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 November, 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 |
Consolidated leadership in high-end segments
· FTTH customers totaled 2,332 thousand, up34.0% y-o-y, with162 thousand net additions in 3Q19;
· Postpaid accesses grew7.3% and accounted for57.3% of total mobile accesses, with a market share of 39.8% in August 2019;
· The Company had a mobile market share of32.3%in August 2019, 7.5 p.p. higher than the 2nd player;
· 4.5G coverage was present in1,096 cities, and FTTH was launched in 33 cities by September 2019, reaching154 cities covered.
Rational sales strategy and change in the revenue mix lead to the highest revenue growth in the last three years
· Net revenues increased2.6% y-o-y, reflecting the solid performance of postpaid, handsets and FTTH;
· Mobile revenues increased6.6% y-o-y, driven by strong growth in ARPU, postpaid accesses and handset sales. Mobile service revenues climbed4.6% y-o-y;
· FTTH revenues reachedR$ 531 million (+44.5% y-o-y) and accounted for37.1%of BB revenues;
· Broadband revenues accounted for36.9% of fixed revenues, exceeding voice revenues;
· IPTV revenues came toR$ 227 million (+26.1% y-o-y) and accounted for50.3%of pay TV revenues.
Digitalization and simplification keep costs under control, resulting in EBITDA growth and margin increase in the quarter
· Recurring operating costs increased2.5% y-o-yin 3Q19, mainly due to higher expenses related to handset sales, offset by simplification and digitalization initiatives. Excluding the effect of handset sales, total costs rose0.6% y-o-y;
· Recurring EBITDA totaledR$ 3,995 million (+2.8% y-o-y) in 3Q19, with an EBITDA margin of36.2%.
Efficient financial management supports continuous cash flow growth and superior shareholder return
· Capex totaledR$ 2,432 millionin 3Q19, focused on FTTH and the expansion of 4G/4.5G coverage and capacity;
· Free cash flow from business activities increased18.6% y-o-y, toR$ 2,187 million in 3Q19;
· Reported net income totaled R$ 965 million in 3Q19;
· Total shareholder return reached49.6%, while the dividend yield came to6.7% for PN shares1.
1 In the last 12 months. For common shares, total shareholder return (TSR) was 32.5% and the dividend yield was 7.5% in the last 12 months.
1
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 period ended September 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 | ||||||
3Q19 | ∆% YoY | 9M19 | ∆% YoY | 3Q19 | ∆% YoY | 9M19 | ∆% YoY | |
NET OPERATING REVENUES | 11,047 | 2.6 | 32,891 | 1.6 | 11,047 | 2.6 | 32,891 | 1.6 |
Net Mobile Revenues | 7,161 | 6.6 | 21,214 | 4.5 | 7,161 | 6.6 | 21,214 | 4.5 |
Net Handsets Revenues | 645 | 31.5 | 1,874 | 38.4 | 645 | 31.5 | 1,874 | 38.4 |
Net Fixed Revenues | 3,886 | (3.9) | 11,677 | (3.3) | 3,886 | (3.9) | 11,677 | (3.3) |
OPERATING COSTS | (6,987) | 16.8 | (21,138) | 13.7 | (6,506) | 8.7 | (19,725) | 6.1 |
Recurring Operating Costs2 | (7,051) | 2.5 | (21,202) | 1.2 | (6,570) | (4.5) | (19,789) | (5.5) |
EBITDA | 4,060 | (15.1) | 11,753 | (14.7) | 4,541 | (5.0) | 13,167 | (4.4) |
EBITDA Margin | 36.7% | (7.7) p.p. | 35.7% | (6.8) p.p. | 41.1% | (3.3) p.p. | 40.0% | (2.5) p.p. |
Recurring EBITDA2 | 3,995 | 2.8 | 11,689 | 2.2 | 4,477 | 15.2 | 13,102 | 14.6 |
Recurring EBITDA Margin2 | 36.2% | 0.1 p.p. | 35.5% | 0.2 p.p. | 40.5% | 4.4 p.p. | 39.8% | 4.5 p.p. |
NET INCOME | 1,046 | (67.1) | 3,944 | (47.0) | 965 | (69.6) | 3,727 | (49.9) |
| ||||||||
CAPEX | 2,432 | 1.6 | 6,487 | 6.7 | 2,432 | 1.6 | 6,487 | 6.7 |
OPERATING CASH FLOW (EBITDA - CAPEX) | 1,564 | 4.8 | 5,202 | (2.8) | 2,045 | 37.1 | 6,615 | 23.6 |
| ||||||||
TOTAL SUBSCRIBERS (THOUSAND) | 93,722 | (3.1) | 93,722 | (3.1) | 93,722 | (3.1) | 93,722 | (3.1) |
Mobile Subscribers | 73,833 | (0.8) | 73,833 | (0.8) | 73,833 | (0.8) | 73,833 | (0.8) |
Fixed Subscribers | 19,888 | (10.8) | 19,888 | (10.8) | 19,888 | (10.8) | 19,888 | (10.8) |
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 balance sheet. 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 items: 2Q18: 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 ICMS tax from the PIS/COFINS calculation base; expense of R$ 92.0 million related to the adoption of the Risk Assessment model for the calculation of labor contingencies; expense of R$ 170.6 million due to the write-off of assets linked to escrow deposits and expense of R$ 116.9 million related to organizational restructuring; 3Q18: positive effect of R$ 1,381.7 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 of Vivo between 2004 and 2013 and expense of R$487.1 million related to extraordinary fiscal contingencies; 3Q19: positive effect related to the sale of Data Centers in the amount of R$64.3 million.
