Third Quarter 2002 Results (Part 1)
Wednesday October 23, 4:31 pm ET
Iusacell Reports Stable Revenues and Improved EBITDA Margin
in the Third Quarter 2002 Compared to Previous Quarter
MEXICO CITY, Oct. 23 /PRNewswire-FirstCall/ -- Grupo Iusacell,
S.A. de C.V. (NYSE: CEL - News; BMV: CEL) (Iusacell or the
Company) today announced results for the third quarter ended
September 30, 2002. (1)
Highlights
* Revenues stabilized sequentially over the second quarter at $1,308 million
* Postpaid ARPUs increased to $682 from $676 in the second quarter
* Adjusted EBITDA margin (2) improved over second quarter from 23% to 26%
* Benefits of Company restructuring and facilities rationalization
taking hold with ongoing savings of over $200 million annually
"Iusacell's renewed focus on quality subscribers and streamlined
operations has resulted in an improved postpaid Average
Revenue per User (ARPU), a more profitable customer base, and
a tighter cost structure. When the economic outlook improves,
Iusacell stands to benefit from the operational and strategic
changes we have implemented," said Carlos Espinal G., Iusacell's
Chief Executive Officer.
Quarterly Results
Iusacell achieved 268,978 gross cellular additions during the third
quarter 2002, 31% lower than the previous quarter, and 1% lower
than the third quarter 2001. The decrease in gross additions
during the quarter reflects the Company's renewed focus on high-
value customers, and related changes in the commission structure
designed to incent sales of higher traffic-generating product
offerings. Consequently, the number of gross and net additions in
low and ultra-low prepaid segments declined.
Iusacell's total subscriber base increased 28% on a year over year
basis, with net additions of 23,499 in the quarter, however, after an
adjustment of approximately 47,000 customers in the previously
reported subscriber base, the Company registered negative net
additions of 23,913 in the quarter. As of September 30, 2002,
subscribers totaled 2,176,478. The postpaid customer base
declined over the quarter to approximately 371,000 due to fewer
hybrid package gross additions and increased disconnections of
lower ARPU generating customers.
As part of the operational streamlining, the Company conducted a
review of its subscriber base. This review identified approximately
47,000 existing prepaid customers who have not utilized Iusacell's
network services since the start of the year. These inactive
accounts were turned over on an extraordinary basis and are not
included in the blended churn rate. Prepaid customers increased
41% year over year, totaling approximately 1,805,000 as of
September 30, 2002.
While blended churn improved from the 4.4% registered in the
third quarter of 2001, turnover among low usage prepaid
subscribers, combined with lower gross additions in both
segments, increased the third quarter 2002 blended churn rate to
3.7% from the 3.0% reported in the second quarter of this year.
Iusacell is focusing on its postpaid retention and renewal
programs in an effort to further reduce churn in this high value
market segment. The Company anticipates the blended churn rate
will remain relatively high while the turnover of low usage prepaid
subscribers continues.
To improve high-value sales and emphasize the customer-care
orientation of the Company, Iusacell is currently evaluating its
Company-owned stores' performance. Selected stores will be
relocated and new stores will be opened to optimize coverage in
Mexico's key plazas. As of September 30, 2002, the total number
of Company-owned stores was 155, compared to 111 one year
ago.
In the third quarter of 2002, Iusacell entered into direct distribution
contracts with a number of national retail chains for more than
1,300 points of sale that had previously been serviced through
third party distributors. The Company will continue to implement a
more direct sales model in order to strengthen distribution
relationships and improve cost structure. As of September 30,
2002 there were approximately 54,000 points of sale compared to
approximately 43,000 one year ago.
Third quarter 2002 revenues of $1,308 million held constant as
compared to the second quarter of this year, after three
consecutive quarters of decline. Compared to the previous year,
third quarter revenues decreased 25% from the $1,747 million
registered in the third quarter of 2001. Third quarter 2001
revenues included a $149 million from the sale of fiber optic and
did not include revenues from Region 8, which was acquired in the
fourth quarter of 2001.
After four consecutive quarters of deterioration, postpaid ARPUs
increased in the third quarter of 2002 to $682, from the $676
earned in the second quarter, as a greater number of new
subscribers entered into higher revenue generating contracts.
