Telefonica Brasil S.A.(US:VIV)2021-02-25 22:21Financial Performance - Capital expenditures totaled R$7.9 billion, R$8.8 billion, and R$8.2 billion for the years ended December 31, 2020, 2019, and 2018, respectively, primarily for network expansion [615]. - Net cash provided by operations was R$19.3 billion, R$17.7 billion, and R$11.9 billion in 2020, 2019, and 2018, respectively [619]. - The company proposed an additional dividend of R$1.5 billion for the fiscal year ended December 31, 2020, subject to shareholder approval [620]. - Total contractual obligations as of December 31, 2020, amounted to R$14.2 billion, including loans, financing, and leases [639]. - Long-term debt, including loans, financing, leases, and debentures, totaled R$9.6 billion as of December 31, 2020 [641]. Research and Development - R&D investments in development and innovation were R$27.4 million in 2020, down from R$50.3 million in 2019 and R$62.1 million in 2018 [628]. - The company aims to extend its 4.5G, 5G, and FTTH footprints to enhance its connectivity platform in Brazil [634]. Market Position - The company serves 95 million access points in fixed and mobile business, maintaining its leadership in the Brazilian telecommunications market [636]. - Brazil's macroeconomic outlook for 2021 is positive, with expectations for recovery from COVID-19 impacts and significant political and economic reforms [635]. Corporate Governance - Christian Mauad Gebara, the CEO, has held various leadership roles within the Telefónica Group since 2006, indicating extensive experience in the telecommunications sector [646]. - Eduardo Navarro de Carvalho, the Chairman, has been with Telefónica S.A. since February 2020, previously serving as CEO and in other strategic roles, showcasing a strong background in corporate governance [647]. - The Board of Executive Officers is responsible for day-to-day management and consists of 3 to 15 members, appointed for a term of three years, ensuring structured leadership [662]. - The company has a diverse board with members holding degrees in engineering, law, and public administration, reflecting a broad range of expertise [660]. - The company emphasizes sustainability and quality through dedicated committees, indicating a strategic focus on these areas in its operations [650]. - The board includes members with significant experience in international markets, enhancing the company's global strategic positioning [649]. - The company has a strong emphasis on education and innovation, with board members involved in various educational initiatives and institutions [660]. - There are no family relationships among the directors, ensuring an independent governance structure [661]. - The board's composition includes professionals with extensive experience in telecommunications, finance, and corporate strategy, which is critical for informed decision-making [655]. - The company has a commitment to corporate governance, with specific committees focused on nominations, compensation, and sustainability, indicating a structured approach to management [652]. - The board of directors typically meets quarterly and can call special meetings as needed, with decisions made by majority vote [668]. - The board is responsible for approving financial statements, management reports, and the distribution of interim dividends, among other duties [671]. - The Control and Audit Committee, established in December 2002, meets four times a year and oversees the company's financial statements and internal controls [679]. - The company’s Nominations, Compensation and Corporate Governance Committee consists of three to five directors and meets at least twice a year [684]. - The statutory Fiscal Board is required by Brazilian Corporate Law and consists of three to five active members, providing oversight on financial statements and management proposals [674]. - The company’s executive officers have extensive experience in the telecommunications industry, with the Chief Financial Officer having over 20 years of global experience [665]. - The company has a structured approach to corporate governance, including the establishment of various committees to oversee different aspects of operations [677]. - The board of directors has the authority to approve investments and obligations exceeding R$250 million that are not included in the budget [671]. - The company has a clear policy for the appointment and oversight of independent auditors, ensuring compliance and quality of services [682]. Employee Relations - As of December 31, 2020, the company had 32,759 employees, with 38.5% in production and operations, 35.8% in sales, 18.2% in customer care, and 7.2% in support [689]. - Approximately 13% of the company's employees are union members, represented by unions across all 26 states and the Federal District [693]. - The company has never experienced a work stoppage for a significant period that materially affected operations, indicating good workforce relations [694]. Shareholder Information - As of December 31, 2020, Telefónica S.A. owned 29.77% of the company's common shares, with effective control over 73.58% of outstanding shares [709]. - The company is transforming into a "Digital Telco," leveraging its strong