Earnings Call Transcript - VIV Q4 2022

Operator, 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 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 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, Investor Relations Director

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 on 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, CEO

Thank you, Joao. Good morning and thank you for joining our earnings call. 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. 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 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 a 1.3% margin. The strong operating performance delivered during 2022 culminated in a relevant amount of free cash flow, closing the year with BRL7.3 billion. The recovered 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 to buy back 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 our shareholder remuneration capability, yesterday we filed with Anatel a request that, if approved, 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. Moving to slide four, we can see that for the second straight quarter, our top line 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 weighs less than lines with potential to keep double-digit growth rates for years to come, such as FTTH, 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 represent 76% of our wired line business, up six percentage points on an annual basis. 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. The main drivers were FTTH, data, 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. Moving to slide six, we detail our operating performance in mobile and fiber, closing 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 the disconnection of 3.4 million inactive lines 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%. 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 a market share of 38.9% of almost one percentage point since April, the first month in which Anatel reported the consolidation of Oi's access with our buyer’s base. 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 homes 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 is a unique offering nationwide and a key differentiator, enabling us to keep 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 aggregated products such as cloud, cybersecurity, IoT, digital B2B solutions, among others, which already represent 5.6% of our total top line and we assume to outweigh non-core revenues. These services and solutions are in great demand as companies of all sizes are becoming more aware of how beneficial it is to invest in the digitization of their business. We will continue to leverage our leading brands, complete portfolio, channel, and rich capabilities to be the preferred partner for 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 of millions of 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 various companies and handsets and home insurance products. In addition, Vivo Ventures, our corporate venture capital fund, made its second investment in a FinTech by investing BRL10 million in Klubi, which acts as a consortium administrator with a financing model that is becoming increasingly 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 the environment, we reduced our direct greenhouse gas emissions by 50% year-over-year and increased the collection of electronic waste through our Recycle with Vivo program by 20%. On diversity, we reached a 22.4% occupation of leadership roles by black people, growing three percentage points year-over-year. 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 recognized as a leading telecom company in terms of corporate sustainability by S&P in their 2023 sustainability yearbook. We are pleased to announce we had the second-highest score among 83 participants in the ESG 2022 process, being the only telco to be among the top 10 best-qualified companies. This improvement compared to the fourth place achieved in 2021 reflects 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, CFO

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 related to the digital B2B and B2C services and solutions that led to an increase in the lifetime value of customers. Looking at the cost of services and goods sold 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, handsets, and accessories outlays has totaled topline expansion leading to an improved growth profile. The 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 costs and lower recovery of taxes and sales 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 and allowing for 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 investments 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 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 market guidance on CapEx that will bring 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, the refurbishment of our overall mobile capacity, and increasing 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 benefited the previous year's results as well as the higher average interest rate seen in 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, generating 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, demonstrating the resilience of our business 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 strong cash churn going forward. Considering the dividends 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 on 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 shares, resulting in a total of BRL5.7 billion of shareholder remuneration equivalent to 8.9% of the company's market cap as of December 2022. We keep working on ways to maintain 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 dividends 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 based 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 the potential to invest up to BRL500 million to buy back our stock. Fifth, the request to Anatel for Prior Consent to potentially reduce our capital stock by up to BRL5 billion, which, if approved, will bring important flexibility to decide on future remuneration of our shareholders and capital structure. As you can see, we remain highly committed to maintaining our differentiation as one of the few companies that combine important growth avenues, such as the mobile consolidation, fiber capability, and soaring demand for digital B2B and B2C solutions with a rock-solid balance sheet and cash flow generation capacity while providing leading shareholder deals. Thank you. And now we can move to the Q&A.

Operator, 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, Analyst

Hello. Good morning, everyone. Thanks for the questions. I have two here on my side. The first one is related to capital reduction. I think that was a good move during capital reduction as 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? That would be my first one. And then as a second one, at least with 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, CEO

Hi, Fred. Thank you for the question. Look, free cash flow generation has exceeded the annual net income. It has been like this for many years now. We have limited distributable reserves left. Therefore, we believe a capital reduction addresses the situation, allowing us to create a platform to distribute more cash than annual net income. We have 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%. We believe BRL5 billion is the right amount to have a story for the next few years. Also, regarding timing, I’m sure your question is also about this. We now need to wait around six months for Anatel's Prior Consent approval, and then we will need to go through all the internal governance approvals, such as the Board and general assembly.

