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Operator: Good morning, ladies and gentlemen. Welcome to Vivo’s Fourth Quarter 2022 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. To access. you can press the Globe icon on the lower right side of your zoom screen and then choose to enter the Portuguese room. After that, select mutual regional audio for a better experience. We would like to inform you that all attendees will only be listening to the conference during the presentation and then we will start the question-and-answer section where further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company’s business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo’s Equity 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 the 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: Good morning everyone and welcome to Telefonica Brasil’s conference call to present the fourth quarter and full year 2022 results. The call will start with our CEO, Christian Gebara, commenting Vivo’s operating and financial highlights, followed by an update on the progress of our digital ecosystems and ESG initiatives. Then our CFO, David Melcon, will go through our cost and CapEx evolution, net income, free cash flow, and shareholder remuneration. I’ll now hand it over to Christian.

Christian Gebara: Thank you, Joao. Good morning and thank you for joining our earning calls. I start by presenting the highlights of the fourth quarter and full year. 2022 was a transformational year for Vivo and the telecommunications industry in Brazil. With the initial deployment of 5G standalone and then mobile market consolidation, both of which are bringing significant improvements to the quality of service and customer experience. We closed the year, with 112 million access, up 13.7% year-over-year, reinforcing our position as one of the Brazilian companies among all sectors, with the largest number of clients. Our 58.7 million access in postpaids and 5.5 million in FTTH gave us a very solid recurring revenue base, protecting our results from inflation impacts.

In the sense of our total revenue grew 10.1% year-over-year in the fourth quarter, driven by the expansion of 13.6% of our mobile service revenues and by the best fixed revenue results since the fourth quarter of 2015 with a growth of 2.9%. As a result, our EBITDA expanded 6.1% year-over-year, reaching for 1.3% margin. The strong operating performance delivered during 2022 was culminated by a relevant amount of free cash flow closing the year with BRL7.3 billion. The reversed cash generation, which is one of the key elements of our equity story, allowed us to declare over BRL5 billion in dividends and interest on capital during 2022. On top of the BRL600 million investment in buyback our shares, we firmly believe our shares to be undervalued.

Hence, we’re starting a new share buyback program aiming to invest an additional BRL500 million during the next 12 months. To continue enhancing differentiating our shareholder remuneration capability, yesterday we filed with Anatel a request that if approved, we will allow us to potentially reduce our capital stock by up to BRL5 billion. This will give us further flexibility to decide on future cash distribution and how to improve our capital allocation. Now, we go to slide four, where we can see that for the second straight quarter, our topline grew well above inflation. The 10.1% year-over-year expansion results from the 13% growth for core revenues that already represent 93% of our total revenues. This is particularly important as our non-core business, which for years served as a drag to our revenue performance, now weights less than lines with potential to keep double-digit growth rates for years to come, such as FTTH and B2B data, ICT, and digital services.

Moving to slide five, on the left hand side of the slide, you can see that our mobile revenues increased 13.4% year-over-year, as postpaid, prepaid, and handset revenues all grew double-digit. The mobile market consolidation and our leading commercial performance have been the main drivers here. On the right side, we detail our fixed core performance and in which we had revenues climbing 11.9% year-over-year. The core products already represents 76% of our wired line business, up six percentage points on an annual basis. As a result, our total fixed revenues grew 2.9% year-over-year in the fourth quarter, this being the best early growth rate we reached since the fourth quarter of 2015. As usual, the main drivers were FTTH and data and ICT, and digital services.

Services that are hard to replicate and provide us with a robust platform for continued improvement of our fixed business going forward. On slide six, we detail their operating performance on mobile and fiber close in a year that probably was the best in our recent history regarding our customer base evolution. On mobile, we added 14 million new customers during 2022 reaching 98 million access, up 16.8% year-over-year, even after carrying out this connection of 3.4 million inactive lines coming from Oi Mobile’s acquisition, of which 339,000 were eliminated during the fourth quarter. Our postpaid base grew at an even higher pace, up 18.2% year-over-year, as the migration of prepaid users towards hybrid plans continues to be very successful, while churn remains at record low levels close to 1%.

