Telefonica Brasil SA

BOVESPA:VIVT3

Earnings Call Analysis

Vivo's Strong Q2 2024 Performance with Promising Growth in Revenue and Customer Base

In Q2 2024, Vivo demonstrated robust growth, with total revenue increasing by 7.4% and EBITDA up 7.3% year-over-year. Mobile service revenues surged 8.8%, propelling the customer base to over 100 million. Postpaid access grew 7.2%, while homes connected with FTTH rose 12.7%. Free cash flow generation hit BRL 5.5 billion, equating to over 20% of total revenue. Net income grew 8.2%, underscoring profitability. Vivo maintained a high shareholder remuneration, with a commitment to sustainable growth and returns.

Impressive Growth in Mobile and Connectivity

In the second quarter of 2024, Vivo showcased a laudable performance, cementing its strong position in the market. The company's total revenues increased by 7.4%, predominantly driven by an 8.8% rise in mobile service revenues. This growth was fueled by Vivo's expanding customer base, with postpaid access climbing by 7.2% and FTTH (Fiber to the Home) connections growing by an impressive 12.7%. The company reached a significant milestone with its total mobile access surpassing the 100 million mark, underscoring Vivo's commitment to digitalization and connectivity.

Robust Financial Performance

Vivo's financial metrics reflected its healthy growth trajectory. EBITDA increased by 7.3% year-over-year, and operating cash flow totaled BRL 6.5 billion, with margins hitting the mid-20s range. Free cash flow generation also stood robust at BRL 5.5 billion, representing over 20% of total revenues. Net income saw an 8.2% year-over-year expansion, highlighting the company's enhanced profitability and operational efficiency.

Key Revenue Drivers

Mobile service revenues, constituting 65% of Vivo’s total revenue, grew rapidly due to solid commercial performance. Fixed revenue growth of 3.9%, the highest since 2015, was driven by a 17.1% expansion in FTTH and a strong performance in the B2B segment. Notably, digital services for B2B and innovative offerings for B2C collectively contributed 9.9% of Vivo’s total revenues, marking a 1.2 percentage point increase year-over-year.

Effective Cost and CapEx Management

The company maintained a disciplined approach to cost and CapEx management. Despite a rise in operating expenses linked to heightened commercial activity and volatility in other revenue lines, Vivo's EBITDA margin excluding these variables stood at 40.8%. Furthermore, Vivo successfully minimized capital intensity, recording a total CapEx of BRL 4.2 billion in H1 2024, directing significant investments towards 4.5G and 5G technologies.

Strategic Initiative and Shareholder Returns

Vivo’s proactive steps towards migration, including an agreement with Anatel to transition its Sao Paulo fixed voice concession to an authorization regime, signal a focus on enhancing digital infrastructure. This move is expected to drive operational efficiency and investment in cutting-edge technologies. The company's strong cash position, with financial debt surpassed by BRL 2.3 billion, underpins its ability to invest in growth and maintain high shareholder remuneration. The shareholder payout guidance remains robust, aiming to distribute at least 100% of net income for the year.

Sustaining Market Leadership and Innovation

Vivo’s strength lies in its comprehensive service offerings and sustained innovation. The company’s Vivo Total plan, which integrates Fiber and Mobile services, saw a remarkable uptake, with 1.8 million fiber customers by June 2024. This convergence strategy not only enhances customer retention but also boosts ARPU. In the B2B segment, Vivo reported a 7% revenue increase, driven by advanced digital solutions and strategic acquisitions such as IPNET, which expanded its cloud service capabilities.

Commitment to ESG and Sustainability

Vivo has made significant strides in its ESG agenda. The company has set an ambitious target to achieve net zero emissions by 2035 and plans to increase electronic waste recycling significantly. Diversity goals include having 40% of senior leadership roles occupied by women and ensuring a 45% representation in overall leadership positions. These initiatives underscore Vivo’s commitment to sustainability and social responsibility.

Future Prospects and Market Outlook

Looking ahead, Vivo is poised for sustained growth through strategic investments and market expansion. The continued focus on digital services, particularly in burgeoning sectors like fintech and health, along with leveraging 5G technology, places Vivo in a strong position to capitalize on emerging market opportunities. Guidance on shareholder dividends remains firm, irrespective of the ongoing migration strategy, ensuring consistent returns to investors.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to Vivo's Second Quarter 2024 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend 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 Soares Carneiro, IR Director.

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

[João Carneiro, executive]

Good morning, everyone, and welcome to Vivo's Second Quarter 2024 Earnings Call. Today, our CEO, Christian Gebara, will walk us through Vivo's performance in connectivity and digital services by business segment, B2C and B2B, as well as present our ESG advances. Then our CFO, David Melcon, will give more color on cost and CapEx management, free cash flow generation, followed by an update on shareholder remuneration for 2024.