David Melcon, CFO

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. The first one, we have been growing 11% in the last quarter, but if you look at revenues that relate to those costs, which are mainly linked to digital services and handsets, we are growing more than 50%. Just for B2B digital services, they grew 29%. On the other part of the costs that have to do more with operation, several things happened in the second half of this year. The first one is that decision on Vita IT, which is a B2B company that's allowing us to accelerate growth in B2B. This is bringing additional costs, particularly in personnel costs. That's why we are seeing an increase year-over-year. Next year, we shouldn't see such a growth. We also have the cost from the integration of Oi; just to remind you that we are paying BRL146 million for the transmission service agreement to Oi, which is more than BRL12 million per month. This will finish at the end of the first quarter of 2023. So it's something that we will not have in the nine months of 2023. Also, inflation for next year we expect to be lower than in 2022. So, this is also a lever. We are saying that the new revenue streams come with higher OpEx, but without CapEx, which is an upside because when you look at operating cash flow margin, we will see that expanding next year. Additionally, due to the integration of Oi, we are planning to incorporate into merge earlier the company we acquired the assets from, Oi mobile in the next, let's say, one month to one and a half. This will bring savings in OpEx, and also unlock tax benefits from the amortization of the goodwill. Just to remind you, this is more than BRL1 billion cash that will come through in the next five years. So all in all, we see an expansion in margins and growth in operating cash flow for the next year or so, because the CapEx has increased.

Christian Gebara, CEO

And just to complement, the second is exactly what he said. There is the impact on inflation and personnel costs, which is particularly important parts of our cost of serving. So it's going to be positive in that way for the operation we have now related to personnel. Of course, there’s also the changing mix that we mentioned, Fred. So of course, now when we start also selling more digital services, it entails a different cost mix of goods sold. But in absolute numbers in the EBITDA, we are very positive about our growth. And also the digitalization is increasing a lot through both our app and the WhatsApp. We are utilizing artificial intelligence to increase the usability, especially now with the new developments in artificial intelligence that are going to start impacting our way of serving customers through these channels. In the first question about the capital reduction, it’s good to also bear in mind that in 2025, the concession— the solution regarding the concession will be there. So the migration is what we expect, and in this case, we will have much more flexibility also regarding capital reduction. So for two years, that's the proposal we have.

Fred Mendes, Analyst

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, CEO

Look, we are in the middle of the process. There are two processes that are running parallel. The first one is the value that Anatel decided would be required for the migration that is being analyzed by the TCU. That's something that is public. There’s a figure we have questions about and the methodology and the number. But that's something that's going to be discussed between TCU and Anatel. The second one is our claim for sustainability and the financial balance of the concession, which is also being discussed with Anatel. At this moment, it’s in the arbitrage chamber that we have for this topic. We are claiming for a value that is higher than the one initially declared as required for migration. We are still at the beginning of the process; we had the first hearing at the end of the year, and we are optimistic about the arguments regarding the sustainability and the lack of balance of the concession. We need to define what’s going to be the outcome of these two processes. 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, Analyst

Very clear, thank you, Christian.

Operator, Operator

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

Luca Sari, Analyst

Hey, thanks for having my question. And my question isn't especially on CapEx, David, you guided us. Where do you see the bulk of investments going? I know you disclosed about 5G and fiber, but especially on fiber? Will you be pursuing more client connections or seeing the expansion? And could you also give more color on the division between 5G and fiber? Thank you very much.

Christian Gebara, CEO

Hi, Luca, this is Christian. I can start and David can comment if he wants. Yes, in fiber expansion is one of the lines that we are going to increase investment. Here it's both in connecting customers and expanding the network. Our network is already close to 24 million homes passed, and we said that we would reach the end of 2024 with 29 million. So that's 5 million homes to increase our footprint, and most importantly, to connect customers. We have been doing that at a very accelerated pace, being the leading company in that regard. The churn is low, and we’re capturing most of the market, as you could see with almost 1 million new customers in the last year. We're going to continue with this strategy now, increasing our footprint to 29 million that we already declared by the end of 2024. Connecting more customers is important. It’s also good to highlight that we've been very strong in converting customers with our Vivo Tower offer, which also protects our postpaid base, explaining why we have such reduced churn as we presented earlier. In the 5G sector, we are ahead of the obligations of the auction. 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 in. We need to expand into some new cities as well, but that's something I won't share here. We’re deploying the network where there’s a customer base needing 5G connection. So it's going to be strategic, as we did in the past, using big data to be very precise about our CapEx deployment. Those are the main lines of CapEx.