Also, we continue to be net gainers in portability of postpaid lines, clearly leading the best value proposition. As a result, we closed the year with homebuyer market share of 38.9% of almost one percentage points since April, which was the first month in which Anatel reported the consolidation of Oi’ access with the buyers basis. In fiber, we ended 2022 with 23.3 million homes passed with FTTH after rolling out the network to 3.7 million new premises. Moreover, we added 874,000 FTTH access during the year, expanding our customer base by 19% to 5.5 million home connected. Our convergent offer, Vivo Total has been very successful, representing around 70% of the FTTH net adds we registered during the fourth quarter. Being the only player capable of providing 5G plus fiber flat unique offering on a national-wide basis is a key differentiator, enabling us to keep on improving our operating performance and reducing postpaid and fiber churn.

Moving to slide seven. During 2022, our digital B2B revenues grew 29% year-over-year, reaching BRL2.7 billion. These revenues that aggregated products such as cloud, cybersecurity, IoT, digital, B2B solutions, among other already represent 5.6% of our total topline and we assume out-weight noncore revenues. These services and solutions are in great demand as companies of all sizes are becoming more and more aware of how beneficial is to invest in digitization of their business. We’ll continue to lever on our leading brands, complete portfolio, channel and rich capabilities to be the preferred partner of Brazilian companies in their digital transformation capturing this unique opportunity. Moving to the right hand side of the slide, you can see that we continue to develop our presence as a digital finance hub, taking advantage of the dozens millions commercial relationships we have with individuals through our connectivity services to increase our share of wallet and customer monetization.

Apart from Vivo Money, which closed the year with a loan portfolio of over BRL180 million, growing by almost seven times year-over-year, we are also offering co-branded credit cards in partnership with and handsets and home insurance products. In addition to that, Vivo Ventures, our corporate venture capital fund, made its second investment in a FinTech by investing BRL10 million in Klubi that act as a consortium administrator with financing model that’s becoming increasing relevant in Brazil. On slide eight, we update you on our ESG initiatives. During 2022, we were able to deliver solid results on all fronts. In environment, we reduced by 50% year-over-year our direct greenhouse gases emission and increased by 20%, the collection of electronic waste through our Recycle with Vivo program.

On diversity, we reached a 22.4% occupation of leadership roles by black people growing three percentage points year-over-year. Also during 2022, Telefonica Vivo Foundation invested BRL58 million to support students and teachers of the public education system and develop their digital capabilities, benefiting 2.2 million people. We were also recognized as a leading telecom company in terms of corporate sustainability by S&P in their 2023 sustainability yearbook. Finally, we are pleased to announce we had the second highest score among 83 participants in Easy 2022 process being the only telco we’ve been the top 10 best qualified companies. This is an improvement vis-à-vis fourth place achieved in 2021, reflecting the efforts we make to create a more inclusive, green and sustainable company.

Now, David will take us through the financial highlights of the quarter.

David Melcon: Thank you, Christian and good morning everyone. Moving to slide nine, the continued formation of our cost base structure remains underway as we accelerate revenue to relate it to the digital B2B and B2C services and solutions that led to increase lifetime value of customers. Looking at the cost of services and good short that represent 35% of our OpEx in the quarter, it grew 11% year-over-year, driven by the ongoing transformation of our business mix as revenues coming from the sale of digital solutions and services, handset, and accessories outlays total topline expansion leading to an improve growth profile. Cost of operations, which comprise the remaining 65% of our OpEx increased 14% year-over-year in the quarter.

Here even though we continue to reduce costs such as commissioning, billing, call centers, and back offices, assisted by the increased usage of digital channels and payment platforms, this was compensated by the effects related to higher personnel cost and lower recovery of taxes and sale of unused network equipment in the quarter. Another positive note, we expect to incorporate Garliava, the SPE that held the assets we bought from Oi Mobile during the first quarter of 2023, unlocking additional savings, while also allowing for the tax amortization of the goodwill arising from this acquisition. Moving to slide 10, in 2022, we invested BRL9.5 billion, which is the highest-ever annual capital expenditure, excluding licenses made by us. This year was particularly pressured by investment made to incorporate Oi Mobile assets of around BRL500 million and by the initial deployment of 5G to key cities to start building a network that was recently considered as the one delivering the fastest 5G in Brazil.

