Telecom Argentina S.A. Announces Consolidated Nine-Month Period ("9M06") and Third Quarter Results for Fiscal Year 2006 ("3Q06")*
19 November 2006
Telecom Argentina (NYSE: TEO) (BASE: TECO2), one of Argentina's leading telecommunications groups, announced today Net Income of P$164 million for the nine-month period ended September 30, 2006 ("9M06").
-- During 9M06 Telecom's operations continued its positive evolution.
Cellular and broadband subscribers grew 46% and 99%, respectively, when
compared to September 2005, while fixed lines in service grew 4% over
the same period.
-- Net Revenues reached P$5,262 million (+30% vs. 9M05) mainly fueled by
the expansion of the cellular business, which increased by 56% and data
& Internet revenues, which increased by 20%.
-- Operating Profit before Depreciation and Amortization (OPBDA) increased
by P$250 million (+17% vs. 9M05) reaching P$1,731 million. Operating
Profit reached P$676 million (+95% vs. 9M05).
-- Net Income reached P$164 million for 9M06 and P$65 million for 3Q06, as
a result of the general improvement of the business, partially offset
by financial expenses (interest and holding results). Net Income for
9M05 was P$1,623 million, including a P$1,424 million non-recurrent
gain generated as a result of the closing of the debt restructuring
process. Shareholders' Equity as of September 30, 2006, amounted to
P$2,043 million.
-- Net financial Debt declined to P$ 3,777 million (-P$795 million vs.
9M05), primarily as a result of the cash flow generated by operations.
The ratio of Net Financial Debt to OPBDA decreased from 2.3x as of
September 30, 2005, to 1.6x.
* Non-financial data unaudited
During 9M06, Consolidated Net Revenues increased 30% to P$5,262 million (+P$1,205 million vs. 9M05), fueled by the expansion of the cellular and broadband businesses, together with moderate growth in the fixed telephony business.
Moreover, OPBDA increased by 17% to P$1,731 million (+P$250 million), equal to 33% of Consolidated Net Revenues.
Net Income reached P$164 million during 9M05 and P$65 million in 3Q06. Year-to-year comparison is affected by the P$1,424 million non-recurrent gain generated in 2005 as a result of the closing of the debt restructuring process.
Company Activities
Consolidated Net Revenues
The growth in Consolidated Net Revenues (+30% vs. 9M05) is as follows:
Fixed Telephony (Voice, Data Transmission & Internet)
Fueled mainly by the increase in broadband penetration and an increase in the number of lines in service, revenues generated by the Fixed Telephony Business (including voice, data transmission and Internet services) amounted to P$2,249 million, a 6% increase over 9M05.
Voice
Following an increase of 4% in the number of lines in service, Monthly Charges increased by P$32 million or 6% in 9M06 as compared to 9M05, reaching P$533 million. This growth occurred even though no increase has been applied to regulated tariffs.
Local Measured Service and Domestic Long Distance revenues marginally decreased when compared to 9M05 to P$379 million (-2%) and P$336 million (+1%) respectively, while overall traffic volume, measured in minutes, remained basically stable.
In addition, revenues generated by International Telephony reached P$173 million (P$6 million or 4% higher than 9M05) due to an increase in traffic partially offset by marginally lower prices.
Interconnection revenues increased by P$44 million (+24%), reaching P$225 million, driven by mobile traffic transported by and/or terminated in Telecom's fixed line network.
Internet and Data Transmission
Revenues generated by Data transmission and Internet amounted to P$411 million, an increase of P$69 million, or 20% vs. 9M05. The strong growth in broadband connections has been the most dynamic component of this item.
As of the end of 9M06, Telecom's ADSL subscribers numbered 375,000 (+187,000 or +99% vs. 9M05). Lines with ADSL connections accounted for more than 9% of Telecom's lines in service. Regarding ISP services, Arnet subscribers totaled 400,000 (+54% or +141,000 subscribers vs. 9M05), as a consequence of the increase of 175,000 broadband subscribers (+136% vs. 9M05) and the decrease of 34,000 dial-up subscribers (-26% vs. 9M05).
This expansion is a consequence of Telecom's strategy of launching quality products at accessible prices. Also contributing is the new portfolio of data transmission services that permits small and mid-size businesses to access services that previously were only available for large companies.
Directories
Publicom sales amounted to P$20 million in 9M06 (+P$3 million or 18% vs. 9M05), due to the positive evolution of the sales campaigns for advertising space in directories.