Compared to the third quarter of 2001, however, postpaid ARPUs
decreased 16%. Among prepaid subscribers, ARPU increased 4%
compared to the previous quarter, again due to higher turnover
among low-end prepaid subscribers. Compared to the same
period in 2001, however, prepaid ARPUs decreased 23%.
In the third quarter of 2002, cost of sales decreased 5% from the
second quarter of this year to $442 million. The reduction in costs
was driven by lower acquisition cost associated with the decline in
prepaid gross additions. On a year over year basis, cost of sales in
the third quarter of 2002 decreased 11% compared to the same
period in 2001, driven by the Company's cost-reduction efforts and
the decline in sales. As a percentage of total revenues, cost of
sales decreased from 36% in the second quarter, to 34% in the
third quarter 2002.
Third quarter 2002 sales and advertising expenses declined 3%
compared to the second quarter of this year and 11% compared to
the third quarter of 2001 due to expense reduction efforts. General
and administrative expenses rose 8% compared to the previous
quarter as a result of severance charges incurred during the
quarter. In spite of these non-recurring charges, general and
administrative expenses decreased 9% compared to the third
quarter of 2001.
EBITDA increased 13% in the third quarter compared to the
second quarter of 2002, to $477 million. Compared to third quarter
of 2001, EBITDA decreased 40%. Both 2002 and 2001's third
quarter EBITDA results benefited from gains related to sales of
non-strategic cellular towers of $65 million and $59 million,
respectively (see "Tower Sales"). Restructuring-related severance
costs totaled approximately $31 million in the third quarter of 2002.
Adjusted EBITDA margin, which excludes tower gains and
severance costs, was 26% in the third quarter, as compared to the
23% margin in the second quarter of 2002 and the 30% margin
registered in the third quarter of last year.
Depreciation and amortization expenses of $572 million declined
15% from the third quarter of 2001, driven by lower handset
amortization expenses resulting from more cost-effective handset
purchases and a market-driven handset mix weighted toward
lower-cost handsets.
Direct cash acquisition costs per postpaid subscriber improved
from US$289 in the third quarter of 2001 to US$198 in the most
recent quarter, due to restructured commission plans and lower
handset costs derived from more efficient purchases and handset
mix.
Third quarter operating loss totaled $95 million compared to an
operating gain of $127 million in the same period of 2001.
Excluding 2002 severance charges as well as tower-related gains
and the fiber optic sales in both years' quarters, Iusacell would
have reported operating losses of $129 million and $76 million
during the third quarter of 2002 and 2001, respectively.
The Company reported an integral financing cost of $425 million in
the third quarter of 2002, compared to $522 million in the same
quarter of last year. The reduction in the integral financing cost
was mainly driven by a lower foreign exchange loss in the third
quarter of 2002 derived from the 3.7% peso depreciation against
the U.S. Dollar in the period, compared to the 4.7% peso
depreciation in the third quarter of 2001, as well as a higher
monetary correction gains and foreign exchange hedging benefits.
The higher operating loss in the third quarter of 2002 resulted in a
net loss of $501 million, compared to a net loss of $412 million in
the third quarter of 2001. Excluding the severance charges, tower
related gains, and fiber-optic sales, Iusacell would have reported a
$587 million loss in the third quarter of 2002 and a $615 million
loss in the third quarter of 2001.
Financial Condition
Liquidity: During the third quarter of 2002, the Company funded its
operations, capital expenditures, handset purchases, principal and
interest payments mainly with internally generated cash flow and
resources from the sale of certain non-strategic cellular towers. On
September 30, 2002, the Company's operating cash balance was
US$8 million. Iusacell also has US$25 million in escrow to cover
interest payments through December 2002 on its 14.25% US$350
million Senior Notes due in 2006. The Company has no major
principal payments due in the 2002 and 2003 time frame.
Capital expenditures: Iusacell invested US$14 million in its cellular
and PCS regions during the third quarter of 2002, primarily to
expand coverage. As of September 30, the Company has invested
US$59 million year to date (see Other Developments - PCS). The
Company does not expect that 2002 capital expenditures will
exceed the previously cited guidance of US$130 million.
Debt: As of September 30, 2002, debt, including trade notes
payable and notes payable to related parties, totaled US$840
million. All of the Company's debt is U.S. dollar-denominated, with
an average maturity of 3.1 years. As of quarter-end, Iusacell's debt-
to-capitalization ratio was 59.2%, versus 55.6% on September 30,
2001.
