Cantv net income down 73% on bolivar

Thursday, August 8, 2002

A steep depreciation of the local currency and a US dollar denominated dividend caused Venezuela's largest telecoms provider Cantv (NYSE: VNT) to report net income of 4.19bn bolivares (US$3mn) for 2Q02, down 73.3% compared to the same period last year, Cantv said in its earnings statement.

Total revenues for the quarter were 578bn bolivares, a 11.5% decrease compared to 2Q01. According to Cantv, the drop in revenues "reflected primarily reduced fixed to mobile rates, the effects of wireline tariff adjustments lagging inflation, as well as decreases in nonresidential lines in service due to the weak economy, and customer consolidations."

Fixed to mobile revenues, one of Cantv's main sources of income, declined 32.2% year-over-year to 122bn bolivares for 2Q02. Domestic and international long distance sales fell 20.9% and 18.4% to 54bn bolivares and 24.4bn bolivares, respectively, over the same period. Local service revenues were down 6.5% at 166bn bolivares.

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Cantv expects wireline local and long distance revenues to receive a boost from a new rates regime, although the new tariffs are still outpaced by inflation, Cantv CFO Armando Yanes said at a conference call Thursday. The new rates, which are 20% higher on average, had little impact on 2Q02 results as they became effective June 15, he noted.

Boosting sales for the second quarter were the wireless and Internet divisions Movilnet and, which grew revenues 14% and 46.9%, respectively, to 118bn bolivares and 10.6bn bolivares.

Wireless subscriber growth was 27.8% compared to 2Q01. Quarter-over-quarter growth was flat, something Yanes deemed an achievement, considering the recession caused leading competitor Telcel BellSouth to lose 387,000 subscribers during 2Q02.

Ebitda for the quarter was 235bn bolivares, limited to a 7% decline compared to 2Q01 because of cost cutting. The company's Ebitda margin was 41%, compared to 39% for 2Q01.

Foreign exchange losses on the bolivar, which depreciated 49% against the dollar during the quarter, explained the difference between declines in net income and Ebitda. Cantv had forex losses of 35bn bolivares, or US$27mn, for 2Q02 compared to forex losses of US$2.7mn for the first quarter.

A large US-dollar dividend paid March 18 to shareholders also contributed to the much higher forex losses for the second quarter, a Venezuelan equity analyst told BNamericas.

Total indebtedness stood at US$447mn, of which US$350mn was dollar-denominated, while net debt was US$27mn, Yanes said. At the end of the quarter, the company had 412bn bolivares in cash, of which approximately 80% were in US dollars.

As Venezuela's recession deepens, Yanes said Cantv has revised its year-end guidance to show consolidated revenue of US$1.7bn, Ebitda of US$575-600mn and an Ebitda margin of 34-36%. Their revised net income projection of US$9mn for the year should put earnings/ADR at US$0.08, he added.

Yanes put Cantv's revised 2H02 Ebitda margin at or below 30%, based on the company's expectation that the bolivar will continue to depreciate, driving up expenses. Salary increases from a recent agreement with workers were another factor, he added.

Cantv had 2.7 million fixed lines in service, 2.5 million cellular subscribers and 700,000 Internet users as of June 30, 2002. Verizon Communications (NYSE: VZ) is its principal shareholder, with a 28.5% stake in the company.