Telefônica Brasil announces its results for 1Q24

Rhea-AI Summary

Telefônica Brasil reported strong results for 1Q24 with above-inflation growth in revenues, EBITDA, and net income. The company saw a 6.5% YoY increase in net operating revenue, driven by mobile services, FTTH, and corporate data services. EBITDA grew by 6.8% YoY, reaching R$5,277 million, with a margin of 39.0%. Operating cash flow increased by 4.5% YoY to R$3,403 million. The company's net income attributed to Telefônica Brasil reached R$896 million in 1Q24, a 7.3% YoY increase.

Positive

• Strong operating performance leading to above-inflation growth in revenues, EBITDA, and net income.

• Mobile service revenue saw a strong growth of 9.3% YoY, driven by postpaid revenue.

• FTTH revenue expanded by 14.7% YoY, with the network presence in 443 cities and 26.8 million homes passed.

• EBITDA increased by 6.8% YoY to R$5,277 million, with a margin of 39.0%.

• Operating cash flow grew by 4.5% YoY to R$3,403 million.

• Net income attributed to Telefônica Brasil reached R$896 million in 1Q24, a 7.3% YoY increase.

Negative

• Free cash flow decreased by 24.0% YoY to R$2,380 million.

Insights

Financial Analyst

Telefônica Brasil has presented a robust financial performance in 1Q24, with a 6.5% year-over-year increase in net operating revenue. This is particularly notable as it surpasses inflation rates, indicating effective pricing strategies and market growth. The driver behind this revenue growth is the Mobile Services segment, which saw a 9.3% growth, likely reflecting a successful expansion in their postpaid subscriber base and price adjustments in response to economic conditions.

The company's EBITDA also grew by 6.8%, with a slight improvement in margin, although this is a marginal increase. It's essential to assess whether these margins are sustainable as the capital expenditures have escalated by 11.2%, indicating heavy investment in network infrastructure. This is an attempt to future-proof the company against increasing competition, especially in the mobile network sector.

Despite the increase in operating cash flow, there is a noteworthy 24% decrease in free cash flow. Investors should closely monitor this trend as it could impact future dividends, despite the company's commitment to distribute over 100% of its net income in the coming years. The substantial shareholder remuneration already paid and scheduled suggests confidence in financial stability, but the decrease in free cash flow could be a red flag.

Overall, Telefônica Brasil's financial health seems strong, but with significant capital expenditures and declining free cash flow, investors would do well to consider the balance between growth investments and shareholder returns.

Telecommunications Market Analyst

Telefônica Brasil's strategy to expand its FTTH (fiber-to-the-home) network has paid off, with an impressive 14.7% revenue growth in this segment. With the network reaching 443 cities and a notable increase in both homes passed and connected, the company is capitalizing on the high demand for fast and reliable internet services. Such expansion is critical in retaining competitiveness within the telecommunications industry, where customer demand for bandwidth and service quality is continuously escalating.

The reported low postpaid churn rate of 0.97% per month indicates strong customer retention strategies. It is one of the lowest churn rates in the company's history, highlighting the potential for sustained revenue streams from a loyal customer base. However, investors should remain alert to the 15.1% decline in other revenues, which includes traditional voice services and older technology like xDSL, suggesting a gradual obsolescence in these areas.

For retail investors, the growth in subscribers, particularly in the lucrative postpaid segment, bodes well for future revenue. Nevertheless, the decline in operating cash flow margin implies that costs may be rising at a rate that could outpace revenue growth if not managed efficiently.

SÃO PAULO, May 7, 2024 /PRNewswire/ -- Telefônica Brasil - (B3: VIVT3; NYSE: VIV), announces its results for 1Q24:

1Q24 Results: Telefônica Brasil S.A.

