140728 - Apresentação 2Q14 - ENGstatic.telefonica.aatb.com.br/Arquivos/Download/... · Highlights of the 2Q14 OPERATING FINANCIAL HIGHLIGHTS Reaching strong net adds after seasonal

Results 2Q14_

Investor RelationsTelefônica Brasil S.A.July, 2014.

Investor RelationsTelefônica Brasil S.A.

2

Highlights of the 2Q14

OPERATING FINANCIAL

HIGHLIGHTS

Reaching strong net adds after

seasonal

effects in the

1st quarter.

Increasing contract

market share leading to

higher data

adoption and

ARPU growth.

21% 20% 27%

2Q12 2Q13 2Q14

Contract Access Growth - yoy

-0.2 pp +6 pp

6.0 7.4 8.5

2Q12 2Q13 2Q14

-104

112 155

2Q12 2Q13 2Q14

Total Fixed Net Adds**

n.m. 39%

Data ARPU - R$ per month

23% 15%

Revenues

Recovering solid annual growth in net service revenueswhen excluding regulatory effects.

Net Service Revenues - yoy

1.5% 2.0% 1.3% 1.9%3.1% 3.6% 4.1%

5.1%

3Q13 4Q13 1Q14 2Q14

Net Service Revenues Net Service Revenues ex-regulatory effects

11.6%

6.7% 5.8%

1.3%

3Q13 4Q13 1Q14 2Q14

Recurrent Costs - yoy

-17.1%-12.6% -9.7%

2.0%

3Q13 4Q13 1Q14 2Q14

Recurrent EBITDA - yoy

Controlling costs below inflation leading to growth in Recurrent EBITDA in this quarter.

Profitability

* Thousand. Excludes Vivo Play and MMDS.

3

1. Operating Performance


4

Growth in total accesses driven by the evolution of mobile contract, Pay TV and fixed outside of São Paulo State.

OPERATING

INTEGRATED PERFORMANCE

Total Accesses

1 Includes prepaid and contract customers.2 Includes fixed voice, fixed broadband and Pay TV.Source: ANATEL.

4.1%

4.1%

YoY

76.2 78.5 79.4

14.9 15.4 15.5

91.1 93.9 94.9

2Q13 1Q14 2Q14

Mobile Fixed21

4.1%

1.1%

55.5 53.6 53.2

20.7 24.9 26.2

76.2 78.5 79.4

2Q13 1Q14 2Q14

Prepaid Contract

4.1%

1.1%

-4.2%

26.5%

YoY

Fixed Accesses

4.1%

10.6 10.8 10.9

3.8 3.9 3.90.5 0.6 0.714.9 15.4 15.5

2Q13 1Q14 2Q14

Voice Broadband PayTV*

1.0%

3.4%

2.4%

30.4%

YoY

Mobile Accesses

Strict disconnection policy based on

profitability analysis

* Excludes Vivo Play accesses, our OTT solution.

Million Million

Million


Our Super Mobile strategy is based on a differentiated network and quality delivered and perceived by customers.

OPERATING

SUPER MOBILE

5

NETWORK

4G and 3G coverage* Sites and carriers Spectral capacity

QUALITY

94.0 89.3 92.2 75.1

Vivo Player 2 Player 3 Player 4

IDA Complaints

Mobile IDA and Complaints ANATEL Brand Perception**

2013 2014

Sites Carriers

98 91 45 45

3.2

1.5 1.2 1.1


4G 3G (thousand)

* Source: ANATEL and Teleco. ** Brand Finance, Top of Mind and Marca de Confiança.

� Largest national spectrum in lower frequencies

(850 MHz)

� Largest available slot in 4G spectrum (40 MHz in

2.5 GHz frequency)

Leadership in the latest ranking of quality perception among the 4 largest players

Jan/14

3.73.5

3.43.5

Prepaid


3.53.3

2.93.1

Contract

� Most valuable brand in the telecom market

� Most recalled brand in the telecom market

� Most reliable brand for consumers

YoY

20%

24%

Population covered by Vivo:

4G: ~35% and 3G: ~90%


The strategy is driving sustained leadership among valuable customers and ARPU growth once again during this quarter.

OPERATING

SUPER MOBILE

* Data cards, Data packages and M2M, excluding eventual data user with no data package or plan.6

% without the regulatory impact

15.5 14.9

7.4 8.5

22.8 23.4

2Q13 2Q14

Voice Data

2.3%

5.5%

-4%

15%

YoY

Strong contract and data adoption...

