BUENOS AIRES, Argentina, Aug. 10 /PRNewswire-FirstCall/ -- Telecom Argentina (BASE: TECO2), one of Argentina's largest telecommunications groups, announced today Consolidated Net Income of P$99 million for the six-month period ended June 30, 2006 ("1H06").
Summary of major events and developments:
-- During 1H06 Telecom's operations continued to evolve positively,
particularly in the cellular and broadband markets. Cellular and
broadband customer growth reached 42% and 85% respectively. Fixed Lines
in service grew 4% when compared to the same period of 2005 ("1H05").
-- Net Revenues reached P$3,357 MM (+30% vs. 1H05) mainly fueled by the
expansion of the cellular business, which increased 57% when compared
to 1H05. Revenues generated by Internet services increased by 26%.
-- Operating Profit before Depreciation and Amortization (OPBDA) increased
by P$147 MM (+15% vs. 1H05) reaching P$1,119 MM. Operating Profit
reached P$419 MM (+88% vs. 1H05).
-- Net Income reached P$99 MM, decreasing P$359 MM vs. 1H05, mainly due to
foreign exchange fluctuations. Shareholders' Equity as of
June 30, 2006, amounted to P$1,971 MM.
-- As a consequence of the financial restructuring and the cash flow
generation, the nominal value of the Net Financial Debt as of
June 30, 2006 decreased to P$4,008 MM (-P$1,939 MM vs. 1H05 or
-P$528 MM vs. 4Q05). The ratio of Net Financial Debt to OPBDA for the
last 12 months decreased from 3.1x as of June 30, 2005, to 1.8x.
* Non-financial data unaudited
During 1H06, Consolidated Net Revenues increased by 30% to P$3,357 million (+P$772 million vs. 1H05), mainly fueled by the expansion of the cellular and broadband businesses. This was partially offset by higher interconnection expenses and direct taxes on revenues. In addition, Telecom undertook a set of important commercial and marketing strategies that permitted the impressive cellular subscriber growth in Argentina and Paraguay, as well as in ADSL connections in Argentina.
Therefore, OPBDA increased by 15% to P$1,119 million (+P$147 million), with a slight decrease when considered as a percentage of Net Revenues (33.3% vs. 37.6%).
Net Income reached P$99 million, vs. P$458 million during 1H05. The Net Income was negatively affected by a loss in foreign exchange results of P$90 million, compared to a P$671 million profit registered during 1H05.
Company Activities
Consolidated Net Revenues
The evolution of Consolidated Net Revenues (+30% vs. 1H05) was as follows:
Fixed Telephony
During 1H06, Telecom launched a set of campaigns aimed at increasing its Fixed Telephony subscriber base, particularly in the residential market. This resulted in a 4% increase in terms of Lines in Service, reaching approximately 4 million.
In addition, during the last quarters, Telecom has seen a permanent migration from Restricted Lines to General Subscriber Lines, a clear reversion from a process that was strong during the period of macroeconomic crisis in Argentina (2001/2002).
As a consequence, Monthly Charges increased by P$23 million or 7% in 1H06, reaching P$354 million. No increase has been applied to regulated tariffs.
Local Measured Service revenues totaled P$251 million (+2%), Domestic Long Distance (DLD) revenues decreased to P$217 million (-1%), while overall traffic volume in minutes remained stable.
Revenues generated by International Telephony reached P$119 million (P$9 million or 8% higher than 1H05) due to an increase in traffic and sales of other services, partially offset by marginally lower prices.
Interconnection revenues increased by P$26 million (+22%), to P$144 million. The most dynamic item was the mobile traffic transported and/or terminated in Telecom's fixed line network.
Internet and Data Transmission
Revenues generated by Data transmission and Internet amounted to P$269 million, increasing by P$45 million, or 20% vs. 1H05, fueled by the increase in ADSL access connections, in a context of increased commercial activity, portfolio innovation and re-engineering of customer support channels.
As regards to the retail ADSL market, the recently launched low/mid segment product "Arnet 640Kb" has resulted in an important commercial success. In addition, in the Business segment overall product portfolio was renewed, seeking to provide an improved response to the needs of different types of clients.
As of the end of 1H06, total ADSL subscribers amounted to 300,000 (+138,000 or +85% vs. 1H05). Lines with ADSL connections amounted to more than 7% of Telecom's lines in service. Regarding ISP services, Arnet subscribers totaled 338,000 (+38% or 93,000 subscribers), as a consequence of the increase of 127,000 broad band subscribers and the decrease of 34,000 dial-up subscribers.
Cellular Telephony
As of June 30, 2006, the subscriber base of Personal in Argentina reached approximately 6.9 million; 2.1 million customers more than those registered as of June 30, 2005 (+43%). It is important to highlight that the postpaid customer base increased by 67%, while the prepaid customer base increased by 32% vs. 1H05.
As of June 30, 2006, approximately 64% of the overall subscriber base was prepaid and 36% was postpaid customers. Subscribers with GSM technology represented 80% of the overall subscriber base.
