we have for the year. We continue expanding 5G. We continue to connect customers over the network. We had like the net adds of 700,000 customers in fiber, now reaching 6.2 million customers connected with Vivo Fiber by the end of last year and we continue to be very attractive commercially, and responding to the demand that we have. 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 than the digital service that I described before, but with no CapEx involved. So I hear what I think we just highlighted in this call, as well is that we went from an operating cash flow margin of 20.3% 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.

Marcelo Santos: Okay. Thank you. Very clear.

Christian Gebara: Thank you, Marcelo.

Operator: Our next question comes from Eduardo Rubi from UBS. Please, Mr. Rubi, your microphone is open.

Eduardo Rubi: Hi. Good morning, everyone. Thank you, Christian, David, João. One question from my side. We saw cash leasing 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?

David Melcon: Hi, Eduardo. Thank you for the question. Look, we expect IFRS 16 debt 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 2.8 thousand that were acquired. So we are – keep analyzing opportunities to also to reduce this IFRS 16. So for example, the network sharing with team is something that is bringing efficiencies to reduce infrastructure costs and also on. We keep exploring alternatives to optimize both the monetary cost, through the negotiation with the tower company, but as well as being more efficient on the deployment of the new sites that we are currently doing around 5G deployment. So this is – I cannot – we cannot give you what – any guidance on what the number is going to be. But what I could say, this is very relevant for us. So it’s under control and we are optimizing on a quarterly basis.

Eduardo Rubi: No, that’s very good. Thank you very much.

David Melcon: Thank you.

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

Vitor Tomita: 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&A. If you have any updates on M&A strategy for the fiber segment considering Oi and other potential targets that might be on the table right now? Thank you.

Christian Gebara: So Vitor, yes, the fiber market continue to be very competitive. Now as you know, we have like thousands 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 home pass, so that was a good year that we increased the deployment. But more importantly, I think Vivo was the leader in that part of the market. So it was positive for us as well. So, we increased our customer base and more than 700,000 customers during this period. At the same time, we were also able to increase ARPU that also show that we are a very rational in our strategy. We increased 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. 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&A, I recall, 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, 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 asset 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 [co-financing] here is more complex, because the company is in the judicial recovery plan that as you know. So we need to understand everything and the impact of having, again, an UPI in this new plan and how that is going to be evolving as a client co perspective. But secondly, we need to understand the relationship of the client scope with the fiber – the neutral fiber network that they are connected to. So here, there isn’t 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.

Vitor Tomita: Thank you very much. Very clear.

Christian Gebara: Thank you, Vitor.

David Melcon: Thank you.

Operator: Our next question comes from Marco Nardini from XP. Please, Mr. Nardini, your microphone is open.

Marco Nardini: Hello, good morning, Cristian and David. Thank you for taking my question. So a quick follow-up here regarding fixed and broadband in the last question. It’s impressive to see that you grew 3% year-over-year FTTH ARPU. 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 break base and price adjustments, if there’s still room, please? Thank you.

Christian Gebara: 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 has increased by the penetration of higher speeds. As I also mentioned before, people — this service became essential. 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 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, they desire to move from a different profile that will be even lower. And again, the mobile and the Vivo Total is also another strategy that we have. Price related to fiber, we do annual increase as I normally do based on the inflation of the period. So nothing new 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 continue with the same strategy.

Marco Nardini: Perfect. Thank you.

Christian Gebara: Thank you.

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

Gabriel Vaz de Lima: 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 first quarter 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.

Christian Gebara: Yes, like we just had like one month and something. So, again, we continue like with a good commercial momentum, but we are not sharing like numbers. So there’s nothing different from what we ended the year, so it’s a positive sign. So we continue to be optimistic about the year. If the 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 trend.

Gabriel Vaz de Lima: Perfect. Thank you.

Christian Gebara: Thank you.

Operator: Our next question comes from Carlos Legarreta from Itau BBA. Please, Mr. Legarreta, your microphone is open.

Carlos de Legarreta: Just two quick ones on my side. The first 1 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? And what is your expectation for 2024? And secondly, we just haven’t had a chance to discuss the JV without Auren Energia. You can talk about that, what’s the opportunity, the size and I know and already approved it. So if you can talk about it, that’ll be great? Thank you.

Christian Gebara: 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 segment that we have here. We have segments in the size of the companies. We go from the small company to the largest competitors 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 grow 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, there are cloud, cyber, IoT, big data, they are based on the connectivity.

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

So here is also based in partnerships. We have our Telefonica Tech, that 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, 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 Auren, I think is a good point. In December 23 last year, we announced the creation of the joint venture with Auren Energy. And here the focus is in the commercialization of customized solutions, and renewable energy. In the whole country, Auren 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 segment of B2B. The market opened last year, is 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 connect your office, again, the second thing that you may be worried about the energy that, we have, because there is saving 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. Now we’re going to continue as the marketing is going to be opening up year-over-year and there is going to be more details in the future where the JV is going to be independent company, 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.

Carlos de Legarreta: Thank you for your comments.

Christian Gebara: Thank you.

Operator: Our next question comes from Felipe Cheng from Santander. Please, Mr. Cheng, your microphone is open.

Felipe Cheng: Good morning, Christian, Davi and João. Thank you so much for taking my questions. And congrats on the good fourth quarter results. Two on my side, if you could first comment on the churn levels, right, 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? 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.

Christian Gebara: 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%. And now if you look at the end of ’23, we have 0.97%. Here, I think, is a reflection of the right strategy that we have to focus on customer rather than that just in product, although we have like the best network in 3G, 4G or 5G, we also are trying to combine more service to the same customers and also improving the experience that they have when they deal with Vivo. So that’s a reflection of the Vivo Total. As I said, more 5G together more postpaid together with fiber. Also the inclusion of value-added services that make it more attractive.

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 million customers that use it on average 4x or 5x. And I think that keeps 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 #1 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. 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 first semester part of the customer base with the second semester in August, other part of the customer base. But apart from just price increase based on inflation, we want to have new services that include packaging. So, we’re controlling the hybrid. We have the health one, the education one, the Vivo play one that is going up our price print, round like 50 or 52 to 75, 78 depending on the plan that we have planted, with this connectivity. So the strategy is adding more service to the customer base rather than just increasing price based on inflation.

Felipe Cheng: Perfect. Very clear. Thank you so much, Christian.

Christian Gebara: Thank you.

David Melcon: Thank you, Felipe.

Operator: Thank you. The Q&A session is over. Would like to hand the floor back to Mr. Christian Gebara for the company final remarks. Please, Mr. Gebara, your microphone is open.

Christian Gebara: Okay. Thank you so much for all of you that 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 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, you know our team is here always available, to answer you. Thank you.

Operator: Vivo’s conference is now closed. We thank you all for your participation and wish you a wonderful day. You may now disconnect your line.