We also accelerated our FTTH compass footprint, taking the opportunity to further consolidate our leadership in fiber. Even so, our operating cash flow expanded 4.4% year-over-year reaching BRL9.8 billion. For 2023, we just provided a market guidance on CapEx that will bring a strong revenues in the coming years, committing to invest less than BRL9 billion in the period, thus allowing for an important improvement of our CapEx per sales ratio. This year’s investment will be focused on the continued expansion of our 5G coverage on the refurbishment of our overall mobile capacity and on the increase of our FTTH penetration. Moving to slide 11, in 2022, our net income reached BRL4.1 billion. The year-over-year comparison was impacted by some positive non-recurring events that benefit the previous year results as well as the higher average interest rate seen into 2022 versus 2021, which coupled with our increased level of net debt directly penalized our financial results.

On the other hand, we deliver once again an excellent result in terms of free cash flow, with a generating of BRL7.3 billion in 2022, representing 15.2% of our revenues. This 11.3% free cash flow yield is among the very best in the sector, and then out how resilient our business is under any circumstance. Finally, now going to slide 12. Here we detail the components of our 2022 shareholder remuneration, as well as discuss the additional levers that will allow for a continuation of a strong cash churn going forward. Considering the dividend and interest on capital events declared with record date in 2022, our total distribution reached BRL5.1 billion, of which BRL2 billion were already paid out to our shareholders in October 18, 2022, while the remaining BRL3.1 billion will be paid out on April 18, and July 18, 2023.

In addition, we invested over BRL600 million raised to buy back our own shares, resulting in a total of BRL5.7 billion of shareholder remuneration equivalent to 8.9% of the company market cap as of December 2022. We keep working on ways to maintain the cash returns to our shareholders. As such, yesterday, our Board of Directors, green lighted the following. First, the proportion to our 2023, general shareholders meeting to be held next April of dividend based on 2022 results of BRL827 million to be paid out on July 18, 2023. Second, the deliberation of BRL106 million in interest on capital base on January 2023 results. Third, the cancellation of 13.4 million shares held internationally on December 31, 2022 equivalent to 0.8% of our capital.

Fourth, the creation of a new share buyback program to be executed from February 2023 to February 2024, with a potential to invest up to BRL500 million to buyback our stock. Fifth, the request to Anatel of a Prior Consent to potentially reduce our capital stock by up to BRL5 billion, which, if approved, will bring important flexibility to decide on the future remuneration of our shareholders and capital structure. As you can see, we remain highly committed to maintain our differentiation as one of the few companies that combined important growth avenues, such as the one presented by the mobile consolidation, fiber capillarity and soaring demand for digital B2B and B2C solutions with a rock solid balance sheet and cash flow generation capacity while providing leading shareholders deals.

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

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Operator: Thank you. We are going to start the question-and-answer session for investors and analysts. Our first question comes from Fred Mendes, The Bank of America. Please, Mr. Fred, your microphone is open.

Fred Mendes: Hello. Good morning, everyone. Thanks. Thanks for the questions. I have two here on my side. The first one is related to capital reduction. Meaning I think was a good move during the capital reduction was likely to increase the dividends. But the question is why BRL5 billion? I mean, why not more, considering the equity of 65 billion you guys have? There’ll be my first one. And then as the second one, at least of the scenario we have today, it looks like 2023 is going to be a year of lower inflation, right, which I think is particularly good for the telcos. How do you see the opportunity to reduce costs here, eventually increasing margins further in 2023? Thank you.

Christian Gebara: Hi, Fred. Thank you for the question. Look, free cash flow generation, I mean, exceed the annual net income. It has been like this for many years now. And we have limited distributor reserves left. Therefore, we believe a capital reduction address the situation, allowing us to create a platform to distribute more cash than annual net income. No, we use — I mean, we’ve had our 100% payout over the last few years. So with this capital reduction, if it’s approved, we should be able to have a higher payout than 100. No, and we believe BRL5 billion is the right amount to have a story for the next few years now. Also, regarding timing, no, I’m sure you — your question is also about this. I mean, we — now we need to wait around six months for an Anatel Prior Consent approval, and then we will need to go through also all the internal governance approval, such as Board and general assembly.

