UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July, 2019
Commission File Number: 001-14475
TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)
TELEFONICA BRAZIL S.A.
(Translation of registrant’s name into English)
Av. Eng° Luís Carlos Berrini, 1376 - 28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F | X |
| Form 40-F |
|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes |
|
| No | X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes |
|
| No | X |
HIGHLIGHTS
Consolidated leader in key segments of the telecom industry
· | Mobile market share of32.2%in May 2019 (7.5 p.p. higher than the second player); |
· | Postpaid accesses grew8.5%, accounting for56.6% of total mobile accesses, with a market share of 40.0% in May 2019; |
· | 4.5G coverage was present in1,057 cities and FTTH was available in142 cities in June 2019; |
· | FTTH customers totaled 2,170 thousand,up 37.9% y-o-y, with136 thousand net additions in the second quarter of 2019. |
Change in the revenue mix, focused on high-end services
· | Net revenues rose0.4% y-o-y, reflecting the performance of postpaid, terminals and FTTH revenues; |
· | Mobile revenues increased2.3% y-o-y, driven by growth in ARPU, postpaid accesses and handset sales; |
· | FTTH revenues reachedR$ 481 million (+55.1% y-o-y), accounting for34.5%of broadband revenues; |
· | Broadband revenues already exceeded voice revenues, accounting for35.7% of fixed revenues; |
· | IPTV revenues came toR$ 217 million (+40.5% y-o-y), accounting for46.5%of pay TV revenues. |
Digitalization and cost efficiency programs ensured margin growth in the quarter
· | Recurring operating costs increased0.1% y-o-y, mainly due to higher expenses related to handset sales, offset by simplification, efficiency and digitalization initiatives. Excluding the cost of goods sold, total costs fell 2.4% y-o-y; |
· | Recurring EBITDA totaledR$ 3,791 million in 2Q19,up 1.0% y-o-y, with an EBITDA margin of34.9% (+0.2 p.p. y-o-y). |
Effective financial management led to double-digit growth in cash flow and unparalleled shareholder remuneration
· | Capex totaledR$ 2,360 millionin 2Q19, focused on FTTH and the expansion of 4G/4.5G coverage and capacity; |
· | Free cash flow from business activities increased11.0%y-o-y, toR$ 2,220 million in 2Q19, driven by EBITDA growth and lower tax expenses; |
· | Recurring reported net income grew 26.4% y-o-y in 2Q19, toR$ 1,420 million; |
· | R$ 2,238 million declared as interest on equity in the first half of 2019. |
1
Telefônica Brasil S.A. (B3: VIVT3 and VIVT4, NYSE: VIV), discloses today its results for the second quarter of 2019, presented in accordance with the International Financial Reporting Standards (IFRS) and with the pronouncements, interpretations and guidelines provided by the Accounting Pronouncements Committee. Totals are subject to differences due to rounding up or down.
The Income Statements and Balance Sheets for 2019 are presented under IFRS 161.
For better understanding and comparability of the information, we present below the consolidated income statements for the three-month periods ended June 30, 2019 and 2018 in two scenarios, as follows:
Pro forma:excluding the effects of the adoption of IFRS 161 in 2019 figures (comparable to 2018).
Reported:considering the effects of the adoption of IFRS 161 (referring to the new methodology for allocation of lease contracts) only for 2019 figures.
For comparison purposes, the text herein will refer to pro-forma figures, except where we mention the use of figures under IFRS 16.1
In addition, as of 1Q19, we have reclassified certain past results in order to better reflect the dynamics of the business. The spreadsheet with the data is available on our Investor Relations website http://www.telefonica.com.br/ri.
General Data
Consolidated in R$ million | Pro forma (ex-IFRS 16)¹ | Reported | ||||||
2Q19 | ∆% YoY | 6M19 | ∆% YoY | 2Q19 | ∆% YoY | 6M19 | ∆% YoY | |
NET OPERATING REVENUES | 10,870 | 0.4 | 21,845 | 1.1 | 10,870 | 0.4 | 21,845 | 1.1 |
Net Mobile Revenues | 6,972 | 2.3 | 14,053 | 3.5 | 6,972 | 2.3 | 14,053 | 3.5 |
Net Handsets Revenues | 631 | 31.9 | 1,229 | 42.3 | 631 | 31.9 | 1,229 | 42.3 |
Net Fixed Revenues | 3,897 | (2.8) | 7,792 | (3.0) | 3,897 | (2.8) | 7,792 | (3.0) |
OPERATING COSTS | (7,079) | 26.0 | (14,151) | 12.2 | (6,605) | 17.5 | (13,219) | 4.8 |
Recurring Operating Costs2 | (7,079) | 0.1 | (14,151) | 0.6 | (6,605) | (6.6) | (13,219) | (6.0) |
EBITDA | 3,791 | (27.1) | 7,694 | (14.5) | 4,265 | (18.0) | 8,625 | (4.1) |
EBITDA MARGIN | 34.9% | (13.2) p.p. | 35.2% | (6.4) p.p. | 39.2% | (8.8) p.p. | 39.5% | (2.1) p.p. |
Recurring EBITDA2 | 3,791 | 1.0 | 7,694 | 1.9 | 4,265 | 13.6 | 8,625 | 14.3 |
Recurring EBITDA Margin2 | 34.9% | 0.2 p.p. | 35.2% | 0.3 p.p. | 39.2% | 4.6 p.p. | 39.5% | 4.6 p.p. |
NET INCOME | 1,485 | (53.1) | 2,872 | (32.6) | 1,420 | (55.2) | 2,762 | (35.2) |
| ||||||||
CAPEX | 2,360 | 10.3 | 4,055 | 10.0 | 2,360 | 10.3 | 4,055 | 10.0 |
OPERATING CASH FLOW (EBITDA - CAPEX) | 1,431 | (53.3) | 3,639 | (31.5) | 1,905 | (37.8) | 4,570 | (14.0) |
| ||||||||
TOTAL SUBSCRIBERS (THOUSAND) | 94,364 | (3.5) | 94,364 | (3.5) | 94,364 | (3.5) | 94,364 | (3.5) |
Mobile Subscribers | 73,744 | (2.0) | 73,744 | (2.0) | 73,744 | (2.0) | 73,744 | (2.0) |
Fixed Subscribers | 20,619 | (8.5) | 20,619 | (8.5) | 20,619 | (8.5) | 20,619 | (8.5) |
1 - New accounting standard in effect since January 2019, which requires lessees to recognize assets and liabilities for all leases (except for short-term leases and leases of low-value assets) in the statement of financial position. The Company is a lessee in a significant number of lease contracts for different assets, especially towers and the respective land where they are located, circuits, offices, stores and commercial properties.
