Vivo Misses but Profit Surges – Analyst Blog

 

Vivo Participacoes (VIV), the largest wireless operator in Brazil, reported results for first-quarter 2010 with earnings per ADS of 27 cents missing the Zacks Consensus Estimate of 35 cents. However, net income surged 44.3% year-over-year to R$191.9 million ($107 million) on the back of higher revenues, healthy subscriber accretion and lower financial expenses (down 33% year-over-year).

 

 

Vivo, a joint venture between Spanish telecom giant Telefonica (TEF) and Portugal Telecom (PT), posted net revenues of R$4.23 billion ($2.36 billion), up 4.8% year-over-year, driven by sustained growth in data and value-added services (VAS) revenues which more than offset declines in access and usage revenues as well as handset sales.

 

Vivo benefits from favorable trends in the Brazilian wireless market, new operations in the northeastern region and expanded coverage for its 3G WCDMA network, the largest in Brazil covering 61% of the population.

 

Net service revenues for the quarter increased 5.8% year-over-year to R$3.9 billion ($2.2 billion) driven by a nearly 52% year-over-year growth in data and VAS revenues as a result of the increase in Internet customer base and growth in data service usage. Mobile Internet revenues increased 119.8% year-over-year, representing 53% of data and VAS revenues.

 

Access and usage revenues (43% of net service revenue) declined 0.1% year-over-year to R$1.7 billion ($946 million), affected by the increased use of bonuses in promotional campaigns to drive usage. Network usage revenues (38% of net service revenue) also fell 0.9% year-over-year to R$1.5 billion ($839 million). Moreover, Handset revenues declined 7.3% to R$303.7 million ($169 million).

 

Consolidated EBITDA increased 3.8% year-over-year to R$1.27 billion ($710 million) while EBITDA margin remained flat at 30.1%. This improvement reflects the company’s cost-cutting initiatives and sustained growth in service revenues.

 

 

The company gained 2.2 million customers in the quarter, a more than three-fold growth from 696,000 customers added a year-ago, bringing its total subscriber base to 53.95 million (up 18.2% year-over-year). Vivo has maintained its leadership in terms of share in net additions with a roughly 42.8% market share, beating its biggest rival America Movil’s (AMX) Claro.

 

Vivo continues to dominate the Brazilian wireless market as the carrier exited the quarter with an overall market share of 30.12% and a 33.5% share of the postpaid segment. The company’s GSM/WCDMA operation registered more than 46 million subscribers accounting for 85% of the total customer base.

 

ARPU dipped 9.2% year-over-year to R$24.8 ($13.8) on account of price reductions. 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 (customer switch) was stable at 2.5%.

 

 

Vivo exited the quarter with cash and cash equivalents of R$805.9 million ($449 million). The company’s restructuring efforts are helping it gain synergies and reduce debt as net debt declined 29.8% year-over-year to R$3,937.6 million ($2.2 billion). Vivo generated R$392.8 million ($219 million) of cash from operating activities and spent R$328.7 million ($183 million) in capital expenditure (CAPEX), resulting in a free cash flow of R$64.1 million ($36 million).

 

A significant portion of CAPEX was directed towards expanding network capacity and coverage to support the growing demand for voice and data services. For 2010, Vivo plans to spend R$2,490 million ($1.39 billion) in CAPEX, an increase from R$2,369.3 million ($1.32 billion) in 2009.

 

 

The board of Vivo has declared a dividend of R$2.05 ($1.14) per share totaling R$818.9 million ($456 million), which was approved at the general shareholders’ Meeting on April 16, 2010. The company is paying the dividend in two equal installments. The first installment was paid on April 19, 2010, and the balance will be paid on October 25, 2010.