Luca Sari, Analyst

Thank you very much. That was very clear.

Christian Gebara, CEO

Thank you, Luca.

Operator, Operator

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

Marcelo Santos, Analyst

Hi, good morning Christian, David, and Pedro. Thanks for the question. I have two questions. The first is if you could provide an overview of how the competitive environment is in mobile. I saw that you recently raised prices for, at least on the website. The second question is regarding Vivo Money; could you share a bit more details about the EPRs and NPLs and how these loans behave? Thank you.

Christian Gebara, CEO

Hi, Marcelo. Let’s talk about mobile dynamics. As presented, it was a great year for Vivo; we continue to expand our market share in both prepaid and postpaid. Considering we have almost 980 million access compared to 83.9 that we had one year before, one must consider the 12 million that we got from Oi, along with the 3.3 million that we just connected now. In real and absolute numbers, it was extremely positive. In net ads, we've worked as the leading company in portability as well. This is also an example of our perceived superior value proposition. When we add that to the fiber, Vivo Total to mention earlier puts us in a unique position to be the leading company for both technologies, including 4G and 5G plus fiber. As for pricing, we are very keen to monetize the investments we’ve been making over the last few years, so we are increasing prices. We did that last year, and we are doing it again in the entry plans for all our postpaid plans. Now in January, our entry plan for hybrid was adjusted to BRL57 from BRL50.99, which was an important increase. We have set our prices higher than others, adding value to our offers. Therefore, we expect competitors to follow this movement as we aim to recover previously inflation-dominated costs and benefit customers from the ISMS reduction. We made price adjustments in individual plans and family plans. Thus, we are pricing appropriately in fiber, as well, with 50% of our customer base increasing in price. We have now an entry price of BRL120 with 300 megabits as the speed for fiber service. In prepaid, we’d like to implement similar changes, adapting prices, especially given the hybrid price increase. If we don't adjust prepaid prices, it will be challenging to maintain this successful strategy of migrating prepaid to hybrid. We expect the market to increase prices in prepaid as well.

Marcelo Santos, Analyst

In Vivo Money?

Christian Gebara, CEO

We are very excited about Vivo Money. Our loan portfolio reached BRL183 million, which is nearly seven times higher than it was one year prior, and almost six times higher in the number of contracts. This is a combined effect of successful models that we've developed around credit, not only for Vivo Money but for our customer base overall. The performance of these loans has been satisfying. We've heavily invested in credit models that have demonstrated strong results. We are satisfied with how this division is growing, especially as we sell more products. We continue to see significant growth, combining our customer base with low acquisition costs, the strength of our brand, and credit capabilities. We're launching various services, including healthcare and education services. David, do you want to add?

David Melcon, CFO

Hi Marcelo. Just to add, we are very positive and optimistic about the evolution of this business, which is growing very fast. We're monitoring very carefully the credit scores to ensure that bad debt remains under control with very low levels. This gives us confidence about the trends we've seen over the last 12 months continuing into the future.

Christian Gebara, CEO

Anything else, Marcelo?

Marcelo Santos, Analyst

Thank you very much.

Christian Gebara, CEO

Thank you.

David Melcon, CFO

Thank you.

Operator, Operator

Our next question comes from Feni Kanamori from HSBC. Please Ms. Feni. Your microphone is open?

Feni Kanamori, Analyst

Yes. Thank you for taking my question. My first question is regarding the dividends. You have typically stated before that you distribute 100% of the net income. However, with the recent 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. 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, CEO

I'll go to the second one. We are very optimistic that we will find a solution for the concession. I think it's going to be positive for everyone. Especially because we're talking about the concession of more than 20 years related to public services that we all agree is not in demand anymore. We work under an optimistic scenario for reaching an agreement, and I believe the other parties are also reasonable about the outcomes we are pursuing here. So for now, that’s what I can share. It’s also important to see the core revenues and non-core revenues; we are discussing a service that has a very low impact on our revenue mix. Therefore, the impact will be even lower when we're talking about two years from now. Again, I’m optimistic about the solution and we are working on that across different fronts. Now I will give the floor to David regarding dividends.