2 - Excludes the following non-recurring effects: positive effect of R$1,830.2 million, mainly due to final judgment in the Superior Court of Justice, in favor of the Company, recognizing the right to deduct the ICMS from the basis of calculation of PIS/COFINS contributions; expense of R$92.0 million due to the adoption of a risk assessment model to calculate labor contingencies; expense of R$170.6 million due to the write-off of assets related to judicial deposits; expense of R$116.9 million due to organizational restructuring.
2
MOBILE BUSINESS2
Operating Performance
Thousand | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
TOTAL SUBSCRIBERS | 73,744 | (2.0) | 73,744 | (2.0) |
Postpaid | 41,714 | 8.5 | 41,714 | 8.5 |
M2M | 9,126 | 28.3 | 9,126 | 28.3 |
Prepaid | 32,030 | (13.0) | 32,030 | (13.0) |
MARKET SHARE | 32.2% | 0.2 p.p. | 32.2% | 0.2 p.p. |
Postpaid | 40.0% | (1.3) p.p. | 40.0% | (1.3) p.p. |
Prepaid | 25.8% | (0.2) p.p. | 25.8% | (0.2) p.p. |
ARPU (R$/month) | 28.7 | 2.1 | 29.1 | 3.0 |
Postpaid (Human) | 51.2 | (1.6) | 52.2 | (0.0) |
M2M | 2.9 | 5.9 | 2.9 | 8.1 |
Prepaid | 12.3 | 5.0 | 12.2 | (0.8) |
MONTHLY CHURN | 3.4% | 0.4 p.p. | 3.3% | 0.2 p.p. |
Postpaid (ex-M2M) | 1.8% | 0.0 p.p. | 1.8% | 0.1 p.p. |
Prepaid | 5.1% | 0.9 p.p. | 5.0% | 0.7 p.p. |
Total accesses came to 73,744 thousand at the close of June 2019, down 2.0% from 2Q18.Total market share came to 32.2% in May 2019.
In thepostpaid segment, Telefônica Brasil continued to grow consistently, reaching 41,714 thousand accesses in June 2019, up 8.5% y-o-y. Postpaid accesses accounted for 56.6% of the total mobile customer base (+5.5 p.p. y-o-y), with a market share of 40.0% in May 2019. The Company remained the leader in 4G handsets, with a market share of 31.4% (5.5 p.p. more than the second player), maintaining the quality of the customer base and the Company’s strategy focused on data and digital services.
Postpaid mobile net additions reached 692 thousand in 2Q19 (+12.1% when compared to 1Q19), while prepaid net disconnections totaled 476 thousand accesses in the same period. The sales performance is related to the Company’s strategy of focusing on high-end businesses, reflected in the disconnection of non-profitable prepaid customers.
In theMachine-to-Machine (M2M) market, the customer base continued to grow substantially, reaching 9,126 thousand customers in June 2019, up 28.3% over June 2018. Telefônica Brasil is the market leader in this segment, with a market share of 41.1% in May 2019.
Mobile ARPU grew 2.1% y-o-y in 2Q19, mainly due to the recent price increases, that compensated the lower customer base due to the disconnection of non-profitable customers, pursuant to ANATEL rules.
1 – May 2019.
3
Financial Performance
Consolidated in R$ million | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
NET OPERATING MOBILE REVENUES | 6,972 | 2.3 | 14,053 | 3.5 |
Net Mobile Service Revenues | 6,341 | 0.1 | 12,824 | 0.8 |
Data and Digital Services | 5,199 | 4.9 | 10,543 | 6.4 |
Voice | 1,141 | (17.1) | 2,274 | (19.0) |
Others | 1 | (62.0) | 6 | 42.8 |
Net Handset Revenues | 631 | 31.9 | 1,229 | 42.3 |
Net mobile revenues increased 2.3% y-o-y in 2Q19, due to growth in data and digital services revenues (+4.9% y-o-y) and higher handset revenues (+31.9% y-o-y), thanks to the upselling of postpaid plans with higher data volume to the customer base and strong sales activities in the period. On the other hand, voice revenues continued to be affected by the maturity of this service, with the voice-to-data migration, the expansion of unlimited voice plans and lower interconnection tariffs.
