Grupo Iusacell Announces Strong First Quarter Performance
Digital Subscriber Base Doubles in Three Months
April 22, 1999
Mexico City -- Grupo Iusacell, S.A. de C.V. [BMV: IUSACELL, NYSE: CEL and
CEL.D] today announced strong results for the three-month period ended March 31,
1999. Iusacell generated record revenues of $836 million, with its total cellular base
growing 78% over the first quarter of 1998 to more than 843,000 customers.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was the
highest in the company's history at $278 million for the quarter. The company also
recorded its second consecutive quarter of net income.
Tom Bartlett, CEO of Iusacell and President and CEO of Bell Atlantic International
Wireless, said, "Over the past two years, we have focused on and achieved a number
of initiatives consistent with our underlying Bell Atlantic wireless model. These
achievements have significantly improved Iusacell's position in Mexico's
telecommunications market. The installation of Mexico's first full-scale commercial
digital CDMA network, the growth of the company's long distance line of business
and reduced contract churn rates are factors that have produced favorable results for
the quarter and will continue to drive Iusacell's performance. Increased employee
productivity, the business-wide launch of an advanced billing system, and the
implementation of calling party pays will also contribute to Iusacell's future
Revenue growth in the first quarter of 1999 over the first quarter of 1998 was driven
by a 103% improvement in long distance revenues and a 19% increase in monthly
subscriber fees. Long distance revenues increased due to additional traffic volumes,
aided by the expansion of Iusacell's long distance network. Equipment Sales and
Other Revenue decreased by 5% due to the decline in handset prices, which benefit
Iusacell flows through to its customers.
These increased cellular and long distance revenues, together with higher relative
ARPU's from digital contracts, improved productivity and emphasis on cost controls,
produced a 61% increase in operating cash flow during the first quarter of 1999 over
the first quarter of 1998. EBITDA margin increased to 33%, compared with 26%
and 28%, respectively, in the first quarter and fourth quarter of last year.
Fulvio Del Valle, President and Director General, stated: "Digital service is
becoming a significant part of our business. The digital contract base has doubled in
the first three months of the year to 50,000 subscribers, accounting for approximately
16% of all traffic. Digital coverage now extends to 75% of our covered POPs and to
100% in many key areas, including Mexico City. The number of points of sale
increased 32% during the first quarter, and we continue to improve customer service
levels and achieve operating efficiencies. All this has put the company in an
excellent position for future growth and cash flow generation."
Operating income was positive and benefited from a $20 million reduction in
marketing expenses related to the swap out of our analog network equipment. This
benefit was offset, however, by a $31 million increase in depreciation, arising
primarily from the significant investments made during 1998 in deploying the
CDMA network. Since these investments will support higher revenues in the future,
operating margins are expected to improve throughout 1999.
Cash operating expenses per subscriber decreased 37% to $709 in the current quarter,
a reduction from the $1,123 registered in the first quarter of last year. This sharp
reduction reflects the combined effects of lower per unit handset costs, growth in the
subscriber base and productivity improvements.
Integral financing gains were $428 million in the first quarter of 1999 and included
$45 million of net interest expense, $274 million of monetary correction gain and
$199 million of foreign exchange gains, as the peso strengthened 4% in the first
quarter. First quarter 1999 net income was $422 million, mainly reflecting the
integral financing gains, compared with a net income of $331 million in the fourth
quarter of 1998 and a net loss of $116 million in the first quarter of last year.
Commenting on the first quarter performance, Howard F. Zuckerman, Executive
Vice President and CFO, stated: "The financial and operating results in the first
quarter reflect the successful implementation of our business strategies. We expect
improvements in operating profit this year and a continuation of very solid growth in
Unaudited Operating Highlights
1Q99 1Q98 Change Revenues (millions) $836 $670 25% Gross Margin 64% 64% - Operating Income (millions) $1 $0 - EBITDA (millions) $278 $172 61% Net Income (Loss) (millions) $422 $(116) - Cellular Subscriber Base 843,329 474,272 78% Net Cellular Additions 87,954 74,149 19% Paging Subscribers 27,072 16,482 64% Avg. Number of Employees 1,904 1,923 (1%) Avg. Subscribers per Employee 420 228 84% Avg. Monthly MOU per Subscriber 75 94 (20%) Monthly ARPU $321 $401 (20%) Avg. Monthly Contract Churn 2.37% 2.87% (17%)
First quarter 1999 ARPU's and MOU's dropped 5% and 6%, respectively, compared
with the fourth quarter of 1998, primarily due to a higher mix of prepaid net adds.
Contract ARPU's and MOU's remained at very healthy levels. With the price
increases put in place on March 29, the launch of CPP set for May 1 and continued
digital growth, we expect the trend of these indicators to improve.