David Melcon : And I can take the beginning of the second question and then Christian can also elaborate. Look, we are showing the OpEx breakdown, showing the cost of service goods sold and cost operation. On the first one, I mean, we have been growing 11% in the last quarter, but if you look to the revenues that are linked to those costs, which are mainly have to do with digital service and handsets, we are growing more than 50%. Now, just a B2B digital services, they grow 29% now. And in the other part of the costs that have to do more with operation, there are a few things that happen in the second half of this year. Now, the first one is that decision on Vita IT, which is a company, B2B company that’s allowing us to accelerate the growth in B2B.

This is bringing in additional costs, particularly on personnel costs. That’s why we are seeing an increase on personnel costs at year-over-year, next year, we shouldn’t see such a growth. Also, we have the cost from integration of Oi, just to remind you that we are paying 146 million for the transmission service agreement to Oi, which is more than 12 million per month, this will finish at the end of the first quarter 2023. So, it’s something that we will not have in the nine months of 2023. Also inflation for next year, we are expecting to be lower than 2022. So, this is also a lever. Also, we are saying that the new revenue streams are coming with higher OpEx, but without CapEx. So, this is such an upside because we look to operating cash flow margin that we will see that will be an expand for next year.

And also that is also leading to the story of integration of Oi is that we are planning to incorporate to merge earlier which is the company we acquired the assets from Oi mobile in the next, let’s say, one month or one month and a half. This not only will bring savings in OpEx, but also this will unlock the tax benefit coming from the amortization of the goodwill. And these just to remind you is more than BRL1 billion cash that will come through in the next five years now. So all-in-all, we see an expand on margins, and also our growth in operating cash flow for the next year or so, because the CapEx has increased I mentioned I mean, we are going to also to have a nine — below 9 million.

Christian Gebara: And just to compliment, like the second is exactly what he said. And also there is the impact on inflation personnel cost, that is particularly important parts of our cost of serving. So it’s going to be positive in that way the operation that we have now related to personnel. Of course, there is the changing mix that that we mentioned, Fred. So of course, now when we start also selling more digital service that is cost of goods sold that is different cost mix. But in absolute numbers in the EBITDA, we are very positive about our growth. So — and also digitalization of increasing a lot the digitalization and the representativeness of our channels, both the app and also the WhatsApp, if they use the artificial intelligence that we’re increasing the usability, especially now with the new developers of artificial intelligence, that we’re going to start impacting our way of serving customers through these channels.

And in the first question about the capital reduction is good also to bear in mind that in 2025, the concession — the solution about the concession will be there. So the migration, that is what we expect. So in this case, we were going to have much more flexibility also to capital reduction. So for two years, that’s the proposal that we have.

Fred Mendes: Perfect. Very clear Christian and thank you. Just if I may do a follow-up on the concession idea. 2025 the base case in your mind is to finish the concession without paying anything extra for it, right? That’s the base case.

Christian Gebara: Look, we are in the middle of the process. There is, as, there are two processes that are going parallel. First one is the value that an Anatel decided that would be required for the immigration that is at the moment is being analyzed by the TCU, okay. That’s, that’s something that is public. And there’s a number of the figure. We are you have our questions about the methodology and the number. But that’s something that’s going to be discussed in this way, no, between TCU and Anatel. There’s a second one that is our claim for the sustainability and the financial balance of the concession that is also being discussed, we have an Anatel but at this at this time, the arbitrage chamber that we have for this topic.

In this case, we are claiming for a value that it’s higher than the value that was firstly declared as the one that we need for immigration. And we still in the beginning of the process, we had the first hearing the end of the year. And we are optimistic about the arguments and the sustainability and the lack of balance of the concession at the moment, and for so many years. So we need to define what’s going to be the outcome of these two processes. And the idea is to come to an agreement that’s going to be beneficial to the market to the country. And of course to Vivo.

Fred Mendes: Very clear, thank you, Christian

Operator: Our next question comes from Luca Sari from UBS. Please. Mr. Lucas, your microphone is open.

Luca Sari: Hey, thanks for having my question. And my question isn’t especially on CapEx, David, you guided us. So where do you see the bulk of investments going to? I know you disclose about 5G and fiber, but especially on fiber? Will you be pursuing more client connections or see the expansion? And could you also give more color out on the division between 5G and fiber? Thank you very much.

