RESULTS 3Q17. Investor Relations Telefônica Brasil S.A. October, 2017

Transcription

1 RESULTS 3Q17 Investor Relations Telefônica Brasil S.A. October, 2017

2 DISCLAIMER This presentation may contain forward-looking statements concerning future prospects and objectives regarding growth of the subscriber base, a breakdown of the various services to be offered and their respective results. The exclusive purpose of such statements is to indicate how we intend to expand our business and they should therefore not be regarded as guarantees of future performance. Our actual results may differ materially from those contained in such forward-looking statements, due to a variety of factors, including Brazilian political and economic factors, the development of competitive technologies, access to the capital required to achieve those results, and the emergence of strong competition in the markets in which we operate. For a better understanding, we are presenting pro forma numbers combining Telefônica Brasil and GVT results for all financial and operational indicators for every period as of January,

3 3Q17 HIGHLIGHTS ACCELERATING REVENUES ENHANCING PROFITABILITY IMPROVING DIFFERENTIATION Sustaining solid MSR growth above inflation even with one-time effects from wholesale revenues in 3Q16 3.7% yoy Accelerating expansion of Total Service Revenues to 2.4% yoy driven by strong UBB and Mobile Data evolution Continued reduction of voice exposure: nonvoice revenues represent 68% of Service Revenues Recurring Costs dropping for the 7 th quarter in a row -1.0% yoy 33.8% Highest EBITDA Margin in the year (+1.9 p.p. yoy) Net Income reaching R$1.2bn, +28.3% yoy Strong commercial activity: +981k postpaid net adds and +115k FTTH net adds in 3Q17 Superior network expansion: 1,403 new 4G cities and 12 new FTTH cities deployed in 2017 New portfolio with focus on value: Inclusion of unique and innovating features maintaining more for more strategy In 9M17, Free Cash Flow¹ reached R$4.6 billion, representing a growth of 40.8% yoy as a result of EBITDA expansion, working capital and financial optimization 1- Free Cash Flow from business activity. Does not include the R$655.1 million payment in 1Q17 related to the clean-up of the 700MHz 4G spectrum acquired in 2014, the proceeds from the sale of towers received in 2Q16, in the amount of R$562.1 million, and expenses from the provision for organizational restructuring in 2Q16 and 3Q16, in the amounts of R$21.8 million and R$79.3 million. 3

4 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% KEY FINANCIALS Positive service revenue evolution and strong EBITDA expansion leading to double-digit OpCF growth Total and Mobile Service Revenues YoY Recurring¹ EBITDA YoY and EBITDA Margin 2.2% 2.3% 2.4% 4.9% 4.8% 3.7% Total Service Revenues Mobile Service Revenues Tougher comps in MSR in 3Q17 due to one-time revenues from wholesale agreement in 3Q16. Normalizing this effect, MSR would have grown 6.2% yoy 10.0% 8.0% 6.0% 4.0% 31.9% 33.0% 33.8% 8.1% 6.9% 7.8% Recurring EBITDA YoY Recurring EBITDA Margin 35.0% 30.0% 25.0% 20.0% Capex² R$ Bn and Capex/Sales OpCF² R$ Bn and OpCF/Sales % 20.1% 17.0% Capex ex-licenses Capex/Sales 21.0% Capex acceleration 19.0% in 3Q in accordance 17.0% with investment 15.0% plan for % 16.6% accumulated 11.0% Capex/Sales in % % 16.7% % 5.4 9M16 9M17 OpCF OpCF/Sales 1- Does not include the provisions for organizational restructuring in 2Q16 and 3Q15, in the total amounts of R$101.2 million and R$19.2 million, respectively. 2- Does not include spectrum acquisition in the amount of R$185.5 million in 3Q16. 4