Data and digital servicesrevenues grew 4.9% over 2Q18, driven by our strategy focused on data. This performance was once again fueled by the increase in the usage of data and value-added services. In the quarter, data and digital services revenues accounted for 82.0% of net mobile services revenues, up 3.8 p.p. y-o-y.
Voice revenues fell 17.1% over 2Q18, mainly reflecting the migration to data services, because of service maturity.
Net handset revenues rose 31.9% over 2Q18, in line with the strategy of gaining market share in this relevant and growing market, with the sale of handsets and accessories, attracting high-end customers to our physical and online stores.
4
FIXED LINE BUSINESS123
Operating Performance
Thousand | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
TOTAL SUBSCRIBERS | 20,619 | (8.5) | 20,619 | (8.5) |
Fixed Broadband | 7,268 | (2.6) | 7,268 | (2.6) |
FTTH | 2,170 | 37.9 | 2,170 | 37.9 |
Other Technologies | 5,098 | (13.4) | 5,098 | (13.4) |
Pay TV | 1,460 | (9.5) | 1,460 | (9.5) |
IPTV | 648 | 33.2 | 648 | 33.2 |
Other Technologies | 812 | (28.0) | 812 | (28.0) |
Voice | 11,891 | (11.7) | 11,891 | (11.7) |
MARKET SHARE | Fixed Broadband | 23.3% | (1.6) p.p. | 23.3% | (1.6) p.p. |
Market Share | FTTH | 29.6% | (7.2) p.p. | 29.6% | (7.2) p.p. |
MARKET SHARE | Pay TV | 8.8% | (0.2) p.p. | 8.8% | (0.2) p.p. |
Market Share | IPTV | 93.8% | 11.4 p.p. | 93.8% | 11.4 p.p. |
MARKET SHARE | Voice | 33.2% | (1.0) p.p. | 33.2% | (1.0) p.p. |
ARPU | Broadband (R$/month) | 63.3 | 14.2 | 62.8 | 13.5 |
ARPU | Pay TV (R$/month) | 104.1 | 5.4 | 102.9 | 4.1 |
ARPU | Voice (R$/month)2 | 36.1 | (8.8) | 35.8 | (10.9) |
Thefixed customer base totaled 20,619 thousand customers in 2Q19, down 8.5% from 2Q18, influenced by the performance of voice, xDSL broadband and pay TV accesses, mainly due to the maturity of the services and the strategic decision to stop prioritizing growth in the pay TV business using DTH technology.
Fixed broadband accesses came to 7,268 thousand customers in 2Q19, down 2.6% from 2Q18, mainly due to the disconnection of xDSL customers. On the other hand, the FTTH customer base, which has higher ARPU, grew 37.9% over 2Q18, to 2,170 thousand accesses in 2Q19, reflecting the Company’s strategy focused on expansion of the fiber network, offering higher speeds and a better customer experience. Broadband ARPU increased 14.2% versus 2Q18.
Pay TV accesses decreased 9.5% y-o-y in 2Q19, ending the second quarter with 1,460 thousand subscribers, due to the Company's strategic decision to stop selling DTH technology. On the other hand, there was an improvement in the customer mix due to the increase in IPTV accesses, up 33.2% over 2Q18. Pay TV ARPU increased 5.4% over 2Q18, reflecting the Company's strategy of focusing on high-end customers.
Voice accesses totaled 11,891 thousand in 2Q19, down 11.7% from 2Q18, mainly reflecting the fixed-to-mobile substitution and the voice-to-data migration.
1 - May 2019.
2 - Changes in the presentation of voice revenues (outgoing voice + interconnection + other services) led to changes in ARPU. The updated base since 2016 is available on our Investor Relations website www.telefonica.com.br/ri.
5
Financial Performance
Consolidated in R$ million | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
NET OPERATING FIXED REVENUES | 3,897 | (2.8) | 7,792 | (3.0) |
Broadband6 | 1,392 | 12.3 | 2,778 | 12.4 |
FTTH | 481 | 55.1 | 918 | 52.4 |
Other Technologies | 911 | (2.0) | 1,860 | (0.5) |
Pay TV | 466 | (1.8) | 938 | (0.9) |
IPTV | 217 | 40.5 | 416 | 42.6 |
Other Technologies | 249 | (22.2) | 521 | (20.3) |
Corporate Data and IT | 658 | 3.8 | 1,274 | 4.3 |
Fixed Voice | 1,371 | (16.9) | 2,780 | (17.7) |
Others | 10 | 18.3 | 22 | 38.2 |
Net fixed revenues fell 2.8% from 2Q18, impacted by the decrease in voice revenues, partially offset by the positive evolution of broadband revenues.
Broadband revenues rose 12.3% over 2Q18, fueled by the 55.1% increase in FTTH revenues, which accounted for 34.5% of this line in the period, reflecting the Company’s efforts to expand the customer base and encourage customers’ migration to higher speeds, boosting fiber accesses, which have higher ARPU, in addition to the expansion of the FTTH network to 12 new cities in 2Q19. In 2019, Vivo already expanded its FTTH coverage to 20 new cities.
Pay TVrevenues fell 1.8% from 2Q18, thanks to the Company’s more selective strategy for this service, focusing on higher-value products designed to improve the customer experience and optimize profitability, such as IPTV, whose revenues grew 40.5% over 2Q18.
Corporate data and ITrevenues increased 3.8% over 2Q18, due to the strong revenues from new services, including data, cloud and IT services.
