Bloomberg News

Sonaecom Sees Safety in Cash Flow as Sales Suffer in Recession

November 07, 2011

Nov. 4 (Bloomberg) -- Sonaecom SGPS SA will be protected by its cash flow next year even as revenue is hurt by Portugal’s deepening recession, said Miguel Almeida, head of the company’s telecommunications division.

“Its easy to predict that revenue will be under sharp pressure,” Almeida said in a telephone interview. “In this scenario, the fact we will be able to continue to generate cash flow gives us enormous reassurance.”

Sonaecom, based near Oporto, Portugal, has been cutting costs and made savings from merging its fixed-line and wireless brands last year. Operating costs declined 9 percent in the third quarter, as revenue dropped 3.8 percent, the company said in a regulatory filing yesterday. Free cash flow rose to 43.6 million euros ($60.2 million) at the end of September from 21.9 million euros at the end of June.

The company expects to end 2011 with an annual increase in Ebitda similar to the previous year’s 10 percent gain, Almeida said. He declined to detail estimates for next year. Third- quarter earnings before interest, taxes, depreciation and amortization gained 16 percent from a year earlier.

Sonaecom has been focusing on its wireless operations and business clients for fixed-line services, as it has stopped trying to attract customers to traditional residential landline services.

Revenue at the fixed-line business dropped 6.4 percent to 56.6 million euros as its Ebitda rose more than fivefold to 3.3 million euros in the third quarter. The company expects Ebitda minus capital spending at the fixed-line business to be positive next year, Almeida said. It reached breakeven on that basis for the first time in the third quarter.

Competition

Competition in the fixed-line business has increased in the past three years, after Portugal Telecom SGPS SA spun off its television-cable unit, now called Zon Multimedia SGPS SA. Portugal Telecom and Zon compete for phone and pay-TV customers.

With Portugal’s debt and borrowing costs surging, it became the third country in the euro region to request external aid, following Greece and Ireland. In return for a bailout from the European Union and International Monetary Fund, the government is imposing measures such as raising taxes, and cutting pensions, tax benefits and state workers’ salaries,.

The government forecasts gross domestic product will shrink 2.8 percent next year after a contraction of 1.9 percent this year. The Finance Ministry estimates the unemployment rate will reach 13.4 percent in 2012 before it starts to decline in 2013.

Sonaecom’s net income climbed to 25.2 million euros from 10.1 million euros a year earlier.

--Editors:

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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