With that, let me turn the call over to Christian.

[Christian Gebara, executive]

Thank you, Joao. Good morning, everyone, and thank you all for joining us today. We had another solid performance in the second quarter of 2024 with our main indicators such as total revenue and EBITDA growing higher than last quarter and is still well above inflation. Our customer base expanded in our main products. Postpaid access were up 7.2% and homes connected with FTTH grew double digit once again by 12.7%. In addition, our total mobile access broke the 100 million mark, reinforcing Vivo's commitment with our purpose of digitalize to bring closer.

Total revenues increased by 7.4%, mainly driven by mobile service revenues that were up 8.8% this quarter. Our robust top line performance flowed down to EBITDA, which expanded 7.3% year-over-year in the quarter. By combining a strong EBITDA with CapEx intensive reduction, operating cash flow totaled BRL 6.5 billion up to June, with margins reaching the mid-20s level, while free cash flow generation reached BRL 5.5 billion, representing more than 20% of the total revenues. Moreover, our net income expanded 8.2% year-over-year in the period, enhancing our profitability.

These strong results reaffirm Vivo's solid position to continue to deliver sustainable growth and returns while committing to maintain a high shareholder remuneration.

On Slide 4, we can see more detail our consistent revenue expansion. Mobile service revenues that represented 65% of total revenue in the quarter grew at a fast pace due to solid commercial operating performance. The 3.9% fixed revenue growth was the highest since 2015, driven by a sequential improvement in FTTH performance with a 17.1% expansion and by an enhanced performance of the B2B segment. In combination with our broad offering of digital services, our leadership in fiber connection for homes and businesses makes it clear that we are on the right path for providing our top-notch services.

This solid performance derives from our best-in-class value proposition for both B2C and B2B customers, combining connectivity with the broadest portfolio of services beyond the core. In Q2 2024, B2B digital services summed with B2C new businesses represented 9.9% of Vivo's total revenues, up 1.2 percentage points year-over-year, confirming the trend seen so far of the escalating significance.

Turning to Slide 5. We highlight the main levers of our ongoing growth in mobile, which basically consists of an outstanding combination of lower churn and higher ARPU. We now have 100.9 million mobile access, and the postpaid share in our customer mix continues to grow as this base expanded by an impressive 7.2% rate year-over-year, leading the segment to represent 63.4% of our total access by the end of June 2024.

As Vivo is in a unique position to meet customers' ever-growing needs for connectivity, we see them staying longer and spending more with us, resulting, for example, in increased upselling activity both for prepaid to hybrid and from hybrid to pure postpaid. As such, our churn in postpaid remains under 1% mark, while we increased mobile ARPU by 6.3% year-over-year, reaching its highest level since 2019.

Regarding our fiber operation, in June, we reached 27.3 million homes passed with Vivo's FTTH, up 10.7% year-over-year, getting closer to our target of covering 29 million premises by year-end. Even though our footprint expansion remains accelerated, we have been able to increase our homes connected at a faster clip, up 12.7% to 6.5 million users after adding 199,000 new access during second quarter 2024, making it our best quarter since 2022.

Besides expanding up our customer base growth, we are also accelerating our ARPU expansion. FTTH ARPU reached BRL 90.9, growing 4% from last year's second quarter. In addition, Vivo Total, our convergent offer the combines Fiber Mobile in a single plan, maintains its excellent performance. In June, we reached a total of 1.8 million fiber customers on Vivo Total, more than doubling the number of users year-over-year as 85% of our new fiber sales at our stores are being done through this plan.

Vivo Total brings benefits both to our fiber business as the FTTA churn is 1 percentage point lower than what we have on stand-alone fiber, and to our mobile business, as we have seen migrations of hybrid customers to Vivo Total offers soar 90% on an early basis. Thus, we are in a privileged position to reap the benefits of convergence as the only player that can offer a combined fiber and mobile plan on a national-wide basis.

On Slide 7, we can see the steady evolution of our B2C revenues in the last 12 months that represented around 74% of Vivo's top line. B2C revenue grew almost double the inflation in the period because of our second-to-none connectivity that is being complemented by the advance of our new business portfolio. Revenues coming from these services summed up BRL 1.5 billion in the last 12 months, up 35% year-over-year and representing 2.8% of our total result.

This quarter, we are including information on health and wellness vertical, represented by Vale Saude Sempre and Atma, our meditation and mindfulness app. Over the last 12 months, health and wellness revenues amounted to BRL 37 million backed by a solid performance of Vale Saude, which currently has 321,000 subscriptions with growing usage rates. We also continued to develop the existing vertical and as such we just launched 2 new financial services products, Pix Parselado, which allows our customers to make payments, installments using Pix, and a secured credit product linked to the funds users can withdraw from their FGTS on an annual basis called Saque Aniversario.

