[CEL Reports 3rd Quarter 2001 Results]
Friday October 26, 9:00 pm Eastern Time
Press Release
SOURCE: Iusacell
Iusacell Reports Sustained Revenue and EBITDA Growth in the Third Quarter of 2001 -1-
-- Reported revenue increased 16% in the third quarter of 2001 over the same period
in 2000, to $1,681 million
MEXICO CITY--(BUSINESS WIRE)--Oct. 26, 2001-- -- Reported EBITDA for the third quarter
of 2001 increased 45% over the same period in 2000, to $771 million
Grupo Iusacell, S.A. de C.V. (Iusacell or the Company) [BMV: CEL, NYSE: CEL] today
announced revenues of $1,681 million for the third quarter of 2001, a 16% increase
over the third quarter of 2000, including $143 million in fiber optic inventory
sales (See ``Other Developments''). Excluding these sales, revenues for the third
quarter 2001 were $1,538 million, a 6% increase over the same period in 2000.
The Company's earnings before interest, taxes, depreciation and amortization (EBITDA)
were $771 million for the third quarter of 2001, including gains from sales of dark
fiber and certain cellular towers (See ``Other Developments''). Excluding these gains,
EBITDA for the third quarter 2001 was $576 million, an 8% increase over third quarter
2000 EBITDA. The quarter's adjusted EBITDA margin, that is, proforma results that
exclude tower and fiber-related gains and expense rather than capitalize postpaid
handset costs, increased to 30% from 23% in the same quarter of last year.
Operating Performance
Iusacell's total subscriber base in the third quarter of 2001 increased 10% over the
same period of 2000, reaching approximately 1,697,000 customers, including 1,284,000
prepaid customers. Third quarter gross additions of 271,000 represented an 8% increase
on a year over year basis. The net additions of 54,000 reflect the ongoing emphasis on
stricter activation and credit policies. As outlined in the second quarter earnings
release, the Company implemented these and other initiatives over the last five months
to reduce churn. Even though the Company continued to experience a high level of churn,
rates improved slightly this quarter on a sequential basis and are expected to improve
further in coming quarters.
In order to better focus on active customers and encourage airtime usage the Company
reduced the initial period for utilizing an activated prepaid card from 180 days to 60 days
effective July 1, 2001. This measure will be an incentive for customers to recharge their
phones on a more regular basis that should increase consumption. As a result, approximately
345,000 incremental subscribers were transferred to the Incoming Calls Only (also known
as CPP only) prepaid customer status in the third quarter. The reduction in the initial
period is in line with Mexican market practices and was met with no customer resistance,
according with our customer service reports.
During the quarter, Iusacell moved ahead on its strategy to sharply expand the
availability of its prepaid cards by aggressively widening its distribution
channels as part of the new emphasis in the prepaid segment. An innovative distribution
program called ``los Rojos'' was implemented in Mexico City, Guadalajara, Toluca and
Cuernavaca. The program, implemented through a distributor, recruits existing street
vendors and provides them with an opportunity to increase their income by directly
selling the Company's VIVA(TM) cards and pre-activated prepaid handsets to car drivers
and pedestrians. The program, in its initial stage, employs approximately 1,200 people
and is being welcomed by both our customers and their communities.
Mr. Peter Burrowes, President and Director General of Iusacell stated: ``In these past
months, we have implemented innovative marketing initiatives to increase our points of
sale and drive the card replenishment business and have also implemented various cost
reduction initiatives that we expect will have a positive impact in future periods.
Iusacell's new management team is fully committed to implementing all the necessary
actions to continue the transformation of the Company into a leading and more profitable
player in the Mexican wireless market''.
The Company's products and services were available at approximately 43,000 points of
sale as of the end of the third quarter, a 144% increase over the 17,600 points of
sale deployed on September 30, 2000.
