Earnings Release 4Q18 1 +8,5% +24% Number of corporate clients grows by 24% 39% Uberlândia – MG, March 2019 – Algar Telecom, a telecom services company in the corporate (B2B) and retail (B2C) segments, Recurring EBITDA margin releases its earnings for the fourth quarter of from the Telecom segment 2018 (4Q18). reaches 39% The Company’s individual and consolidated financial statements were prepared according to the accounting practices adopted in Brazil, which comprise the provisions of the corporate law, provided for by Law 6,404/76 amended by Laws 11,638/07 and 11,941/09, and the accounting pronouncements, interpretations and guidelines issued by the Accounting +11% Pronouncement Committee (“CPC”), approved by the Brazilian Securities and Exchange Recurring profitability of 11% Commission (“CVM”) and the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Unless stated otherwise, comparisons relate to the 4th quarter of 2017 (4Q17). Investor Relations Contacts ri.algartelecom.com.br [email protected] (+55 34) 3256-2978 Rua José Alves Garcia, 415 – Uberlândia - MG 2 4Q18 HIGHLIGHTS TELECOM B2B Algar Telecom closes 2018 with 6 new regional offices, 5 of which to serve the 18 new locations in the Northeast region. The number of B2B clients grew by 9.9%, 24.1% of which in the corporate market, and gross revenue increased by 6.9% from 4Q17. B2C The YoY broadband revenue increased by 3.5% in 4Q18. STRONG FINANCIAL PERFORMANCE The net operating revenue from the Telecom segment grew by 5.0% (YoY) in 4Q18 and 6.8% in 2018. The consolidated recurring EBITDA increased by 6.6% (YoY), with a margin of 32.7%, versus 31.8% in 4Q17. The recurring margin in the Telecom segment reached 38.8% in 4Q18 and 38.0% in 4Q17. The recurring EBITDA margin of the Tech – BPO/Managed IT segment reached 17.0%, reflecting the operational efficiency and portfolio revision initiatives implemented by the segment. Recurring net income of R$78.7 million, with profitability of 10.8%. 3 HIGHLIGHTS1 R$ million 4Q17 3Q18 4Q18 Δ Year Δ Quarter 2017 2018 Δ Year GROSS REVENUE 922.2 928.5 932.8 1.1% 0.5% 3,557.4 3,682.6 3.5% Telecom 676.7 677.3 689.4 1.9% 1.8% 2,606.2 2,698.4 3.5% B2B* 374.5 387.8 400.5 6.9% 3.3% 1,426.7 1,546.5 8.4% B2C* 310.2 291.4 290.7 -7.4% -0.2% 1,212.0 1,168.6 -3.6% Tech - BPO/Managed IT 245.5 251.2 243.4 -0.9% -3.1% 951.2 984.2 3.5% NET REVENUE 706.3 723.0 731.9 3.6% 1.2% 2,715.5 2,867.3 5.6% Telecom* 493.0 494.5 517.6 5.0% 4.7% 1,884.4 2,012.5 6.8% Tech - BPO/Managed IT* 230.5 225.3 225.2 -2.3% -0.1% 883.8 906.1 2.5% EBITDA 217.6 246.4 254.9 17.1% 3.4% 780.0 967.5 24.0% Margin % 30.8% 34.1% 34.8% - - 28.7% 33.7% - Recurring EBITDA 224.6 224.1 239.5 6.6% 6.9% 787.5 913.5 16.0% Margin % 31.8% 31.0% 32.7% 29.0% 31.9% NET INCOME 80.0 91.2 88.9 11.1% -2.5% 229.6 316.1 37.7% Margin % 11.3% 12.6% 12.1% - - 8.5% 11.0% - INVESTMENTS 225.2 179.9 304.8 35.3% 69.4% 548.3 733.2 33.7% NET DEBT/EBITDA 1.8 1.7 1.7 - - 1.8 1.7 - TOTAL B2B CLIENTS (un.) 95,377 102,259 104,791 9.9% 2.5% 95,377 104,791 9.9% *Prior to intercompany elimination. TELECOM B2B CLIENTS Following its strategy to grow geographically, focusing on the supply of telecom and IT services to the business market, in 2018 the Company expanded its operations to the South and Southeast regions and began operating in the Northeast of Brazil, inaugurating 5 new regional offices to serve 18 new locations. 1 The 4Q18 and 2018 figures already include the effects of the implementation of Technical Pronouncement CPC 47 – Revenue from Contracts with Customers, correlated to International Accounting Standards - IFRS 15. The net effects on the Company’s figures are as follows: 4Q18 2018 (R$ million) Telecom Tech Consolidated Telecom Tech Consolidated Net Revenue 0.5 1.2 1.8 1.7 3.7 5.4 Operating Expenses 0.1 - 0.1 1.3 - 1.3 EBIT and EBITDA 0.7 1.2 1.9 3.0 3.7 6.6 Income Tax and Social Contribution (0.2) (0.4) (0.6) (0.9) (1.2) (2.2) Net Result 0.4 0.8 1.3 2.1 2.4 4.5 4 The number of B2B clients reached 104,791 thousand in 4Q18, 9.9% up on 4Q17, driven by both corporate and micro and small