Moving to Slide 8. We detail the B2B performance, with revenues up 7% year-over-year. The result was driven by the complete portfolio of digital services we offer to our clients that generated BRL 3.6 billion in revenues over the last 12 months, up 19% year-over-year to already represent 32% of our B2B business and almost 7% of Vivo's top line.

In the second quarter of the year, we reinforced our leadership in B2B by constantly bringing innovations such as customized private network solutions for some of the most relevant companies of Brazil, as well as being a strong provider of agribusiness solutions. To boost our portfolio and reinforce our team and operations in digital services, we acquired IPNET, a company that specializes in leading companies' cloud transformation by implementing solutions from Google, having generated BRL 280 million in revenues last year, up 35% year-over-year.

Regarding the ESG agenda, we have some important messages to share with you with the purpose to develop and increase a more sustainable operation. And we anticipate by 5 years our net zero target. The company intends to reach zero net emissions by 2035, a challenge, considered unprecedented for large companies in the sector.

As a contribution to the circular economy, Vivo plans to considerably increase the volume of accumulated electronic waste collected from consumers going forward, collecting an additional 225 tons by the end of 2035. To reinforce our diversity pillar, our target for 2035 is to have women occupying 40% of senior leadership roles and 45% in overall leadership. The company also intends to reach 40% black people in leadership positions and 45% black people in the general workforce.

In social, we had the 25th anniversary of Telefonica Vivo Foundation, always keeping its purpose of educate to transform, digitalize to bring closer. We have our latest Volunteer Day, mobilizing more than 10,000 employees and their families, benefiting over 40,000 people. During the quarter, Telefonica Brasil received several recognitions related to ESG, of which we highlight the Best in Telecommunications Technologies and Media, a category in the 2024 ESG Awards by Exame Magazine.

Now David will comment on our financial performance.

[David Sanchez-Friera, executive]

Thank you, Christian, and good morning, everyone. First, on Slide 10, we can see our cost evolution. Our OpEx growth was driven mainly by our strong commercial performance, but also by some expected volatility in the other revenues and expenses cost line. The increase in cost of services and goods sold was driven by greater revenues from digital services and sales of consumer electronics, which has lower EBITDA margin but demand no CapEx, and helped us to reduce churn and extend our customers' lifetime value.

The evolution of cost of operations was mainly related to the higher commercial activity seen in the period. But I would also like to highlight that during this year, we have had reduced sales of real estate and network assets as well as lower tax recoveries in comparison to the previous year. As a result, other revenues and expenses line shifted temporarily to the negative territory this year, impacting the year-over-year comparison. If we exclude this line from our OpEx, our EBITDA grows 10.6% year-over-year, leading to a margin of 40.8%.

It's also important to highlight that during the second quarter, Vivo reached an agreement with Anatel and other parties to propose a migration to our Sao Paulo fixed voice concession to an authorization regime. This agreement, if approved by all stakeholders involved, will enable us to dedicate investment to enhance the digitalization of Brazil through the most up-to-date technologies, while also bringing more efficiency to our operations.

Turning to Slide 11. CapEx totaled BRL 4.2 billion in the first semester, resulting in a reduced capital intensity year-over-year. We continue to direct most of our CapEx to grow technologies, reinforcing our 4.5G coverage leadership while accelerating investment in 5G that already covers 50% of the population.

By combining our strong operational performance with an efficient CapEx allocation, we recorded a robust operating cash flow of BRL 6.5 billion in the first half of the year, growing 9% year-over-year, contributing to reach an all-time high operating cash flow margin of 24% in the last 12 months. When adding lease expenses, the performance is even better as we expanded 10.2% to reach BRL 4 billion in the first semester of the year.

Moving to Slide 12. Net income expanded 8.2% year-over-year in the first semester, reaching more than BRL 2 billion. If we consider just the second quarter of the year, we grew 8.9%. Vivo's cash position at the end of June this year surpassed financial debt by BRL 2.3 billion. Even considering leases, leverage remained low at 0.5x EBITDA. Free cash flow generation reached BRL 5.5 billion in the first half of the year, leading our free cash flow yield to reach double-digit levels over the last 12 months.

Vivo's robust cash generation relative to its market value and its revenue give us important flexibility to dedicate resources to growth, maintaining attractive shareholder returns.

Now moving to the last slide, where we update you on the path to comply with our shareholder remuneration guidance. So far during this year, we paid out over BRL 4.1 billion to our shareholders, summing up the BRL 2.2 billion of interest on capital declared in 2023. The first installment of the capital reduction, which amounts to BRL 1.5 billion, and share buybacks that already surpass BRL 400 million going towards the BRL 1 billion amount we have in the current program. This puts us well on track to deliver a payout of at least 100% of the net income for the year.

