February 21, 2017 / 11:53 PM / a year ago

UPDATE 1-Telefonica Brasil meets profit estimates on strict cost controls

(Adds comments from Telefonica Brasil executives)

By Ana Mano

SAO PAULO, Feb 21 (Reuters) - Telefonica Brasil SA , the country’s biggest telephone carrier, said on Tuesday that fourth-quarter net income was in line with estimates as cost and expense controls helped offset tepid revenue growth.

Profit rose 9 percent to 1.21 billion reais ($391 million) from the same period a year earlier, according to a securities filing. The number was in line with the average consensus estimate of 1.21 billion reais compiled by Thomson Reuters.

In the first results delivered under Chief Executive Eduardo Navarro, who took the helm from Amos Genish last November, Telefonica said net operating revenue grew a modest 1 percent to 10.8 billion reais last quarter amid a harsh recession.

Earnings before interest, tax, debt and amortization, a gauge of profitability known as EBITDA, rose 5.6 percent to 3.62 billion reais in the quarter, slightly above a 3.61 billion reais consensus estimate.

Keen on maintaining financial discipline and low debt levels, Navarro said 2016 was marked by a drive to reduce spending and costs.

In remarks made after the release of results, Navarro said the only expense line to grow last year was labor, albeit at a slower pace than inflation.

“Our cost discipline never affected the quality of services rendered,” he said, adding measures like abolishing paper bills and enhancing customer experience through online channels would lower costs further.

A focus on higher-paying customer, particularly on the post-paid mobile segment, also helped Telefonica navigate through tough economic times.

“While the growth in the number of our clients is not so impressive, the profitability per customer is higher than that of our competitors,” Luis Plaster, investor relations director, said.

The strategy helped Telefonica raise EBITDA margin to 33.3 percent, the highest for any quarter last year, Plaster said.

With voice services representing progressively less of the company’s total revenue, Navarro’s Telefonica will focus on expanding mobile data and fiber-to-the-home networks as a means to keep the highest revenue per user in the industry.

“Our strategy was providing 4G services in selected cities,” Navarro said, explaining first the company wanted to focus on key markets that included capital cities like Sao Paulo and Rio de Janeiro.

Now, the company plans to expand 4G services to cover 90 percent of the Brazilian urban population, or about 2,000 cities, by the end of 2017, the executive said.

$1 = 3.0949 reais Reporting by Ana Mano; Editing by Sandra Maler and Andrew Hay

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