May 6, 2020 / 11:41 AM / a month ago

UPDATE 1-Telefonica Brasil's Q1 profit falls and misses expectations on higher taxes, depreciation

(Adds details and share performance this year)

By Gabriela Mello

SAO PAULO, May 6 (Reuters) - Telefonica Brasil SA on Wednesday reported a 14.1% drop in first-quarter net income, missing market expectations as higher taxes and depreciation overshadowed cost-cutting efforts.

Brazil’s largest wireless carrier said its net profit hit 1.15 billion reais ($206.7 million) in the quarter ended on March 31, according to a securities filing, below a consensus estimate of 1.34 billion reais compiled by Refinitiv.

Its operating performance measured by earnings before interest, taxes, depreciation and amortization (EBITDA) grew by 3.4% year-on-year to 4.5 billion reais, surpassing a Refinitiv estimate of 4.33 billion reais.

Its EBITDA margin rose to 41.6% from 39.7% a year ago.

The local subsidiary of Spain’s Telefonica, which in Brazil operates under the brand Vivo, posted a 1.4% drop in its quarterly net revenue to 10.8 billion reais, driven by both mobile and landline services, as well as lower smartphone sales.

Meanwhile, operational expenses declined by 4.5% to 6.3 billion reais as a result of automation and digitalization initiatives.

Vivo’s total customer base shrank 2% to 93.1 million users, as a 14.6% decline in fixed-line business more than offset 1.7% growth in the mobile segment, in which the carrier now has a market share of 33%.

The company invested 1.65 billion reais in the first quarter, 2.8% less than in the same period of 2019, focusing mostly in the expansion of its fiber-to-the-home (FTTH) network, as well as 4G and 4.5G coverage.

Shares in Telefonica Brasil have fallen over 13% so far this year, slightly underperforming rival TIM Participacoes SA , which on Tuesday also reported a lower-than-expected net profit amid stagnant revenues.

$1 = 5.5783 reais Reporting by Gabriela Mello, editing by Louise Heavens

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