Telefonica Brasil S.A.(VIV) - 2025 Q1 - Quarterly Report

Interim Financial Statements Individual and Consolidated Interim Balance Sheets As of March 31, 2025, consolidated total assets increased to BRL 126.61 billion, liabilities grew to BRL 58.46 billion, and equity decreased to BRL 68.14 billion, primarily due to a BRL 2.0 billion capital reduction Consolidated Balance Sheet Summary (in thousands of BRL) | Account | 03.31.2025 | 12.31.2024 | | :--- | :--- | :--- | | Total Current Assets | 25,797,480 | 22,814,327 | | Total Non-current Assets | 100,807,585 | 102,126,346 | | TOTAL ASSETS | 126,605,065 | 124,940,673 | | Total Current Liabilities | 26,757,842 | 24,257,939 | | Total Non-current Liabilities | 31,702,897 | 30,883,239 | | TOTAL LIABILITIES | 58,460,739 | 55,141,178 | | Total Equity | 68,144,326 | 69,799,495 | | TOTAL LIABILITIES AND EQUITY | 126,605,065 | 124,940,673 | - The company's equity decreased from BRL 69.73 billion at year-end 2024 to BRL 68.08 billion at the end of Q1 2025, mainly due to a BRL 2.0 billion capital reduction executed during the quarter[15][17] Individual and Consolidated Statements of Income For Q1 2025, consolidated net operating revenue increased 6.2% to BRL 14.39 billion, with net income attributable to controlling shareholders rising to BRL 1.06 billion and basic EPS to BRL 0.65 Consolidated Statement of Income Summary (in thousands of BRL) | Account | Q1 2025 | Q1 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net operating revenue | 14,390,273 | 13,545,635 | +6.2% | | Gross profit | 6,354,391 | 6,027,143 | +5.4% | | Operating income | 1,984,968 | 1,910,488 | +3.9% | | Net income for the period | 1,056,270 | 896,109 | +17.9% | | Net income (Controlling shareholders) | 1,058,212 | 895,631 | +18.1% | | Basic and diluted EPS (R$) | 0.65 | 0.54 | +20.4% | Individual and Consolidated Statements of Changes in Equity Q1 2025 equity changes include a BRL 2.0 billion capital reduction, BRL 1.06 billion net income appropriation, BRL 326.5 million share repurchases, and BRL 380 million interim interest on equity declaration - A capital reduction of BRL 2.0 billion was executed in Q1 2025[17] - The company repurchased BRL 326.5 million worth of common shares for its treasury in Q1 2025[17] - Interim interest on equity declared in the period amounted to BRL 380 million[17] Individual and Consolidated Statements of Comprehensive Income Consolidated comprehensive income for Q1 2025 was BRL 1.051 billion, slightly below net income of BRL 1.056 billion due to a BRL 5.3 million net other comprehensive loss from derivatives and currency adjustments Consolidated Comprehensive Income (in thousands of BRL) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income for the period | 1,056,270 | 896,109 | | Other comprehensive income (loss) | (5,290) | 2,250 | | Comprehensive income for the period | 1,050,980 | 898,359 | Individual and Consolidated Statements of Cash Flows In Q1 2025, net cash from operating activities was BRL 5.09 billion, investing activities used BRL 2.38 billion, and financing activities used BRL 1.21 billion, resulting in a BRL 1.49 billion net increase in cash and cash equivalents Consolidated Statement of Cash Flows Summary (in thousands of BRL) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash generated by operating activities | 5,090,843 | 4,925,206 | | Net cash used in investing activities | (2,383,618) | (1,909,384) | | Net cash used in financing activities | (1,213,209) | (618,349) | | Increase in cash and cash equivalents | 1,494,016 | 2,397,473 | - Significant cash outflows in financing activities included BRL 869.7 million for debt and lease payments, and BRL 326.5 million for treasury share repurchases[20] Notes to the Individual and Consolidated Quarterly Information 1. Operations Telefônica Brasil provides diverse telecommunication services across Brazil, facing evolving ANATEL regulations, recent acquisitions like Samauma, and a significant migration from fixed-line concession to authorization regime - On March 21, 2025, Terra Networks acquired Samauma Brands for up to BRL 80 million, strengthening the company's smartphone accessories market presence[53][56] - The company finalized its STFC concession migration to an authorization regime with ANATEL on April 11, 2025, involving BRL 4.5 billion in NPV investment commitments[37][38] - Significant regulatory risks from ANATEL include potential changes to competition rules, interconnection fees, consumer rights, and spectrum licensing, which could adversely affect business and financial results[39][40][41] - The company is adapting to Tax Reform (EC No. 132) introducing a dual VAT model (CBS and IBS) and a Selective Tax (IS), with the full impact pending further legislation[70][71][72] 2. Basis of Preparation and Presentation The quarterly financial information for Q1 2025 was prepared under Brazilian CPC 21 and International IAS 34 standards, presented in Brazilian Reais, and consistent with 2024 annual accounting policies - The financial statements comply with both Brazilian (CPC 21) and International (IAS 34) interim reporting standards[74] - The accounting policies applied are consistent with those from the annual financial statements for the year ended December 31, 2024[89] - The company operates as a single operating segment: providing telecommunications services[88] 19. Provision and Contingencies As of March 31, 2025, consolidated provisions for probable losses totaled BRL 7.04 billion, while contingent liabilities with possible risk amounted to BRL 45.99 billion, primarily from tax disputes Consolidated Provisions