clients, which increased by 24.1% and 8.0%, respectively. B2B Operational Data 4Q17 3Q18 4Q18 Δ Year Δ Quarter Number of Clients (unit) Total 95,377 102,259 104,791 9.9% 2.5% Corporate 10,919 12,719 13,550 24.1% 6.5% Micro and Small Business 84,458 89,540 91,241 8.0% 1.9% In 4Q18, revenue from B2B clients, which accounted for 57% of the Company’s total revenue from telecom services, reached R$400.5 million, an upturn of 6.9%, mainly due to the 8.9% growth in data solutions. Revenue from voice services of B2B clients, in turn, fell by 12.3%, due to lower wireless voice service provided to small-sized companies in the Company’s concession area. Other services offered to B2B clients increased by 24.5%, mainly due to higher revenue from VAS services. In 2018, other revenue fell by 9.9%, as a result of the adoption of IFRS 15 to equipment lease. The corresponding entry of this effect is recognized under Data. R$ million GROSS REVENUE 4Q17 3Q18 4Q18 Δ Year Δ Quarter 2017 2018 Δ Year B2B 374.5 387.8 400.5 6.9% 3.3% 1,426.7 1,546.5 8.4% Data 294.9 305.4 321.2 8.9% 5.2% 1,090.4 1,234.0 13.2% Voice 53.9 53.7 47.3 -12.3% -12.0% 207.4 196.3 -5.3% Other 25.7 28.6 32.0 24.5% 11.9% 129.0 116.2 -9.9% B2C CLIENTS Retail services are provided in Algar Telecom’s concession area and in some cities bordering Minas Gerais, where the Company operates in the H band. For these clients, the Company offers broadband, fixed-line and mobile services and TV packages. In order to provide higher speed of data traffic, the Company has been replacing metallic networks with FTTH in regions with higher consumption potential. Operational Data* 4Q17 3Q18 4Q18 ∆ Year ∆ Quarter (thousand) Data 515 539 543 5.6% 0.9% Fixed lines 756 753 736 -2.6% -2.2% Mobile telephone 1,313 1,290 1,290 -1.8% 0.0% services Pay-TV packages 98 88 83 -15.1% -5.0% * Data published by Anatel. Information from the concession area. It includes, in addition to retail, corporate clients. Mobile telephone services also include the band H region. 5 Revenue from B2C clients totaled R$290.7 million in 4Q18, 6.3% down on 4Q17, mainly due to the decline in the number of fixed and mobile voice services, and TV, which were partially offset by higher broadband and VAS revenue. R$ million GROSS REVENUE 4Q17 3Q18 4Q18 Δ Year Δ Quarter 2017 2018 Δ Year B2C 310.2 291.4 290.7 -6.3% -0.2% 1,212.0 1,168.6 -3.6% Broadband (fixed and 122.9 131.0 127.2 3.5% -2.9% 474.1 503.0 6.1% mobile) Voice (fixed and mobile) 125.8 96.0 86.4 -31.3% -10.0% 533.4 390.7 -26.8% Other 61.5 64.4 77.1 25.3% 19.8% 204.5 274.9 34.5% TECH – BPO/MANAGED IT The Tech – BPO/Managed IT segment’s consolidated gross revenue totaled R$243.4 million in 4Q18, 0.9% down on 4Q17, due to the demobilization of some clients in 4Q18. In 2018, revenue grew by 3.5% from 2017. CONSOLIDATED REVENUE Algar Telecom’s consolidated gross revenue totaled R$932.8 million in 4Q18, 1.1% up on 4Q17. Consolidated net revenue reached R$731.9 million in 4Q18 and R$2,867.3 million in 2018, growths of 3.6% and 5.6% over the same periods in 2017, respectively. CONSOLIDATED COSTS AND EXPENSES Consolidated operating costs and expenses, excluding amortization and depreciation, decreased by 2.4% in the period, from R$488.6 million in 4Q17 to R$477.0 million in 4Q18. In 2018, costs and expenses fell by 1.8%. R$ million OPERATING COSTS AND EXPENSES 4Q17 3Q18 4Q18 Δ Year Δ Quarter 2017 2018 Δ Year (488.6) (476.6) (477.0) -2.4% 0.1% (1,935.5) (1,899.8) -1.8% Personnel (252.1) (238.0) (241.0) -4.4% 1.3% (970.6) (949.1) -2.2% Materials (16.7) (17.9) (18.6) 11.7% 4.0% (59.1) (67.9) 14.9% Outsourced Services (119.7) (129.4) (133.3) 11.4% 3.0% (465.5) (509.2) 9.4% Interconnection and Means of Connection (30.0) (29.2) (31.0) 3.3% 6.2% (126.3) (119.2) -5.6% Advertising and Marketing (7.4) (14.9) (10.9) 48.2% -26.6% (41.3) (51.7) 25.1% Provision for Doubtful Accounts (4.4) (5.5) 1.7 - - (34.8) (17.9) -48.5% Rent and Insurance (45.7) (49.1) (51.3) 12.3% 4.6% (179.0) (189.1) 5.6% Other* (12.7) 7.4 7.4 - - (58.8) 4.5 - * Includes other operating revenue (expenses).