Results 4Q14_
Investor Relations Telefônica Brasil S.A. February, 2015.
Investor Relations Telefônica Brasil S.A.
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.
In addition, due to our process for the acquisition of GVT, we will not be able to discuss any matter related to this transaction nor any perspective of our business development for the enlarged entity.
Investor Relations Telefônica Brasil S.A.
Highlights of the 4Q14 3
1- In recurrent terms. 2- Net Revenue ex-regulatory effects include MTR, VC and basic tariff reductions.
DURING 2014 WE IMPROVED MAIN OPERATIONAL AND FINANCIAL TRENDS
OPERATING FINANCIAL1
Outstanding performance in high end
mobile reflected in
higher revenue growth
30.7% 35.5%
66% 78%
2013 2014
Mix of contract accesses
Data adoption of individual contract
Contract Accesses
Fixed Accesses Thousand and yoy
204 375
630 771
2013 2014FTTH BB PayTV
22%
84%
-5.3%
-0.8%
2013 2014
Accelerating
FTTH and Pay TV
adoption driving
improved fixed
revenue trend
Fixed Revenue ex-regulatory effects2
yoy
Operating Costs yoy
7.6% 5.8%
1.3%
-1.0% -0.4%
1.3%
2013 1Q14 2Q14 3Q14 4Q14 20142013 2014
Consistent cost control even with
inflationary pressure
-9.2% -9.7%
2.0%
7.0% 6.6%
1.2%
2013 1Q14 2Q14 3Q14 4Q14 2014
EBITDA yoy
2013 2014
Third consecutive quarter of
annual EBITDA growth
resulting in growth for
the FY
7.2% 7.9%
2013 2014
Mobile Service Revenue ex-regulatory effects2
yoy IPCA 6.4%
HIGHLIGHTS
1. Operating Performance
Investor Relations Telefônica Brasil S.A.
Mobile contract and Pay TV performance were the main drivers of accesses growth during 2014
OPERATING
INTEGRATED PERFORMANCE
Total Accesses
1- Includes prepaid and contract customers. 2- Includes fixed voice, fixed broadband and Pay TV. 3- Excludes Vivo Play accesses, our OTT solution.
3.5%
0.9%
YoY
76.1 77.2 79.9
15.0 15.3 15.4 91.1 92.5 95.4
2012 2013 2014
Mobile Fixed2 1
57.3 53.6 51.6
18.8 23.7 28.4 76.1 77.2 79.9
2012 2013 2014
Prepaid Contract
3.5%
-3.7%
19.7%
YoY
Mobile Accesses
Strict disconnection policy based on
profitability analysis
Million Million
3.1%
1.5%
1.6%
Fixed Accesses
10.6 10.7 10.7 3.7 3.9 3.9 0.6 0.6 0.8
15.0 15.3 15.4
2012 2013 2014
Voice Broadband PayTV
-0.1%
0.1%
22.3%
YoY Million
0.9% 2.2%
3
5
Investor Relations Telefônica Brasil S.A.
Consistent evolution in data ARPU supported by growth in contract accesses and improved trends in data adoption
OPERATING
SUPER MOBILE
Contract - Accesses and Mix
Penetration
19 24 28
25% 31%
35%
2012 2013 2014Contract accesses Mix of contract
Million
+5 +5
yoy
47 66
Total YoY Individual Contract
% Smart/Web Phones
Contract - Market Share and Net Adds
Data users
28 30 33 39 41
4Q13 1Q14 2Q14 3Q14 4Q14
Data Access* Data Traffic
48%
64%
YoY
1- Data cards, data packages and M2M, excluding eventual data user with no data package or plan. 2- Average of competitors’ ARPU in the 4Q14. Considering that Oi still hasn´t released 4Q14 results, we are using the same ARPU released in the 3Q14.
Million
+19pp
37% 40% 42%
39%
57% 56%
2012 2013 2014Market share Share of net adds
% Data Packages
75 84
2013 2014
+9pp
30 45
+15pp
66 78
2013 2014
+12pp
6.3 7.5
8.8
2012 2013 2014
ARPU Reais and % YoY
Data ARPU +15 mn smartphones yoy in our customer base
CAGR 2012-2014
18.3%
Total ARPU 47% higher than market average in the 4Q
16.8 24.6
Average ofcompetitors**
Vivo
+47%
1 2
6
Investor Relations Telefônica Brasil S.A.
Leading 4G coverage and improved portfolio driving better customer experience and customer loyalty
OPERATING
SUPER MOBILE STRATEGY
4G
1- Source: Teleco. 2- Average data traffic of our customers as a percentage of the total data traffic in São Paulo, Rio de Janeiro, Brasília, Porto Alegre and Belo Horizonte. 3- Excluding control plans and corporate.
