July 27, 2016 / 4:41 PM / 2 years ago

Telefónica Brasil expects profit growth in recovering economy

SAO PAULO, July 27 (Reuters) - Brazil’s biggest phone carrier, Telefónica Brasil SA, expects operational profitability to grow over the next three years thanks to cost savings following the purchase of GVT SA and a recovering economy, Chief Executive Officer Amos Genish said on Wednesday.

Adjusted earnings before interest, tax, depreciation and amortization could hit 36 percent of revenue in 2018, when 70 percent of cost savings from the GVT takeover will be captured, Genish said in a call to discuss second-quarter results. The so-called EBITDA margin ended last quarter at 31.4 percent.

Genish, who took the helm of Telefónica Brasil last year, said the company is better positioned than rivals to take advantage of a gradual reduction in unemployment and inflation. Pre-paid mobile plans at wireless carrier Vivo have suffered more than other businesses in Brazil’s worst recession in decades, Genish said.

His remarks underpin growing optimism among business leaders as an interim government tackles fiscal imbalances and seeks to end a political deadlock. Telefónica Brasil on Tuesday raised the estimate for expected cost savings from the GVT deal by 13 percent to 25 billion reais ($7.6 billion), which fanned a jump in shares.

Preferred shares rallied 1.7 percent to 47.54 reais, offsetting the disclosure of second-quarter profit that missed estimates.

The São Paulo-based carrier posted net income of 699.5 million reais last quarter, missing a consensus estimate of 924 million reais as compiled by Thomson Reuters.

A decision by rival carrier Oi SA to file for creditor protection in Brazilian bankruptcy court “is bad news for the sector in general” because it underscores the hurdles facing the telecommunications industry, Genish said.

He cited mandatory capital spending targets to expand voice services and the industry’s 43 percent tax burden as impediments for doing business in Brazil.

It is early to assess whether Telefonica will capture market share from Oi, since the process depends on the evolution of the carrier’s in-court reorganization, Genish said.

$1 = 3.2884 Brazilian reais Reporting by Ana Mano; editing by Grant McCool

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