for Probable Losses (in thousands of BRL) | Nature | 03.31.2025 | 12.31.2024 | | :--- | :--- | :--- | | Tax | 2,089,043 | 2,022,987 | | Regulatory | 984,726 | 1,151,095 | | Civil | 1,408,496 | 1,411,141 | | Labor | 1,005,763 | 935,541 | | Other | 1,550,120 | 1,619,121 | | Total | 7,038,148 | 7,139,785 | Consolidated Contingencies with Possible Risk of Loss (in thousands of BRL) | Nature | 03.31.2025 | 12.31.2024 | | :--- | :--- | :--- | | Tax | 41,549,347 | 40,850,071 | | Regulatory | 2,894,724 | 3,066,637 | | Civil | 1,962,944 | 2,000,926 | | Labor | 1,312,421 | 1,346,257 | | Total | 47,719,436 | 47,263,891 | - In December 2024, the company finalized a regulatory amnesty program in February 2025, settling pending federal obligations at approximately a 55% discount[164][165] 20. Loans, Financing, Debentures, and Leases As of March 31, 2025, consolidated debt and lease liabilities slightly decreased to BRL 20.56 billion, primarily comprising lease liabilities and debentures, with new Q1 2025 liabilities from acquisitions and tax programs Consolidated Debt and Lease Summary (in thousands of BRL) | Category | 03.31.2025 | 12.31.2024 | | :--- | :--- | :--- | | Leases | 14,864,936 | 15,246,606 | | Debentures (7th issue) | 3,600,772 | 3,695,214 | | Loans and financing | 2,093,682 | 1,804,710 | | Total | 20,559,390 | 20,746,530 | - The company's 7th issue of debentures are Sustainability-linked and complied with all covenants as of March 31, 2025[185][187] - New Q1 2025 financing events include BRL 58.3 million from Samauma acquisition, BRL 52.4 million for a Minas Gerais ICMS tax program, and BRL 176.6 million for the federal Desenrola Program[189][191][192] 23. Equity Q1 2025 equity management included a BRL 2.0 billion capital reduction, a new BRL 1.75 billion share buyback program with BRL 326.5 million repurchased, a reverse stock split followed by a split, and BRL 380 million in interim interest on equity declared - A BRL 2.0 billion capital reduction became effective in February 2025, with a BRL 1.233 per share payment scheduled for July 15, 2025[203][205][207] - A new share buyback program for up to BRL 1.75 billion was approved on February 25, 2025, with 6.64 million common shares repurchased for BRL 326.5 million in Q1 2025[218][219][220] - The company completed a reverse stock split (40-for-1) followed by a split (1-for-80) on April 15, 2025, to increase share liquidity[208][211] Interim Interest on Equity Declared for 2025 (in thousands of BRL) | Approval Date | Gross Amount | Net Value | Payment Limit | | :--- | :--- | :--- | :--- | | 13.02.2025 | 180,000 | 153,000 | 30.04.2026 | | 13.03.2025 | 200,000 | 170,000 | 30.04.2026 | | Total | 380,000 | 323,000 | | 24. Net Operating Revenue In Q1 2025, consolidated net operating revenue reached BRL 14.39 billion, primarily driven by service revenue growth to BRL 13.38 billion and increased sale of goods revenue to BRL 1.01 billion Consolidated Net Operating Revenue Breakdown (in thousands of BRL) | Revenue Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Services | 13,378,802 | 12,594,113 | | Sale of goods | 1,011,471 | 951,522 | | Total Net Operating Revenue | 14,390,273 | 13,545,635 | - No single customer accounted for more than 10% of the company's operating revenue in Q1 2025 or Q1 2024[236] 28. Balances and Transactions with Related Parties The company conducts arm's length transactions with Telefónica Group related parties, with key balances including BRL 48.1 million in receivables and BRL 564.7 million in payables, and BRL 25.2 million in Q1 2025 key management compensation - Major related party transactions involve services with Telefónica Group companies, including Telefónica Global Solutions, FiBrasil, and Telefónica S.A[242][247][248] Key Management Compensation (Consolidated, in thousands of BRL) | Period | Total Compensation | | :--- | :--- | | Q1 2025 | 25,166 | | Q1 2024 | 19,352 | 31. Financial Instruments and Risk and Capital Management The company manages market risks using non-speculative derivatives like swaps, with a BRL 914.4 million notional value as of March 31, 2025, while its capital management focuses on credit rating and capital allocation, alongside liquidity and credit risk controls - The company uses derivative instruments, primarily swaps, to hedge against inflation (IPCA) and foreign exchange risks (USD, EUR) on its liabilities[258][266] - A sensitivity analysis indicates a 50% adverse change in risk variables would result in a net negative impact of BRL 17.2 million on the derivative portfolio's fair value[273] - The company's capital management focuses on maintaining a strong credit rating and maximizing shareholder value through dividends and share buybacks[286][287] - Credit risk from accounts receivable is managed through strict customer base control, credit scoring, and service cut-offs for overdue invoices[298][299] 35. Subsequent Events Subsequent events include the April 1, 2025, declaration of BRL 240 million in gross interest on equity, the April 11, 2025, signing of the ANATEL Single Authorization Term, and joining a Rio Grande do Sul tax amnesty program on April 15, 2025 - On April 1, 2025, the Board declared BRL 240 million in gross interest on equity, payable by April 30, 2026[320] - The company signed the Single Authorization Term with ANATEL on April 11, 2025, concluding its STFC concession migration to a private authorization regime[323] - On April 15, 2025, the company joined a Rio Grande do Sul tax amnesty program to settle BRL 163.5 million in ICMS debts for a reduced BRL 73.6 million, payable in installments[324][325]