Brazil's Vivo Shows Rising 1Q Profits on Costs
SAO PAULO -(Dow Jones)- Brazil's leading cellular operator, Vivo Participacoes, reported growing net profits and margins as the company managed to keep the cost of net additions and marketing under control.
Early Wednesday, the No. 1 phone operator posted a first-quarter net profit of 89.6 million Brazilian reals ($52 million), reversing a loss of BRL19.3 million in the first quarter of 2007.
The figure was above market expectations. A survey of three analysts, conducted by the local Estado newswire, showed an average forecast of BRL78.8 million profit.
Vivo shares rose on the news. The stock was 2.4% higher at BRL11.37 in morning trade on the Brazilian Stock Exchange, or Bovespa, while the benchmark Ibovespa index was 1.1% higher.
"We grew strongly in the quarter, while holding down costs, specifically of acquiring new clients, which allowed us to show better margins," said Roberto Lima, Vivo's chief executive, during a conference call.
Vivo saw its subscriber base rise 18% on the year to 34.4 million at the end of the quarter.
As a result, first-quarter revenue was 16.9% higher than the year-before period at BRL3.33 billion.
However, the company managed to control the cost of the expansion. The cost of acquiring each new client, or SAC, dropped 5% on the year before to BRL95 in the last quarter.
"We concentrated on the selling higher value phones, which reduced discounts offered," explained Lima.
The company's earnings before interest, taxes, depreciation and amortization, or EBITDA, were BRL961.2 million, up from BRL757 million a year earlier.
"This was due primarily from subscriber acquisition costs that were 18% below our estimate," said Walter Piecyk of Pali Research in a research note.
The EBITDA margin, a measure of profitability over net revenue, was 28.8% in the quarter, up from 26.6% in the same quarter of last year.
The company saw average revenue per users, or Arpu, hit BRL29.80 in the quarter, down 0.7% on the same period one year before and 4.2% lower than in the fourth quarter.
Arpu fell amid the intense competition in the sector as the four main operators seek to stake their claims on share in the fast-growing Brazilian market.
Brazil's cellular subscriber base continues to grow rapidly amid economic expansion, rising incomes and social programs in poor regions, which are allowing new groups to acquire phones.
Looking ahead, Lima said Arpu is seen remaining stable in 2008 and margins will be maintained.
"We will act aggressively to preserve margins in this competitive environment," said Lima.
The company registered a churn rate of 2.6% in the first quarter, the same rate seen a year ago.
The company invested a total of BRL256.6 million in the first quarter, up 9% from BRL235.4 million seen in the first quarter of 2007.
As of March 31, Vivo's net debt totaled BRL2.9 billion, down 12% from BRL3.3 billion a year before as the company paid off debts and local interest rates declined.
In April, Vivo completed the purchase of Telemig Celular, which operates in the southeastern state of Minas Gerais. With the purchase, it added 3.5 million clients to Vivo's subscriber base. In addition, Vivo acquired licenses to set up a network in the northeast of Brazil and provide third-generation high-speed data services late last year. Most of Vivo's BRL6 billion investment budget for 2008 will be invested in these networks, said Lima.
"We are looking to maintain our strategy of being the leading operator in terms of quality and will invest to do so," said Lima.
-By Alastair Stewart and Rogerio Jelmayer, Dow Jones Newswires; 55-11-3145-1479; alastair.stewart@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 30th April 2008