In addition, during this year, we have already declared an extra BRL 1.5 billion of interest on capital based on the profit recorded so far this year. These initiatives reaffirm Vivo's unique position as one of the top Brazilian companies regarding growth, profitability and shareholder remuneration.

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

[Operator]

[Operator Instructions] Our first question comes from Daniel Federle with Bradesco.

[Daniel Federle, analyst]

My first question is regarding mobile plans. We have been seeing plan prices being quite healthy over the past few quarters. So my question is to understand what is your -- what's the main barriers for increasing prices even more significantly? It's more like the competitors' prices or any budget constraints from consumers? That's the first question.

And the second question regarding digital services, I would like to understand how confident is the company that Vivo could become like a relevant player in digital services. That could be a profitable business. Because it's clear the competitive advantages of Vivo in the traditional mobile, telephone, telecom business, but it's not so clear the competitive advantage in this digital services. So would like to know how profitable, how confident are you in the future?

[Christian Gebara, executive]

Okay, Daniel. That's Christian, okay. I'll try to answer both questions. The first one, I think we are beyond just a strategy that's based in price increase. We had some price increase driven by the inflation of the period. So we did that for part of our pure postpaid and hybrid in April. And the prepaid was last year when we increased -- in November when we increased the price of the 15 days promotion that we have from BRL 15 to BRL 17.

What we've been showing the market, and I think we've been very successful, is the combination of services. So we are driving the market to convergence, convergence of fiber plus hybrid or pure postpaid. So if you look at the number of Vivo Total customer that we had 1 year ago was 0.9 million customers. Now we have 1.8 million customers.

Look, that we drive not only the churn down of the postpaid that is below 1%, but also in the fiber, when you consider the customer that is in Vivo Total, the churn is 1 percentage point lower than it is when it's a stand-alone fiber. Moreover, when we talk about totalization -- now in this case, I'm talking about a plan that is fixed and mobile, but also being very successful adding video OTTs to our offering. So mobile and fiber. So we have 2.7 million subscriptions of video OTTs in music.

Only to give you some examples of the way that we are driving here our customer base of around 60 million customers to try to increase their lifetime value with more services and reducing, of course, churn and using all our platform and channels that we have that drives our acquisition cost in a very low level. So here, it's that combination of things that we are doing that is being a successful story for Vivo, not just based on price increase.

Talking about the new business, I think -- and here, I don't know if you're focusing more in B2B and B2C, but I want to talk about both. If I add the digital service or B2B with the new business that we're calling B2C, we are talking about around 10% of our revenues coming from these businesses. So for me, it's already a success. It's a success stand-alone, but more importantly, it's the success keeping customers loyal to Vivo.

And here, I think we have some advantage to start with. We have a customer base, talking about around 58 million customers in B2C, 1.7 million customers in B2B. Talking about the channel that we have, 1,800 stores in B2C, 5,000 sales reps in B2B. Vivo app, 23 million unique users, a brand building capability and many other interaction points that we have with customers through call centers, technicians and you can name it. No, I don't think there is anyone so present nationally speaking with so many channels as Vivo. So the results are the ones that we are giving.

Now in the B2C, new businesses grew 35%. So we are opening up some of them, Fintech. We opened up also the video music OTT that I mentioned to you before. We just started opening health and wellness. That is small, but it shows like the optimistic view that it can grow much more. So these are some examples of the service that we are seeing and already representing 2.8% of our revenues with no CapEx. So it's important because these revenues they bring not only loyalty, but they bring growth without consuming from CapEx.

In the B2B, I think it's already a very clear proven story of success. That's why we bought Vita some time ago. Now we bought IPNET. IPNET is bringing more than 200 million revenues and a growth with 35% in the last year. It's bringing 280 people that will complement our team, very specialized in the sales of cloud, and in this case, also expanding our portfolio more to Google rather than just Amazon and Microsoft. And then I can give also other examples in all the other lines of our digital service or B2B. So it's a growth of 19%.

We've been presenting double-digit growth for the last quarters. And I think that's also a very positive also sign of a successful strategy, and again, protecting our customer base that is very well segmented. We're talking about the SMEs. Then we have what we call inside sales in [ one top ] and corporate. Some of them are also divided by vertical. So that's a long story. So just to summarize, I understand that that's the right path to follow, and that's what we're going to keep doing at Vivo.

[Daniel Federle, analyst]

Very clear.

[Operator]

Our next question comes from Leonardo Olmos with UBS.

[Leonardo Olmos, analyst]

I've got one question centered on the net income. As you mentioned before, the net income is still the main reference for dividends. Could we discuss alternative nonoperating drivers of net income? For example, number one, an eventual profit from the sale of reversible assets. Could you discuss that? Could you quantify how many assets, what's the amount of value of that?