Hedging: The Company ended the third quarter of 2002 with
approximately US$182 million in foreign exchange hedge
coverage, for the principal and interest payments related to the
Company's 10% US$150 million Senior Notes due 2004 and
short-term interest payments. In order to improve liquidity by
eliminating the collateral account requirements of the hedge and
to take advantage of a temporary weakness in the Mexican peso,
the Company opted to unwind the full foreign exchange hedge
contracted for in August and October 2001. This action was
completed on October 9, 2002 at an aggregate cost of US$1.7
million. The Company will continue to look for opportunities to
enter into cost efficient, foreign exchange hedging positions when
appropriate.
Other Developments
Cost control initiatives: As disclosed in the second quarter 2002
earnings release, the Company will continue to adapt its
operations to the current environment by taking significant steps
towards reducing costs. As part of these initiatives, Iusacell
reduced its total labor force by 842 permanent and outsourced
positions, ending the third quarter of 2002 with 1,871 total
employees. The re-sizing of the Company generated a $31 million
severance cost in the quarter. The Company expects
approximately $50 million in net cost reduction savings by year-
end 2002 and annual savings of approximately $200 million in
2003.
PCS: The Phase II PCS build-out, including the addition of network
coverage to approximately 9 second-tier cities in Regions 1 and 4,
was substantially completed in the third quarter. Once Phase II is
fully placed in commercial service, Iusacell's footprint will cover
approximately 65% of these two regions' population. Phase II has
been financed by a portion of the funds raised in the 2001 rights
offering and internally generated cash.
Tower sales: During the third quarter of 2002, the Company sold
and leased back 51 additional non-strategic towers to the Mexican
subsidiary of American Tower Corporation (MATC) for
approximately $65 million in net gains. Through 2001 and the first
nine months of 2002, the Company had sold and leased back a
total of 320 non-strategic cellular towers to MATC.
Fiber optic inventory sales: In July 2002, the Company
consummated a 1998 agreement with Marca-Tel, S.A. de C.V. to
sell Iusacell dark fiber optic cable to Marca-Tel and purchase dark
fiber optic cable from Marca-Tel through a series of fiber swaps.
This transaction served to expand Iusacell's long distance network.
The transaction generated an extraordinary gain of approximately
$52 million in the third quarter of 2002 in accordance with
Generally Accepted Accounting Principals (GAAP) in Mexico. For
U.S. GAAP purposes, this transaction represents no registered
gain.
Corporate governance: Iusacell has taken the necessary actions to
fully comply with Mexico's Securities Law. Specifically, the
Company has:
-- Ensured that independent Directors comprise at least 25% of
the entire Board;
-- Established a separate Audit Committee, removing the audit
responsibilities from the former Finance and Audit Committee;
-- Empowered the Audit Committee with the newly mandated functions;
-- Appointed independent directors to a majority of the Audit
Committee seats as well as the Committee's Chair;
-- Modified its corporate bylaws to incorporate required changes
with respect to the non-delegable duties of Board members,
statutory auditors, stock repurchases and Board and
Shareholder meeting notifications.
Listing standards on the NYSE: In September 2002, the Company
received notice from the New York Stock Exchange (NYSE) that it's
not meeting one of the NYSE's continued listing standards
because Iusacell's ADRs 30 average trading day price is below
US$1.00. The Company has notified the NYSE of its intention to
cure the deficiency within the required six-month period and is
currently evaluating appropriate alternatives.