David Melcon, CFO

Hi, Feni. Just to reiterate the first question. If you look back to the last two years, Telefonica Brasil generated more than BRL7 billion in free cash flow per year in 2021 and 2022. However, net income is lower because some elements have already been paid but still depreciated, like special allocations. The capital reduction, if approved, will allow us to declare a higher number of dividends than net income, meaning that our payout will be higher than 100% in the future.

Feni Kanamori, Analyst

Thank you. That's very clear.

David Melcon, CFO

Thank you.

Operator, Operator

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

Sumit Datta, Analyst

Yes. Hi there. Thanks very much. A 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 capital? It was 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 you think about forming the mix of buyback and dividend; could there be a higher buyback component? Finally, on that buyback, is Telefonica participating in the buyback? Thank you.

David Melcon, CFO

Okay. So let me take the questions. First of all, the positive working capital; you're right, in the first quarter, we had BRL268 million for the full year BRL3 billion, while the previous year was also positive. The main drivers of positive working capital include a positive tax asset recognition that we had in previous years. This is a positive effect that will not be reversed in the future. We also had a decision not to pay fishtail over the last three years, benefiting not only Telefonica Brasil but the entire sector in Brazil by about BRL700 million every year. Regarding the second question about the share buyback, we believe that BRL500 million will align with our strategic goals as we had in the previous year with BRL600 million. Regarding Telefonica's participation in the buyback, we are not aware of any participation from our parent company; we are just buying in the market as we did last year.

Sumit Datta, Analyst

Okay. Thank you.

Operator, Operator

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

Felipe Cheng, Analyst

Hi, Christian, David, and Joao. Thank you very much for taking my questions. Two on my side. The first regarding if you 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 that has been growing at a faster pace and receiving a lot of attention. If you could provide more details on future opportunities and 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 experiencing in the past few quarters. The second question regarding M&A; if you can talk about potential M&A opportunities in the short term, particularly where you see more segments concentrated in and additional color on that would be great. Thank you so much.

Christian Gebara, CEO

Let's go to M&A; you refer to fiber M&A?

Felipe Cheng, Analyst

Fiber or digital services, where do you see more opportunities for M&A?

Christian Gebara, CEO

There are different ways of looking at M&A. In the B2C digital services, we're investing through our corporate venture capital fund, with a wave of investment where we aim to invest in 12 companies in sectors we see as potential growth areas. We are not targeting full acquisitions but rather investing in minority stakes. We're considering areas such as fintech, education, energy, and other sectors where we sense potential. We are very open and currently in discussions with various companies, and we expect to announce developments in the coming quarters. For B2B digital services, we acquired a company called Vita IT last year, which is a key partner for Cisco in Brazil and is aiding in our integration. Telefonica globally is also acquiring companies; specifically, Telefonica Tech is establishing independent businesses focused on product development and partnerships. They are creating three companies in Brazil, each concentrating on cyber, cloud, and big data IoT. We see a positive outlook for growth in B2B digital services as we possess the only channel capable of reaching small and large companies alike— this demand arose strongly post pandemic. We expect robust growth for all our digital service revenues moving forward.

Felipe Cheng, Analyst

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

Christian Gebara, CEO

I think the market needs to consolidate now. It's clear for everyone. We started with fiber before everyone; now we have 24 million homes passed and 5.5 million customers and are the only player capable of providing a convergent offer in this market. Therefore, we are in a unique and leading position. It makes no sense to have multiple fiber networks in the same city. Thus, we must be more rational. In the past, it seemed that anyone could build a fiber network and succeed, but that is not the case anymore, as industry trends showcase the reality. The total net adds in the industry spotlight how Vivo is standing out. The business requires CapEx, not only for deploying the network but also for connecting customers. We have to look for anchor tenants who can effectively occupy the network. I believe consolidation may happen, particularly in high-interest-rate environments. We have strong cash flow, while others may have different challenges. We are open to opportunities but haven’t found anyone so far. However, we think the market is slightly more open to discussions now than it was a year ago.

Felipe Cheng, Analyst

Perfect. Very clear. Thank you, Christian.

Christian Gebara, CEO

Thank you, Felipe.

Operator, 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, CEO

Okay. Thank you everyone for participating in our call. As you could see, we have very strong results in all the lines. We have a very optimistic and strong perspective for the year. Many other things are in the pipeline, including new business expansion and our capital structure developments. We are here with the entire team at your disposal to discuss any detailed questions you might have. Again, we have a positive perspective for the next quarters. Thank you all for participating.

Operator, Operator

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