10.28.1997Corporate

Grupo Iusacell Announces Third Quarter Results




Grupo Iusacell Announces Third Quarter Results


October 28, 1997







Media contacts:

Cynthia M. Pelini

Vice President of Investor Relations

011-525-104-4147 (from the U.S.)

905-104-4147 (from within Mexico D.F.)


  • Net subscriber additions of 56,560, up 20% from previous quarter
  • Accelerating subscriber growth up 50% over third quarter 1996

    Reported revenue of $446.7 million pesos for third quarter includes

    $39 million pesos reversal as a result of Telmex settlement

  • Normalized revenue grew 10.2% in third quarter vs. second quarter
  • EBITDA margin of 23.1% reflects reclassifications in connection

    with Telmex settlement

  • Three licenses won in recent microwave auctions
  • Sale of Iusacell's interests in Ecuador concluded on Sept. 30 for a

    $152 million peso gain

MEXICO CITY - Grupo Iusacell, S.A. de C.V., (NYSE: CEL and

CEL.D; BMV: IUSACEL) reported that its cellular subscriber base at

September 30, 1997 was 338,300 customers versus 281,740 customers as

of June 30, 1997, an increase of 56,560 subscribers, or 20%. Paging

customers grew by 32% in the third quarter, from 9,808 at June 30,

1997 to 12,969 at September 30, 1997.

The company reported revenues of $446.7 million pesos in the third

quarter of 1997, versus $440.9 million pesos for the second quarter,

with all results stated on a September 30, 1997 constant purchasing

power basis.(a) Revenue growth was adversely affected by $39 million

pesos due to the reversal, as a consequence of the settlement of an

interconnection dispute with Telefonos de Mexico, S.A. de C.V.

(Nasdaq: TFONY) (Telmex), reached in August 1997, of accrued

interconnection revenue which was expected to be received from Telmex.

Without this reversal, third quarter revenues would have been $486

million pesos, a 10.2% increase over second quarter revenues. During

the same period, long distance revenues increased by 12.3%.

Earnings before Interest, Taxes, Depreciation and Amortization

(EBITDA) were $103.4 million pesos in the third quarter of 1997,

compared to $72.4 million pesos in the second quarter of 1997 and

represented 23.1% of reported revenues in the third quarter versus

16.4% in the second quarter. EBITDA in the third quarter was reduced

by the $39 million pesos reversal of accrued interconnection revenues;

this reduction was more than offset by a $47.4 million pesos reduction

in cost of services, as a result of the interconnection settlement

mentioned above. Without these revenue and cost of service effects,

EBITDA would have been $95 million pesos, or 19.6% of total revenues.

Net income for the quarter was $80.9 million pesos and included a gain

of $151.9 million pesos resulting from the sale, concluded on September

30, 1997, of Iusacell's 30.8% direct and indirect interests in an

Ecuadorian cellular company, Consorcio Ecuatoriano de

Telecomunicaciones S.A. (CONECEL).

Tom Bartlett, CEO of Grupo Iusacell, noted, "Our strategic view

continues to take shape as we move forward with our digital and

spectrum plans, grow subscribers, roll out our new brand image, as

well as redesign and expand our own store network. All of this

reflects our ability to deliver our successful global wireless model

to the Mexican marketplace. Fulvio del Valle and his team continue to

successfully implement the changes necessary to achieve our ambitious

targets for revenue and margin growth."

Operationally, Grupo Iusacell reported total service costs of $153.0

million pesos in the third quarter of 1997, an 18.1% decline from total

service costs of $186.9 million pesos reported in the second quarter of

1997, or 34.3% of reported revenues. Service costs in the third quarter

of 1997 reflect a benefit of $47.4 million pesos, resulting from the

interconnection settlement mentioned above. Sales, general and

administrative expenses were $207.3 million pesos in the third quarter of

1997, a 1.8% increase from the $203.7 million pesos reported in the

second quarter of 1997. Total cash expenses per subscriber for the third

quarter, on a normalized basis, were approximately $1,219 pesos, down 10%

from $1,350 pesos in the second quarter.

Fulvio del Valle, President and Director General of Iusacell, noted,

"During the third quarter of this year, we continued to restructure the

company, reaching new and higher levels of growth, productivity,

network quality and customer care. The microwave licenses which we

recently won will support further growth. We built 16 cell sites

throughout our four regions and we now have a total of 263 cell sites.