Operating Highlights
Millions of constant pesos as of September 30, 2002
Third Quarter Nine Months
2001 2002 %Change 2001 2002 %Change
Revenues $1,747 $1,308 -25 $4,957 $4,011 -19
Gross Margin 1,249 865 -31 3,451 2,609 -24
EBITDA 801 477 -40 2,160 1,347 -38
EBITDA Margin 46% 36% -- 44% 34% --
Operating Income
(Loss) 127 (95) -- 91 (392) --
Net Loss ($412) ($501) -22 ($441) ($1,533) -248
Cellular
Subscriber
Base 1,696,618 2,176,478 28 1,696,618 2,176,478 28
Gross Cellular
Additions 270,727 268,978 -1 782,809 953,450 22
Net Cellular
Additions
Before
adjustment 54,197 23,499 -57 15,399 368,724 2,294
Net Cellular
Additions
adjustment -- -47,412 -- -- -47,412 --
Net Cellular
Additions after
adjustment 54,197 -23,913 -- 15,399 321,312 1,987
Total Number
of Employees 2,632 1,871 -29 2,632 1,871 -29
Avg. Monthly Churn 4.4% 3.7% -- 3.8% 3.2% --
All numbers are for the period indicated, except cellular subscriber
base and employees data, which is period end data. All 2002
numbers include consolidation of Regions 1, 4 and 8. The EBITDA
number for the periods indicated includes non-operational
transactions, such as one time gains from tower and fiber sales.
The total number of employees includes permanent, non-
permanent and outsourced personnel.
ARPUs in pesos as of September 30, 2002
Third Quarter Nine Months
2001 2002 %Change 2001 2002 %Change
Avg. Monthly
MOU per Subscriber* 88 58 -34 74 63 -15
Postpaid 256 209 -18 245 212 -13
Prepay 31 28 -10 23 29 26
Monthly ARPU* 281 182 -36 264 195 -26
Postpaid 811 682 -16 833 699 -16
Prepay 101 78 -23 71 81 13
All 2002 numbers include consolidation of Regions 1, 4 and 8
* Total subscriber base, including Calling Party Pays Only
subscribers within prepaid.
Integral Financing (Cost) Gain
Thousands of constant pesos as of September 30, 2002
Third Quarter Nine Months
2001 2002 %Change 2001 2002 %Change
Net Interest Expense(217) (218) -1 (621) (646) -4
Exchange (Loss)
/Gain (359) (291) 19 -- (691) -
Monetary Correction
Gain 54 84 56 194 237 22
Total Integral
Financing Loss (522) (425) 19 (427) (1,100) -158
Revenue Breakdown
Revenues by type of service and the period-to-period
comparisons expressed in millions of pesos as of September 30,
2002 are as follows:
Millions of constant pesos as of September 30, 2002
Third Quarter
2001 % of Total 2002 % of Total
Monthly Fee $450 26 $363 28
Airtime Consumption 745 42 667 51
Long Distance 171 10 85 6
Value-added Services
plus roaming 103 6 91 7
Total Service Revenues $1,469 84 $1,206 92
Equipment Sales & Other 278 16 102 8
Total Revenues $1,747 100 $1,308 100
Millions of constant pesos as of September 30, 2002
Nine Months
2001 % of Total 2002 % of Total
Monthly Fee $1,391 28 $1,146 29
Airtime Consumption 2,235 45 1,933 48
Long Distance 504 10 340 8
Value-added Services
plus roaming 319 7 268 7
Total Service Revenues $4,449 90 $3,687 92
Equipment Sales & Other 508 10 324 8
Total Revenues $4,957 100 $4,011 100
Grupo Iusacell, S.A. de C.V. (Iusacell) (NYSE: CEL - News; BMV:
CEL) is a wireless cellular and PCS service provider in seven of
Mexico's nine regions, including Mexico City, Guadalajara,
Monterrey, Tijuana, Acapulco, Puebla, Leon and Merida. The
Company's service regions encompass a total of approximately 91
million POPs, representing approximately 90% of the country's
total population. Iusacell is under the management and operating
control of subsidiaries of Verizon Communications Inc. (NYSE: VZ
- News).
Note: This press release contains statements about expected
future events and financial results that are forward-looking and
subject to risks and uncertainties. For those statements, the
Company claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation
Reform Act of 1995. Listed below are some important factors which
could affect future results and could cause those results to differ
materially from those expressed in the forward-looking statements:
materially adverse changes in the business environment in
Mexico, such as the change in value of the peso, the imposition of
exchange controls, inflation levels above those in the U.S. and
economic downturns; Iusacell's ability to develop new
technologies and hire and retain qualified personnel; the
Company's ability to obtain debt or equity financing necessary to
pursue business opportunities; and Iusacell's ability to adapt to
rapid technological change and significant competition.
Macroeconomic information used in the preparation of this report
considered a 4.6% inflation rate for the twelve months ended
September 30, 2002 and peso-dollar exchange rates of $9.97 and
$9.49 at the close of business of September 30, 2002 and 2001,
respectively.