140 93 45 45
41% 37% 30% 31%
Vivo Player 2 Player 3 Player 4
# cities covered % of population
Commercial approach and payback
• Portfolio simplification (only 6 offers for contract)
• Extending 4G offers for control and prepaid customers
• Limiting data usage after end of franchise
• Subsidy focused on 4G handsets
• Better customer experience and satisfaction
• Reducing inefficient network usage
2.5 2.3 2.0 2.1
1Q14 2Q14 3Q14 4Q14
Payback (SAC/ARPU)
Contract ARPU3
(3G vs. 4G)
4Q143G 4G
…drives real adoption of mobile UBB…
4% 9%
14% 17%
22% 27%
jan/14 mar jun sep dec jan/15
4G Data traffic2 % 4G data traffic2
11 x
Annual evolution
…leading to improved loyalty and monetization.
Leadership in 4G coverage1… …supported by a rational commercial approach…
+54%
2 2
7
Investor Relations Telefônica Brasil S.A.
In 2014 we consolidated our position of leadership in UBB with 44% market share and sustained strong growth in TV
OPERATING
FIBER AND VIDEO COMPANY
FIBER
FTTH Homes Passed Vivo Fiber UBB
0.7 1.4 1.5 1.8 2.2 2.6 1.0
1.9 2.3
2.9 3.4
4.1
2012 2013 1Q14 2Q14 3Q14 4Q14Addressable homes HPs
Customer base
471 591
2013 2014
26%
Pay TV
Net adds
Net adds
33 52
4Q13 4Q14
12 17
4Q13 4Q14
38%
Million Thousand
Thousand DTH IPTV
Customer base
2013 2014
22%
TRIO
1.6 x
1- Market share of accesses with speeds higher than 34Mbps in the State of SP, according to the last data released by ANATEL from Dec/13 to Dec/14.
61%
20% 12%
6%
Vivo Player 2 Player 3 Player 4
Targeted strategy focused on improving
monetization and loyalty
Share of UBB additions above 34Mbps1
More than 60% of FTTH gross adds coming from
competition
8
Investor Relations Telefônica Brasil S.A.
On the Corporate segment, we ended the year with strong growth in accesses and revenues in the most relevant services
OPERATING
CONVERGENT CORPORATE SERVICES PROVIDER
4G
Revenues
Data packages
2013 2014
26%
629 thousand customers by
the end of 2014
2013 2014
4.1 x
Customer base
IT
2013 2014
13%
M2M
2013 2014
1.5 x Leader in market share of net adds
with 309 thousand new M2M accesses
Customer base
Fiber
2013 2014
1.5 x Increase of new fiber additions
sustained by HPs
expansion
New customers
9
Investor Relations Telefônica Brasil S.A.
OPERATING
4Q14 %YoY 2014 %YoY
Telefônica Brasil achieved solid recurrent EBITDA margin of 32.7% in the quarter driving recurrent EBITDA growth in 2014
1- Excludes non-recurrent items: sale of non strategic towers, organizational restructuring expenses and recovery of taxes. 2- Includes Net Handset Revenues. 3- Do not exclude non-recurrent items.
Net Operating Revenue2
Net Fixed Service Revenue
Operating Costs
EBITDA
EBITDA Margin
Net income3
Net Operating Service Revenue
Net Mobile Service Revenue
Capex ex-licenses
9,047.6
2,828.6
(6,086.8)
2,960.8
32.7%
1,260.9
8,747.4
5,918.8
2,199.3
1.8
(4.8)
(0.4)
6.6
1.5 p.p.
2.4
2.1
5.8
(0.3)
35,000.0
11,260.1
(24,383.4)
10,616.6
30.3%
4,936.6
33,784.7
22,524.6
6,374.3
1.3
(3.9)
1.3
1.2
(0.0) p.p.
32.9
1.6
4.6
14.2
Recurrent terms1 R$ million
10
2. Financial Performance
Investor Relations Telefônica Brasil S.A.
During 2014 we sustained accelerated mobile revenue increase capturing 78% of incremental revenues generated by the market
Recurrent Net Mobile Service Revenue1
FINANCIAL
Evolution without the 2014 MTR reduction and non-recurrent events1
5.8%
5.1%
8.9%
2,891 2,850 2,949
797 569 569
1,864 2,125 2,282 44 86 118
5,597 5,630 5,919
4Q13 3Q14 4Q14
Access and usage Network usageData and VAS Others
2.0%
YoY
-28.6%
22.4%
R$ Million
1- Excludes recovery of taxes in 4Q13 in the amount of R$165.8 million. 2- Based on net mobile service revenues of 2014. Considering that Oi still hasn´t released 4Q14 results, we are using the same revenue of the 3Q14 in the 4Q14.
4.6% 7.9%
11,266 11,482
3,270 2,366
6,877 8,308 113 368
21,525 22,525
2013 2014
1.9%
YoY
-27.6%
20.8%
Vivo 78%
Player 2 22%
Player 3 0%
Player 4 0%
YoY
Share of Incremental Mobile Service Revenues2
169% 227%
12
Investor Relations Telefônica Brasil S.A.