2
Operating Performance
Thousand | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
TOTAL SUBSCRIBERS | 73,833 | (0.8) | 73,833 | (0.8) |
Postpaid | 42,300 | 7.3 | 42,300 | 7.3 |
M2M | 9,479 | 24.1 | 9,479 | 24.1 |
Prepaid | 31,534 | (9.9) | 31,534 | (9.9) |
MARKET SHARE | 32.3% | 0.5 p.p. | 32.3% | 0.5 p.p. |
Postpaid | 39.8% | (1.4) p.p. | 39.8% | (1.4) p.p. |
Prepaid | 25.8% | 0.5 p.p. | 25.8% | 0.5 p.p. |
ARPU (R$/month) | 29.4 | 6.4 | 29.2 | 4.1 |
Postpaid (Human) | 52.4 | 2.6 | 52.3 | 0.8 |
M2M | 3.0 | 19.2 | 2.9 | 11.7 |
Prepaid | 12.7 | 10.0 | 12.4 | 2.6 |
MONTHLY CHURN | 3.4% | (0.2) p.p. | 3.3% | 0.1 p.p. |
Postpaid (ex-M2M) | 1.8% | 0.0 p.p. | 1.8% | 0.1 p.p. |
Prepaid | 5.4% | (0.2) p.p. | 5.2% | 0.4 p.p. |
Total accesses came to 73,833 thousand by the end of September 2019, down 0.8% from 3Q18. The total market share came to 32.3% in August 2019.
In thepostpaid segment, Telefônica Brasil continued to grow consistently, reaching 42,300 thousand accesses in September 2019, up 7.3% y-o-y. Postpaid accesses accounted for 57.3% of the total mobile customer base (+4.3 p.p. y-o-y), with a market share of 39.8% in August 2019. The Company remained the leader in 4G handsets, with a market share of 31.4% (6.0 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 585 thousand in 3Q19, while prepaid net disconnections totaled 496 thousand accesses in the same period. The commercial performance is related to the Company’s focus on high-end businesses, reflected in the disconnection of non-profitable prepaid customers and in the prepaid to postpaid migration.
In theMachine-to-Machine (M2M) market, the access base continued to grow substantially, reaching 9,479 thousand customers in September 2019, up 24.1% over September 2018. Telefônica Brasil is the market leader in this segment, reaching a market share of 41.0% in August 2019.
Mobile ARPU grew 6.4% y-o-y in 3Q19, mainly due to recent price increases, which offset the lower customer base due to the disconnection of non-profitable customers, pursuant to ANATEL rules.
1 – August 2019.
3
Consolidated in R$ million | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
NET OPERATING MOBILE REVENUES | 7,161 | 6.6 | 21,214 | 4.5 |
Net Mobile Service Revenues | 6,516 | 4.6 | 19,340 | 2.1 |
Data and Digital Services | 5,211 | 5.5 | 15,754 | 6.1 |
Voice | 1,304 | 1.2 | 3,578 | (12.6) |
Others | 1 | n.a. | 8 | 113.3 |
Net Handset Revenues | 645 | 31.5 | 1,874 | 38.4 |
Net mobile revenues increased 6.6% y-o-y in 3Q19 due to the growth of data and digital service revenues (+5.5% y-o-y), thanks to the upselling of the customer base to postpaid plans with higher data volumes and the increase of prices in the quarter, combined with higher handset revenues (+31.5% y-o-y).