Iusacell continues to build its roaming capabilities by providing its customers with
the ability to use the mobile phone in more and more places. During the third quarter
2001, roaming service was launched in the Dominican Republic with Codetel and in
Venezuela with Movilnet. Additionally Iusacell signed roaming agreements with KDDI
Japan and China Unicom and began the technical process for implementation.
Postpaid subscriber acquisition cost for the period decreased to US$289 from US$297
in the same period last year, primarily due to the lower net commissions paid to
distributors as a result of the Company's charge-back initiative, implemented this
year, that penalizes churn.
General and administrative expenses in the third quarter of 2001 were $143 million,
a 4% increase from the $137 million registered in the same period of 2000. Sales and
advertising expenses in the third quarter of 2001 remained constant, growing slightly
to $345 million from the $344 million reported in the third quarter of 2000.
Depreciation and amortization expenses increased 7% in the third quarter of 2001 compared
to the third quarter of 2000. The increase was driven primarily by higher amortization of
handset costs, due to the previously announced reduction of the amortization period in
the second quarter of this year from 18 to 12 months and the capital expenditures the
Company invested in the last 12 months of US$213 million.
As a result of the sale of certain non-strategic cellular towers and fiber optic capacity
in the third quarter 2001, the Company reported operating income of $121 million compared
to an operating loss of $74 million in the same period of 2000. Excluding the tower and
fiber-related gains, Iusacell would have reported an operating loss of $73 million.
The Company reported an integral financing cost of $498 million in the quarter compared
to a $71 million gain in the third quarter of 2000. This change was primarily attributable
to a weaker peso in the third quarter of 2001 that resulted in a foreign exchange loss
of $342 million versus the $253 million foreign exchange gain in the third quarter of 2000.
The peso had been strengthening all year, however, it declined significantly after the
events of September 11th in the United States due to the increased uncertainty and
weakened U.S. economy. Since the end of the quarter, the peso has strengthened again.
The foreign exchange impact was partially offset by the lower net interest expense of
$208 million in the third quarter of 2001 as compared to $258 million recognized in the
same period of 2000. The lower interest expense in the period resulted from global
interest rates reductions effective in the first nine months of 2001.
As a result of the significant integral financing cost, the Company reported a net loss
of $394 million versus the $52 million net loss incurred during the same period of 2000.
Excluding the tower and fiber-related benefits, Iusacell would have reported a net loss
of $588 million.
Russell A. Olson, Iusacell's recently appointed Chief Financial Officer, stated: ``The
Company's continued financial improvement is evidenced by the EBITDA margin growth. With
the continued support of Verizon and Vodafone, we look forward to accelerating this
process and giving our shareholders superior value in the quarters to come''.
Financial Condition
Capital Expenditures. During the third quarter of 2001, Iusacell invested US$53 million
in capital expenditures in its cellular regions to increase capacity, expand coverage
and improve quality. Including its new PCS operations in Regions 1 and 4 and Portatel
in Region 8, the Company expects to invest approximately US$240 million in 2001
(excluding non-cash transactions).
Debt. As of September 30, 2001, total debt, including trade notes payable and notes
payable to related parties, was US$808 million. All of the Company's debt is U.S.
dollar-denominated, with an average maturity of 4.1 years. On September 30, 2001,
Iusacell's debt-to-capital ratio was 55.6%, versus 53.3% on September 30, 2000.
In August and October 2001, the Company hedged US$150 million of debt principal and
associated interest payments. These transactions are intended to allow Iusacell to
reduce its exposure to foreign exchange losses related to its U.S. dollar denominated
debt.
Liquidity. During the third quarter of 2001, the Company funded its operations, capital
expenditures, handset purchases and interest payments principally with internally
generated cash flow and vendor financing. On September 30, 2001, the Company's operating
cash balance was US$11 million. Iusacell also has US$72 million in escrow to cover
interest payments through December 2002 on its 14.25% Senior Notes due 2006.