Christian Gebara: Hi, Luca, this is Christian I can start and David comment if you wants. Yes, it is in fiber expansion is one of the lines that we are going to increase investment. Here it’s both in connecting customers and expanding network. It’s again, I think our network is already close to 24 million home paths, we said that we would reach the end of 2024 with 29. So there’s 5 million homes to increase our footprint and but most importantly, is to connect customers. And if you’ve been doing that, in a very accelerated pace, being the leading company in that as of the market, now the churn is were reduced, and then being able to capture most of the market, as you could see that almost 1 million new customers in the last year.

So we’re going to continue with this strategy now increasing footprint up to 29 that we already declared by end of 2024. And connecting more customers here is also good to highlight that we’ve been very strong in connecting customers with people to allow our conversion to offer 70% of the new ads come with the Vivo tower offer that also protects our postpaid base. That’s why we have also a very reduced churn as we presented earlier. In the 5G, we are ahead of the obligation of the auction. So apart from the 27 capitals, we already have 26 cities above 500,000 inhabitants. We are going to continue expanding in the cities that we are already there. We need to expand also some other new cities. But that’s not what I’m going to share here. But we’re going to expand a little bit beyond what’s required by the auction.

And we are going to do that in a very intelligent way, following the penetration of 5G smartphones. Today we have 18% of 5G smartphones, our customer base. So we’re going to continue to deploy network where we see that there is a customer base requiring 5G connection. So it’s going to be a very as we did in the past us using big data to be very precise, and we’re going to deploy our CapEx. So that’s the main lines of CapEx. It’s below is going to be below nine. We don’t have the money that we spent to implement 5G to start with the technology and we don’t have also this year, the money that we spent to integrate mobile customers, that is fully integrated in our customer base. And we are now totally on the speed continue growing customer base, both mobile and fiber.

Luca Sari: Thank you very much. That was very clear

Christian Gebara: Thank you, Luca.

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

Marcelo Santos: Hi, good morning Christians, David and Pedro. Thanks for the question. I have two questions. The first is if you could provide overview of how the competitive environment is in mobile, I saw that you recently raised prices for the at least on the website. And the second question is, regarding Vivo money, your portfolio is growing a lot. Could you share a bit more details about EPRs NPLs how these loans behave? Thank you.

Christian Gebara: Hi, Marcelo. Let’s talk about the mobile dynamics. Also, as we presented, commercially speaking, it was a great year for people, we continue to expand our market share. And we continue to expand both in prepaid and in postpaid. No, so when we see the number that we have to deal with 980 million access compared to 83.9, already had one year before, of course, you consider that the 12 million that we got from oil, but the 3.3 that we just connected now. So in real numbers and absolute numbers was very, very, extremely positive. And in net ads, we’ve worked a leading company and portability as well. So that also again an example of our perceived superior value proposition and when we add that to the fiber, one that the people total that I mentioned before also put us in a unique position to be the leading company of both technologies for 4G, 5G plus fiber.

And our current reflects that the 1.05 of the last quarter was the lowest one and the market share of almost 39%. Having said that, we are very, very keen on monetizing all the investment I’ve been doing in the last years. So we are the one increasing prices. We did that last year, we are doing again in the entry plans for all our postpaid plans. So give you an example. Now in January, our entry planning for a hybrid was adjusted to BRL57, used to be BRL50.99. So that was an important increase. And when I compared to others, we are above them in price and in what we offer by this price. So I think it’s a normal behavior that we expect to be followed by others, because we are going to give him back what inflation is at the moment. And also giving back to customers, what was the benefit that they got from the ISMS reduction.

We did the same in the entry point of our individual postpaid plan. Today, our first plan is BRL122 per month. And the same we did in a family plan that is also good plan for us that we increased to BRL242. During the same in the Vivo total, also increasing our bundle that I said is responsible for 70% of our FTTH sales. Again, here, we increase price. Now, the first one is a BRL200. So we’re putting the market in a different price point, expectation that our peers follow this movement because we are wanting to win here is passing through inflation. The same in the fiber in FTTH 50% of our customer base will be increased in price. So we have now the entry price of BRL120, with 300 megabits as the speed for the fiber service. In prepaid, would like to do the same — in the prepaid price has been the same level for many years.