Data and digital servicerevenues grew 5.5% over 3Q18, driven by our data-centric strategy. This performance was fueled by an increase in the usage of data and value-added services. In the quarter, data and digital service revenues accounted for 80.0% of net mobile services revenues, up 0.7 p.p. over 3Q18.
Voice revenues increased 1.2% over 3Q18, mainly reflecting the higher number of B2B contracts, despite the continuous migration of consumption to data services driven by service maturity and price increases across all customer segments.
Net handset revenues rose 31.5% over 3Q18, in line with the strategy of increasing our market share in this relevant and growing segment, with the sale of handsets and accessories with positive margins, attracting high-end customers to our physical and online stores.
4
Operating Performance
Thousand | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
TOTAL SUBSCRIBERS | 19,888 | (10.8) | 19,888 | (10.8) |
Fixed Broadband | 7,120 | (4.7) | 7,120 | (4.7) |
FTTH | 2,332 | 34.0 | 2,332 | 34.0 |
Other Technologies | 4,788 | (16.5) | 4,788 | (16.5) |
Pay TV | 1,383 | (13.6) | 1,383 | (13.6) |
IPTV | 681 | 27.0 | 681 | 27.0 |
Other Technologies | 702 | (34.1) | 702 | (34.1) |
Voice | 11,385 | (13.8) | 11,385 | (13.8) |
MARKET SHARE | Fixed Broadband | 22.2% | (2.4) p.p. | 22.2% | (2.4) p.p. |
Market Share | FTTH | 26.2% | (8.2) p.p. | 26.2% | (8.2) p.p. |
MARKET SHARE | Pay TV | 8.6% | (0.4) p.p. | 8.6% | (0.4) p.p. |
Market Share | IPTV | 91.2% | 10.5 p.p. | 91.2% | 10.5 p.p. |
MARKET SHARE | Voice | 32.5% | (1.6) p.p. | 32.5% | (1.6) p.p. |
ARPU | Broadband (R$/month) | 66.3 | 11.6 | 64.0 | 12.8 |
ARPU | Pay TV (R$/month) | 105.7 | 4.3 | 103.9 | 4.2 |
ARPU | Voice (R$/month)5 | 35.2 | (7.7) | 35.6 | (9.9) |
We closed 3Q19 with 19,888 thousandfixedaccesses, down 10.8% from 3Q18, influenced by the performance of voice, xDSL and DTH, mainly due to service maturity and the strategic decision to stop selling pay TV based on DTH technology at the beginning of the quarter.
Fixed broadband accesses came to 7,120 thousand customers in 3Q19, down 4.7% from 3Q18, mainly due to the disconnection of xDSL customers. On the other hand, the FTTH customer base, which has higher ARPU, grew 34.0% over 3Q18, to 2,332 thousand accesses in 3Q19, reflecting the Company’s strategy focused on expansion of the fiber network, offering higher speeds and a better customer experience. Broadband ARPU grew 11.6% over 3Q18.
Pay TV accesses decreased 13.6% y-o-y in 3Q19, ending the third quarter with 1,383 thousand subscribers, due to the Company's strategic decision to stop selling DTH. On the other hand, there was an improvement in the customer mix due to a 27.0% growth of IPTV accesses over 3Q18. Pay TV ARPU increased 4.3% y-o-y in the quarter, reflecting the Company's strategy of focusing on high-end customers.
Voice accesses totaled 11,385 thousand in 3Q19, down 13.8% from 3Q18, mainly reflecting the fixed-to-mobile substitution and the voice-to-data migration.
1 - Changes in the presentation of voice revenues (outgoing voice + interconnection + other services) led to changes in ARPU. The updated base since 2016 is available on our Investor Relations website www.telefonica.com.br/ri.
5
Consolidated in R$ million | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
NET OPERATING FIXED REVENUES | 3,886 | (3.9) | 11,677 | (3.3) |
Broadband6 | 1,432 | 7.5 | 4,210 | 10.7 |
FTTH | 531 | 44.5 | 1,449 | 49.4 |
Other Technologies | 901 | (6.5) | 2,761 | (2.5) |
Pay TV | 451 | (8.0) | 1,388 | (3.3) |
IPTV | 227 | 26.1 | 643 | 36.3 |
Other Technologies | 224 | (27.7) | 745 | (22.7) |
Corporate Data and IT | 716 | 12.9 | 1,990 | 7.2 |
Fixed Voice | 1,275 | (18.8) | 4,055 | (18.1) |
Others | 11 | (36.5) | 34 | (1.0) |
Net fixed revenues fell 3.9% y-o-y in the 3Q19, impacted by the decrease in voice and pay TV revenues, partially offset by the positive evolution of broadband revenues.