5 100% 80% 60% 40% 20% 0% 35% 30% 25% 20% 15% 10% 5% 0% MOBILE REVENUES Strong performance of data and digital services boosting mobile service revenues evolution, which was impacted by tougher comps in the quarter Net Mobile Service Revenue¹ R$ Million Expressive data and digital services revenues evolution over the years helping to reduce voice exposure % 2,3 6,132 6,272 6, YoY 9.1% 34.0% 23.3% 28.2% 50% 59% 73% 3Q15 3Q16 3Q17 % Mobile Data over MSR Data and Digital Services Revenues YoY 3,613 4,500 4, %...and maintain strong, consistent postpaid revenues growth Postpaid Revenues 4 YoY% 2,246 1,540 1, % 75% 8.5% 8.5% Outgoing voice Data and Digital Services Incoming voice Column2 Postpaid Revenues over Mobile Service Revenues 3Q16 3Q17 1- Simplified view, the chart s breakdown does not disclose other services revenues. 2- When excluding effect of MTR cuts growth would be 6.1% YoY in 3Q Normalizing the effect of onetime revenues from wholesale agreement in 3Q16, MSR would have grown 6.2% YoY. 4- YoY evolution does not include wholesale, M2M and other services revenues. 5

6 MOBILE ACCESSES Strong commercial performance in postpaid sustaining market share leadership, low churn and consistent ARPU increase Total Mobile: leading market share with solid trends... Mobile Market Share +1.5 p.p. 29.3% 30.8% 3Q16 Aug/ % market share in postpaid...combined with strong postpaid net adds... Postpaid Net Adds Thousand Leading postpaid share of net adds in 2017: 46% Highest number of postpaid gross adds since 4Q15 Consolidated leadership in M2M with 40.4% market share (+1.0 p.p. vs 3Q16)...resulting in superior customer mix, lower churn and ARPU increase 44.2% Postpaid Mix 46.7% 47.8% Total ARPU R$ per month +2.1% Family Plans increasing customer loyalty and protecting our base Postpaid Churn ex. M2M -50% Family Plans Churn YoY Data 59% 73% 26.3% Voice 41% 27% % 3Q16 3Q17 6

7 MOBILE PORTFOLIO Launch of a new mobile portfolio and unique, innovative features to amplify differentiation and improve monetization New postpaid portfolio introducing unique features to amplify Vivo s differentiation and in line with our more for more strategy Data sharing feature contributing to an optimized use of allowances and creation of a community effect Double Play: additional data allowance for video and music streaming apps¹ Essential Apps: mobility apps² that don t impact data consumption NEW NEW Hybrid and Vivo Turbo users able to share, through the Meu Vivo app, their unused data allowances among themselves Users can also request data from other Vivo customers Helps create a community effect around data, improving customer loyalty and fostering digital channels usage Inclusion of VAS³ in the plans improving customer experience Vivo Travel: 7 days of Vivo Travel roaming package per year NEW Data Management and Vivo Bis: allowing customers to optimize data consumption 1- YouTube, Spotify, Vivo Música, Vivo Play and Vivo NBA. 2- Waze, Easy Taxi and Cabify Pure Postpaid: Vivo Sync, Vivo PlayKids, Vivo NBA, Studio+, Vivo Família Online and Vivo Educa. Hybrid: GoRead, Vivo NBA and Kantoo Inglês. Prepaid: GoRead and Vivo NBA.

8 19.0% 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% FIXED REVENUES Improvement in fixed revenues supported by another quarter of very strong broadband performance and higher corporate revenues Net Fixed Revenue R$ Million Continuous strong performance of FTTH and IPTV +0.5% 4,254 4,163 4,276 Fixed revenue grows 1.8% YoY when adjusting for regulatory effect FTTH Revenue R$ million +31.5% IPTV Revenue R$ million +76.8% YoY ,075 1,989 1,865 Voice and Others¹ Pay TV² UBB xdsl Data and IT³ 6.6% 13.3% 23.1% -0.5% -10.1% Q16 3Q17 3Q16 3Q17 with potential for improvement as we enhance footprint and adoption 15.0% 17.5% 18.0% FTTH Homes Passed (million) FTTH Penetration New FTTH cities with very high occupancy rates 4 within the first months: 54% in Barra Mansa (RJ) and 39% in Volta Redonda (RJ) 1- Includes voice, interconnection and other services. 2- Includes DTH and IPTV. 3- Corporate Data and IT. 4- Occupancy rates refers to the number of facilities connected in relation to the number of facilities installed in each city. 8