Voice revenues dropped 16.9% from 2Q18, mainly as a result of the maturity of the service, the fixed-to-mobile substitution and the latest reduction in TU-RL and TU-RIU in February 2019.
1 - Broadband revenues include residential and SME customers.
6
OPERATING COSTS
Consolidated in R$ million | Pro forma (ex-IFRS 16) | Reported | ||||||
2Q19 | ∆% YoY | 6M19 | ∆% YoY | 2Q19 | ∆% YoY | 6M19 | ∆% YoY | |
OPERATING COSTS | (7,079) | 26.0 | (14,151) | 12.2 | (6,605) | 17.5 | (13,219) | 4.8 |
Personnel | (922) | (13.3) | (1,826) | (9.8) | (922) | (13.3) | (1,826) | (9.8) |
Costs of Services Rendered | (2,854) | (2.4) | (5,707) | 0.1 | (2,428) | (16.9) | (4,877) | (14.4) |
Interconnection | (251) | (35.9) | (556) | (17.7) | (251) | (35.9) | (556) | (17.7) |
Taxes and Contributions | (405) | (5.6) | (814) | (3.4) | (405) | (5.6) | (814) | (3.4) |
Third-party Services | (1,440) | 8.5 | (2,819) | 4.6 | (1,440) | 8.5 | (2,819) | 4.6 |
Others | (758) | (2.3) | (1,519) | 2.2 | (332) | (57.2) | (688) | (53.7) |
Cost of Goods Sold | (752) | 27.2 | (1,506) | 40.0 | (752) | 27.2 | (1,506) | 40.0 |
Commercial Expenses | (2,192) | (4.4) | (4,420) | (2.2) | (2,173) | (5.2) | (4,389) | (2.9) |
Provision for Bad Debt | (397) | 7.7 | (823) | 7.4 | (397) | 7.7 | (823) | 7.4 |
Third-party Services | (1,710) | (5.0) | (3,434) | (2.9) | (1,710) | (5.0) | (3,434) | (2.9) |
Others | (85) | (31.2) | (164) | (24.5) | (66) | (46.4) | (132) | (39.1) |
General and Administrative Expenses | (336) | (12.3) | (683) | (9.9) | (307) | (20.0) | (613) | (19.1) |
Other Net Operating Revenues (Expenses) | (23) | n.a. | (8) | n.a. | (23) | n.a. | (8) | n.a. |
Recurring Operating Costs1 | (7,079) | 0.1 | (14,151) | 0.6 | (6,605) | (6.6) | (13,219) | (6.0) |
Recurring operating costs1, excluding depreciation and amortization expenses, remained virtually in line with the same period last year (+0.1%), at R$ 7,079 million in the quarter, while inflation was +3.4% (IPCA - 12M).
Personnel costsfell 13.3% in the annual comparison, mainly due to the organizational restructuring in 2018 and 2019. Excluding the non-recurring effect of the organizational restructuring totaling R$ 117 million in 2Q18, personnel costs fell 2.6%.
Thecost of services rendered fell 2.4% from 2Q18, mainly driven by lower interconnection costs, as a result of the variation of IP traffic between the quarters, partially offset by higher spending on the expansion of the network infrastructure in the period, as a result of the expansion of the 4G, 4.5G and fiber coverage. Considering the effects of IFRS 16, the cost of services rendered fell 16.9% y-o-y.
Thecost of goods soldgrew 27.2% over 2Q18, due to the Company's strategy of focusing on handset and equipment sales since 4Q17, generating additional revenues for the Company.
Selling expenses fell 4.4% from 2Q18, mainly due to lower advertising expenses, driven by higher usage of digital media and lower costs with activities that can be digitalized, such as billing, posting, call center and back office expenses.
Theprovision for doubtful accounts totaled R$ 397 million, corresponding to 2.4% of gross revenues in 2Q19, remaining virtually in line with 2Q18, despite growth in the postpaid customer base.
Third-party services fell 5.0% in the annual comparison, due to the growing digitalization of customer relations. The larger share of e-commerce in product, service and recharge sales, the accelerated adoption of e-billing and the increasing use of the virtual channels and the MEU VIVO app led to a reduction in call center, back office and bill preparation and mailing costs, in addition to offering our customers a unique and customized experience.
General and administrative expensesfell 12.3% in 2Q19, thanks to ongoing cost control in these lines.
Other net operating revenues (expenses) came to an expense of R$ 23 million, despite the lower contingencies in the annual comparison, due to a decline in tax recoveries compared to previous quarters.
1 - Excludes the following non-recurring items in 2Q18: a positive effect of R$ 1,830 million, mainly due to final judgment in the Superior Court of Justice, in favor of the Company, recognizing the right to deduct ICMS tax from the PIS/COFINS calculation base; an expense of R$ 92 million related to the adoption of the Risk Assessment model for the calculation of labor contingencies; an expense of R$ 171 million due to the write-off of assets linked to escrow deposits; and an expense of R$ 117 million related to the organizational restructuring.
7
EBITDA
Recurring EBITDA(earnings before interest, taxes, depreciation and amortization) totaled R$ 3,791 million in 2Q19, up 1.0% over 2Q18, accompanied by anEBITDA margin of 34.9%, 0.2 p.p. higher than in 2Q18.
The increase in EBITDA was due to growth in mobile and ultra-broadband revenues, combined with effective and lasting cost-efficiency measures adopted by the Company.