Total traffic measured in minutes increased by 36% vs. 1H05. SMS traffic (outgoing messages) increased from an average of 173 million per month during 1H05 to an average of 460 million per month during 1H06 (+166%).
In this context, Telecom Personal's revenues in Argentina reached P$1.716 million, increasing P$626 million (+57%) when compared to the same period of last year. This positive evolution results from the combination of a larger subscriber base and a higher average monthly revenue per user in Argentina ("ARPU"), which increased to P$38 or +10% vs. 1H05. The ARPU increase is a direct consequence of the Personal's subscriber acquisition policy, which is focused on acquiring high value subscribers. In addition, higher handset sales contributed positively to the increase in revenues.
In fiscal year 2006 Personal has initiated several actions aimed to improve its brand positioning, enhance service quality and strengthen distribution channels throughout the country.
Regarding the product portfolio, Personal launched Blackberry services (both for Corporates and Professional), value added services based on WAP
content and several commercial plans, particularly those oriented to the young demographic group, one of the most dynamic market segments.
Nucleo, Personal's subsidiary that operates in Paraguay, generated revenues of P$147 million (+51% when compared to 1H05).
Regarding the subscriber base, the 791,000 customers as of June 30, 2006, represented a 40% increase from 1H05. Prepaid and Postpaid customers represented 84% and 16%, respectively. GSM to Total subscriber ratio was 59% (vs. 50% at the end of 1Q06).
Directories
Publicom sales amounted to P$9 million in 1H06, +P$2 million vs. 1H05. Considering already acquired advertising contracts and the seasonality of Directory publishing in the main markets, revenues for fiscal year 2006 are expected to increase when compared to those of 2005.
Consolidated Operating Costs
The Cost of Services Provided, Administrative Expenses and Selling Expenses totaled P$2,938 million in 1H06, which represents an increase of P$576 million or 24%.
Salaries and Social Security Contributions increased by P$71 million, or 22%, to P$400 million, reflecting wage increases granted at the end of 2005 and beginning of 2006, as well as a headcount increase mainly related to the expansion of the cellular businesses in Argentina and Paraguay.
Taxes amounted to P$236 million, with an increase of 32%, consistent with the overall evolution of revenues.
Agents and Prepaid Cards Commissions increased by P$97 million, or 68%, to P$239 million. The main drivers of this item were the acquisition of new subscribers and higher sales of cellular prepaid cellular cards. In addition, cellular and Internet advertisement campaigns where responsible for higher Advertising costs (+P$31 million, or 53%) that amounted to P$89 million in 1H06. The cellular business advertisement was focused on subscriber acquisition and the launch of new services, while in Internet, resources where dedicated to a brand redesign campaign, unifying all service portfolio under the Arnet brand.
The cost of cellular handsets increased by P$156 million to P$390 million 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$74 million, reaching P$245 million, due to the increase in traffic delivered among cellular operators, in line with the significant expansion of the market.
During 1H06 Allowance for Doubtful Accounts was P$37 million (+P$22 million or 147%), equivalent to 1% of net revenues.
Depreciation of Fixed and Intangible Assets decreased by P$49 million to P$700 million (+P$20 million in the cellular operation, -P$68 million in Telecom Argentina and -P$1 million in Publicom).
Consolidated Financial and Holding Results
Financial and Holding Results resulted in a loss of P$296 million, as compared to a P$299 million profit registered in 1H05. Despite lower net financial expenses, this variation is mainly a consequence of foreign exchange fluctuations. The interest accrued on financial debt amounted to P$187 million (of which P$123 million correspond to Telecom Argentina).
Consolidated Other Expenses (net)
Other expenses (net) increased by P$36 million, (+72% vs. 1H05) to P$86 million.
Net Financial Debt (Nominal Value)
As of June 30, 2006, the nominal value of Net Debt (Loans minus Cash, Banks, Current Investments and Other credits derived from derivative Investments) amounted to P$4,008 million, a reduction of P$528 million as compared to December 31, 2005. In April 2006, Telecom Argentina prepaid an amount equivalent to approximately US$216 million of its financial debt.
Consolidated Capital Expenditures
The total amount of P$464 million invested in fixed assets during 1H06 were allocated to the cellular business (P$240 million) and the fixed telephony, data and internet business (P$224 million).
It is important to highlight that according to the approval of the Bondholder's Meeting of Telecom Argentina celebrated on March 27, 2006, all quantitative restrictions to Personal's capital expenditures were eliminated.
Conversion of Class "C" to Class "B" shares
On July 12, 2006, the Bolsa de Comercio de Buenos Aires authorized the conversion of 2,112,986 ordinary Class "C" Shares into the same amount of ordinary Class "B" Shares. The conversion was implemented according to the resolution of the Extraordinary Shareholders' Meeting held on April 27, 2006.
After this conversion, the capital stock is composed as follows:
Class "A" Shares 502,034,299
Class "B" Shares 438,526,927
Class "C" Shares 43,819,752
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 June 30, 2006, Telecom had 984,380,978 shares outstanding.
For more information, please contact the Financial Planning & Investor Relations Department:
Pedro Insussarry
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