Other Developments
Rights Offering. On September 27, 2001, the Company's shareholders authorized a rights
offering to holders of its outstanding Series V shares and American Depositary Shares
(ADSs). The rights offering will involve newly issued Series V shares representing ADSs
and Series A shares of Iusacell for up to US$100 million. The subscription price for
the ADSs was set at US$2.30 per ADS or its equivalent in Mexican pesos, which corresponds
to the approximate closing price of the Company's ADRs on September 26, 2001. The
subscription period started on October 5, 2001, and will end on November 1, 2001.
Verizon and Vodafone have already purchased their pro rata portion of Series A and
Series V shares. In addition, Verizon intends to purchase all of the Series V shares
offered but not subscribed by shareholders.
National Footprint. On October 19, 2001, the Company closed the first stage of its
acquisition of Grupo Portatel, S.A. de C.V., the Region 8 A-Band cellular provider
in southern Mexico. The total price to be paid by the Company for Portatel is
approximately US$72 million, plus approximately US$10 million in assumed net debt.
The Company is currently negotiating a US$100 million project financing loan for the
commercial launch of PCS in the major cities of Region 1 and 4. Financing is expected
to be completed and commercial service launched during the fourth quarter of 2001.
Mr. Peter Burrowes said: ``We are about to conclude the rights offering process with
full support from our major shareholders, evidencing their commitment to the Company.
The offering provides the critical financing required to close the acquisition of
Portatel and launch our PCS services in Regions 1 and 4 during the fourth quarter
of 2001. The Portatel acquisition and PCS launch will advance us significantly toward
our goal of building a national footprint. We believe these strategic actions will
serve to maximize value for our shareholders''. Mr. Burrowes added. ``By the end of
the fourth quarter 2001, Iusacell will have service in 7 of the 9 existing regions
in Mexico which cover approximately 90% of the country's total population, plus
seamless roaming in Regions 2 and 3''.
Tower Sales. During the third quarter of 2001, the Company sold and leased back 48
additional non-strategic towers to the Mexican subsidiary of American Tower
Corporation (MATC), for approximately $57 million in net cash proceeds. Through
September 30, the Company had sold and leased back a total of 218 non-strategic
cellular towers to MATC.
Fiber Optic Inventory Sales. In December 1999, Iusacell entered into an agreement
with Telereunion, S.A. de C.V. to sell Iusacell dark fiber optic cable to Telereunion
and purchase Telereunion dark fiber optic cable in order to expand Iusacell's long
distance network. These sales and purchases were consummated in September 2001
through a series of fiber swaps. As a result, in addition to revenues previously
recorded, Iusacell recorded approximately $143 million in revenues for the third
quarter of 2001.
Cofetel Quality Measures. The Mexican telecommunications regulator, Cofetel, performs
technical audits throughout the country to verify that Mexican wireless carriers offer
network quality and customer service consistent with international standards. The
results of the first nationwide round of auditing ended in July 2001 showed that
Iusacell significantly exceeded Cofetel's standards within all its tested operating
regions.
Operating Highlights
Millions of Pesos as of September 30, 2001
Third Quarter
2001 2000 % Change
Revenues $ 1,681 $ 1,453 16
Gross Profit 1,201 1,013 19
EBITDA 771 532 45
EBITDA Margin 46% 37% --
Operating Income (loss) 121 (74) --
Net Income (loss) ($ 394) ($ 52) --
Cellular Subscriber Base 1,696,618 1,538,462 10
Gross Cellular Additions 270,727 251,141 8
Net Cellular Additions 54,197 (14,127) --
Avg. Number of Employees 2,024 1,970 3
Avg. Monthly Postpaid Churn 4.2% 3.4% 24
Nine Months
2001 2000 % Change
Revenues $ 4,739 $ 4,176 13
Gross Profit 3,299 2,897 14
EBITDA 2,065 1,489 39
EBITDA Margin 44% 36% --
Operating Income (loss) 86 (215) --
Net Income (loss) ($ 422) ($ 625) 32
Cellular Subscriber Base 1,696,618 1,538,462 10
Gross Cellular Additions 782,809 763,118 3
Net Cellular Additions 15,399 215,664 (93)
Avg. Number of Employees 2,035 1,916 6
Avg. Monthly Postpaid Churn 3.7% 3.6% 3
All numbers are for the period indicated, except cellular
subscriber base data, which is period end data.