DEPRECIATION AND AMORTIZATION
Consolidated in R$ million | Pro forma (ex-IFRS 16) | Reported | ||||||
2Q19 | ∆% YoY | 6M19 | ∆% YoY | 2Q19 | ∆% YoY | 6M19 | ∆% YoY | |
Depreciation and Amortization | (2,167) | 7.6 | (4,322) | 7.7 | (2,637) | 31.0 | (5,226) | 30.3 |
Depreciation | (1,447) | 6.7 | (2,902) | 7.5 | (1,918) | 41.3 | (3,806) | 40.9 |
Amortization of Intangibles | (421) | 19.3 | (818) | 15.8 | (421) | 19.3 | (818) | 15.8 |
Other Amortizations | (299) | (1.5) | (603) | (0.5) | (299) | (1.5) | (603) | (0.5) |
Depreciation and amortization increased 7.6% over 2Q18, mainly due to growth in the fixed asset base related to the expansion of the fiber network. Considering the effects of IFRS 16, depreciation and amortization costs grew 31.0% over 2Q18.
FINANCIAL RESULT
Consolidated in R$ million | Pro forma (ex-IFRS 16) | Reported | ||||||
2Q19 | ∆% YoY | 6M19 | ∆% YoY | 2Q19 | ∆% YoY | 6M19 | ∆% YoY | |
Net Financial Result | (138) | n.a. | (135) | n.a. | (241) | n.a. | (331) | n.a. |
Income from Financial Investments | 69 | 18.7 | 124 | (47.1) | 69 | 18.7 | 124 | (47.1) |
Debt Interest | (110) | 1.6 | (212) | (58.7) | (213) | 97.5 | (408) | (19.7) |
Gains (Losses) on Derivative Transactions | 11 | n.a. | 30 | (99.3) | 11 | n.a. | 30 | (99.3) |
Monetary and Exchange Variation and Other | (107) | n.a. | (76) | n.a. | (107) | n.a. | (76) | n.a. |
Thenet financial result was a loss of R$ 138 million in 2Q19, due to higher monetary and exchange variation expenses, partially offset by income from financial investments related to the non-recurring credit generated in 2018 referring to the court decision to exclude ICMS from the PIS/Cofins calculation base.
Considering the effects of IFRS 16, the Company recorded a net financial expense of R$ 241 million in 2Q19.
NET INCOME
Reported net income reached R$ 1,420 million in 2Q19, down 55.2% from 2Q18. Adjusted for the non-recurring items recorded in 2Q18, net income grew 26.4% in the annual comparison. This performance was due to ongoing cost control and EBITDA growth, partially offset by financial expenses in the period.
8
CAPEX
Consolidated in R$ million | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
CAPITAL EXPENDITURES | 2,360 | 10.3 | 4,055 | 10.0 |
Network | 2,004 | 12.6 | 3,519 | 11.3 |
Technology / Information System | 291 | (3.4) | 455 | 7.3 |
Products and Services, Channels, Adm. and Others | 65 | 10.9 | 81 | (18.0) |
CAPEX / NOR | 21.7% | 1.9 p.p. | 18.6% | 1.5 p.p. |
Capex was 10.3% higher y-o-y, R$ 2,360 million, representing 21.7% of net operating revenues in the period. Investments were mainly focused on FTTH implementation and footprint expansion, as well as increased 4G and 4.5G technology coverage and capacity.
CASH FLOW
Consolidated in R$ million | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
Recurring EBITDA | 3,791 | 1.0 | 7,694 | 1.9 |
Capital Expenditures | (2,360) | 10.3 | (4,055) | 10.0 |
Interest, Taxes and Other Financial Revenues (Expenses) | (172) | (65.1) | (305) | (58.6) |
Working Capital Variation | 960 | 9.4 | 51 | n.a. |
FREE CASH FLOW FROM BUSINESS ACTIVITIES | 2,219 | 11.0 | 3,385 | 12.7 |
Non-recurring Itens | (43) | (43.4) | (87) | (50.6) |
FREE CASH FLOW AFTER NON-RECURRING EFFECTS | 2,177 | 13.2 | 3,298 | 16.7 |
Free cash flow from business activities reached R$ 2,219 million in 2Q19, 11.0% (R$ 221 million) higher than in 2Q18, reflecting growth in EBITDA and the reduction in interest, taxes and other financial expenses, partially offset by higher investment volume in the period.
Free cash flow after non-recurring items1 increased R$ 254 million in 2Q19. The non-recurring items refer to payments related to the organizational restructuring carried out in 2Q19 and 2Q18.
1 – Payment related to the organizational restructuring in 1Q19 in the amount of R$44.2 million, in 2Q19 of R$75.7 million, payment of cleaning of the 700MHz 4G spectrum of R$100.3 million in 1Q18.