Broadband revenues rose 7.5% over 3Q18, fueled by the 44.5% y-o-y increase in FTTH revenues, which accounted for 37.1% of this line in the period, reflecting the Company’s efforts to expand the base and encourage customers’ migration to higher speeds, improving fiber accesses, which have higher ARPU, in addition to the expansion of the FTTH network to 12 new cities in the third quarter of 2019. In 2019, Vivo expanded its FTTH coverage to 33 new cities.
Pay-TVrevenues fell 8.0% from 3Q18, as a result of the Company’s more selective strategy for this service, focusing on high-end products designed to improve the customer experience and optimize profitability, such as IPTV, whose revenues grew 26.1% over 3Q18.
Corporate data and ITrevenues increased 12.9% over 3Q18, due to strong revenues from new services in the B2B market, including data, cloud, IT services and equipment sales.
Voice revenues dropped 18.8% from 3Q18, mainly as a result of service maturity, the fixed-to-mobile substitution and the latest reduction in TU-RL and TU-RIU in February 2019.
1 - Broadband revenue includes residential and SME customers.
6
Consolidated in R$ million | Pro forma (ex-IFRS 16) | Reported | ||||||
3Q19 | ∆% YoY | 9M19 | ∆% YoY | 3Q19 | ∆% YoY | 9M19 | ∆% YoY | |
OPERATING COSTS | (6,987) | 16.8 | (21,138) | 13.7 | (6,506) | 8.7 | (19,725) | 6.1 |
Personnel | (936) | (0.2) | (2,762) | (6.7) | (936) | (0.2) | (2,762) | (6.7) |
Costs of Services Rendered | (2,900) | 6.0 | (8,607) | 2.0 | (2,464) | (9.9) | (7,341) | (13.0) |
Interconnection | (276) | (13.2) | (832) | (16.2) | (276) | (13.2) | (832) | (16.2) |
Taxes and Contributions | (411) | 10.3 | (1,225) | 0.8 | (411) | 10.3 | (1,225) | 0.8 |
Third-party Services | (1,389) | 3.1 | (4,208) | 4.1 | (1,389) | 3.1 | (4,208) | 4.1 |
Others | (824) | 18.0 | (2,343) | 7.2 | (388) | (44.5) | (1,076) | (50.7) |
Cost of Goods Sold | (730) | 22.6 | (2,236) | 33.8 | (730) | 22.6 | (2,236) | 33.8 |
Commercial Expenses | (2,179) | (1.1) | (6,599) | (1.8) | (2,162) | (1.8) | (6,550) | (2.5) |
Provision for Bad Debt | (442) | 10.0 | (1,266) | 8.3 | (442) | 10.0 | (1,266) | 8.3 |
Third-party Services | (1,653) | (5.1) | (5,087) | (3.6) | (1,653) | (5.1) | (5,087) | (3.6) |
Others | (83) | 42.8 | (246) | (10.3) | (66) | 13.3 | (198) | (28.1) |
General and Administrative Expenses | (349) | (9.1) | (1,032) | (9.6) | (321) | (16.5) | (934) | (18.2) |
Other Net Operating Revenues (Expenses) | 106 | (87.8) | 98 | (95.8) | 106 | (87.8) | 98 | (95.8) |
Recurring Operating Costs1 | (7,051) | 2.5 | (21,202) | 1.2 | (6,570) | (4.5) | (19,789) | (5.5) |
Recurring operating costs1,excluding depreciation and amortization expenses, increased 2.5% over 3Q18, to R$7,051 million in 3Q19, while inflation was +2.9% (IPCA - 12M). This upturn was mainly due to higher handset costs. Excluding this line, costs edged up 0.6% over 3Q18.
Personnel costsfell 0.2% y-o-y, mainly due to the organizational restructurings in 2018 and 2019
Thecost of services rendered grew 6.0% over 3Q18, driven by higher spending related to the expansion of network infrastructure in the period, as a result of the accelerated increase of 4G, 4.5G and fiber coverage and consequent phasing of costs related to these initiatives.
Thecost of goods soldgrew 22.6% over 3Q18, due to the Company's strategy of focusing on handsets and equipment sales since 4Q17, generating significant additional revenues.
Commercial expenses fell 1.1% from 3Q18, mainly due to lower advertising expenses driven by higher usage of digital media and lower costs with activities that can be digitalized, such as billing, posting, call center and back office.