For any additional corporate information please check the
Company's web site at iusacell.com.mx
Attached are the Consolidated Income Statements of each of
Grupo Iusacell, S.A. de C.V. and Grupo Iusacell Celular, S.A. de
C.V. for the three-month periods ended September 30, 2002 and
2001, and the Consolidated Balance Sheet of Grupo Iusacell, S.A.
de C.V. and Grupo Iusacell Celular, S.A. de C.V. at September 30,
2002 and 2001. The financial statements of Grupo Iusacell
Celular, S.A. de C.V. exclude the impact on results and financial
position of the US$350 million in 14.25% Senior Notes due 2006,
certain microwave equipment and related purchase money
indebtedness and the PCS business.
GRUPO IUSACELL CONSOLIDATED BALANCE SHEET
COMPARISON OF THIRD QUARTER 2002 WITH THIRD QUARTER 2001
(Figures in thousands of constant September 30, 2002 Pesos)
Growth
3Q01 3Q02 3Q02 / 3Q01
ASSETS
Current Assets
Cash and
marketable
securities 578,256 4% 328,019 2% -43.3%
Accounts
receivable,
net 575,162 4% 697,155 4% 21.2%
Related
parties 2,664 0% 0 0% -100.0%
Recoverable
taxes
and other 766,740 5% 368,464 2% -51.9%
Inventories 191,900 1% 125,904 1% -34.4%
TOTAL CURRENT
ASSETS 2,114,722 13% 1,519,542 10% -28.1%
Property and
equipment,
net 9,078,361 57% 9,201,532 59% 1.4%
Excess of cost
of investments in
subsidiaries over
book value, net 2,059,217 13% 2,092,830 13% 1.6%
Other assets 2,728,190 17% 2,746,496 18% 0.7%
TOTAL ASSETS 15,980,490 100% 15,560,400 100% -2.6%
LIABILITIES AND SHAREHOLDERS'EQUITY
Current
Liabilities
Accrued
liabilities 1,030,975 6% 852,574 5% -17.3%
Related parties 154,662 1% 204,472 1% 32.2%
Accounts payable 431,345 3% 339,051 2% -21.4%
Short-term debt 119,171 1% 316,668 2% 165.7%
TOTAL CURRENT
LIABILITIES 1,736,153 11% 1,712,765 11% -1.3%
Non-current
liabilities 7,832,392 49% 8,002,282 51% 2.2%
TOTAL LIABILITIES 9,568,545 60% 9,715,047 62% 1.5%
Minority interest 9,699 0% 87,475 1% 801.9%
Shareholders'
Equity
Capital stock 6,031,825 38% 6,997,745 45% 16.0%
Legal reserve 19,666 0% 19,666 0% 0.0%
Capital
contributions 1,377,048 9% 1,377,048 9% 0.0%
Net income
(loss) -441,006 -3% -1,533,307 -10% 247.7%
Accumulated
earnings
from prior
years -789,287 -5% -1,307,274 -8% 65.6%
Excess from
restatement of
shareholder's
equity 204,000 1% 204,000 1% 0.0%
TOTAL SHAREHOLDERS'
EQUITY 6,402,246 40% 5,757,878 37% -10.1%
TOTAL LIABILITIES AND
SHAREHOLDERS'S
EQUITY 15,980,490 100% 15,560,400 100% -2.6%
GRUPO IUSACELL CONSOLIDATED INCOME STATEMENT
COMPARISON OF THIRD QUARTER 2002 WITH THIRD QUARTER 2001
(Figures in thousands of constant September 30, 2002 Pesos)
Growth
3Q01 3Q02 3Q02/3Q01
REVENUE
Service 1,469,332 84.1% 1,205,713 92.2% -17.9%
Equipment
sales and
other 277,715 15.9% 101,854 7.8% -63.3%
TOTAL REVENUE 1,747,047 100.0% 1,307,567 100.0% -25.2%
Cost of
services 403,651 23.1% 364,532 27.9% -9.7%
Other costs 94,577 5.4% 77,878 6.0% -17.7%