9 FIXED ACCESSES Improvement in broadband and pay TV accesses mix driving up ARPUs once again Broadband Accesses and ARPU Pay TV Accesses and ARPU BB Accesses Thousand TOTAL 7,310 7,452 FTTH 10% 16% FTTC¹ 45% 44% xdsl 44% 40% YoY 2% 45% 0% -7% Pay TV Accesses Thousand TOTAL 1,762 IPTV 13% DTH 87% 1,618 22% 78% YoY -8% 54% -17% 3Q16 3Q17 3Q16 3Q17 FTTH Accesses Thousand Net Adds BB ARPU R$ per month IPTV Accesses Thousand Net Adds TV ARPU R$ per month % % Q15 3Q16 3Q17 3Q16 3Q17 3Q15 3Q16 3Q17 3Q16 3Q17 1- FTTC (Fiber to the Cabinet) includes Cable accesses. 9

10 CAPEX Investments focused on 4G, fiber and IT to guarantee superior network quality and improve customer experience Capex execution in line with guidance for the year, reaching R$2.2bn in 3Q17 (+12.7% YoY) Capex R$ Billion and % over Net Revenues 16.6% 1,403 new 4G cities deployed in 2017 and implementation of 4G+ in 96 cities Usage of 700MHz spectrum in 199 cities 1,919 New cities in the quarter Existing cities , Q16 4Q16 1Q17 2Q17 3Q17 % population covered 49% 60% 65% 71% 76% new FTTH cities in 2017, totaling 83 cities in the country, 41 of which with IPTV Average market share of 82% in UBB¹ in FTTH cities launched in M17 Capex plan for (annual average) Investments in E2E digitalization of IT infrastructure and processes Switch off of >100 legacy IT systems over the next four years leading to a full stack solution 1- Speeds over 34Mbps. Considers cities launched in 2017 with at least three months of historical information. 10

11 COSTS AND MARGINS Reducing recurring costs YoY for the 7 th consecutive quarter 3Q17 COST EVOLUTION BREAKDOWN R$(74) MILLION ΔYOY MAIN HIGHLIGHTS 33.8% 33.2% 33.0% 33.8% 31.9% -1.1% -0.6% -1.0% -1.9% -1.8% 3Q16 4Q16 1Q17 2Q17 3Q17 Recurrent Costs Recurrent EBITDA Margin Personnel Costs¹ YoY 7.9% 0.6% 1.0% Cost of Services Rendered YoY 0.4% -5.0% -4.7% Commercial Expenses² YoY 5.3% 3.7% -2.2% Bad Debt / Net Revenue Ratio 3.2% 3.5% 3.5% 13.2% of total Opex Savings from rightsizings in the last years 40.3% of total Opex Interconnection tariff reductions Synergies in TV content and lower mobile content costs 27.6% of total Opex Expenses related to increased commercial activity in premium segments 5.3% of total Opex Credit and collection actions continue to maintain bad debt stable sequentially 1- Does not include the provision for organizational restructuring in 2Q16 and 3Q15, in the total amounts of R$101.2 million and R$19.2 million, respectively. 2- Excluding bad debt. 11

