Net Income of R$ 412 million
Rio de Janeiro, Brazil - February 8, 2000 - Embratel
Participações S.A. (Embratel Participações or the "Company") (NYSE:
EMT; BOVESPA: EBTP3, EBTP4; BVRJ: EBTP ON, EBTP PN), the company that
holds 98.8% of Empresa Brasileira de Telecomunicações S.A.
("Embratel"), today announced highlights of results for the year ending
December 31, 1999. (All financial figures are in Reais and based on
consolidated financial statements in Brazilian GAAP - "Legislação
Societária").
Embratel Participações achieved net revenues of R$ 5,184 million
with strong growth in both data and voice. EBITDA reached R$ 1,529
million. Net income was R$ 412 million (R$ 1.24 per 1000 shares)
compared to R$ 124 million (R$ 0.37 per 1000 shares) in 1998.
Data Services
Data revenues posted a 41.6 percent growth in 1999 reaching R$ 1,240
million. Growth remained strong in all data segments including
dedicated lines and switched data products.
In the fourth quarter of 1999, data revenues of R$ 378 million rose
21.1 percent compared to the third quarter of 1999 and 45.5 percent
compared to the same quarter of 1998. Part of this increase is due to
dedicated lines leased to other carriers with contracts of less than
one year. Embratel's new state-of-the-art long distance fiber loop
linking São Paulo, Rio de Janeiro and Belo Horizonte is currently
operational, supporting high-speed business and carrier data services.
This new addition to Embratel's national network will enable self
restorations and automatic re-routing in order to better serve
customers with quality services.
Internet revenues rose more than 85 percent in 1999 primarily from
the growth of the ISP business and Internet access for business
customers. At the end of the fourth quarter, Embratel launched a family
of dial-up products for the business market including Business Dial and
security services to support e-commerce. These services are in demand
from the existing ISPs and the new international players.
Brazil represents 50% of all Internet users and 56% of all
E-Commerce in Latin America and it is growing exponentially. With the
advent of free Internet subscriptions introduced by banks and
e-commerce companies in January 2000, we anticipate even stronger
growth in Internet services such as dial-up internet and web
hosting/web farm services. Embratel is best positioned to handle this
growth as it has the largest and the most robust capabilities in
Brazil.
To enhance the quality and the availability of broadband and
Internet offerings to corporate clients Embratel invested approximately
R$ 300 million in 1999 to develop Embratel's urban transport
capabilities, resulting in more than 500 km of urban fiber rings in São
Paulo, Rio de Janeiro, Porto Alegre, Curitiba and Salvador. There are
more than 150 lit buildings in these cities and more than 380 direct
connections from businesses to urban rings. In addition there are
thousands of direct connections using wireless technology. Construction
of urban rings is underway in Belo Horizonte, Brasília and Recife and
other high volume population centers.
Domestic Long Distance Voice Services
Domestic long distance revenues reached R$ 4,278 million in 1999.
Given the change in the revenue regime - see Note 1 below - first
quarter 1998 and 1999 voice revenues are not comparable. If we consider
revenues generated in the second, third and fourth quarters of 1998
which are comparable (the "comparable quarters"), domestic
long distance revenues rose 15.5 percent to R$ 3,280 million in 1999
from R$ 2,839 million in 1998. Domestic voice revenues benefited from
higher traffic volumes, entry in the intrastate market, and fixed to
cellular revenues which the company began receiving after July 3rd. All
except one of the "closed numbering areas" ("Área de
Numeração Fechada - ANUF") were opened by November 30 and the
escape code was terminated on January 10, 2000.
Fourth quarter 1999 domestic long distance revenues were R$ 1,219
million representing a 16.0 percent increase over the third quarter of
1999 and a 26.7 percent increase from the year ago quarter. The strong
quarter-over-quarter increase is explained by higher traffic volumes
resulting in part from the entry into the intra-state market and in
part from the growth in markets where the company has traditionally
operated. The company also benefited in the fourth quarter, from
approximately R$ 25 million in revenue recovered from prior
periods.
International Long Distance Voice Services
International voice revenues were R$ 929 million in 1999. First
quarter 1998 and 1999 international revenues are also not comparable
due to the change in remuneration regime. Considering the comparable
quarters, international revenues rose 4.0 percent to R$ 707 million in
1999 from R$ 680 million in 1998.
Fourth quarter international voice services revenues reached R$ 247
million representing a 5.9 percent increase compared to the third
quarter of 1999 and a 7.2 compared to the same 1998 period. Part of the
growth in international traffic is attributable to the Company's
efforts to differentiate settlement rates enhancing its competitive
position.
In late December 1999 the international cable systems Atlantis II
and Columbus III were delivered and are being introduced for commercial
use late February 2000. This fiber optic system links Brazil and
Argentina to Europe and Asia and is designed to accommodate
Brazil's traffic needs to those regions for the coming years. Up to
the commercial introduction of Americas II, planned for late April this
year, this cable system will also transport through Columbus III data
and voice traffic to the United States. Atlantis II has 20 Gbps
capacity and Embratel's share is above 20%.
EBIDA
EBITDA grew to R$ 1,529 million representing a margin of 29.5
percent in the year. Comparisons to full year 1998 may not be
meaningful due to the change in the revenue sharing regime and the
provisions made in the third quarter of 1998 (see Note 1 - below)
In the fourth quarter of 1999 EBITDA rose to R$ 431 million, a 58.5
percent increase when compared to the fourth quarter of 1998 -
excluding the effect of R$ 62 million of provisions (see Note 1), this
still represents a very strong growth of 29.0 percent. Contributing to
this achievement was a reduction in interconnection costs to 49.7
percent of net revenues in the fourth quarter of 1999 compared to 52.2
percent in the same quarter of the previous year.