Theprovision for bad debttotaled R$ 442 million, corresponding to 2.7% of gross revenues in 3Q19, slightly higher than 3Q18, mainly driven by the strong growth of postpaid revenues.
Third-party services fell 5.1% on an annual comparison, due to the growing digitalization of the customer journey. The larger share of e-commerce in product, service and recharge sales, the accelerated adoption of e-billing and the increasing use of virtual channels and the MEU VIVO app led to a reduction in call center, back office, printing and mailing costs, in addition to offering our customers a unique and customized experience.
General and administrative expensesfell 9.1% in 3Q19, thanks to ongoing cost control in these lines.
Other net operating revenues (expenses)reached R$ 106 million, mainly due to the non-recurring benefit from the sale of Data Centers in the amount of R$ 64.3 million, lower contingency expenses and higher tax recovery.
1 Excludes the following non-recurring items: 2Q18: 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 ICMS tax from the PIS/COFINS calculation base; expense of R$ 92.0 million related to the adoption of the Risk Assessment model for the calculation of labor contingencies; expense of R$ 170.6 million due to the write-off of assets linked to escrow deposits and expense of R$ 116.9 million related to organizational restructuring; 3Q18: positive effect of R$ 1,381.7 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 of Vivo between 2004 and 2013 and expense of R$487.1 million related to extraordinary fiscal contingencies; 3Q19: positive effect related to the sale of Data Centers in the amount of R$64.3 million.
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Recurring EBITDA(earnings before interest, taxes, depreciation and amortization) totaled R$ 3,995 million in 3Q19, up 2.8% over 3Q18, with anEBITDA margin of 36.2%.
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 | ||||||
3Q19 | ∆% YoY | 9M19 | ∆% YoY | 3Q19 | ∆% YoY | 9M19 | ∆% YoY | |
Depreciation and Amortization | (2,218) | 9.0 | (6,540) | 8.2 | (2,705) | 32.9 | (7,931) | 31.2 |
Depreciation | (1,453) | 5.6 | (4,355) | 6.8 | (1,940) | 41.0 | (5,745) | 41.0 |
Amortization of Intangibles | (465) | 30.8 | (1,283) | 20.9 | (465) | 30.8 | (1,283) | 20.9 |
Other Amortizations | (300) | (1.2) | (902) | (0.7) | (300) | (1.2) | (902) | (0.7) |
Depreciation and amortization increased 9.0% over 3Q18, 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 32.9% over 3Q18.
FINANCIAL RESULT
Consolidated in R$ million | Pro forma (ex-IFRS 16) | Reported | ||||||
3Q19 | ∆% YoY | 9M19 | ∆% YoY | 3Q19 | ∆% YoY | 9M19 | ∆% YoY | |
Net Financial Result | (211) | n.a. | (346.1) | n.a. | (306) | n.a. | (636.4) | n.a. |
Income from Financial Investments | 85 | 43.8 | 209.0 | (55.0) | 85 | 43.8 | 209.0 | (55.0) |
Debt Interest | (151) | 31.0 | (363.2) | (60.3) | (246) | 113.1 | (653.5) | (35.4) |
Gains (Losses) on Derivative Transactions | 2 | 475.0 | 32.1 | (99.9) | 2 | 475.0 | 32.1 | (99.9) |
Monetary and Exchange Variation and Other | (148) | n.a. | (224.0) | n.a. | (148) | n.a. | (224) | n.a. |
Thenet financial result was a loss of R$ 211 million in 3Q19, 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$ 306 million in 3Q19.
NET INCOME
Reported net income reached R$ 965 million in 3Q19, down 69.6% from 3Q18, mainly due to non-recurring gains obtained in 3Q18. Adjusted for the non-recurring items recorded in 3Q18, recurring reported net income fell 52.3% in the annual comparison, due to higher tax payments in 3Q19, stemming from lower interest on equity in the period, higher depreciation and negative financial result, partially offset by ongoing cost control and EBITDA growth.
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CAPEX
Consolidated in R$ million | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
CAPITAL EXPENDITURES | 2,432 | 1.6 | 6,487 | 6.7 |
Network | 1,978 | (4.4) | 5,497 | 5.1 |
Technology / Information System | 337 | 30.3 | 793 | 16.0 |
Products and Services, Channels, Adm. and Others | 116 | 75.3 | 198 | 19.5 |
CAPEX / NOR | 22.0% | (0.2) p.p. | 19.7% | 0.9 p.p. |
Capex reached R$ 2,432 million, representing 22.0% of net operating revenues in 3Q19, in line with the three-year guidance disclosed by the Company. Investments were primarily focused on FTTH implementation and footprint expansion, as well as increased 4G/4.5G technology coverage and capacity.