Now we just have the benefit of the ISMS reduction with more data that is offered to the customers, we need to move this price up, especially when you move the hybrid price up. If you don’t do that in your prepaid will be difficult to continue with the successful strategy we are being all falling of migrating prepaid to hybrid. So here again, we expect market to move up in prepaid as well. I think that was the first question the second one was–

Marcelo Santos: In Vivo Money?

Christian Gebara: We will compliment Vivo Money. We are very — sorry, do you want in first one Marcelo? Should I move to the second?

Marcelo Santos: No, no. The first one is perfect. Just reminding the Vivo Money question. Thank you.

Christian Gebara: Okay. The Vivo Money we are we are highlighting here know that our loan portfolio, it reached BRL183 million is like seven times higher than it was one year before, it’s almost six times higher in number of contracts. And that’s a combination of manufacturers that that we could give you more light on that. And we are very satisfied with the performance of these loans. No. So I think Vivo has been investing a lot in models and credit models not only for money, but also for our own customer base. And that’s been successful for the bad debt number that we have. And also for the for the performance of the money that is growing, we are growing that also combining more services, we have equal pay our digital wallet, we are selling more and more insurance.

We are entering — we have this co-branded plan card — sorry, with Ito that’s also been very successful, increasing sales of smartphones and other devices using this card. And we now as I said we invested in a consortium company because we are launching something here. So we see that our capability ability of selling other services combining our customer base, our low customer acquisition costs, our brands are building capability, our credit capability is giving proof that the potential that we have expanding not only in financial services, but beyond that. So that’s why we also going to do more in health, with our service more in education and other lines that we want to give more a color in the next calls as we are doing now with money. I don’t know if David, if you want to add.

David Melcon : Hey, Marcelo. Now, just to add that I mean, we are very positive and optimistic about the evolution of this of this business that’s growing very fast. So we are monitoring very carefully, always the greatest calling to make sure that I mean the bad debt is under control with very low, very low levels. So positive to keep these trends that we have seen over the last 12 months to keep like this for the future.

Christian Gebara: Anything else, Marcelo?

Marcelo Santos: Thank you very much.

Christian Gebara: Thank you.

David Melcon : Thank you.

Operator: Our next question comes from Feni Kanamori from HSBC. Please Ms. Feni. Your microphones open?

Feni Kanamori: Yes. Thank you for taking my question. My first question is regarding the dividends. So typically, you have stated before that you distribute 100% of the net income students, but the recent with the yesterday’s announcement of requesting prior consent from Anatel, do you see that you will be increasing that dividend payout ratio as your target dividend payout ratio? The second question is regarding the risk of concession. So if you cannot reach an agreement with Anatel by 2025. Do you see a scenario where you will lose the concession agreement and what could be the potential impacts on your operations because of that? Thank you

Christian Gebara: I’ll go to the second one, we are very optimistic that we’re going to find a solution for the concession. And I think it’s going to be positive for everyone. Especially, because we’re talking about the concession of more than 20 years that is related to why services and public telephony that we all agree that is a surprise that is not demanded anymore. So we work in a very optimistic scenario that it reached an agreement. And I think the other parts are very reasonable about the outcome that we are pursuing here. So at the moment is what the only thing that I can share. And it’s important also to see as we call know, the core revenues and non-core revenues, we’re talking about a service that has a very low fear in our revenue mix.

So the impact is going to be even lower, if we talk about two years from now. So again, optimistic about the solution we are working on that in different fronts. And let’s wait for the next quarters to see the outcome of that. I give it to the dividends to the David.

David Melcon: Hi, Feni. Just recording the first — the first question. If you look back the last two years, Telefonica Brasil we generate more than BRL7 billion free cash flow per year in 2021, 2022, however, the net income is a lower amount because some of the elements particularly investments have already been paid, but it’s still being depreciated now, particularly special location and so on. So the capital reduction, in case it’s approved, will allowed us to have a higher number of dividends pay higher than the net income. So that means that that the payout will be your right above 100% in the future.

Feni Kanamori: Thank you. That’s very clear.

David Melcon: Thank you.

Operator: Our next question comes from Sumit Datta from New Street Research. Your microphone is open.