Number two, a potential reversal in the concession liability. So you have liabilities related to the concession with Anatel. If you leave the concession, could that turn into a profit, something that could allow you to pay more dividend maybe next year and not just when you got the actual BRL 1.5 billion? And number three, if you could discuss a little bit the tax recoverable because this quarter, we have a little bit less. And I know you have many quarters with a very strong number. But could you discuss how do you expect this figure to behave in the second half of '24? That's it.

[David Sanchez-Friera, executive]

So first of all, regarding the migration from concession to authorization, unfortunately, we still cannot disclose any impact. It need to be finalized. So we hope that we can discuss some numbers perhaps in the fourth quarter once it's approved. But moving forward, I think the opportunity that we might have in the future is as we have already explained that we will have other businesses coming in on top of the traditional telco that we have no CapEx consumption. And of course, in terms of absolute numbers, the EBITDA we are expecting to continue growing. That will be obviously an upside.

Also, in terms of interest rates, as you know, we hope that could be a reduction in the future. That could also -- could bring some benefit on the top line, particularly if we are talking about particularly the leases, which is our main debt that we have.

And also regarding income tax, as you can see, the income tax rate that we had in the first and the second quarter, even though it's consistent in both quarters, it's around 27%. It's still high than in previous quarters, particularly previous years. So there is some seasonality that we hope that, I don't know, it could be in the second half of the year. But looking forward, we see that the income tax rate should have a reduction, particularly will also depend on interest on capital that we that we will declare. So this is on the net income.

And regarding the tax assets, so we have here 2 things. One is the first one that has a positive impact on the working capital. These are consistent with previous quarters. As you can see, we have positive working capital mainly coming from the postponement of the payment of FISTEL, but also some recovery of the assets, particularly in tax assets. But talking about the line of other costs and other revenues, they have to do with recovery of asset taxes that are not yet being recognized in our balance sheet. This is always an ongoing process that we monitor very closely. And we hope that in the following quarter, we will continue with the trends we have in the past.

Now we cannot confirm what will happen in the third quarter or fourth quarter. But looking forward, we see a consistent evolution of those lines.

[Operator]

Next question from Marcelo Santos with JPMorgan.

[Marcelo Santos, analyst]

I wanted to focus on broadband. So the first question would be, you've had an increased pace of broadband adds, if you could deep dive a bit on that and maybe discuss is it like more gross adds? Are you capturing more, or is it like lower churn? So just trying to understand a bit better this evolution, which was interesting. And the second question also related to broadband is you had a pickup in the FTTH ARPU. So if you could discuss a bit the trends, is this a better behaved competitive environment? Or is it like more internal, like your users upgrading more? So just wanted to get a bit more information on the ARPU as well.

[Christian Gebara, executive]

This is Christian. Yes, I think what you see here is a result of a very well established and executed strategy. So there are many reasons to show why we are performing well in FTTH. We reported revenues of BRL 1.8 billion in the quarter. So in the FTTH homes pass, we grew 10.7%. So we now -- we ended the quarter with 27.3 million home passed, and we grew more the connectivity of these customers using this network. So we went from 5.8 to 6.5. So like the penetration is now 24%, that's 0.4 percentage points year-over-year.

Again, I think Vivo stands out as having the best quality, best channel, best customer experience, and also the possibility, as I told before, of combining more services to the same customer. So if you look at the sales of FTTH that we have in our stores, own stores, 85% coming Vivo Total. So Vivo Total from 0.9 to 1.8. And the market in the last quarters, even if net adds of the market was not that high, ours is the highest among the last 6 quarters. If I look to second quarter 2023, our net adds was 158,000. First quarter '24 is 173,000, second quarter is 199,000. And here is the combination of adds, as you mentioned, and also reduced churn, churn for these customers, the 1.8. The one that has Vivo Total is 1 percentage point lower than the churn of the stand-alone customers.

So I think we have here many, many assets that differentiate our offer from others. And that's why we are also able to have the ARPU increase because people are willing to have higher speeds, people are willing to have more services combined into their fiber. So I think that's a combination of many factors that drive our preference and drive also our ability to have more of the wallet of the customer, more share of wallet because we offer more, and in some places, we offer things that others cannot offer.

I don't remember the second question, was related to -- the ARPU. I think the ARPU I just replied is that I think is a result of a better customer experience. I think there is a search for excellence of better quality and Vivo presents it. We have a better service, installation and maintenance. And also, of course, there is a requirement for more speed, for more WiFi in the rooms and in the different rooms in the same home and also there is the ability to add to fiber, OTTs and other services.

[Operator]

Next question from Bernardo Guttmann with XP.

[Bernardo Guttmann, analyst]

Actually, I have 2 on my side. The first question is related to competition in the Mobile segment. We have been monitoring the launch of new offerings from some regional players. Have you noticed any signs of irrationality in these offers, anything that could be a concern for the current favorable dynamics? And my second question is regarding the migration process from concession to authorization. What are the economic benefits that we can expect in terms of the company's OpEx and CapEx run rate? And what's the expected time frame for regulatory approvals? If you can give us any color here, it would be great.