... is driving accelerated ARPU growth.

ARPU

Contract ex-M2M and 4G Market Share

Contract Churn

Penetration Data users and data traffic

1.9 1.6 1.5 1.5 1.5

2Q13 3Q13 4Q13 1Q14 2Q14

-0.5 pp

58

81

56

Smartphones

37

74

34

Data Packages

Total

Individual Prepaid

Individual Contract

22 24 28 30 33

2Q13 3Q13 4Q13 1Q14 2Q14

Data Access* Data Traffic

55%

86%

YoY

Million%

42.8 20.3 20.2 14.3

39.2

20.0

30.3

10.2


Contract ex.M2M 4G

% %

17 10 18 pp 20 15 21 ppyoy

and Web Phones


Fixed accesses evolution reflects the sound execution of our strategy.OPERATING

FIBER AND VIDEO COMPANY

7

NET ADDS

Broadband Pay TV

Fixed Net Adds*

112

155

2Q13 2Q14

* Excludes MMDS and Vivo Play accesses, our OTT solution.

Thousand

13

98

2Q13 2Q14

Thousand

Thousand

14

45

2Q13 2Q14

2Q13 2Q14

Fixed Voice

FWT

33

59

2Q13 2Q14

Accelerating

fixed voice

sales (FWT)

outside of

SP State

Great adoption of IPTV and DTH

%

Increasing % of adds with speeds

above 15Mbps

5 x


We are transforming ourselves into a Fiber Company and enhancing our position as a Video player.

OPERATING

FIBER AND VIDEO COMPANY

8

FIBER

FTTH Homes Passed Vivo Fiber BB Vivo Fiber TV

0.71.4 1.5 1.8

1.0

1.92.3

2.9

2012 2013 1Q14 2Q14

Addressable homes

VIDEO

Net adds Customer base

9

40

2Q13 2Q14

4 x

2Q13 2Q14

+ 24%

DTH Trio Pay TV Churn

2Q13 2Q14

0.5 x

Net adds Net adds

20

37

2Q13 2Q14

2 x

8

14

2Q13 2Q14

2 xMillion Thousand Thousand

Thousand Thousand %


9

On the Corporate segment, we continue to succeed in our strategy to be a convergent nationwide provider.

OPERATING

CONVERGENT CORPORATE SERVICES PROVIDER

4G

Complete portfolio and coverage leveraged us to achieve more

than 400 thousand customers only one year after the 4G launch

Fiber

2Q13 2Q14

+ 55%Expansion of HPs sustains our strong

path of growth

Customer base

M2M

Market Share

23.7 25.8 28.5 30.4 32.0

2Q13 3Q13 4Q13 1Q14 2Q14

+ 8.3 pp

FWT OSP

Customer base

Expanding our sales channels

outside of São Paulo

State

2Q13 2Q14

2 x


10

In 2Q14, Telefônica Brasil resumed annual growth in recurrent EBITDA with strong mobile revenue increase and strict cost control.

2Q14

8,616.6

8,322.6

5,530.2

2,792.4

293.9

6,071.1

2,545.5

29.5%

1,992.6

2Q13

8,491.5

8,170.3

5,219.2

2,951.1

321.2

5,995.6

2,495.9

29.4%

914.2

C% YoY

1.5

1.9

6.0

-5.4

-8.5

1.3

2.0

0.1 p.p.

118.0

R$ million

Net Operating Revenue

OPERATING

Recurrent Operating Costs

Net Handset Revenue

Recurrent EBITDA

Recurrent EBITDA Margin

Net Result

Mobile Net Service Revenue

Net Operating Service Revenue

Fixed Net Service Revenue

11

2. Financial Performance


12

Mobile service revenue annual growth accelerated in the quarter driven by improved voice monetization and data adoption.

Mobile Net Service Revenue Recurrent Mobile Service Revenue

FINANCIAL

In order to simplify the analysis the chart does not include ‘Other Revenues’.

Evolution without the 2014 MTR reduction

6.0%

1.5%

9.3%

2,726 2,834 2,850

780 672 555

1,685 1,888 2,013

5,219 5,446 5,530

2Q13 1Q14 2Q14

Access and usage Network usage Data and VAS

4.5%

YoY

-28.8%

19.5%

4.8%

5.2%

6.0%

7.1%

9.3%

2Q13 2Q14

With MTR Without MTR

R$ Million YoY


13

Data service revenues represent more than 36% of mobile service revenues with enhanced growth in internet and VAS.