ARPUs in pesos as of September 30, 2001
Third Quarter
2001 2000 % Change
Avg. Monthly MOU per Subscriber(a) 130 96 35
-- Contract 256 254 1
-- Prepay 55 30 83
Monthly ARPU(a) $411 $319 29
-- Contract $811 $863 (6)
-- Prepay $178 $ 92 93
Avg. Monthly MOU per Subscriber(b) 88 83 6
Monthly ARPU(b) $281 $275 2
Year to Date
2001 2000 % Change
Avg. Monthly MOU per Subscriber(a) 111 89 25
-- Contract 249 245 2
-- Prepay 42 29 45
Monthly ARPU(a) $358 $316 13
-- Contract $803 $833 (4)
-- Prepay $137 $ 92 49
Avg. Monthly MOU per Subscriber(b) 85 74 15
Monthly ARPU(b) $276 $264 5
(a) Without Incoming Calls Only subscribers. 2001 data applies the
new utilization period methodology to third quarter information. 2000
data applies the old utilization period methodology exclusively.
(b) Total subscriber base, including Incoming Calls Only
subscribers
Integral Financing (Cost) Gain
Millions of pesos as of September 30, 2001
Third Quarter Year to Date
2001 2000 % Change 2001 2000 % Change
Net Interest
Expense ($208) ($258) (19) ($593) ($734) (19)
Exchange
Gain (Loss) (342) 253 - - 97 -
Monetary
Correction Gain 52 76 (32) 185 297 (38)
Total Integral
Financing Gain
(Loss) ($498) $71 - ($408) ($340) 20
Revenue Breakdown
Revenues by type of service and the period-to-period comparisons
expressed in millions of pesos as of September 30, 2001 are as follows
Millions of pesos as of September 30, 2001
Third Quarter
2001 % of Total 2000 % of Total
Monthly Fee $ 433 26 $ 434 30
Airtime Consumption 718 42 650 45
Long Distance 164 10 136 9
Value-added Services
plus roaming 99 6 114 8
Total Service Revenues $1,414 84 $1,334 92
Equipment Sales & Other 267 16 119 8
Total Revenues $1,681 100 $1,453 100
Nine Months
2001 % of Total 2000 % of Total
Monthly Fee $1,330 28 $1,285 31
Airtime Consumption 2,136 45 1,777 43
Long Distance 482 10 397 9
Value-added Services
plus roaming 305 7 313 7
Total Service Revenues $4,253 90 $3,772 90
Equipment Sales & Other 486 10 404 10
Total Revenues $4,739 100 $4,176 100
Grupo Iusacell, S.A. de C.V. (Iusacell, NYSE: CEL; BMV: CEL) is the wireless cellular
service provider in four of Mexico's nine regions in the central portion of Mexico
(including Mexico City) and recently acquired the A-band cellular carrier in the
southeastern region, which is in the process of consolidation. In addition, it
holds concessions to provide wireless PCS services in regions 1 and 4 in the
northern part of the country. Total service regions are covering a total of
approximately 90 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, we claim 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 devaluation of the
peso, the imposition of exchange controls, inflation levels above those in the U.S.
and economic downturns; our ability to develop new technologies and hire and retain
qualified personnel; our ability to obtain debt or equity financing necessary to
pursue business opportunities; and our ability to adapt to rapid technological
change and significant competition.
This press release is incorporated by reference into our Registration Statement on
Form F-3 filed with the Securities and Exchange Commission on March 22, 2000.
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