Vivo Participacoes (VIV), the largest wireless operator in Brazil, reported results for fourth quarter 2009 with earnings per ADS of 32 cents missing the Zacks Consensus Estimate of 41 cents. Net income fell 0.2% year-over-year to R$221.6 million ($127.8 million) as revenue growth was offset by higher operating cost (up 1.2% year-over-year).

For full year 2009, net income more than doubled to R$857.5 million ($436 million) or R$2.14 ($1.09 per ADS), which were also below the Zacks Consensus Estimate of $1.21.

Revenue & EBITDA

The company reported net revenue of R$4.32 billion ($2.5 billion), up 1.2% year-over-year, as growth in data and value-added services (VAS) revenues were partly offset by declines in access and usage revenue and handset revenue. For full year 2009, revenue increased 3.4% year-over-year to R$16.4 billion ($8.3 billion).

Vivo is benefiting from favorable trends in the Brazilian wireless market, its new operations in the northeastern region and expanded coverage for its 3G WCDMA network, the largest in Brazil. The acquisition of a controlling stake in Brazilian wireless carrier Telemig has expanded the company’s service territories.

Net service revenue for the quarter increased 3.4% year-over-year to R$3.9 billion ($2.2 billion) driven by a nearly 65% year-over-year growth in data and VAS revenues as a result of increase in Internet customer base and growth in data service usage. Mobile Internet revenue increased 122% year-over-year, representing 48% of data and VAS revenue.

Access and usage revenue (44% of net service revenue) declined 5.1% year-over-year to R$1.7 billion ($987 million) due to increased use of bonuses in promotional campaigns to drive usage. Network usage revenue (40% of net service revenue) also decreased 1.4% year-over-year to R$1.5 billion ($888 million). Moreover, Handset revenue declined 16% year-over-year to R$403 million ($232 million).

Consolidated EBITDA increased 1.1% year-over-year to R$1.4 billion ($814 million) while EBITDA margin remained flat at 32.7%. This improvement reflects the company’s cost-cutting initiatives and sustained growth in service revenues.

Subscriber, ARPU & Churn

The company gained 2.9 million customers in the quarter (a sequential improvement) bringing its total subscriber base to 51.7 million (up 15% year-over-year). Vivo maintained its leadership in terms of share of net additions with a roughly 37% market share, beating its biggest rival America Movil’s (AMX) Claro.

The company exited the quarter with a 32.2% share of the postpaid segment. Vivo’s GSM/WCDMA operation registered more than 43.5 million subscribers accounting for 84% of the total customer base.

ARPU for the quarter was R$26.1 ($15), representing a 10.3% year-over-year decline. Outgoing ARPU declined year-over-year due to increased use of bonuses in promotions, while incoming ARPU decreased as a result of higher mobile penetration in Brazil. Churn remained relatively stable year-over-year at 2.5%.

Cash, Debt & CAPEX

Vivo exited 2009 with cash and cash equivalents of R$1,258.6 million ($726 million). The company’s restructuring efforts are helping it gain synergies and reduce debt as net debt declined 28.6% year-over-year to R$3,786 million ($2.2 billion). Vivo generated R$1,287.8 million ($743 million) of cash from operating activities and spent R$672.5 million ($388 million) in capital expenditure (CAPEX), resulting in a free cash flow of R$615.3 million ($355 million).

A significant portion of CAPEX was directed at the expansion of 3G services and network capacity, especially in the Northeastern region. For 2010, Vivo plans to spend R$2,490 million ($1.44 billion) in CAPEX, an increase from R$2,369.3 million ($1.37 billion) in 2009.

Dividend

The board of Vivo has proposed a total of R$834.5 million ($450 million) or R$2.05 ($1.13) per share in dividend yield, which is subject to approval at the general shareholders’ Meeting in 2010. The payment will be made through two equal installments on April 19, 2010 and October 25, 2010, respectively.

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