[Christian Gebara, executive]

Bernardo, we have a very competitive mobile market. We have -- like as you know, we have competition in every place, not only like for the main operator, but also some local or MVNOs that you know that we already have in the Brazilian market. So what we're trying to convey here that our strategy is based more in a customer focus and ability to drive more servers to the same customer.

We have an average 1.4 service per customer that -- this service can be -- fiber and mobile would be 2 services, fiber and OTT or video would be 2 services. So what we're trying to convey is that our focus is in maximizing the relationship that we have with our customers, offering a value proposition that in this moment, I believe nationally speaking, is unique. And that what's been driving our results in net adds, it's driving our results also in gross and in churn, it's driving our results in better NPS, it's driving our results in increase in revenues in every single line as we presented this quarter that we grew in fixed, in mobile postpaid, prepaid, B2B, B2C, consumer electronics, with smartphone, without smartphones and all new business both from B2B and B2C. That I think is unique. And that's the combination of the assets that we have, not specifically discussing an offer of a mobile operator in a specific region.

And driving -- and going to the second one, we have some milestones to get the migration approved. We are now waiting for the public prosecutor's office on this issue that we will present the [ inform ] and go to the reputed minister. We will have then 30 days plus 30 days to present to the plenary. And once it's approved there, we do need, I think, it's still the approval of AGU, and then we are done.

So I don't have a specific date. If all the timing are in the maximum and are completed with no other intervenience, we could get to an agreement in October. After that, there are many things related, the concession that we're going to also opening up once we have it approved, then we could share with you in the next quarters more related to people work and the concession, investment that we have to do in legacy technology that we don't have to do any more, real estate that we could be able maybe to not use any more and sell once we don't use it for the service that we need to provide.

There are many -- some of hidden costs and investment that we're going to have more clarity once it's approved to share with you. And of course, we have the investment that is part of the agreement in 5 and 10 years related to the possibility to migrate.

[Operator]

Next question from Vitor Tomita with Goldman Sachs.

[Vitor Tomita, analyst]

First question from our side would be on prepaid. If you could give us an update on how you are seeing trends for ARPU and for recharges in prepaid specifically? And second question from our side, if you could give us an updated view on how you are thinking about M&A generally, both on the broadband side and on the B2B side? And if -- and on the B2B side, in particular, if you see room for further acquisitions similar to Vita IT and IPNET or more B2B companies? We've had different profile from those 2.

[Christian Gebara, executive]

So Vitor, prepaid, I think the market is performing in a very good way. As I said, we increased our offering -- of our offer, bi-weekly, offer to BRL 70. We are trying to bring more innovation to our prepaid segment. So we are bringing like incentives of higher top-ups with also some loyalty program related to that. That is one of our investments in CRMBonus or the value bonus.

So what we saw in the last quarter was an increase in our revenues of 4.9. So it's very good growth, above inflation. And also the churn is very low. And what we've been doing in prepaid also is our ability to continue to migrate prepaid to hybrid. That we're doing in a very successful way. And now we're also doing in a very successful way the migration from hybrid to pure postpaid, hybrid to Vivo Total. So we keep with the movement of the market, being very attentive, and also trying to bring more value to the hybrid and bringing customers from prepaid to hybrid, not only the stand-alone hybrid, but hybrid plus content. So hybrid plus Netflix, hybrid plus Vale Saude, hybrid plus Vivo Play, hybrid plus the Vivo education platform that we have. So that's the way, again, working on the customer, trying to bring more value out of our relationship.

Related to M&A, we are always looking at opportunities in the broadband. So far, nothing to share rather than what was already shared. Again, we need to find the right pricing, the right footprint, the right technical quality presented in the network and in the CPE, and of course, the price that's convenient. You can understand that we already have 27 million home passed. We're going to get to 29 million at the end of the year. We have the ability to use neutral networks by Brazil and others available in the market. So there is always different alternatives, organically, neutral network or if you find one asset that comply with all our requirements. We always have the opportunity and the flexibility because of our balance sheet to be active in this field.

In the other M&As, IPNET is a great asset, very happy to successfully acquire this company. It's a company with more than BRL 200 million in revenues. But more importantly, it's a successful company that has 260 specialized employees, 140 Google solutions experts that gives us also more room to expand Google penetration in Google, not only the cloud, but the workspace as well as a competition to Office, and also give us more portfolio to offer not only to large corporation but also to SMEs that today are investing in cloud solutions as well. We are always looking at opportunities in the different areas of B2B, other cloud company, some IoT, cybersecurity, it will depend. It can be a full acquisition as we did in IPNET and Vita, could be an investment through Vivo Ventures, or could be a partnership in a more exclusive way.

