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Telefônica Brasil profits surge as belt-tightening pays off

Bnamericas Published: Thursday, April 28, 2016

Brazil's leading carrier, Telefônica Brasil, posted first quarter profits of 1.22bn reais (US$343mn), nearly triple what it reported a year ago, as the company cut costs and achieved synergies.

Telefônica/Vivo reduced operating costs 9% year-on-year and slashed capex 15.3%.

"Cost of goods sold (COGS) fell 10.8% in 1Q16 over 1Q15, reflecting the company's focus on profitability, concentrating on higher-value customers," the firm said in a results report. "Selling expenses declined by 5.8% y-o-y in the first quarter, due to the company's commercial rationality and synergies capturing, offsetting the impact of the economic environment."

Recurring net income, which exclude events such as the sale of towers, reached 880mn reais, an increase of 101.6%. The company attributes this performance chiefly to improved operating results and the reduction in financial expenses in the period.

Net operating revenue rose just 0.6%, to 10.4bn reais, with services revenue accounting for 10.2bn reais of this. Net handset revenue, in turn, dropped 10.9%, accounting for 302mn reais.

Within services revenues, mobile business accounted for 6.21bn reais (down 0.3%) and the fixed business generated 4.22bn reais (up 2%).

Total accesses declined 8.1% to around 97.2mn in the quarter, 73.3mn of which were in the mobile business (down by 10.5%, chiefly on prepaid disconnections) and 24.0mn in the fixed-line business (up 0.3%).

The group's average revenue per user (ARPU) from mobile voice fell 7.2% and was 13.0 reais/month, while mobile data ARPU grew 36%, reaching 13.9 reais/month. Mobile internet revenue grew 35.4% and accounted for 71.1% of data revenue in 1Q16.

According to the company, 76% of its base had a smartphone or webphone at the end of Q1, compared to 70% at the same point a year ago.

In its fixed-line business, broadband accesses were 7.21mn, with fiber connections (including GVT's accesses) accounting for 54.2%.

Pay TV accesses were 1.79mn (up 4.9%) with strength in premium accesses, including IPTV and interactive DTH with full HD packages. As a result, Pay TV ARPU grew 12.6% to 88.8 reais per month.

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