Debt-laden Brazilian operator Oi is guiding for a marked increase in domestic earnings this year amid improving macroeconomic conditions and growing demand for mobile data and video services.
In a securities filing published Monday, Telemar Norte Leste S.A. (Oi) set its Brazilian unit a 2015 target of generating Brazilian Reais 7–7.4 billion (US$2.57–2.71 billion) in "routine" earnings before interest, taxation, depreciation and amortization (EBITDA), which excludes one-off gains and losses it cannot predict.
The operator, which is yet to publish full-year results for 2014, made just BRL4.9 billion ($1.8 billion) in routine EBITDA during the first nine months of last year -- 5.6% less than in the same period of 2013.
In mid-December, however, it claimed to have increased average monthly EBITDA by 3.8% across October and November, compared with the same period a year earlier.
Assuming that EBITDA held up in December, Oi would have to increase routine EBITDA by at least 6.8% between 2014 and 2015 to achieve its new earnings goals.
Operating both fixed and mobile networks, Oi looks keen on targeting Brazilian consumers who want to buy all their communications services in one package.
It also expects Brazil's GDP to increase by 0.55% in 2015. The Latin American country slipped into a recession in the second quarter of 2014 and economists do not expect GDP to have grown by more than 0.2% between 2013 and 2014, according to a Bloomberg report that appeared in early December.
In its most recent earnings report, for the third quarter of 2014, Oi flagged an increase in revenues from data services and handset sales, as well as customer growth at its mobile and pay-TV units.
But it was also hit by regulatory cuts to mobile termination rates and the loss of fixed-line customers, besides the macroeconomic setbacks.
Higher earnings would go some way toward helping Oi reduce its colossal net debt, which had risen from BRL30.2 billion ($11.2 billion) in September 2013 to BRL47.8 billion ($17.7 billion) a year later -- nearly five times Oi's 2013 EBITDA.
The €7.4 billion ($8.82 billion) sale of its Portuguese assets to French cable company Altice SA -- a deal that Oi expects to conclude in the first half of 2015 -- should also strengthen the Brazilian operator's balance sheet. (See Eurobites: Altice Eyes Portugal Telecom Bid, Eurobites: Altice Bids $8.8B for Portugal Telecom and Altice in Exclusive Talks to Buy Portugal Telecom.)
— Iain Morris, News Editor, Light Reading