So we are very optimistic about the ability that we have to grow, bring into the table. Our customer base, again, 1.7 million customers in B2B, 5,000 sales reps and all the power assets that Vivo put on the table. Just to give another example that is not an acquisition, but it's a JV in energy that we just launched with Auren. They're called Good Energy. That is a company that already started with successful results, that in the future they will be able to share more. But it's also taking advantage of the market. And also, again, Auren brings the energy and we bring the channel and the relationship with our customers.

[Operator]

Next question from Lucca Brendim with Bank of America.

[Lucca Brendim, analyst]

I have 2 questions here from my side. The first one regarding net adds on mobile. Vivo has maintained a very solid pace for the past few quarters. But also when we look at the consolidated market, the market itself has been growing a lot for the past few quarters. So how can we think about that going forward? What have been the main drivers for -- what have been the main drivers for that, and if that should continue or not?

And the second one on margins, EBITDA margins. How can we think about them going forward as well? Is there still room for expansion? Should we continue to see margins growing for as long as we have this solid top line growth? And how do you guys think about the margins in the long run? How high can it reach? So those would be my questions.

[Christian Gebara, executive]

Lucca, Christian here. I can answer from Vivo. So I think the market is also being, I think, more seeing the opportunity of migration prepaid to postpaid in a more positive way. In our case, for you to have an idea, if I look at the number of access, we went from 97.8% to 100.9% of total mobile axis. Prepaid went from 38.1% to 37%. It's a 2.9 production in the prepaid access. On the other hand, in the postpaid, we came from 59.7% to 64%. It's a 7.2% growth. That is our ability to migrate customers from prepaid to postpaid and, of course, to attract customers from others.

But as you asked about the market as a whole, my answer would be the ability of migrate prepaid to postpaid that is driving net adds up for the market. If that was the question, I will hand it over to David for the EBITDA one.

[David Sanchez-Friera, executive]

Lucca, thank you for the question. So regarding the margin of the EBITDA, I mean, as you know, there are 2 elements. One is the line of other costs and revenues that this quarter was slightly worse than the one we had previously because there is some volatility. So if we consider -- if we exclude this line, you will see an improvement on EBITDA margin. That will go to 40.8%. So there will be almost 1 point improvement, even though the new revenues are coming with a lower EBITDA margin, but with no CapEx. But we prefer to look at the margins at operating cash flow level because, as I said, those new businesses are coming with no CapEx. And here, you can see that we are in a very good momentum now. We have an operating cash flow margin just in the quarter of almost 23% margin. And if you look to the last 6 months, we are almost on 24%. And this quarter, we have also started to show operating cash flow after leases, also the margin, as you can see that we have on the highest levels over the last couple of years.

So in summary, we still have levers to pull to continue improving some of the margins and prefer to look to operating cash flow margin and operating cash flow after leases. So this is our view, and we are not giving guidance, but we are positive about the opportunities to keep improving the trends.

[Operator]

Next question from Phani Kumar with HSBC.

[Phani Kumar Kanumuri, analyst]

My first question is regarding your migration from concession to authorization. So once the migration is completed, do you see a need or an opportunity to invest more in the concession area, to invest more fiber in these areas? And how would that impact the CapEx? My second question is that how robust is your guidance in terms of shareholder remuneration considering that you have several -- you're looking at further M&A and probably the concession to authorization migration?

[Christian Gebara, executive]

I don't know if I got the second question. What is the second question?

[Phani Kumar Kanumuri, analyst]

Okay. The second question is how robust is your guidance? And does it consider the concession to authorization migration already? Or like if the concession to authorization migration goes ahead, does it pose a risk to the guidance for dividends?

[Christian Gebara, executive]

The guidance we have, it doesn't change with the migration. It's 100% or more of our net income. That remains the same.

Regarding the first question, if I understand it well, once we migrate, we're going to need to keep some cities in the state that we need to keep the fixed telephony service. It's a small amount of cities that we need to keep. It's more locations than cities that we need to keep until 2028 because these cities or these locations, they don't have any other voice alternative that we could fulfill with a mobile solution or we need to keep the fixed telephony solution that we have today.

Apart from that, all the rest, that is the vast majority of the state who have our freedom to do whatever we want. And of course, our fiber strategy is based in other elements, not only just the migration, and we would try to capture as much as we can with fiber migration as we've been doing along the years regardless of the concession. So if you look our network today, it's 27 million home passed. The important part of this network is in the state of Sao Paulo, and that is our replacement of copper by fiber. We're going to continue to do that or we're going to do use of any other network that we have there, but it doesn't change anything with the migration. The migration only obliges us to keep few locations where we need to keep until 2028. I don't know if that was the question, but that's the way we're going to pursue.

[Phani Kumar Kanumuri, analyst]

Sure. I think that was pretty clear.

[Operator]

Next question from Carlos de Legarreta with Itau BBA.

