Portugal Telecom's Q2 EBITDA Up 11% on Brazilian Growth

Portugal Telecom has announced its second-quarter earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose 11% year-on-year (y/y) to 663.6 million euro (US$875 million), as key growth at its Brazilian unit Vivo offset a flat performance at home. The Portuguese incumbent also revealed its second-quarter revenues rose 17% y/y to 1.91 billion euro, while second-quarter net profit jumped 83% y/y to 164.2 million euro, from 90 million euro in the same quarter a year earlier, well above analyst expectations.

In Portugal Telecom's home market, second-quarter revenue fell 1% y/y to 798 million euro. Its fixed-line business—which includes bundled Internet, Pay TV, and phone services—showed some signs of improvement, with revenues rising 2% y/y to 482.8 million euro, but mobile service revenues dropped 6% to 343.6 million euro due to higher competition and the ongoing economic downturn. Besides Portugal and Brazil, Portugal Telecom has smaller operations in Angola, Cape Verde, Mozambique, Namibia and East Timor.

Outlook and Implications

• Growth in Brazil Bolsters a Flat European Performance: Portugal Telecom's biggest source of revenue remains its Brazilian mobile unit Vivo, owned by Brasicel, which Portugal Telecom jointly controlled with Telefónica in the last quarter, and which it sold to the Spanish giant last month for 7.5 billion euro (see Brazil: 28 July 2010: Telefónica and PT Reach Agreement on Vivo Sale). Due to a stronger real and growth in the Brazilian market, PT's revenue from Brazil rose 38% in the quarter to 1.10 billion euro. Vivo last week announced its second-quarter net service revenues were up 10.7% year-on-year (y/y) to 4.1 billion reais (US$2.3 billion), supported by a substantial increase in the operator's customer base, which almost reached 56 million at end-June, up 19.6% y/y, to see its market share grow to 30.2% (see Brazil: 29 July 2010: Vivo's Q2 Net Revenues Up 10% Y/Y). Portugal Telecom struggled to avoid selling its stake in Vivo, and ended up securing a higher price than Telefónica had wanted to pay. However, far from exiting its most profitable market, Portugal Telecom used roughly half of the funds from the Brasicel sale to buy a 22.4% stake in Brazilian telecoms operator Oi. Oi has recently posted net revenues for the first quarter of the year of 7.4 billion reais (US$4.2 billion), 1.3% up year-on-year (y/y) thanks to a surge in revenues from mobile and internet services (see Brazil: 30 July 2010: Oi's Net Revenues Increase 1.3% Y/Y in Q2).
• Portuguese Market Shows Signs of Recovery: Hit hard by the global economic downturn, Portugal's operators are now seeing some green shoots of growth, driven by ramping broadband penetration levels in the country. Fixed-line operators ZON Multimedia and Sonaecom have both reported healthy revenue rises in the second quarter this week, driven by growth particularly in the triple-play sector (see Portugal: 2 August 2010: Portuguese Fixed Operators Sonaecom and ZON See Positive Growth in Q2). However, competition in the sector is also proportionally increasing, with Vodafone Portugal recently launching a fixed triple-play service delivered over its own fibre-optic network (see Portugal: 16 June 2010: Vodafone Portugal Launches Fibre-Based Triple-Play Service). Portugal Telecom has seen data revenues grow to reach 24.2% of its total service revenues; however, mobile growth in the country has still yet to recover.