Cellular Telephony
As of September 30, 2006, the total subscriber base of Personal in Argentina totaled approximately 7.7 million; 2.4 million customers more than those registered as of September 30, 2005 (+45%). It is important to highlight that the postpaid customer base increased by 54%, while the prepaid customer base increased by 40% vs. 9M05.
As of September 30, 2006, approximately 65% of the overall subscriber base was prepaid and 35% was postpaid. Subscribers with GSM technology represented 85% of the overall subscriber base.
Total traffic measured in minutes increased by 37% vs. 9M05. Furthermore, SMS traffic (outgoing messages) increased from an average of 207 million per month during 9M05 to an average of 508 million per month during 9M06 (+145%). Moreover, value-added services continued to gain participation in the overall average monthly revenue per user in Argentina ("ARPU").
In this context, Telecom Personal's revenues in Argentina reached P$2,748 million, increasing P$985 million (+56%) when compared to the same period last year. This positive evolution is the result of both a larger subscriber base and a higher ARPU, the latter increasing to P$39 or by +11% vs. 9M05. In addition, higher handset sales positively contributed to the overall revenue growth.
In a highly competitive and dynamic market environment, Personal continued to develop a commercial approach focused on growth in economic value, by implementing activities to strengthen its brand positioning, with a strategic
focus on service quality, and to strengthen its distribution channels throughout the country.
With regards to its product portfolio, Personal upgraded its Blackberry platform, introduced new content offerings (realtones, ringtones, speechtones) and launched a set of tailor-made plans designed for the younger market (such as "Personal Mania"). Finally, Personal launched Mobile Banking services.
Nucleo, Personal's controlled subsidiary that operates in Paraguay, generated revenues equivalent to P$245 million in 9M06 (+58% when compared to 9M05).
Subscriber base as of September 30, 2006 reached approximately 949.000 (+61% vs. 9M05), with an ARPU increase of 7% over the same period, reaching the equivalent of US$10. Prepaid and Postpaid customers represented 84% and 16%, respectively. GSM subscribers represented 67% of the overall subscriber base.
Consolidated Operating Costs
The Cost of Services Provided, Administrative Expenses and Selling Expenses totaled P$4,586 million in 9M06, which represents an increase of P$876 million or 24% over 9M05.
Salaries and Social Security Contributions increased by P$107 million, or 21%, to P$611 million, reflecting wage increases and a headcount increase in line with the general growth of the business.
Taxes amounted to P$380 million, representing an increase of 36%, mainly due to increases in taxes directly calculated as a percentage of the revenues.
Agents and Prepaid Card Commissions increased by P$110 million, or 43% over 9M05, to P$365 million. Advertising costs totaled P$149 million (+54% vs. 9M05). It is important to highlight that this increase in costs is related to the efforts implemented by the Telecom Group to acquire new cellular and internet customers, as well as the increase in the volume of cellular pre paid credit.
The cost of cellular handsets increased by P$264 million over 9M05 to P$655 million in 9M06 mainly due to the increase in handset sales related subscriber growth and TDMA to GSM migration.
TLRD (termination charges in third party cellular networks) and Roaming costs increased by P$107 million from 9M05 (+39%), reaching P$379 million in 9M06, due to the increase in traffic among cellular operators, in line with the significant expansion of the market.
During 9M06, the Allowance for Doubtful Accounts was P$51 million, equal to 1% of net revenues.
Depreciation of Fixed and Intangible Assets decreased by P$79 million to P$1,055 million (+P$33 million in the cellular operation, -P$111 million in the Fixed Telephony business and -P$1 million in the Directories business).
Consolidated Financial and Holding Results
Financial and Holding Results resulted in a loss of P$412 million, as compared to the P$91 million profit registered in 9M05. The difference is mainly due to foreign exchange fluctuations (-P$753 million), while net financial interest expense decreased by P$177 million. Interest accrued on financial debt totaled P$278 million (P$180 million of which corresponds to Telecom Argentina)
Net Financial Debt
As of September 30, 2006, Net Debt (Loans before the effect of NPV valuation, minus Cash, Banks, Current Investments and Other credits derived from derivative Investments) amounted to P$3,777 million, a reduction of P$759 million as compared to December 31, 2005. In October 2006, Telecom Argentina prepaid an amount equivalent to 75% of the amortization originally scheduled for October 2009, an amount equal to U$S 104 million.
On October 9, 2006, Standard & Poor's upgraded the long-term debt rating of Telecom Argentina and Telecom Personal to B+ from B in the international scale and to raA+ from raBBB+ in the local scale, based on the improvement of the financial situation of the Company after the closing of its debt restructuring process, its strong competitive positioning and its operative efficiency indicators.