9
DEBT
Loans, Financing and Debentures
ISSUANCES | CURRENCY | INTEREST RATE | DUE DATE | SHORT TERM | LONG TERM | TOTAL |
TOTAL | Pro forma |
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| 1,307 | 4,459 | 5,766 |
Issuances | local currency |
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| 1,294 | 4,459 | 5,753 |
BNDES | UR TJLP | LTIR + 0.00% to 4.08% | 2023 | 321 | 298 | 619 |
BNDES | R$ | 2.5% to 6.0% | 2023 | 55 | 71 | 126 |
BNDES | R$ | SELIC D-2 + 2.32% | 2023 | 82 | 212 | 295 |
BNB | R$ | 7.0% to 10.0% | 2022 | 15 | 32 | 47 |
Confirming | R$ | 110.7% to 118.7% of CDI | 2020 | 627 | 10 | 638 |
Debentures 4th Issue - Series 3 | R$ | IPCA + 4.0% | 2019 | 42 | 0 | 42 |
Debentures 1st Issue - Minas Comunica | R$ | IPCA + 0.5% | 2021 | 27 | 54 | 81 |
Debentures 5th Issue - Single Series | R$ | 108.25% of CDI | 2022 | 50 | 1,998 | 2,048 |
Debentures 6th Issue - Single Series | R$ | 100.00% of CDI + 0.24% | 2020 | 6 | 1,000 | 1,006 |
Financial Leases | R$ | IPCA and IGP-M | 2033 | 68 | 308 | 375 |
Contingent Consideration | R$ | SELIC | 2025 | 0 | 475 | 475 |
Issuances | foreign currency |
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| 14 | 0 | 14 |
BNDES | UMBND | ECM + 2.38% | 2019 | 14 | 0 | 14 |
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TOTAL | IFRS 16 |
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| 3,150 | 11,588 | 14,738 |
IFRS 16 effects | Financial Leases | R$ | IPCA and IGP-M | 2033 | 1,842 | 7,129 | 8,972 |
Net Debt | Ex-IFRS 16 | L. T. Debt Profile | ||||||
Consolidated in R$ million | 06/30/2019 | 12/31/2018 | 06/30/2018 |
| 2Q19 |
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Short-Term Debt | 1,307 | 1,464 | 1,537 |
| Year | Pro forma | IFRS 16 |
Long-Term Debt | 4,459 | 4,675 | 4,969 |
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| (R$ million) | (R$ million) |
Total Debt | 5,766 | 6,139 | 6,506 |
| 2020 | 2,343 | 3,938 |
Cash and Cash Equivalents7 | (5,871) | (3,394) | (4,442) |
| 2021 | 1,295 | 2,723 |
Net Derivatives Position | (30) | (56) | (105) |
| 2022 | 153 | 1,362 |
Contingent Consideration Guarantee Asset8 | (475) | (466) | (456) |
| 2023 | 31 | 970 |
Net Debt | (610) | 2,224 | 1,503 |
| After 2023 | 637 | 2,595 |
Net Debt / EBITDA9 | (0.03) | 0.12 | 0.09 |
| Total | 4,459 | 11,588 |
The Company closed 2Q19 withgross debt of R$ 5,766 million, excluding the recognition of liabilities for all leases, including towers and its land, circuits, offices, stores and commercial properties, as required by IFRS 16. The reduction in gross debt was related to the settlement of loans and financing in the period. Currently, 0.2% of our gross debt is denominated in foreign currency, fully covered by hedge operations. Excluding the effect of IFRS 16, the Company recordednet cash of R$ 610 million at the close of 2Q19, representing -0.03x LTM EBITDA. Net debt fell R$ 2,113 million from 2Q18, mainly due to increased cash generation in the period. Considering the impact of IFRS 16, net debt totaled R$ 8,362 on June 30, 2019. |
1 - Includes the investment in BNB given as a guarantee for the loan from that bank.
2 - Alignment of the classification criterion for the asset backing the contingent consideration to calculate pro-forma net debt.
3 - LTM EBITDA.
10
OWNERSHIP STRUCTURE
06/30/2019 | Common | Preferred | Total |
Controlling Company Shareholders | 540,033,264 | 704,207,855 | 1,244,241,119 |
94.47% | 62.91% | 73.58% | |
Minority Shareholders | 29,320,789 | 415,131,868 | 444,452,657 |
5.13% | 37.09% | 26.28% | |
Treasury | 2,290,164 | 983 | 2,291,147 |
0.40% | 0.00% | 0.14% | |
Total Number of Shares | 571,644,217 | 1,119,340,706 | 1,690,984,923 |
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Book Value per Share: | R$ 41.25 |
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Subscribed/Paid-in Capital: | R$ 63,571 | million |
CAPITAL MARKET
The Company’s common (VIVT3) and preferred (VIVT4) shares, traded at B3 (Brazilian Stock Exchange), closed 2Q19 at R$ 42.25 and R$ 49.91, respectively, recording an appreciation of 2.3% and 8.0%, respectively, over the closing price at the end of 2018. In the same period, the average daily trading volume of VIVT3 and VIVT4 was of R$ 2,089 thousand and R$ 90,092 thousand, respectively. Total shareholder return (TSR) reached 12.3% for common shares and 21.5% for preferred shares in the last twelve months.
The ADRs (VIV), traded on the NYSE, closed 2Q19 at US$13.02, up 9.1% over the closing price at the end of 2018, and the daily trading volume of ADRs averaged US$19,911 thousand in the same period.
The chart below shows the Company's stock performance:
11
DIVIDENDS AND INTEREST ON EQUITY
At the meetings held on April 17, 2019 and June 17, 2019, the Board of Directors approved the payment of interest on equity totaling the gross amount of R$ 570 million and R$ 968 million, respectively, related to fiscal year 2019. This interest will be considered as part of the mandatory minimum dividends for the fiscal year 2019,ad referendum of the Shareholders' Meeting to be held in 2020. The payment will be made by the end of fiscal year 2020, on a date to be defined by the Board of Executive Officers, to common and preferred shareholders of record on April 30, 2019 and June 28, 2019, respectively.
Year to date, the Company has approved the distribution of interest on equity totaling R$ 2,238 million, once again reaffirming its commitment to maximizing returns to shareholders.