Strong operating performance leading to above-inflation growth in revenues, EBITDA and net income

R$ million	1Q24	1Q23	% Y-o-Y
Net Operating Revenue	13,546	12,721	6.5
Mobile Services	8,702	7,965	9.3
FTTH	1,717	1,496	14.7
Corporate Data, ICT and Digital Services	1,132	1,093	3.5
Handsets and Electronics	881	854	3.1
Other Revenues¹	1,114	1,312	(15.1)
Total Costs	(8,269)	(7,778)	6.3
EBITDA	5,277	4,942	6.8
EBITDA Margin	39.0 %	38.9 %	0.1 p.p
EBITDA After Leases (AL)	4,047	3,784	7.0
EBITDA AL Margin	29.9 %	29.7 %	0.1 p.p
Net Income attributed to TelefônicaBrasil	896	835	7.3
Earnings per Share (EPS)	0.54	0.50	7.9
CAPEXex-IFRS 16	1,874	1,686	11.2
Operating Cash Flow (OpCF)	3,403	3,256	4.5
OpCF Margin	25.1 %	25.6 %	(0.5) p.p
Operating Cash Flow AL (OpCF AL)	2,173	2,097	3.6
OpCF AL Margin	16.0 %	16.5 %	(0.4) p.p
Free Cash Flow	2,380	3,130	(24.0)
Total Subscribers (Thousand)	113,481	112,280	1.1

1 – Other Revenues includes Voice, xDSL, FTTC and IPTV.

Net revenue continues to grow above inflation (+6.5% YoY), led by the strong performance of Mobile Service Revenue (MSR) (+9.3 YoY), driven by the double-digit growth of Postpaid Revenue (+11.4% YoY). Postpaid's strong performance is related to the increase in customer base (+6.6% YoY), both due to migrations from prepaid as well as through the acquisition of new customers, annual price adjustments, and by maintaining postpaid's (ex-M2M) churn in its lowest historical level, 0.97% per month.

Fixed revenue maintained its positive performance (+1.6% YoY), driven by the increase in FTTH Revenue, which continued to expand strongly (+14.7% YoY) in 1Q24, because of investments in network deployment and fiber customer additions. FTTH network is currently present in 443 cities (+7 cities YoY) with 26.8 million homes passed (+10.0% YoY) and 6.3 million homes connected (+12.3% YoY).

EBITDA totaled R$5,277 million (+6.8% YoY), with a margin of 39.0% (+0.1 p.p. YoY), due to the strong service revenue performance.

Operating Cash Flow totaled R$3,403 million (+4.5% YoY), with a margin of 25.1% (-0.5 p.p. YoY) over net revenue. In 1Q24, Capex ex-IFRS16 totaled R$1,874 million (+11.2% YoY) or 13.8% of revenues (+0.6 p.p. YoY), directed towards strengthening our mobile network.

Net income attributed to Telefônica Brasil reached R$896 million in 1Q24 (+7.3% YoY). Shareholder remuneration paid up to April reached R$2,190 million, related to previous interest on capital deliberations. Additionally, R$1,500 million from the resources resulting from the capital reduction will be paid on July 10^th, 2024, while R$53 million were invested in share buybacks. For the years 2024 to 2026, the Company has committed to distribute an amount equal to or above 100% of net income for each fiscal year.

To download the complete version of the Company's earnings release, please visit our website: https://ri.telefonica.com.br/en

View original content:https://www.prnewswire.com/news-releases/telefonica-brasil-announces-its-results-for-1q24-302138993.html

SOURCE Telefônica Brasil S.A.

FAQ

What was the YoY increase in net operating revenue for Telefônica Brasil in 1Q24?

Telefônica Brasil saw a 6.5% YoY increase in net operating revenue in 1Q24.

How did EBITDA perform for Telefônica Brasil in 1Q24?

EBITDA for Telefônica Brasil increased by 6.8% YoY, reaching R$5,277 million.

What was the net income attributed to Telefônica Brasil in 1Q24?

Net income attributed to Telefônica Brasil reached R$896 million in 1Q24, a 7.3% YoY increase.

What was the increase in mobile service revenue for Telefônica Brasil in 1Q24?

Mobile service revenue grew by 9.3% YoY in 1Q24.

How did FTTH revenue perform for Telefônica Brasil in 1Q24?

FTTH revenue expanded by 14.7% YoY in 1Q24.

What was the change in free cash flow for Telefônica Brasil in 1Q24?

Free cash flow decreased by 24.0% YoY to R$2,380 million in 1Q24.