DJ Brasil Telecom Par Misses 4Q View As Acquisitions Loom
03/01/2002
Dow Jones News Services
(Copyright © 2002 Dow Jones & Company, Inc.)
(This article was originally published Thursday)
By Terry Wade
Of DOW JONES NEWSWIRES
SAO PAULO (Dow Jones)--Brasil Telecom Participacoes SA (BRP) is getting away with it for now, riding on the coattails of
a solid operating performance for 2001 as its peers saw trouble.
That goodwill allowed most analysts to shrug off bottom line fourth quarter results of 80.5 million reals ($1=BRR2.40) that
missed expectations late Wednesday. Instead, the brokerages trumpeted the company's modest revenue gains, stable EBITDA
margin and continued success in cutting bad debt levels that have plagued the sector here.
But concern is mounting that a new growth strategy for Brazil's third-largest wireline carrier that is based on mergers and
acquisitions may be too aggressive and sacrifice the company's sound balance sheet. At the moment Brasil Telecom is eyeing
nationwide long-distance provider Intelig SA and has said it may expand into wireless and Internet services.
"Our principal concern with the Brasil Telecom Participacoes investment case is a possible shift toward a high-growth
out-of-region strategy driven by non-core M&A activity," Deutsche Bank's Tucker Grinnan said in a Thursday note to
investors.
The company is planning a 1.5 billion-real bond deal to help raise cash for acquisitions - a move that would add considerably to
the BRR3.1 billion in debt the carrier had at the end of the fourth quarter.
And those acquisitions may create noise in bottom line results that are expected to improve in coming quarters from fourth
quarter levels.
Fourth quarter net income - which included BRR42.2 million in severance charges - was lower than the BRR96 million profit
posted in third quarter and below the BRR100 million figure at the bottom end of analysts' expectations. Net income fell 48%
from a year ago, when Brazil's economy was expanding.
The unit of Brazilian private equity fund Opportunity and Telecom Italia SpA (TI) posted revenue of BRR1.63 billion, a rise of
14% from a year earlier and 3.6% from the third quarter. Revenue grew marginally as Brazil's economy shrank 1.7% on a
seasonally-adjusted basis.
EBITDA margin stayed flat from the previous quarter at about 47%, while EBITDA of BRR769 million rose 3% from the third
quarter and 5.2% from a year earlier.
Bad debts fell to 2.9% of gross revenue from 3.2% in the third quarter, an impressive feat as some Brazilian carriers have
struggled to control soaring rates of uncollected bills in recent quarters.
Brasil Telecom made capital expenditures of BRR3.4 billion in 2001 - a modest level in a sector where carriers like Tele Norte
Leste Participacoes SA (TNE), or Telemar, spent heavily to meet network buildout targets set by regulator Anatel. Telemar's
aggressive spending caused its bad debts to spike as the bulk of its new users were mostly poor and had trouble paying bills.
Worried by this trend, Brasil Telecom decided to slow its buildout plan and wait until this year to meet the targets, which allow
carriers to offer wireless services and expand outside of their home regions.
Capital expenditures in 2002 are expected to be just BRR1.7 billion, while about BRR1.0 billion from the upcoming bond deal
has been slated for acquisitions.
Those purchases, according to company guidance and actions, could occur in a variety of fields - wireless telephony, data
services, Internet services or local wireline operations. And it's this bounty of options that has analysts talking about the carrier's
focus.
In November, Brasil Telecom took part in small acquisitions of Internet firm iBest Co. and online auction company Lokau for
undisclosed sums.
But bigger acquisitions may be in store that take the carrier out of its core market in Brazil's nine-state center-south region -
where Brasil Telecom is a monopoly - just as deregulation heats up competition in the sector.
Brasil Telecom has expressed interest in an upcoming privatization in Paraguay and is looking at nationwide upstart
long-distance and data services provider Intelig SA.
Chief Executive Henrique Neves Thursday told Dow Jones Newswires: "We've been analyzing Intelig since December, but we
haven't made any decision yet."
Intelig - a unit of National Grid PLC (NGG), Sprint Corp. (FON) and France Telecom (FTE) - has been looking for buyers or
strategic partners since November.
Neves said the company is looking at several possibilities with Intelig, such as a partnership deal.
Under rules of regulator Anatel, Brasil Telecom wouldn't be allowed to buy Intelig until it meets the government's network
buildout targets.
Besides Intelig, Bear Stearns has said Telemig Celular Participacoes SA (TMB) may be among the acquisition candidates.
Telemig - and its sister company Tele Norte Celular Participacoes SA (TCN) - are partly owned by Brasil Telecom parent
Opportunity.
-Terry Wade, Dow Jones Newswires, 5511.3145.1479; terry.wade@dowjones.com
(END) DOW JONES NEWS 03-01-02
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