mobile, fixed, and broadband networks to capture new revenue growth [711]. - The Performance Share Plan (PSP) allows executives to receive shares based on performance metrics, with a total duration of five years divided into three cycles [700]. - The Global Employee Share Plan (GESP) enables employees to invest in shares, with compensation stocks delivered based on their investment [705]. - As of December 31, 2020, there were 1,688,174,171 common shares outstanding, with 148,936,960 ADSs representing 8.8% of outstanding common shares [712]. - The company has established defined contribution pension plans, with 32% of employees participating in private retirement plans [698]. Expenses and Provisions - In 2020, the company incurred expenses totaling R$423 million related to the Brand Fee contract for the assignment of brand rights [716]. - The company reported R$314 million in expenses for IP transit services and international transmission infrastructure in 2020 [717]. - Expenses for international transmission infrastructure and connection services amounted to R$88 million in 2020 [718]. - The company recorded R$69 million in expenses related to the sale of infrastructure assets and sharing contracts in 2020 [719]. - Total expenses for international transmission infrastructure and connection services reached R$102 million in 2020 [720]. - The company incurred R$80 million in expenses for software licenses, maintenance, and support services in 2020 [721]. - Expenses related to digital business under the Cost Sharing Agreement totaled R$142 million in 2020 [722]. - A contract with CyberCo Brasil resulted in R$15 million in expenses, while the company recorded a gain of R$39 million from the acquisition and disposition of CyberCo Brasil [723]. Legal and Regulatory Matters - Total consolidated provisions for federal administrative and judicial proceedings amounted to R$622.2 million as of December 31, 2020 [729]. - The total consolidated amount under dispute for various state administrative and judicial proceedings was R$17,447 million as of December 31, 2020 [737]. - The company recorded a variation of R$983.1 million in contingencies classified with a possible risk of loss due to new lawsuits filed and risk reassessment [754]. - Approximately R$870.1 million has been provisioned for civil claims where the risk of loss is deemed probable [757]. - The company is involved in regulatory and antitrust litigation with amounts classified as a possible risk of loss totaling R$5.6 billion, with provisions of R$1.2 billion recorded [762]. - A class action related to the HealthCare Plan for Retired Employees (PAMA) is currently in the appeal phase, with the amount involved being indeterminate [764]. - The fine imposed by ANATEL, which is being appealed, amounts to approximately R$211 million, currently totaling about R$516 million with updates and accrued interest [766]. - The company is required to distribute at least 25% of adjusted net income as mandatory dividends each fiscal year [767]. - The company has recorded provisions totaling R$240.8 million for civil proceedings related to consumer claims as of December 31, 2020 [758]. - The company is a party to public civil actions regarding outsourcing legality, awaiting the publication of a decision that may impact residual lawsuits [756]. - The company must comply with Brazilian Corporate Law regarding the allocation of net profits and the maintenance of a legal reserve [771]. - The company is involved in various lawsuits challenging the expiration of prepaid plan minutes, with conflicting court decisions on the matter [761]. Dividends - Dividends and interest on shareholders' equity declared based on Telefônica Brasil's 2020 net profit totaled R$3,830 million, with an additional R$1,588 million proposed for approval at the 2021 General Shareholders Meeting [806]. - The company has historically distributed dividends based on 50% of net income before taxes and interest on shareholders' equity, or 50% of retained earnings and profit reserves [781]. - The board of directors approved a payment of interest on shareholders' equity totaling R$2,800 million on September 5, 2018, which was paid on August 20, 2019 [793]. - The total amount of dividends distributed to common and preferred shares in 2019 was R$2,469 million, based on the closing balance sheet on December 31, 2018 [795]. - The company paid R$1,287 million in dividends on December 13, 2016, based on the closing balance sheet on December 31, 2015 [784]. - The payment of interest on shareholders' equity is subject to Brazilian withholding tax at a rate of 15%, or 25% for shareholders in tax havens [779]. - The conversion of all preferred shares into common shares was completed on November 23, 2020, following approval at the Extraordinary General Meeting [804]. - The company declared and paid dividends and/or interest on shareholders' equity as required by Brazilian Corporate Law and its bylaws [779]. - The board of directors approved a payment of interest on shareholders' equity totaling R$400 million on November 16, 2020, to be paid on July 13, 2021 [804]. - The company’s dividends in 2020 were affected by the devaluation of the Brazilian currency before conversion into U.S. dollars [778].