CASH FLOW
Consolidated in R$ million | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
Recurring EBITDA | 3,995 | 2.8 | 11,689 | 2.2 |
Capital Expenditures | (2,432) | 1.6 | (6,487) | 6.7 |
Interest, Taxes and Other Financial Revenues (Expenses) | (183) | (44.9) | (491) | (54.1) |
Working Capital Variation | 806 | 17.8 | 860 | 53.1 |
FREE CASH FLOW FROM BUSINESS ACTIVITIES | 2,187 | 18.6 | 5,571 | 14.9 |
Non-recurring Items | 446 | n.a. | 359 | n.a. |
FREE CASH FLOW AFTER NON-RECURRING EFFECTS | 2,633 | 52.2 | 5,930 | 30.2 |
Free cash flow from business activities reached R$ 2,187 million in 3Q19, 18.6% higher (+R$ 342 million) than in 3Q18, reflecting growth in EBITDA and the reduction of interest, taxes and other financial expenses, partially offset by higher investment volume in the period.
Free cash flow after non-recurring items1increased R$ 903 million, or 52.2%, over 3Q18, mainly because of the sale of Data Centers in 3Q19, besides the extraordinary payments in 3Q18 related to organizational restructuring carried out in 2Q18 and the payment of PIS/COFINS on financial revenues as a result of legal proceedings related gains.
1 – Payment related to organizational restructuring in the amount of R$44.2 million in 1Q19, R$42.8 million in 2Q19, R$75.7 million in 2Q18 and R$30.4 million in 3Q18; payment of cleaning of the 700MHz 4G spectrum of R$100.3 million in 1Q18; and payment of R$84.1 million in 3Q18 related to PIS/COFINS tax credit recognized in 2Q18; sale of Data Center in 3Q19 in the amount of R$446.1 million.
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ISSUANCES | CURRENCY | INTEREST RATE | DUE DATE | SHORT TERM | LONG TERM | TOTAL |
TOTAL | Pro forma |
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| 916 | 3,890 | 4,807 |
Issuances | local currency |
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|
| 916 | 3,890 | 4,807 |
BNB | R$ | 7.0% to 10.0% | 2022 | 15 | 29 | 44 |
Confirming | R$ | 114.2% to 120.8% of CDI | 2020 | 709 | 35 | 744 |
Debentures 4th Issue - Series 3 | R$ | IPCA + 4.0% | 2019 | 43 | 0 | 43 |
Debentures 1st Issue - Minas Comunica | R$ | IPCA + 0.5% | 2021 | 28 | 28 | 57 |
Debentures 5th Issue - Single Series | R$ | 108.25% of CDI | 2022 | 17 | 1,998 | 2,015 |
Debentures 6th Issue - Single Series | R$ | 100.00% of CDI + 0.24% | 2020 | 22 | 1,000 | 1,022 |
PSI | R$ | 2.5% to 5.5% | 2023 | 14 | 0 | 15 |
Financial Leases | R$ | IPCA and IGP-M | 2033 | 68 | 320 | 388 |
Contingent Consideration | R$ | SELIC | 2025 | 0 | 480 | 480 |
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TOTAL | IFRS 16 |
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| 2,684 | 11,027 | 13,710 |
IFRS 16 effects | Financial Leases | R$ | IPCA and IGP-M | 2033 | 1,767 | 7,136 | 8,904 |
Net Debt | Ex-IFRS 16 | L. T. Debt Profile | ||||||
Consolidated in R$ million | 09/30/2019 | 12/31/2018 | 09/30/2018 |
| 3Q19 | ||
Short-Term Debt | 916 | 1,464 | 1,510 |
| Year | Pro forma | IFRS 16 |
Long-Term Debt | 3,890 | 4,675 | 4,795 |
| (R$ million) | (R$ million) | |
Total Debt | 4,807 | 6,139 | 6,306 |
| 2020 | 2,124 | 3,735 |
Cash and Cash Equivalents7 | (4,561) | (3,394) | (3,726) |
| 2021 | 1,057 | 2,455 |
Net Derivatives Position | (17) | (56) | (111) |
| 2022 | 38 | 1,267 |
Contingent Consideration Guarantee Asset8 | (480) | (466) | (461) |
| 2023 | 34 | 920 |
Net Debt | (251) | 2,224 | 2,007 |
| After 2023 | 637 | 2,650 |
Net Debt / EBITDA9 | (0.02) | 0.12 | 0.11 |
| Total | 3,890 | 11,027 |
The Company closed 3Q19 withgross debt of R$ 4,807 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. The Company does not have any debt denominated in foreign currency. Excluding the effect of IFRS 16, the Company recordednet cash of R$ 251 million at the close of 3Q19, representing -0.02x LTM EBITDA. Net debt fell by R$ 2,258 million from 3Q18, mainly due to increased cash generation in the period. Considering the impact of IFRS 16, net debt totaled R$ 8,653 on September 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.