The table below shows the amounts to be distributed per share:
2019 | Deliberation | Shareholding Position | Gross Amount (BRL million) | Net Amount (BRL million) | Share Class | Gross Amount (BRL) | Net Amount (BRL) | Payment Date |
IOC | 06/17/2019 | 06/28/2019 | 968 | 823 | Common | 0.537590 | 0.456952 | Up to 12/31/2020 |
(based on Jun-19) | Preferred | 0.591349 | 0.502647 | |||||
IOC | 04/17/2019 | 04/30/2019 | 570 | 485 | Common | 0.316556 | 0.269073 | Up to 12/31/2020 |
(based on Mar-19) | Preferred | 0.348212 | 0.295980 | |||||
IOC | 02/15/2019 | 02/28/2019 | 700 | 560 | Common | 0.388753 | 0.330440 | Up to 12/31/2020 |
(based on Jan-19) | Preferred | 0.427629 | 0.363484 | |||||
2018 | Deliberation | Shareholding Position | Gross Amount (BRL million) | Net Amount (BRL million) | Share Class | Gross Amount per Share (BRL) | Net Amount per Share (BRL) | Payment Date |
Dividends | 04/11/2019 | 04/11/2019 | 2,469 | 2,469 | Common | 1.371013 | 1.371013 | 12/17/2019 |
(based on Dec-18) | Preferred | 1.508114 | 1.508114 | |||||
IOC | 12/04/2018 | 12/17/2018 | 1,350 | 1,148 | Common | 0.749739 | 0.637278 | 12/17/2019 |
(based on Oct-18) | Preferred | 0.824712 | 0.701006 | |||||
IOC | 09/05/2018 | 09/17/2018 | 2,800 | 2,380 | Common | 1.555013 | 1.321761 | 08/20/2019 |
(based on Jul-18) | Preferred | 1.710515 | 1.453937 | |||||
IOC | 06/18/2018 | 06/29/2018 | 400 | 340 | Common | 0.222145 | 0.188823 | 08/20/2019 |
(based on May-18) | Preferred | 0.244359 | 0.207705 |
12
INCOME STATEMENT
Reported1
Consolidated in R$ million | 2Q19 | ∆% YoY | 6M19 | ∆% YoY |
GROSS OPERATING REVENUE | 16,345 | 0.0 | 33,028 | 1.1 |
Gross Operating Mobile Revenue | 10,447 | 0.9 | 21,293 | 2.8 |
Gross Operating Fixed Revenue | 5,898 | (1.6) | 11,735 | (2.2) |
NET OPERATING REVENUE | 10,870 | 0.4 | 21,845 | 1.1 |
Net Operating Mobile Revenue | 6,972 | 2.3 | 14,053 | 3.5 |
Net Operating Fixed Revenue | 3,897 | (2.8) | 7,792 | (3.0) |
OPERATING COSTS | (6,605) | 17.5 | (13,219) | 4.8 |
Personnel | (922) | (13.3) | (1,826) | (9.8) |
Costs of Services Rendered | (2,428) | (16.9) | (4,877) | (14.4) |
Interconnection | (251) | (35.9) | (556) | (17.7) |
Taxes and Contributions | (405) | (5.6) | (814) | (3.4) |
Third-party Services | (1,440) | 8.5 | (2,819) | 4.6 |
Others | (332) | (57.2) | (688) | (53.7) |
Cost of Goods Sold | (752) | 27.2 | (1,506) | 40.0 |
Commercial Expenses | (2,173) | (5.2) | (4,389) | (2.9) |
Provision for Bad Debt | (397) | 7.7 | (823) | 7.4 |
Third-party Services | (1,710) | (5.0) | (3,434) | (2.9) |
Others | (66) | (46.4) | (132) | (39.1) |
General and Administrative Expenses | (307) | (20.0) | (613) | (19.1) |
Other Net Operating Revenue (Expenses) | (23) | n.a. | (8) | n.a. |
EBITDA | 4,265 | (18.0) | 8,625 | (4.1) |
EBITDA Margin % | 39.2% | (8.8) p.p. | 39.5% | (2.1) p.p. |
DEPRECIATION AND AMORTIZATION | (2,637) | 31.0 | (5,226) | 30.3 |
Depreciation | (1,918) | 41.3 | (3,806) | 40.9 |
Amortization of Intangibles | (421) | 19.3 | (818) | 15.8 |
Others Amortizations | (299) | (1.5) | (603) | (0.5) |
EBIT | 1,628 | (49.0) | 3,400 | (31.8) |
FINANCIAL RESULT | (241) | n.a. | (331) | n.a. |
GAIN (LOSS) ON INVESTMENTS | 0 | 0.0 | 0 | n.a. |
Taxes | 33 | n.a. | (308) | (84.8) |
NET INCOME | 1,420 | (55.2) | 2,762 | (35.2) |
1 Considering the effects of the adoption of IFRS 16 referring to the new methodology for allocation of lease contracts for 2019 figures only.
