The challenging macroeconomic environment in Brazil took its toll on the operations of Brazilian optical and data transport multinational Padtec in the first half of the year.
Hurt by rising interest rates in its main market, the company saw declines in gross revenue and net profit, and a rise in its net debt in the first half of the year compared with the first half of 2021.
“The increase in financial cost makes it more difficult for customers to make investments, who end up postponing their expansions, modernizations and even the implementation of new high-capacity optical transmission systems,” Padtec said in its financial statements for the period.
The domestic problems, however, were partially offset by growth of sales in international markets, as demand for high-capacity networks continues to drive momentum.
“The international market was extraordinary this quarter. We made our first sale in the US market, a market that is undergoing a transformation with the departure of certain Asian operators. Being positioned in that market is very good,” Padtec’s CEO Carlos Raimar said in an earnings call.
The company posted 53 per cent year-on-year growth in export-related revenues from its core DWDM (Dense Wavelength Division Multiplexing) equipment in H1. According to Raimar, Padtec achieved record overseas revenues for a quarter in Q2.
The US contract to which Raimar referred was signed inked with South Front Networks, a Minnesota-based broadband service provider. It involved the acquisition of Padtec’s 800Gbps transponder line.
The deal, the financial details of which were not disclosed, was signed in June. Padtec expects to cash revenues from that throughout the second half of the year, Raimar said.
South Front Networks aims to boost the transmission capacity of its DWDM networks and provide transmission rates of 400Gbps in a single wavelength in its coverage area, according to Padtec.
The Brazilian multinational claims to serve 80 per cent of Latin American markets and it has commercial and technical teams in Argentina, Colombia and Chile, as well as Brazil. It also has commercial representation in the US.
Without disclosing hard figures, the CEO said that the increase in foreign sales “abruptly” altered the company’s revenue mix, tipping the balance towards the international side from domestic operations. According to Raimar, this rebalancing is highly “positive” for Padtec, which also has projects under development in Africa and Europe.
“The domestic market is moving much more cautiously,” said the CEO.
Padtec’s key deals signed in Brazil in the last months include contracts with Telefónica’s neutral network FiBrasil, Adylnet, Conect Info and Wirelink.
Performance
The company’s net debt came to 20.6mn reais (US$4mn) at end of June, up from 1.70mn reais in at end-March and 3.98mn reais 12 months prior.
Most of this increase was due to inflation-driven rises in commercial, administrative, and financial expenses, its executives said. Expenses climbed to 47.9mn reais from 39.4mn reais in the first half of 2021.
In Q2 the company invested 10.4mn reais, including R&D expenses and sums allocated to intangible assets, in line with the investments made in the previous quarter and the same three months of 2021, according to Padtec.
Capex in the semester reached 21mn reais, up 8.2 per cent year-on-year.
Financial director and investor relations manager Renato Jordão da Silva said that Padtec has also spent more on stock and inventory compared with its competitors in order to secure timely product deliveries to its clients.
According to the executive, Padtec ships faster than any other player in the market. Its main rivals include Infinera, Ciena and Fujitsu.
“We ended up sacrificing the result a bit to maintain our level of delivery,” Da Silva said.
The company sees the remainder of 2022 as challenging on various fronts, citing macroeconomic woes, the continued semiconductor shortage, high fuel, energy and logistics prices, and political uncertainties related to the upcoming presidential elections in Brazil.
