October 25, 2016 / 11:22 PM / a year ago

UPDATE 2-Telefonica Brasil profits up 9.6 pct as economy improves

(Recasts lead; adds details on free cash flow capital spending, comments by CEO)

By Ana Mano

SAO PAULO, Oct 25 (Reuters) - Telefonica Brasil SA , the country’s biggest telecommunications company, said third-quarter net income rose 9.6 percent and sales of pre-paid mobile services rose for the first time in two years amid signs of an economic recovery.

Telefonica Brasil, which operates under the Vivo brand name, posted net income of 953 million reais ($306.3 million), according to a securities filing on Tuesday.

The rise in sales of pre-paid mobile services indicated the worst of Brazil’s economic woes were over, Chief Executive Officer Amos Genish said in remarks after the results were released.

In addition, in August Telefonica Brasil, a unit of Spain’s Telefonica SA, outpaced its competitors by registering 46.7 percent of net customer additions in the post-paid segment, where revenue per user tends to be higher.

Net operating revenue was 10.6 billion reais in the quarter.

São Paulo-based Telefonica Brasil also continued to capitalize on cost efficiencies from its acquisition of broadband company GVT from France’s Vivendi, which helped reduce capital spending and boost free cash flow generation by 43 percent in the nine months through September, to 4.8 billion reais.

“Our free cash flow figure was astronomical, this is the data that the market really wants to see,” said Genish, who announced earlier this month that he would step down as CEO for unspecified personal reasons.

Genish said this year also marked an important business model shift, as “smart” investment allocation is helping Telefonica transition from a traditional operator into a digital services platform.

“With falling voice-based and subscription TV revenues, we don’t want to invest in anything that represents the past,” he said.

Telefonica should continue to invest about 8 billion reais annually, but capital spending will fall as a percentage of net revenue as the company becomes more selective and focuses on new technologies.

This year, capex should be around 700 million reais lower than the 8.7 billion reais forecast, Genish said. Still, Telefonica Brasil plans expansion of its 4G network to 352 cities, up from 209 at the end of September.

Genish said Eduardo Navarro, who was named to succeed him as CEO, will take over the helm sometime during the fourth quarter, and not Jan 1, as previously announced.

“Navarro’s tenure should begin sooner rather than later as a company should not have two CEOs,” Genish said.

$1 = 3.1110 Brazilian reais Reporting by Ana Mano; Editing by Daniel Flynn and Leslie Adler

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