13
BALANCE SHEET
Reported1
Consolidated in R$ million | 06/30/2019 | 12/31/2018 | ∆% YoY |
ASSETS | 113,061 | 102,561 | 10.2 |
Current Assets | 22,760 | 18,363 | 23.9 |
Cash and Cash Equivalents | 5,858 | 3,381 | 73.2 |
Accounts Receivable from Customers | 10,264 | 9,720 | 5.6 |
Provision for Doubtful Accounts | (1,463) | (1,415) | 3.4 |
Inventories | 579 | 462 | 25.4 |
Recoverable Income Tax and Social Contribution | 403 | 275 | 46.7 |
Recoverable Taxes, Fees and Contributions | 5,097 | 4,674 | 9.0 |
Escrow Deposits and Frozen Assets | 293 | 313 | (6.5) |
Derivative Financial Instruments | 43 | 69 | (37.6) |
Prepaid Expenses | 1,147 | 582 | 97.1 |
Other Assets | 541 | 303 | 78.8 |
Non-Current Assets | 90,301 | 84,198 | 7.2 |
Accounts Receivable from Customers | 538 | 509 | 5.7 |
Provision for Doubtful Accounts | (87) | (83) | 5.2 |
Financial Investments | 68 | 77 | (11.3) |
Recoverable Taxes, Fees and Contributions | 1,208 | 3,222 | (62.5) |
Deferred Income Tax and Social Contribution | 197 | 230 | (14.3) |
Escrow Deposits and Frozen Assets | 3,479 | 3,597 | (3.3) |
Derivative Financial Instruments | 39 | 27 | 47.9 |
Other Assets | 182 | 181 | 0.3 |
Investments | 100 | 102 | (1.6) |
Property, Plant and Equipment, Net | 42,880 | 34,115 | 25.7 |
Intangible Assets, Net | 41,696 | 42,221 | (1.2) |
LIABILITIES AND SHAREHOLDERS' EQUITY | 113,061 | 102,561 | 10.2 |
LIABILITIES | 43,395 | 30,954 | 40.2 |
Current Liabilities | 22,244 | 17,161 | 29.6 |
Payroll and Related Charges | 681 | 783 | (13.0) |
Suppliers and Accounts Payable | 7,260 | 7,643 | (5.0) |
Income Tax and Social Contribution | 8 | 12 | (37.5) |
Taxes, Fees and Contributions | 1,269 | 1,798 | (29.4) |
Loans, Financing, Debentures and Leasing | 3,150 | 1,464 | 115.1 |
Interest on Capital and Dividends | 8,548 | 4,173 | 104.8 |
Provisions and Contingencies | 375 | 378 | (0.9) |
Derivative Financial Instruments | 11 | 17 | (31.5) |
Deferred Revenues | 486 | 526 | (7.6) |
Other Liabilities | 458 | 368 | 24.2 |
Non-Current Liabilities | 21,151 | 13,793 | 53.3 |
Payroll and Related Charges | 23 | 12 | 92.4 |
Taxes, Fees and Contributions | 267 | 39 | 581.9 |
Deferred Income Tax and Social Contribution | 2,207 | 1,983 | 11.3 |
Loans, Financing, Debentures and Leasing | 11,588 | 4,675 | 147.9 |
Provisions and Contingencies | 5,834 | 5,881 | (0.8) |
Derivative Financial Instruments | 41 | 23 | 81.6 |
Deferred Revenues | 217 | 251 | (13.3) |
Other Liabilities | 973 | 929 | 4.7 |
SHAREHOLDERS' EQUITY | 69,666 | 71,607 | (2.7) |
Capital Stock | 63,571 | 63,571 | 0.0 |
Capital Reserve | 1,214 | 1,214 | 0.0 |
Profit Reserve | 4,333 | 4,324 | 0.2 |
Additional Proposed Dividends | 0 | 2,469 | n.a. |
Other Comprehensive Income | 33 | 29 | 14.4 |
Accumulated Profits | 515 | 0 | n.a. |
1 Considering the effects of the adoption of IFRS 16 referring to the new methodology for allocation of lease contracts for 2019 figures only.
14
CONFERENCE CALL
English
Date: July 24, 2019 (Wednesday)
Time:10:00 a.m. (Brasilia) and 9:00 a.m. (New York)
Telephones:
· Brazil:(+55 11) 3181-8565 or (+55 11) 4210-1803
- USA:(+1 412) 717-9627
- United Kingdom:(+44 20) 3795-9972
- Spain:(+34 91) 038-9593
HD Web Phone:click here
Access code:Telefônica Brasil
Click hereto access the webcast.
A replay of the conference call will be available one hour after the event throughJuly 31, 2019 at(+55 11) 3193-1012 (Code:8446086#)
TELEFÔNICA BRASIL Investor Relations |
Christian Gebara David Melcon Luis Plaster João Pedro Carneiro
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Av. Eng. Luis Carlos Berrini, 1376 - 17º Andar – Cidade Monções – SP – 04571-000
Telephone: (+55 11) 3430-3687 E-mail: ir.br@telefonica.com Information available on the website: http://www.telefonica.com.br/ri
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This document may contain forward-looking statements. Such statements do not constitute historical facts and merely reflect the expectations of the Company's management. Such terms as "anticipate", "believe", "estimate", "expect", "foresee", "intend", "plan", "project", "target" and similar are intended to identify such statements, which evidently involve risks and uncertainties, both foreseen and unforeseen by theCompany. Consequently, the Company's future operating results may differ from present expectations and readers should not place undue reliance on the information contained herein. These forward-looking statements express opinions formed solely on the date on which they were issued, and the Company is under no obligation to update them in line with new information or future developments. |
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| TELEFÔNICA BRASIL S.A. | |||
Date: | July 24, 2019 |
| By: | /s/Luis Carlos da Costa Plaster | |
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| Name: | Luis Carlos da Costa Plaster |
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| Title: | Investor Relations Director |