Data revenues speeded up growth in the 4Q14 and already represent 39% of mobile service revenues
Data and VAS Revenue Mix of Data and VAS Revenue
22.4%
7.4%
1,056 1,271 1,398
340 430
466 468 424
418 1,864 2,125
2,282
4Q13 3Q14 4Q14
Internet VAS Messaging P2P
37.0%
-10.5%
75% 80% 82%
25% 20% 18%
300 363
418
4Q13 3Q14 4Q14
Messaging P2PVAS + InternetYoY growth in R$ MillionYoY growth in %
% of Data and VAS Revenue over Mobile Service Revenue
39% 38% 32%
4Q13 3Q14 4Q14
YoY
R$ Million
22.4% 20.6% 19.1% 20.8%
3,740 4,943
1,164
1,660 1,973
1,705 6,877 8,308
2013 2014
YoY
42.6%
-13.6%
32%
2013
37%
2014
32.4% 32.2%
13 FINANCIAL
Investor Relations Telefônica Brasil S.A.
Fixed revenue continue to sustain an improved trend even in face of regulatory effects during the year
Net Fixed Revenue Net Fixed Revenue Evolution without regulatory effects
Evolution without regulatory effects2
1.5%
1,632 1,474 1,499
132 152 162
942 925 911
264 234 256
2,970 2,786 2,829
4Q13 3Q14 4Q14
Voice PayTV Data Others
-8.1%
YoY
22.2%
-3.3%
R$ Million YoY
-2.8%
1- Includes voice, accesses and network usage. 2- Regulatory effects includes VC and basic tariff reductions.
-3.9% -0.8%
6,620 6,034
491 598
3,650 3,656
958 973
11,720 11,260
2013 2014
-8.9%
YoY
21.6%
0.1%
1.6%
-5.3%
-0.1%
-2.4%
0.4%
-1.1% -0.8%
2013 1Q14 2Q14 3Q14 4Q14 20142013 2014
+4.5 p.p.
-4.8% -1.1%
14 FINANCIAL
1
Investor Relations Telefônica Brasil S.A.
EBITDA and EBITDA Margin R$ Million and %
-9.2% -12.6%
-9.7%
2.0% 7.0% 6.6%
1.2%
2013 4Q13 1Q14 2Q14 3Q14 4Q14 2014
EBITDA YoY
EBITDA Margin
2013 2014
We achieved annual growth in recurrent EBITDA in 2014 with solid discipline on costs while sustaining strong commercial activity
3rd consecutive quarter of EBITDA growth
15 FINANCIAL
1.6 p.p. -0.5 p.p. -2.3 p.p. 0.6 p.p. -0.1 p.p. 29.7% 30.5%
1.6% 2.1% 6.6% -1.3% -14.1% -0.0 p.p. y-o-y RECURRENT1
10,493 10,617
540 73 547 138 65
Recurrent EBITDA2013
Net ServiceRevenues
Personnel + G&A Subsidies + SellingExpenses
Services Rendered Others Recurrent EBITDA2014
1.1% 3.4% 6.6% -1.3% 3.7% REPORTED
0.1 p.p. -0.0 p.p. -0.1 p.p. 0.0 p.p. 0.0 p.p. 30.3% 30.4%
y-o-y -0.7 p.p.
1- Net Service Revenues: recovery of taxes in the amount of R$166 million in 2013; Personnel: organizational restructuring in the amount of R$163 million in 2013 and R$212 million in 2014; and Others: sale of non strategic towers in the amount of R$80 million in 2013.
RECURRENT1
Investor Relations Telefônica Brasil S.A.
OCF
Net Profit
Capex
Gross and Net Debt
With a solid capital structure, we increased investments in 2014 to sustain our quality differential and maintained consistent shareholder remuneration throughout the year
8.8 7.8
2013 2014
5,582 6,374
6,033 9,140
2013 2014Capex (-) Licenses Licenses
9.6 9.4
1.9 2.3
2013 2014OCFOCF/(EBITDA-Capex ex. licenses)
R$ Million
R$ Billion R$ Million
3,716 4,937
2013 2014
32.9%
1.8 2.3
0.17 0.22
2013 2014Net debtNet debt / EBITDA
+29% Dividends declared
based on 2014 results
amounts R$5 billion, an yield of 9.5% on VIVT41.
-11%
Gross debt
R$2.8 billion paid as IOC and dividends
during 2014.
18.2% 16.1%
Capex (-) Licenses / Net Revenues
Total Capex
1- Considering VIVT4 price on December 31st, 2014.
R$ Billion
16 FINANCIAL
Telefônica Brasil S.A. – Investor Relations
Av. Eng. Luis Carlos Berrini, 1376 – 28th floor – Cidade Monções – Sao Paulo/SP – 04571-000 Phone: +55 11 3430-3687
E-mail: [email protected] Information available from the website: http://www.telefonica.com.br/ir