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09/30/2019 | 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$ 41.81 |
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Subscribed/Paid-in Capital: | R$ 63,571.4 | million |
CAPITAL MARKET
The Company’s common (VIVT3) and preferred (VIVT4) shares closed 3Q19 at R$ 44.72 and R$ 54.94, respectively, recording an appreciation of 8.3% and 18.8%, over the closing price at the end of 2018. In the same period, the daily trading volume of VIVT3 and VIVT4 averaged R$ 1,876 thousand and R$ 89,786 thousand respectively. Total shareholder return (TSR) in the last twelve months reached 32.5% for common shares and 49.6% for preferred shares.
The ADRs (VIV) traded on the NYSE closed 3Q19 at US$ 13.17, up 10.4% over the closing price at the end of 2018, and the daily trading volume of ADRs averaged US$ 20,800 thousand in the same period.
The chart below shows the Company's stock performance:
11
At the meetings held in 2019, the Board of Directors approved the distribution of interest on equity for a total of R$ 2,238 million for fiscal year 2019, once again reaffirming the Company’s commitment to maximizing returns to shareholders. 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 the dates presented in the table below, which also shows the amounts to be distributed per share:
2019 | Deliberation | ShareholdingPosition | 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 | ShareholdingPosition | 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 |
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Reported1
Consolidated in R$ million | 3Q19 | ∆% YoY | 9M19 | ∆% YoY |
GROSS OPERATING REVENUE | 16,606 | 1.7 | 49,635 | 1.3 |
Gross Operating Mobile Revenue | 10,695 | 4.7 | 31,987 | 3.5 |
Gross Operating Fixed Revenue | 5,912 | (3.3) | 17,647 | (2.6) |
NET OPERATING REVENUE | 11,047 | 2.6 | 32,891 | 1.6 |
Net Operating Mobile Revenue | 7,161 | 6.6 | 21,214 | 4.5 |
Net Operating Fixed Revenue | 3,886 | (3.9) | 11,677 | (3.3) |
OPERATING COSTS | (6,506) | 8.7 | (19,725) | 6.1 |
Personnel | (936) | (0.2) | (2,762) | (6.7) |
Costs of Services Rendered | (2,464) | (9.9) | (7,341) | (13.0) |
Interconnection | (276) | (13.2) | (832) | (16.2) |
Taxes and Contributions | (411) | 10.3 | (1,225) | 0.8 |
Third-party Services | (1,389) | 3.1 | (4,208) | 4.1 |
Others | (388) | (44.5) | (1,076) | (50.7) |
Cost of Goods Sold | (730) | 22.6 | (2,236) | 33.8 |
Commercial Expenses | (2,162) | (1.8) | (6,550) | (2.5) |
Provision for Bad Debt | (442) | 10.0 | (1,266) | 8.3 |
Third-party Services | (1,653) | (5.1) | (5,087) | (3.6) |
Others | (66) | 13.3 | (198) | (28.1) |
General and Administrative Expenses | (321) | (16.5) | (934) | (18.2) |
Other Net Operating Revenue (Expenses) | 106 | (87.8) | 98 | (95.8) |
EBITDA | 4,541 | (5.0) | 13,167 | (4.4) |
EBITDA Margin % | 41.1% | (3.3) p.p. | 40.0% | (2.5) p.p. |
DEPRECIATION AND AMORTIZATION | (2,705) | 32.9 | (7,931) | 31.2 |
Depreciation | (1,940) | 41.0 | (5,745) | 41.0 |
Amortization of Intangibles | (465) | 30.8 | (1,283) | 20.9 |
Others Amortizations | (300) | (1.2) | (902) | (0.7) |
EBIT | 1,836 | (33.1) | 5,236 | (32.3) |
FINANCIAL RESULT | (306) | n.a. | (636) | n.a. |
GAIN (LOSS) ON INVESTMENTS | (1) | (87.3) | (1) | (85.7) |
Taxes | (565) | 160.4 | (872) | (61.0) |
NET INCOME | 965 | (69.6) | 3,727 | (49.9) |