Sumit Datta: Yes. Hi, there. Thanks very much. Couple of questions, please. One on the free cash flow there was a very favorable working capital movement in Q4, and again, in 2022. I just wondered, what was driving that and can you give any steer as to the future direction of working capitalism? It was kind of quite a big component of the BRL7.3 billion free cash flow. That would be helpful. Thank you. And then, secondly, on the cash return policy, you mentioned, you thought your shares were undervalued. There is a buyback of BRL500 million, but it’s relatively small compared to the presumed overall dividend and IOC payment. I wonder, how did you kind of think about forming the mix of buyback and dividend could there be a higher buyback component? And just finally, sorry, on that buyback, is Telefonica participating in the buyback Telefonica parent participating in that? Thank you.

David Melcon: Okay. So, let me take the question. So first of all, the positive working capital, I mean, you’re right the first quarter we have BRL268 million for the full year BRL3 billion, the previous year was also positive now. So the main drivers for having this positive working capital first is a positive tax asset recognition that we had in previous years. So, this is a positive effect that will not be reversed in the future. So will not be reversed in the future, because in three, four years ago, we have a positive in the net income that we didn’t bring cash. Now, we are seeing the cash coming from that effect. Also, another one is the effect of fishtail. So fishtail, we have eliminated we have a decision, decision not to pay fishtail over the last three years.

So this is BRL700 million per year. So this is also something that is benefiting not only Telefonica Brasil, but all the sector in Brazil, the working capital. Then, I mean, the second question regarding the share buyback, I mean, we have been having over the last particularly the last year BRL600 million. We believe, I mean, this is the right number that we put more liquidity to our share. So, looking for 2023, we believe that BRL500 will address the strategy that we had in the previous year. And regarding share Telefonica share, I mean, we know that we are not aware of anything. So we are just by on the — on the market by BRL100 million per year as we did last year.

Sumit Datta: Okay. Thank you.

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

Felipe Cheng: Hi, Christian, David and Joao. Thank you very much for taking my questions. So two on my side. The first one regarding if you guys could provide a little bit more details on the opportunity for additional growth in B2B digital services. This is definitely one of the revenue lines, which has been growing at a faster pace and quality, a lot of attention. So if you could provide a little bit more detail where the future opportunities are, how big the addressable market is, and if you continue to see room to grow at this high double digit pace that you have been growing in the past few quarters. And the second question regarding M&A, if you can talk a little bit about potential M&A opportunities in the short term, where would they be concentrated in which segments so any color on that would be great? Thank you so much.

Christian Gebara: Let’s go to M&A you refer to fiber M&A?

Felipe Cheng: Fiber or digital services where do you see more opportunities for M&A?

Christian Gebara: So there are different ways of seeing M&A, and also like in the B2C digital services, what we are doing is basically investing through our corporate venture capital fund. That is a wave of venture now that I said that we made two investments in FinTech. And there we have BRL320 million to do to spend, then we envision investing in 12 companies along the years now, that’s going to be a minority stake is not an acquisition. We’re also looking for potential acquisitions in the same areas that we are considering for the venture, our corporate venture capital. So we were talking about B2C. We are talking about how fintech, education, energy and some new areas that we are now researching and to see how do we could leverage again, knowing the attributes that we believe are unique in Vivo, that is the superior brand, the customer base, the billing capability, the channel capillarity online and offline, and other attributes that we normally discuss.

So we are very open and we are talking to different companies. And we’re going to be bringing a news, I think along the quarters in the B2B is the same. We acquired a company called Vita IT last year. It’s a network integrator, one of the key partners of Cisco in Brazil. It’s been a very smooth integration and we are very positive about the returns that we’re going to capture with this acquisition. The same way, Telefonica is acquiring companies globally. Telefonica tech is the initiative that Telefonica has for B2B digital services. They are creating independent business for that it focuses in the product development and product partnership is not in the sales, the sales is done by the operator in our case, but we have just three companies in Brazil, one focus in cyber, another one focus in clouds, and the third one focus in big data and IoT.

So these three companies, we have established the same three companies that Telefonica has in Spain, here in Brazil, and we are working very closely to them. So going forward, when you talk about B2B digital service that we said, there 2.7 billion and there is a growth of 29%, we continue to see a very, very optimistic growth for the next quarters, especially because we are the only one with the channel capillarity among not only our sector, but all sectors, even the big players of this industry, they need our capillarity. And here are just I’m not talking just about the large companies of the country. The possibility that we foresee here as the growth is because we reach even the small companies of the country. So with this capability, and we’ve all the companies now searching for digitalize in their operation, and that I think was accelerated by the pandemic.

