ANALYSIS-Brazil Telemar runs into expansion hurdles
Reuters, 07/20/2001 18:47
By Katherine Baldwin
SAO PAULO, Brazil, July 20 (Reuters) - Fitting phone lines from Brazilian beachfront bars to rainforest hamlets across a region roughly the size of the continental United States in record time was never going to be easy.
But Brazilian carrier Telemar (SAO:TNLP4) (NYSE:TNE), with operations spanning from Rio de Janeiro to the Amazon, has run into more hurdles than it bargained for after Latin America's top economy hit a slowdown and its chief executive walked out.
Telemar Chief Executive Manoel Horacio da Silva abruptly left the company late Thursday after either being sacked or agreeing to leave, according to conflicting versions.
Silva's departure comes as Telemar enters the last lap of a three-year lightning expansion in an increasingly stormy economic environment and ahead of a new phase of Brazilian telecommunications competition in 2002.
Preliminary quarterly results released by Telemar late Thursday showed high numbers of unpaid bills and a worrying expansion in Telemar's workforce at a time when streamlining would be more appropriate, analysts said on Friday.
"Telemar is facing high levels of bad debt at a time when it has more than six months of aggressive network expansion ahead of it, and that's worrying," said Josh Milberg, telecoms analyst at UBS Warburg in New York. "There is a reasonable amount of risk that debt levels could increase further."
While Telemar's revenue grew in the second-quarter as the company installed more lines across its 16 state-area, provisions for non-paying clients represented 4.6 percent of gross revenues versus 2.8 percent in the first quarter.
About 8.3 percent of its 13.5 million lines in service are blocked due to unpaid bills. Brazil's sinking currency, rising interest rates and higher inflation are braking growth.
PROFIT, SUCCESSION QUESTIONS
Revenue in the second quarter rose 22 percent to 2.44 billion reais ($989 million) as Telemar's network grew.
"They installed more lines but came up with lower revenue than we expected, suggesting that revenue per line came down," said Rizwan Ali, an analyst at Bear Stearns in New York.
Other analysts, though, were pleased with revenue growth.
Telemar added some 1.7 million lines in the quarter as it raced to meet line expansion targets set by telecoms regulator Anatel ahead of time, preferably by the end of the year.
Meeting the targets allows carriers to expand into rivals' operating areas and into new services like mobile technology in 2002. That would permit Telemar to start operating cellular services after it acquired new licenses earlier this year.
But analysts frowned on the news that Telemar increased its staff headcount in June by 15 percent from May.
"There is a concern on the cost side because the company is adding more employees than expected," said Milberg, who downgraded his rating on Telemar to "Buy" from "Strong Buy."
Shares in Telemar, the top weighted stock on the Sao Paulo Stock Exchange's benchmark Bovespa index (INDEX:$BVSP.X), ended up 0.9 percent, after sliding earlier, as the index jumped 2.4 percent. The company's U.S. shares rallied 4.6 percent.
Analysts are now eager to see if Silva's successor will maintain the rapid expansion. In the interim, Telemar named Jose Fernandes Pauletti, vice president of operations, to replace Silva.
Pauletti "is respected, strict and worried about meeting the targets," said ABN Amro analyst Mirela Rappaport, adding that he would be well received by the market if named CEO.
Sources and local media suggested Silva was dismissed because he failed to meet the board's expectations on earnings or because he had tendered his name as a possible chief of Brazilian steelmaker Cia Vale do Rio Doce (CVRD) (SAO:VALE5).
Telemar said in a statement it had wanted to alter its operating profile ahead of 2002 and that "the change does not affect the company's operating plans."
Telemar will release its full quarterly earnings Aug 13.
($1 = 2.458 reais)
(Renata de Freitas contributed to this article) saopaulo.newsroom@reuters.com))
Copyright 2001, Reuters News Service |