Our total points of sale grew by 14%, and our own stores grew by 20%,

from 64 to 77. We are progressing toward our goal of meeting the

global benchmarks attained by superior operators in the cellular

industry."

Howard F. Zuckerman, CFO of Iusacell, added, "Third quarter results

demonstrate solid progress toward our key financial objectives of

revenue growth, cost reductions and improving cash flow from

operations. Further, this performance, together with our mid-quarter

financing restructure, enables us to support future investments in our

cellular network."

Additionally, Iusacell noted that it had acquired three licenses in

the recently concluded auctions for microwave spectrum at a total cost

of approximately $36.3 million pesos.

Average monthly minutes of use (MOU) per subscriber for the third

quarter of 1997 were 104, as compared to 106 in the second quarter of

1997. This decline is attributable to a normal industry trend of

lower MOU's as the cellular subscriber base expands, and as a result

of higher growth in the prepay subscriber base. Average monthly

revenue per subscriber declined to $451 pesos in the third quarter of

1997, versus $463 pesos in the second quarter of 1997; average monthly

revenue per subscriber is not adjusted to reflect constant peso

purchasing power as of September 30, 1997.

Grupo Iusacell is a leading independent telecommunications company in

Mexico. It is the non-wireline cellular service provider in four of

Mexico's nine regions in the central portion of Mexico (including

Mexico City) covering a total of 66 million POPs -- representing 70%

of the country's total population. Since February 1997, the Company

has been under the operating and management control of Bell Atlantic

(NYSE: BEL) which, through certain subsidiaries, owns 42% of the

capital stock of Grupo Iusacell.

Operating Highlights
     

                             Third   Second

                            Quarter  Quarter

                             1997      1997   % Change

     

Cellular Subscribers (EOP) 338,300  281,740      20.1 

Paging Subscribers (EOP)    12,969    9,808      32.2 

Net Subscriber Additions    56,560   31,050      82.2 

Avg Monthly MOU / Sub          104      106      (1.9) 

Avg Monthly Rev / Sub         $451      463      (2.6) 

Avg Monthly Contract Churn    2.94%    2.73%      7.7 

Number of Employees          1,919     1,973     (2.7)

     

GRUPO IUSACELL, S.A. DE C.V.

Management's Discussion & Analysis of Financial

Condition and Results of Operations for the Period Ended September 30,

1997, (In Mexican GAAP with Pesos of Constant September 1997

Purchasing Power).

The following report addresses Grupo Iusacell, S.A. de C.V.'s

("Iusacell" or the "Company") financial performance for the quarter

ended September 30, 1997, and for the quarter ended June 30, 1997,

along with its financial condition as of September 30, 1997. It

should be read in conjunction with the Consolidated Financial

Statements accompanying this discussion. All comparative analysis is

on a constant September 30, 1997 purchasing power basis unless

otherwise stated.

Results of Operations (b):

Total revenues for the quarter ended September 30, 1997 were $446.7

million pesos, an increase of $5.8 million pesos, or 1.3% versus the

second quarter of 1997. Revenue growth was adversely affected by $39

million pesos due to the reversal, as a consequence of the settlement

of an interconnection dispute with Telefonos de Mexico, S.A. de C.V.

(Telmex) reached in August 1997 of accrued interconnection revenue

which was expected to be received from Telmex. Without this reversal,

third quarter revenues would have been $486 million pesos, a 10.2%

increase over second quarter revenues of $440.9 million pesos.

Service revenues for the third quarter were $368.3 million pesos,

which included the settlement-related adjustment for interconnection,

declined by 1.5% and represented 82% of total revenues. On a

non-adjusted basis, service revenues would have been $407.3 million

pesos, an 8.9% increase over second quarter revenues of $374 million

pesos. During the same period, long distance revenues increased by

12.3%. Equipment sales and other revenues (including out-roaming)

increased by 17.0% and represented approximately 18% of total

revenues. Airtime consumption represented approximately 30% of

revenues during the third quarter of 1997 versus approximately 28% of

revenues during the second quarter of 1997. Monthly fees represented

approximately 34% of total revenues during the third quarter versus

approximately 33% during the second quarter of 1997. Value-added

services represented approximately 6% in both the third and second

quarters of 1997. Long distance represented approximately 13% of

revenues in the third quarter of 1997, compared to approximately 8% of

revenues in the second quarter.