Everyone wants to be in cloud, everyone is worried about cybersecurity. Everyone wants to have new notebooks, and no realizing in desktops and all these new ideas not counting on the IoT that we’ve — we also see developing very, very strongly with the arrival of 5G. We see ourselves prepared because we have the teams to develop the product, leveraging on the Telefonica’s group capability. And we have the channel already in place to respond to this demand. So the growth here, we don’t give trends. But we only see positive in all lines of the services in B2B and also B2C. We talked about money, but we’re going to talk about many other services that we see also growing here, not only growing revenue, but also protecting and reducing churn that we see entertainment, for instance.

We are I think, one of the largest seller of OTT video services in Brazil. And we — what we see here is it increase ARPU, but at the same time it reduced churn because the customer gets committed to Vivo in more than one service, two services at Vivo’s total, three services, we has a digital service with Vivo as well. So the vision is clear. And we only see upside in both B2B and B2C. No, no for answer you fill it because long, because there are lots of things to say here.

Felipe Cheng: Perfect. If I may just make one quick follow-up on the M&A side, if you could maybe talk a little bit about consolidation prospects here for the FTTH segments? How active do you plan to be if you see this markets starting to consolidate a little bit quicker in 2023? So just get your overall perception regarding this topic? Thank you.

Christian Gebara : I think the market needs to be consolidated now. I think that’s clear for everyone. We started with fiber before everyone. We also we now have 24 million home passed. We have 5.5 million customers and we are the one — the only one able to offer it with the size of operations convergent offer. So we are in a very unique and leading position. Having said that, we believe that there’s no sense of having three fiber networks in the same city. So we need to be much more rational. And I think that was in the past in the market, the feeling that everyone could build a fiber network and every one will be successful, I don’t think that’s going to happen anymore. And I think the numbers that we see of the market are total net adds of the market is making what they say, real.

No, we don’t see the market grow in the same way. And when we see the leading one, in that adds of the market share of net adds, we see Vivo is standing out. So it’s also a business that requires CapEx, it’s not only CapEx of deploying the network, but it’s also CapEx to connecting the customers. It needs a lot of things to make it happen a successful way. And we talk about nutra networks, the anchor tenants, and someone that is really able to occupy this network in a good percentage. So having said all that, I believe that consolidation needs to happen and may happen, especially in the context of high interest rate. In our case, we generate cash. So as we said before, now we our free cash flow is very strong as you all could see in our presentation.

But others may be they have a different situation. So with a new need investment to continue to grow, and with interest rates are at that level, the cost of capital is not going to be that low as it used to be in the past. So we’re open to see, what’s the opportunity. We have 24 million home passed. We may have a lot of overlap with most of the players. So that could be a reason not to buy with the overlap is very high. So that’s something is one of the criteria that we have in M&A. And the second and the third that are very important is the quality of the network that we are acquiring. We are not going to give up the best quality network that we have, hopefully, mobile and fiber. So if you decide to buy something, it needs to be in the level of quality that we expect to offer to our customers, not only the network, but also the CPE could that’s important part of the inverse.

And of course, finally, we only look for companies that has all the fiscal labor and all the other assets that we believe are correct to put in place in a due diligence that would fit the way we manage our company. So again, open to see, we haven’t found anyone so far. But I think the markets it’s a little bit more open to discussion that it was one year ago.

Felipe Cheng: Perfect. Very clear. Thank you Christian.

Christian Gebara : Thank you, Felipe.

Operator: The question-and-answer session is over. We’d like to hand the floor back to Mr. Christian Gebara for the company’s final remarks. Please, Mr. Christian.

Christian Gebara : Okay. So thank you everyone for participating our call. As you could see, we have like a partial, a very strong results in all the lines. We have a very domestic and strong perspective for the year. We have many other things going on, that we described here, coming from new businesses like expansion of the current business and also our capital structure that we have new things coming up. We are here all the team at your disposal to discuss in more detail any question that you must have. And again, we have a positive perspective for the next quarters. Okay, so thank you all for participating.

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