12 SYNERGIES Improvement in the capture of revenue synergies in 3Q17 helping to support free cash flow generation of R$3.7 billion since 2Q15 Guaranteed NPV Cash Flow Synergies NPV R$ Billion 22 % of captured value over Best Case R$ Million 3Q17 Revenues 223 3Q17 Accumulated² 958 REVENUES OPEX % 38% Opex EBITDA Capex ,211 2,169 (66) 108% CAPEX FINANCIAL AND TAX Best Case Integration Plan¹ Already Captured 90% 85% Direct CF Indirect CF Impact on OpCF³ ,104 1,551 3,655 81% of Best Case NPV already guaranteed (+17 p.p. over 3Q16) 1- Trending NPV of synergies points to a total of R$25 bn. 2- Cash Flow Synergies accumulated since 2Q Does not include tax and financial cash flow synergies. 12

13 Potential for digitalization EFFICIENCY COMMITMENT Digitalization initiatives leading to optimization of our cost structure and improvement of customer experience Perimeter of our annual opex with potential to be impacted by our digitalization initiatives is significant The initiatives that have high potential to improve efficiency and transform customer experience are being prioritized by the Company......and we are achieving solid evolution in key KPIs + Commissions BILLING AND COLLECTION e-billing penetration YoY +21 p.p. Back office TOP-UPS Represents approximately 1/3 of the annual opex CUSTOMER CARE Sep/16 Sep/17 Digital channels unique users YoY +50% Administrative processes Advertising Installation and maintenance Cost with own stores Sep/16 Sep/17 Virtual Recharges¹ YoY +28% Total annual Opex Perimeter of Opex influenced by digitalization - - Improvement in customer experience + Sep/16 Sep/17 1- September/17 YoY growth of financial volume of virtual recharges made through credit card. 13

14 NET INCOME Strong double-digit expansion in 3Q17 driven by EBITDA growth and improved financial management 3Q17 Net Income R$ Million and % yoy REPORTED R$ Million YoY % 7.8% -0.5% -42.5% 70.2% 28.3% 1, , , (133) 1, Q16 EBITDA D&A Financial Result Taxes 3Q17 MAIN VARIATION DRIVERS EBITDA Positively impacted by service revenues expansion both in mobile and fixed and by the cost efficiency measures adopted by the Company FINANCIAL RESULT Positively impacted by lower interest rates and lower average indebtedness in the period TAXES Explained by lower level of Interest on Capital distributed in 3Q17 vs 3Q16 14

15 FREE CASH FLOW Improving capital efficiency driving strong cash flow generation across all lines Free Cash Flow¹ generation with improvements across the board Improving further financial structure through strong cash generation R$ Million Recurring EBITDA (CAPEX²) (Interest and Income Taxes) (Working Capital) FCF from Business Activity 9M16 9M17 (5,203) (5,334) (895) (1,182) (653) 353 3,236 4,557 9,987 10,719 YoY R$ Million ,006 +1,321 Shareholder remuneration in 2017 Payment Date Gross Amount Amount per share (PN 4 ) Payment of R$4.1 bn in dividends/ioc already declared³: Aug 22, 2017 Dec 13, 2017 Total R$1,568 mn R$2,518 mn R$4,086 mn R$0.96 R$1.54 R$2.50 Gross Debt R$ Billion Dec/16 Sep/17 Net Debt 5 R$ Billion Dec/16 Sep/17 Net Debt Net Debt / EBITDA YTD -12.7% YTD -45.0% 1- FCF does not include dividends, IOC and withholding tax. 2- Does not include spectrum acquisition in the amount of R$185.5 million in 3Q Based on 2016 net profit. 4- Gross amounts per ON: R$0.87 on Aug 22 and R$1.40 on Dec Alignment of classification criteria of the Contingent Consideration guarantee asset to calculate the pro forma net debt.

16 3Q17 HIGHLIGHTS Another quarter of consistent combination of growth and profitability #1 Confirming service revenue growth acceleration driven by another set of strong performances in postpaid and BB Continued margin improvement combined with strong cash flow generation and net income growth Increasing differentiation with 4G and FTTH expansion and unique mobile portfolio 16

17 FOR FURTHER INFORMATION: INVESTOR RELATIONS