Capital Expenditures. Iusacell's capital expenditures totaled US$22 million during
the first quarter of 1999, returning to more normal levels following the company's
accelerated digital and analog network investment program in 1998. In 1999, the
company will complete its digital network deployment, continue to grow its long
distance network, and enhance its analog cellular network and operating systems,
including investments required for implementation of the Year 2000 compliance
Liquidity. During the first quarter, the company funded its operations, capital
expenditures, handset purchases and interest payments through a combination of
internally generated cash and a US$31 million drawdown under its subordinated
convertible debt facility. The company does not expect to drawdown any part of the
US$17.5 million remaining under this facility.
The US$85 million short-term bank bridge facility, under which the company has
borrowed US$75 million, matures on April 30, 1999. Iusacell expects this facility to
be extended and to be refinanced by July 1999 under a US$98 million long-term
bank loan, guaranteed in part by the Export-Import Bank of the United States.
Debt. Interest-bearing debt as of March 31, 1999 totaled US$454 million,
representing a US$8 million decrease from the fourth quarter of 1998. All of the
company's debt is U.S. dollar-denominated, with maturities averaging 3.6 years.
Iusacell's debt to capital ratio was 48.7% at the end of the quarter, versus 46.3% at
March 31, 1998.
Other Business Developments
Restructuring and Recapitalization Plan. Recognizing the importance of
increasing the liquidity of its shares and providing financing flexibility for business
growth, the company initiated its restructuring and recapitalization plan in the latter
part of 1998. Completion of this plan, expected by the end of the third quarter, will
result in a new holding company with a single class of publicly traded shares (and
ADR's), substantially increased share liquidity and an improved capital structure.
The company is in the process of obtaining the necessary approvals from the SEC
and the Mexican authorities, including the CNBV. The company expects to initiate
the exchange and rights offers by the end of June 1999. All offerings, including the
planned secondary sale of shares by the company's principal shareholders, also
remain subject to market conditions.
Regulatory Environment. Mr. Del Valle noted, "Iusacell and the Mexican wireless
industry successfully defended the CPP ruling announced by the Cofetel in
December 1998. We overturned the injunction against CPP implementation and
resolved interconnection issues, and CPP will be in place on May 1. In addition, the
Ministry of Finance withdrew a 15% incremental telecommunications tax proposed
in the fourth quarter of 1998."
Pricing. Effective March 29, Iusacell implemented a 12% price increase for contract
plans. The company also raised its prepaid minute price by 6%.
Year 2000 Compliance. The company is on schedule to have all required
modifications and replacements for mission critical systems and internal network
elements implemented by the end of the third quarter of 1999. The company will
continue its internal testing for all systems throughout the year and plans to have
external interoperability testing completed by October 1999.
The company's major product vendors are making available either Year 2000
compliant versions of their offerings or new compliant products as replacements for
discontinued offerings. In certain instances, vendors have not met original delivery
schedules, resulting in delayed testing and deployment. At this time, the company
does not anticipate that such delays will have a material impact on the company's
ability to achieve Year 2000 compliance within the scheduled timeframes.
Revenues by type of service and the quarter-to-quarter comparison are as follows:
First Quarter 1999% of Total 1998 of Total % Change Monthly Fee $309 36.9 $260 38.8 18.8 Airtime Consumption 248 29.6 218 32.6 13.7 Long Distance 105 12.5 52 7.7 101.9 Value-added Services 60 7.2 57 8.6 5.2 Other 24 2.8 (12) (1.7) - Total Service Revenues 746 89.0 575 86.0 30.0 Equipment Sales & Other 90 11.0 95 14.0 (5.0) Total Revenues $836 100.0 $670 100.0 25%
The company will be restating its 1997 financial statements (for
Mexican GAAP purposes only) with regard to the accounting for the
impairment loss of $928 million22 December 31, 1997 pesos on its
analog network investment previously reported (including the
company's Form 20-F for 1997). The reclassification of the loss from
stockholders' equity to operating results (to be consistent with the
company's U.S. GAAP financials) has been approved by the company's
(Unless otherwise noted, all monetary figures are in Mexican Pesos and
restated as of March 31, 1999 in accordance with Mexican GAAP,
except for ARPU (which is in nominal pesos).
Grupo Iusacell is a leading independent telecommunications company
in Mexico. It is the wireless service provider in four of Mexico's nine
regions in the central portion of Mexico (including Mexico City)
covering a total of 67 million POPs, representing 69% of the country's
total population. The PCS licenses won for wireless services in regions
1 and 4 in northern Mexico will allow the company to cover an
additional 11 million POPs, or 11% of Mexico's total population. Since
February 1997, the company has been under the management and
operating control of Bell Atlantic Corporation, which owns, through its
subsidiaries, 47% of the company's capital stock.
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, Iusacell claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Discussion of factors that
may affect future results is contained in our filings with the Securities
and Exchange Commission.
For further information and a Spanish version of this release visit
IUSACELL's web site at: http://www.iusacell.com.mx