Consolidated Capital Expenditures
A total amount of P$755 million invested in fixed assets and intangibles during 9M06 was allocated to the cellular business (P$390 million) and the Voice data and Internet business (P$365 million).
The Telecom Group continues to implement an important investment plan with the goal of developing a new generation of services based on the transformation of its networks.
This technological evolution will have a significant effect on the services available for each type of client. Residential subscribers will enjoy a broad portfolio of value-added services, permanent connectivity, entertainment and mobility to meet their communications demands. Business clients will have more flexible tools that will help to improve efficiency and productivity.
Some of the new facilities that the Telecom Group will soon offer to its corporate and residential clients are: Fiber Optic closer to the home; super broadband (20 MB) for internet; data, images & sound in a single access; IP telephony; Satellite & Wi Max internet for remote locations; e-government solutions (such as "digital signature" and remote administrative proceedings) and public security solutions (911).
Conversion of Class "C" to Class "B" shares
In accordance with the approvals received at the Shareholders' Meeting in April 2006, and the authorizations given by the Bolsa de Comercio de Buenos Aires and Comision Nacional de Valores, a new conversion of Class "C" shares into Class "B" shares was implemented. As a result of this conversion, the capital stock is composed as follows:
Class "A" Shares 502,034,299
Class "B" Shares 440,631,683
Class "C" Shares 41,714,996
Total 984,380,978
Telecom is the parent company of a leading telecommunications group in Argentina, where it offers directly or through its controlled subsidiaries local and long distance fixed-line telephony, cellular, data transmission and Internet services, among other services. Additionally, through a controlled subsidiary, the Telecom Group offers cellular services in Paraguay. The Company commenced operations on November 8, 1990, upon the Argentine Government's transfer of the telecommunications system in the northern region of Argentina.
Nortel Inversora S.A. ("Nortel"), which acquired the majority of the Company from the Argentine government, holds 54.74% of Telecom's common stock. Nortel is a holding company where the common stock (approximately 68% of capital stock) is owned by Sofora Telecomunicaciones S.A. Additionally, Nortel capital stock is comprised of preferred shares that are held by minority shareholders.
As of September 30, 2006, Telecom had 984,380,978 shares outstanding.
For more information, please contact the Financial Planning & Investor Relations Department:
Pedro Insussarry, 54-11-4968-3743
Mariano Martire, 54-11-4968-3718
Gaston Urbina, 54-11-4968-6236
Astrid Burger, 54-11-4968-4448
Voice Mail: 54-11-4968-3628
Fax: 54-11-4313-5842
E-mail: relinver@ta.telecom.com.ar
For information about Telecom Group services, visit:
http://www.personal.com.ar
http://www.personal.com.py
http://www.arnet.com.ar
http://www.paginasamarillas.com.ar
Disclaimer
This document may contain statements that could constitute forward-looking statements, including, but not limited to, the Company's expectations for its future performance, revenues, income, earnings per share, capital expenditures, dividends, liquidity and capital structure; the effects of its debt restructuring process; the impact of emergency laws enacted by the Argentine Government; and the impact of rate changes and competition on the Company's future financial performance. Forward-looking statements may be identified by words such as "believes," "expects," "anticipates," "projects," "intends," "should," "seeks," "estimates," "future" or other similar expressions. Forward-looking statements involve risks and uncertainties that could significantly affect the Company's expected results. The risks and uncertainties include, but are not limited to, the impact of emergency laws enacted by the Argentine government that have resulted in the repeal of Argentina's Convertibility law, devaluation of the peso, various changes in restrictions on the ability to exchange pesos into foreign currencies, and currency transfer policy generally, the "pesification" of tariffs charged for public services, the elimination of indexes to adjust rates charged for public services and the Executive branch announcement to renegotiate the terms of the concessions granted to public service providers, including Telecom. Due to extensive changes in laws and economic and business conditions in Argentina, it is difficult to predict the impact of these changes on the Company's financial condition. Other factors may include, but are not limited to, the evolution of the economy in Argentina, growing inflationary pressure and evolution in consumer spending and the outcome of certain legal proceedings. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as the date of this document. The Company undertakes no obligation to release publicly the results of any revisions to forward-looking statements which may be made to reflect events and circumstances after the date of this press release, including, without limitation, changes in the Company's business or to reflect the occurrence of unanticipated events. Readers are encouraged to consult the Company's Annual Report on Form 20-F, as well as periodic filings made on Form 6-K, which are filed with or furnished to the United States Securities and Exchange Commission for further information concerning risks and uncertainties faced by Telecom.
Amadeo R. Vazquez
President
Source: prnewswire
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