16/03/2010 By Alastair Stewart, Jones Newswires ( Source: http://online.wsj.com )

Brazil Telecom Oi Swings To Loss In 4Q On Non-Recurring Items

Brazil's largest telecommunications company, Oi (TNE), on Monday posted heavy fourth-quarter losses due to non-recurring expenses and declining revenue.

The company posted a fourth-quarter loss of 365 million Brazilian reals ($207 million), compared with a net profit of BRL13 million in the fourth quarter of 2008.

"We lost money primarily because of the provisions," said Alex Zornig, Oi chief financial officer, during a conference call. "Otherwise, our margins would have been similar to last year."

The company, whose full name is Tele Norte Leste Participacoes, posted fourth-quarter net revenue of BRL7.5 billion, down from BRL7.6 billion a year earlier due to sliding fixed-line telephone usage.

Ebitda, or earnings before interest, taxes, depreciation and amortization, came in at BRL2.37 billion, down from BRL2.44 billion in the year-earlier quarter. Ebitda margin, a key indicator of profitability, dropped to 31.4% in the fourth quarter from 31.9% in the same period the prior year.

Oi recorded non-recurring costs of BRL305 million due to the deferment of subsidies on prepaid phones and expenses on legal action related to the integration of rival operator Brasil Telecom. It also had to swallow increased costs related to the integration of Brasil Telecom and the entrance into the Sao Paulo mobile phone market last year.

Financial costs were also greater as it had to service the debt incurred with the acquisition of Brasil Telecom, according to Zornig. However, the impact of high-debt levels was partially offset by favorable foreign-exchange conditions and declining interest rates at home, he added.

The news of the losses did not spook the market. Oi shares were 0.3% higher at BRL33.24 in early trade on the local BM&FBovespa bourse, while the benchmark Ibovespa index was 0.3% lower.

"Despite the unexpected loss, the impact on EBITDA (earnings before interest, taxes, depreciation and amortization) of the non-recurrent items was smaller than the increase in amortizations, financial expenses and the tax distortions in 2009, which suggests a positive result," said a research note from Link Investimentos in Sao Paulo.

Oi offers fixed, mobile and Internet services across most of Brazil. In April last year, it completed the deal to buy Brasil Telecom in a deal worth as much as BRL10 billion.

According to Zornig, Oi and Brasil Telecom have now been integrated and all the expected synergies captured.

Oi was the only company to gain market share in the mobile phone market during 2010. The company saw its overall client base rise 10.6% to 61.8 million in 2009. The company's mobile base rose 20.4% to 36.1 million last year following its entry into the Sao Paulo market, Brazil's richest.

For full-year 2009, Oi reported a loss of BRL436 million, compared with a profit of BRL1.09 billion reported in 2008.