[Carlos Antonio de Legarreta Diaz, analyst]

Just 2 brief ones on my side. The first one is, can you remind us of the exposure to FX depreciation? I assume most comes from the handset costs, but I'd like to have some color on that, please. And the second one, more than a question, I'd like to hear more color about the financial services that you provide. I know in the Investor Day, you talked about requesting a license. So I'm just wondering what other services can you offer, what's the opportunity there that you're identifying?

[David Sanchez-Friera, executive]

Carlos, I will take the first question. So regarding the exposure that we have to FX, there are mainly two parts. One has to do with the handsets. And obviously, we have some protections in terms of our global contracts that are being part of Telefonica Group. But in the case that there should be an increase in prices as a consequence of the FX, we will pass it -- the prices -- to a consumer as we believe that is normal practice.

Regarding the rest of our operations, in summary, I will say that around 20% of our CapEx is somehow linked to FX. But as I say, we have some protections. So it doesn't mean that we have an impact immediately. So it will have an impact in the mid-term. So it's a limited, as small as possible.

[Christian Gebara, executive]

So Carlos, going to the second question in financial services, now what we just presented is that in the last 12 months, everything related to financial services -- B2C, basically -- like the growing revenues, BRL 450 million revenues in the last 12 months. It is a growth if we compare to the last 12 months to second quarter 2023 of 27%.

We have different products. We will mention some of them. The main one is what we call personal loan or that was previously called Vivo Money, that's Vivo Pay personal long. That's our personal loan that is available to Vivo customers. Now that allow the customers to hire a credit that ranges from BRL 500 to BRL 50,000. It's 100% digitally. They go for the app, and they can ask for that. And of course, here, our ability to understand the customers' profile because they are customers that we know, it's what makes us able to have a very contextualized offer, minimizing risks and being increasingly assertive when offering the right product to the right customers.

In this platform, we reached in the second quarter BRL 446 million like that we lend to our customer base. We're talking about 60,000 customers that already accessed our loan platform. That is an increase in the volume. If I compare this BRL 446 million and 1 year before, it's 62% year-over-year.

We still have a lot to grow. That's why we are launching new services. One of them is very -- specifically from Brazil called FTTS Birthday [ Eve Draw ]. That is a security credit product that's allowing for customers now to anticipate their birthday [ eve draw ] of our FTTS, now that it's the pension fund here in Brazil. And also we launched the Pix payable on installments that you buy now, but you pay later. That is also a new service that's available that we are offering also embedded in our app.

We also have insurance. We started basically with smartphones. We have around 450,000 customers that have insurance, smartphone insured by Vivo in partnership with Zurich. More than 28% of the smartphone that we sell in our stores, they go out insurance. But we also see room to improve and increase even more and also launch other type of insurance, life consumers, bike insurance, pet insurance. We are organizing our portfolio and talking to partners to have a very broad offering and use our app -- that is acquisition costs very low or 0 depending on the case -- to reach these customers. Now as I said before, we have 23 million, 24 million unique users in our app.

So these are basically the key services in the Vivo Pay umbrella, that is our fintech. And we -- yes, we asked for an SCD license from Central Bank that allow us to do basically what we are doing, maybe more services in a more efficient way as we are scaling our portfolio. We believe that we can do that, not renting capabilities or license from others in a more efficient way.

[Operator]

Next question from Gabriel Vaz de Lima with Morgan Stanley.

[Gabriel Vaz de Lima, analyst]

Just one on my side. Anything relevant that we should keep our eyes on third quarter? Any relevant trends that we should be looking at in PIX and mobile? And anything you can share would be very helpful.

[Christian Gebara, executive]

Gabriel, we've been showing that quarter-over-quarter a positive trend in every line and that respond to the strategy that we've been like communicating to you in the last years. So we're going to keep driving the company in the same way, driving connectivity, mobile and fixed, driving totalization of our customer base through a variety of products and services, expanding our new business and digital portfolio, being more efficient the way we relate to customers and bringing down OpEx through digitalization, being rational in CapEx in a way that CapEx over revenues continue to be in a decreasing trend and also keeping the remuneration, as we said before, if 100% or more of our net income. That's what we could expect and that what we are doing successfully over the last quarters.

[Operator]

The question-and-answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the company's final remarks.

[Christian Gebara, executive]

And once again, thank you all for participating for the great questions. We are all team here again available for any further questions that you may have. It's a very, very positive and strong quarter that we are very satisfied that we could bring you the results that we're expecting, giving like all colors in all the detail of our strategy going forward. And again, looking forward to meeting you soon and, of course, waiting for the next quarter meeting in the next months.

But before that, again, the whole team here is available for any specific questions that you may have. Thank you again for participating.

[Operator]

Vivo's conference is now closed. We thank you for your participation and wish you a nice day.