The Company's subscriber base was 338,300 on September 30, 1997,

compared to 281,740 at June 30, 1997, representing a quarterly

increase of 20.0%, and a 60% increase over the subscriber base as of

September 30, 1996. During the third quarter of 1997, contract

subscriber churn increased to an average monthly level of 2.94%,

compared to 2.73% during the second quarter of 1997.

Average monthly minutes of use (MOU's) per subscriber for the third

quarter of 1997 declined to 104 from 106 during the second quarter of

1997. Average monthly revenue per subscriber declined to $451 pesos

for the third quarter of 1997 from $463 pesos for the second quarter

of 1997, on a nominal basis.

Cost of services decreased by 18.1% in the third quarter of 1997

compared with the second quarter of 1997, to $153.0 million pesos and

were 34.3% of revenues. The decrease in cost of services includes a

benefit of $47.4 million pesos related to the settlement of the

interconnection agreement mentioned above. Sales, general and

administrative expenses were $207.3 million pesos in the third quarter

of 1997, compared to $203.7 million pesos in the second quarter of

1997, and represented an increase of 1.8%.

Earnings before Interest, Taxes, Depreciation and Amortization

(EBITDA) were $103.4 million pesos in the third quarter of 1997,

compared to $72.4 million pesos in the second quarter of 1997 and

represented 23.1% of reported revenues in the third quarter versus

16.4% in the second quarter. EBITDA in the third quarter was reduced

by the $39 million pesos reduction in revenues and was enhanced by a

$47.4 million pesos reduction in cost of services, as a result of the

interconnection settlement mentioned above.

Without these effects, EBITDA would have been $95 million pesos, or

19.6% of total revenues. Integral financing costs were $20.1 million

pesos in the third quarter of 1997 versus a gain in the second quarter

of 1997 of $8.6 million pesos.

Integral financing in the third quarter was composed of a gain from

monetary correction of $35.8 million pesos, compared to a gain of

$67.4 million pesos in the second quarter of 1997, interest expense of

$81.4 million pesos compared to $50.8 million pesos of interest

expense in the second quarter of 1997, and a foreign exchange gain of

$25.4 million pesos compared to a loss of $8.0 million pesos in the

second quarter of 1997. The Company reported higher net interest

expense due to the reclassification of $28.6 million pesos from cost

of services as part of the settlement of the interconnection agreement

mentioned above. A foreign exchange gain was recorded in the third

quarter due to a strengthening in the Mexican peso from 7.95 at June

30, 1997 to 7.82 at September 30, 1997.

Iusacell reported net income of $80.9 million pesos for the third

quarter of 1997, compared to a loss of $69.0 million pesos for the

second quarter of 1997. Net income included a gain of $151.9 million

pesos resulting from the sale, concluded on September 30, 1997, of

Iusacell's 30.8% direct and indirect interests in an Ecuadorian

cellular company, Consorcio Ecuatoriano de Telecomunicaciones S.A.

CONECEL.

Financial Condition

On September 30, 1997, Grupo Iusacell's total assets were $6,922.4

million pesos as compared to $6,574.6, an increase of 5.3% from June

30, 1997.

As of September 30, 1997, the Company's debt/total capital ratio stood

at 34%, versus 30% when compared to June 30, 1997. At September 30,

1997, the Company's average cost of outstanding debt was approximately

9.6%, with a remaining average maturity of approximately 5.6 years.

On July 25, 1997, the Company executed a series of financing

agreements which restructured all of its U.S. dollar-denominated debt.

The Company raised U.S. $375 million ($275 million of which has been

disbursed) consisting of a seven year, 10% bond offering of U.S. $150

million, U.S. $125 million in five year bank syndicated financing

carrying an interest rate of LIBOR plus 1.75%, and a U.S. $100

million, five year revolving credit facility carrying the same

interest rate. The Company's dollar-denominated debt is unhedged

against potential devaluation of the peso.

(a) The company is reporting results in conformance with Mexican GAAP

which require the restatement of prior period financials to reflect

constant peso reporting.

(b) The Company is reporting results in conformance with Mexican GAAP

which requires restatement of prior period financials to reflect

constant peso reporting.