FINANCIAL

Data and VAS Revenue Mix of Data and VAS Revenue

19.5%

6.6%

915 1,096 1,178

488428 435

282364 400

1,6851,888

2,013

2Q13 1Q14 2Q14

Internet Messaging P2P VAS

28.7%

-10.9%

42.2%

74.9% 77.4% 78.4%

25.1% 22.6% 21.6%

300322 328

4Q13 1Q14 2Q14

VAS + InternetMessaging P2PYoY R$ Million

% of Data and VAS Revenue over Mobile Service Revenue

36.4%34.7%32.3%

2Q13 1Q14 2Q14

YoY

R$ Million


14

Fixed revenues sustain solid evolution in 2Q14 although affected by regulatory effects in the quarter.

Fixed Net Service Revenue Fixed Net Service Revenue

(1) Includes voice, accesses and network usage.(2) Includes Pay TV and Other Revenues.

FINANCIAL

Evolution without regulatory impacts.

-5.4%

-2.1%

-2.4%

1,562 1,448 1,393

366 386 379

911 905 915

2,951 2,853 2,792

2Q13 1Q14 2Q14

Voice (1) Others (2) Data

-10.8%

YoY

3.7%

0.5%

-11.8%

-5.2% -5.4%

-10.2%

-4.1%

-2.4%

2Q12 2Q13 2Q14

Fixed Net Revenue

Fixed Net Revenue ex-regulatory impacts

0.9%

R$ Million YoY


15

Recurrent EBITDA margin show annual improvement supported by discipline on costs and better revenue growth.

Recurrent EBITDA MarginR$ Million

FINANCIAL

Recurrent EBITDA Margin

� Collective bargaining agreement held in

January, 2014

� Lower tax expenses in 2Q13 resulting from tax

recoveries affecting G&A evolution

� Rational evolution in unitary commissions

and subsidies

� Lowest annual evolution in

commercial costs in the last 4 quarters

Personnel + G&ASubsidies + Selling

Expenses

29.4% +0.5 p.p. -0.2 p.p. -0.3 p.p. +0.1 p.p. +0.1 p.p. 29.5%

+1.9% +7.4% +4.1% -0.9% -13.7% 0.1 p.p.

Impact in

EBITDA Margin

y-o-y

evolution

� MTR reduction driving reduced

interconnection costs

� Ex-MTR, higher costs associated with

maintenance and TV / mobile content

Services Rendered

2,496

2,545

152 62

85

25 19

Recurrent EBITDA2Q13

Net ServiceRevenues

Personnel + G&A Subsidies + SellingExpenses

Services Rendered Others Recurrent EBITDA2Q14

R$ Million


Operating Cash Flow

Net Profit

Capex

Financial Result and Net Debt

16

We are committed with a higher level of Capex to guarantee sustained quality leadership although maintaining solid capital structure.

FINANCIAL

-73-112

2Q13 2Q14

-39

1,2521,615

14.7%18.7%

2Q13 2Q14

% Capex / Net Revenues

2.1

2.5

2Q13 2Q14

19%

R$ Million

R$ Million

R$ Billion

R$ Million

914

1,993

2Q13 2Q14

118%

1,8002,525

2Q13 2Q14

40.3%

17

3. CEO Statement


Once

18

CEO Statement

Once again Telefonica Brasil has proved its operational and financial capacity to overcome adversity.

Our focused, aggressive and customer oriented strategy brought us back to EBITDA growth. On the operational side, our evolution remains solid with outstanding mobile contract and data growth and acceleration in fiber, TV and fixed wireless accesses. That proves that we are in the right path.

More than ever we are committed to the right investment level to guarantee the sustainability of our competitive advantages where we already lead: 4G, FTTH, mobile data growth, corporate solutions and digital services.

Tough challenges continue to exist. We still face a challenging regulatory environment, a lower economic growth and increasing inflationary pressures combined with quality demands. We are on top of all those issues and confident that we are more prepared than any of our competitors to face them.

PAULO CESAR TEIXEIRA


19

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.

Telefônica Brasil S.A. – Investor Relations

Av. Eng. Luis Carlos Berrini, 1376 – 28th floor – Cidade Monções – Sao Paulo/SP – 04571-000Phone: +55 11 3430-3687

E-mail: [email protected] available from the website: http://www.telefonica.com.br/ir

Documents

140728 - Apresentação 2Q14 - ENGstatic.telefonica.aatb.com.br/Arquivos/Download/... · Highlights of the 2Q14 OPERATING FINANCIAL HIGHLIGHTS Reaching strong net adds after seasonal