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
Consolidated in R$ million | 09/30/2019 | 12/31/2018 | ∆% YoY |
ASSETS | 110,684 | 102,561 | 7.9 |
Current Assets | 20,721 | 18,363 | 12.8 |
Cash and Cash Equivalents | 4,548 | 3,381 | 34.5 |
Accounts Receivable from Customers | 10,446 | 9,720 | 7.5 |
Provision for Doubtful Accounts | (1,516) | (1,415) | 7.1 |
Inventories | 670 | 462 | 45.0 |
Recoverable Income Tax and Social Contribution | 407 | 275 | 48.3 |
Recoverable Taxes, Fees and Contributions | 4,814 | 4,674 | 3.0 |
Escrow Deposits and Frozen Assets | 300 | 313 | (4.2) |
Derivative Financial Instruments | 12 | 69 | (82.6) |
Prepaid Expenses | 769 | 582 | 32.2 |
Other Assets | 270 | 303 | (10.9) |
Non-Current Assets | 89,963 | 84,198 | 6.8 |
Accounts Receivable from Customers | 543 | 509 | 6.6 |
Provision for Doubtful Accounts | (93) | (83) | 12.0 |
Financial Investments | 76 | 77 | (1.7) |
Recoverable Taxes, Fees and Contributions | 849 | 3,222 | (73.7) |
Deferred Income Tax and Social Contribution | 187 | 230 | (18.9) |
Escrow Deposits and Frozen Assets | 3,415 | 3,597 | (5.1) |
Derivative Financial Instruments | 53 | 27 | 100.8 |
Other Assets | 229 | 181 | 26.3 |
Investments | 103 | 102 | 1.5 |
Property, Plant and Equipment, Net | 43,059 | 34,115 | 26.2 |
Intangible Assets, Net | 41,542 | 42,221 | (1.6) |
LIABILITIES AND SHAREHOLDERS' EQUITY | 110,684 | 102,561 | 7.9 |
LIABILITIES | 40,071 | 30,954 | 29.5 |
Current Liabilities | 19,016 | 17,161 | 10.8 |
Payroll and Related Charges | 766 | 783 | (2.1) |
Suppliers and Accounts Payable | 7,092 | 7,643 | (7.2) |
Income Tax and Social Contribution | 11 | 12 | (9.2) |
Taxes, Fees and Contributions | 1,290 | 1,798 | (28.2) |
Loans, Financing, Debentures and Leasing | 2,684 | 1,464 | 83.3 |
Interest on Capital and Dividends | 5,865 | 4,173 | 40.5 |
Provisions and Contingencies | 427 | 378 | 12.8 |
Derivative Financial Instruments | 1 | 17 | (93.9) |
Deferred Revenues | 518 | 526 | (1.5) |
Other Liabilities | 364 | 368 | (1.3) |
Non-Current Liabilities | 21,055 | 13,793 | 52.6 |
Payroll and Related Charges | 30 | 12 | 153.8 |
Taxes, Fees and Contributions | 280 | 39 | 613.8 |
Deferred Income Tax and Social Contribution | 2,726 | 1,983 | 37.5 |
Loans, Financing, Debentures and Leasing | 11,027 | 4,675 | 135.9 |
Provisions and Contingencies | 5,739 | 5,881 | (2.4) |
Derivative Financial Instruments | 48 | 23 | 109.6 |
Deferred Revenues | 207 | 251 | (17.4) |
Other Liabilities | 998 | 929 | 7.4 |
SHAREHOLDERS' EQUITY | 70,612 | 71,607 | (1.4) |
Capital Stock | 63,571 | 63,571 | 0.0 |
Capital Reserve | 1,166 | 1,214 | (4.0) |
Profit Reserve | 4,338 | 4,324 | 0.3 |
Additional Proposed Dividends | 0 | 2,469 | n.a. |
Other Comprehensive Income | 31 | 29 | 6.5 |
Accumulated Profits | 1,507 | 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
English
Date: November 4, 2019 (Monday)
Time:11:00 a.m. (Brasília) and9:00 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 throughNovember 11, 2019 at(+55 11) 3193-1012 (Code:8446086#)
TELEFÔNICA BRASIL Investor Relations | ||
Christian Gebara David Melcon Luis Plaster João Pedro Carneiro | ||
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/ir | ||
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 the Company. 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: | November 4, 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 |