Equity analysts welcomed Embratel?s four-quarter earnings report showing net income of 111.9 million Brazilian Reals after seven consecutive lossmaking quarters, as predicted by TELETIME News. EBITDA (earnings before interest, tax, depreciation and amortization) totaled 316 million BRL in the quarter and 1.4bn BRL in the year, for an increase of 36.2% compared with 2001. The improvement mainly reflected the BRL?s appreciation of about 10% against the US Dollar in the period, with a positive impact on Embratel?s debt. However, analysts warned that the outlook is uncertain because Embratel succeeded in turning its first profit for a long time solely by cutting costs. Revenue is still declining, they noted. In addition, the incumbent long-distance carrier has yet to conclude debt refinancing agreements with its main creditors, so it?s hard to say how healthy its financial situation is right now.
Revenue totaled 1.72bn BRL in the fourth quarter, for a decrease of 7% year over year. The drop is attributed to the advent of strong competition from ILECs newly licensed to provide domestic long-distance and international service. Embratel managed 4% revenue growth only in the data and Internet segment (1.757bn BRL in the full year). Loss of revenue was offset by savings on interconnection costs and a reduction in customer delinquencies. Provision for bad debts corresponded to 8% of revenue in the quarter, down from 8.8% as an annual average in 2002 and 15.5% in 2001.
Debt totaled 1.4bn USD at the end of 2002: 62% was hedged against exchange-rate risk Maturities in the first half of 2003 amount to 750m USD, which will have to be rolled over according to management. ?We?re making satisfactory progress with debt refinancing negotiations,? says Norbert Glatt, chief financial officer. ?The finishing touches are being put to these agreements now.? The details will be announced in 30 days. Among the goals of Embratel?s negotiations with creditors is a new debt profile in which foreign currencies no longer predominate, according to Silvia Pereira, director of investor relations, responding to a question from Reuters during the conference call at which the telco presented its fourth-quarter results. ?If there?s a chance to change the currency profile in this refinancing process, I believe we?ll pursue that possibility,? she said, without disclosing details.
?Embratel has to show more,? complains a telecoms analyst with one of Brazil?s leading financial conglomerates. ?It has enough cash in hand to manage debt but has yet to show how it can offset the decline in revenue.?