TOTAL COSTS 498,228 28.5% 442,410 33.8% -11.2%
GROSS MARGIN 1,248,819 71.5% 865,157 66.2% -30.7%
Sales &
Advertising
expenses 358,409 20.5% 318,608 24.4% -11.1%
General and
Administrative
expenses 148,145 8.5% 134,845 10.3% -9.0%
Other income -59,124 -3.4% -65,395 -5.0% 10.6%
TOTAL OPERATING
EXPENSES 447,430 25.6% 388,058 29.7% -13.3%
EBITDA 801,389 45.9% 477,099 36.5% -40.5%
Depreciation and
amortization 674,317 38.6% 572,308 43.8% -15.1%
OPERATING INCOME
(LOSS) 127,072 7.3% -95,209 -7.3% --
Interest
expense,
net 216,249 12.4% 217,561 16.6% 0.6%
Foreign exchange
loss (gain) 359,223 20.6% 291,502 22.3% -18.9%
Monetary
correction -53,733 -3.1% -83,921 -6.4% -56.2%
INTEGRAL
FINANCING
COST 521,739 29.9% 425,142 32.5% -18.5%
INCOME (LOSS)
BEFORE TAXES AND
STATUTORY PROFIT
SHARING COST -394,667 -22.6% -520,351 -39.8% -31.8%
Part (Income)
loss Subsidiaries 1,722 0.1% -326 0.0% --
Taxes 40,693 2.3% 25,572 2.0% -37.2%
Extraordinary
items -- -- -52,156 -4.0% -100.0%
NET INCOME
(LOSS) BEFORE
MINORITY
INTEREST -437,082 -25.0% -493,441 -37.7% -12.9%
Minority
interest -24,733 -1.4% 7,238 0.6% --
NET INCOME
(LOSS) -412,349 -23.6% -500,679 -38.3% -21.4%
GRUPO IUSACELL CELULAR CONSOLIDATED BALANCE SHEET
COMPARISON OF THIRD QUARTER 2002 WITH THIRD 2001
(figures in thousands of constant September 30, 2002 Pesos)
Growth
3Q02 /
3Q01 3Q02 3Q01
ASSETS
Current Assets
Cash and marketable
securities 161,763 1% 47,725 0% -70.5%
Accounts receivable, net 575,162 4% 680,768 5% 18.4%
Related parties 2,664 0% 110,601 1% 4051.7%
Recoverable taxes and
other 529,312 4% 285,564 2% -46.0%
Inventories 191,900 1% 125,904 1% -34.4%
TOTAL CURRENT ASSETS 1,460,801 11% 1,250,562 9% -14.4%
Property and equipment,
net 8,713,734 65% 8,455,901 63% -3.0%
Excess of cost of
investments in
subsidiaries
over book value, net 1,860,284 14% 1,904,277 14% 2.4%
Other assets 1,387,147 10% 1,912,231 14% 37.9%
TOTAL ASSETS 13,421,966 100% 13,522,971 100% 0.8%
LIABILITIES AND
SHAREHOLDERS'EQUITY
Current Liabilities
Accrued liabilities 784,150 6% 624,485 5% -20.4%
Related parties 77,200 1% 352,360 3% 356.4%
Accounts payable 370,340 3% 242,237 2% -34.6%
Short-term debt 119,171 1% 169,419 1% 42.2%
TOTAL CURRENT
LIABILITIES 1,350,861 10% 1,388,501 10% 2.8%
Noncurrent liabilities 4,130,982 31% 4,191,119 31% 1.5%
TOTAL LIABILITIES 5,481,843 41% 5,579,620 41% 1.8%
Minority interest 9,699 0% 41,593 0% 328.8%
Shareholders' Equity
Capital stock 14,682,791 109% 15,608,535 115% 6.3%
Legal reserve 27,794 0% 27,794 0% 0.0%
Capital contributions 96,173 1% 96,173 1% 0.0%
Net income (loss) (141,766) -1% (787,785) -6% 455.7%
Accumulated earnings from
prior years (6,045,890) -45% (6,354,281) -47% 5.1%
Excess from restatement
of shareholders's equity (688,678) -5% (688,678) -5% 0.0%
TOTAL SHAREHOLDERS'
EQUITY 7,930,424 59% 7,901,758 58% -0.4%
TOTAL LIABILITIES AND
SHAREHOLDERS'S EQUITY 13,421,966 100% 13,522,971 100% 0.8%
(continued) |