Excluding the recovery of the interest and penalties provided for
the COFINS tax in the third quarter of 1999, the EBITDA margin
increased from 27.6 percent to 29.5 percent in the fourth quarter of
1999. This increase was achieved as a result of lower network
maintenance costs and stable SG&A expenses. Interconnection costs
increased as a result of strong growth in the intra-state traffic and
revenue. In order to address this new intra-state revenue opportunity
in a cost effective manner, Embratel has been aggressively deploying
points of presence, which have increased from 148 to 172 from third to
fourth quarter 1999. As more points of presence become operational via
interconnection with the local telcos, Embratel anticipates additional
telco cost efficiencies. As a part of the overall telco cost management
effort, Embratel continues to introduce products and services that
directly connect customers to the Embratel network. Negotiations with
traditional and new interconnection parties are continuing.
Net Income
Net income for the year was R$ 412 million representing an increase
of R$ 288 million over the previous year. This growth was achieved
despite the significant increase in financial expense during the year
attributable to currency devaluation. These expenses were partially
offset by some tax benefits such as a reduction in social contribution
tax in the third quarter of 1999. (see Note 2 below).
The management of the Company and its operating subsidiary Embratel
proposed to pay interest over capital in lieu of ordinary dividends for
the 1999 period. The overall impact of this treatment is to reduce
income tax expense by R$ 52 million in the fourth quarter as interest
is tax deductible and dividends are not.
Financial Position
Embratel Participações ended the year with a cash position of R$ 357
million. Total debt outstanding as of December 31,1999 was R$ 1,480
million of which R$ 879 million is long term. The average interest rate
on the debt was approximately 10.1% percent per annum plus exchange
rate variation. On December 31, 1999, Embratel's debt/equity ratio
was 0.26.
The Company obtained approximately R$ 157 million of Reais and R$
196 million of US dollar based short term debt. Embratel is in the
process of obtaining additional foreign currency borrowing. The total
amount borrowed is expected to increase up to another US$ 150 million
after the completion of this transaction. The purpose of these loans is
to strengthen the working capital position in view of the initiation of
our own billing and the capital expenditures planned for this year.
Billing
During 1999, Embratel installed a new billing system capable of
handling 50 million accounts, one of the largest ever used in Latin
America. Considerable effort was made to incorporate the databases
obtained from the local telcos and continuous reviews of this database
are being conducted. The rollout of the billing system is being
monitored closely to ensure that deployment is as smooth as
possible.
Tax Contingencies
The Company continues to pursue various legal remedies on the issues
of Income Tax on Inbound Revenues and Withholding Tax on Remittances to
Foreign Administrations. For a more detailed explanation on these
issues, please refer to previous releases and to the financial
statements.
Notes
Note 1: During the first quarter of 1998, Embratel was subject to a
revenue sharing regime whereby it only received a share of the revenues
from domestic and international long distance voice services. It also
did not pay any interconnection. As of April 1, 1998, Embratel began
receiving the entire amount of long distance revenues and in turn began
paying interconnection. As a result, 1998 and 1999 voice revenues, and
interconnection costs are not strictly comparable. Data revenues were
never subject to the same revenue sharing regime and may be
compared.
Also, during the third and fourth quarters of 1998, Embratel made
provisions for the change in the pension fund (R$ 369 million), post
retirement medical plan (R$ 75 million) and the voluntary dismissal
program (R$ 72 million) which reduced the operating income for the
period. Management believes that these factors need to be taken into
consideration to ensure that comparisons between 1998 and 1999 are
meaningful.
Note 2: Technical Note - Social Contribution: In the third quarter,
the Company benefited from a positive Social Contribution Tax of R$ 110
million. This amount arises, in part, from an increase in the social
contribution tax rate from 8 to 12 percent applicable to deferred
credits previously booked at 8 percent. These credits became deductible
in September after the tax rate had increased (R$34million). Also
Embratel recovered social contribution tax from 1996 and 1997
(Instrução Normativa IRS 038/96). This credit was used to offset the
Social Contribution of R$ 84 million provided during the period in
which the company was disputing the COFINS and PIS taxes. For further
information refer to notes 9, 12 and 16 of our third quarterly and
annual financial statements.
Embratel provides long distance and international telecommunications
services, in addition to 40 other communication services. Embratel has
the largest long distance telecommunications network in Latin America
and owns the only national and international Brazilian
telecommunications network directly connected to thousands of
companies. It is the main provider of high-speed data transmission and
Internet in Brazil, with the largest network of broadband optical fiber
cables, covering over 18,000 kilometers.
Note: Except for the historical information contained herein, this
news release may be deemed to include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risk and uncertainty, including financial, regulatory
environment and trend projections. Although the company believes that
its expectations are based on reasonable assumptions, it can give no
assurance that its expectations will be achieved. The important factors
that could cause actual results to differ materially from those in the
forward-looking statements herein include, without limitation, the
company's degree of financial leverage, risks associated with debt
service requirements and interest rate fluctuations, risks associated
with any possible acquisitions and the integration thereof, risks of
international business, including currency risk, dependence on
availability of interconnection facilities, regulation risks,
contingent liabilities, and the impact of competitive services and
pricing, as well as other risks referred in the company's filings with
the CVM and SEC. The company does not undertake any obligation to
release publicly any revisions to its forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
