Home > >
GRI EC1; EC4
The Company, despite the industry situation, closed 2011 with a rise of 15.8% in the number of fixed-line phone terminals, reflecting an expansion in the service both in the authorization area and in the concession area. In the authorization area, the number of terminals rose by 41.5%, as a result of the offering of integrated voice and data solutions for corporate clients, whose revenues increased by 32.9% in the period. In concession area, fixed lines amounted to 693,000 at the close of the year, up 7.6% from 2010, driven by the offering of packages combining fixed-line phone, broadband and pay television services.
Mobile Phone Services
In 2011, Algar Telecom’s mobile phone service client base climbed by 5.6% year-over-year, closing the year with 612,000 clients. The post-paid segment grew by 12.0%, from 183,000 clients in December 2010 to 205,000 in December 2011. In turn, the pre-paid segment, with 406,000 clients, grew less (by 2.7%) due to a client base clean-up in late 2011. At the close of 2011, 34% of Algar Telecom’s mobile phone clients had post-paid plans and an Average Revenue Per User (ARPU) of R$ 34.50.
Broadband
Broadband connections, the Company’s strategic focus, grew by 20.1%, from 277,000 in 2010 to 332,000 in 2011. Types I and II ADSL connections totaled 276,000, accounting for 40% of the total number of fixed terminals in the concession area, where the Company serves the residential market. Always attentive to clients and market developments, Algar Telecom launched in late 2011 Ultra Broadband Internet access plans able to transmit data at up to 100 Mbps per second through Hybrid Fiber-Coaxial (HFC) cable and GPON networks.
As concerns 3G services, an important complement of the Company’s service offering, the number of clients increased by 46.5%, from 38,000 in 2010 to 56,000 in 2011, because the Company repositioned the product.
Pay Television
Satellite TV clients totaled 61,000 at the close of 2011, a rise of 33.1% in relation to May 2010, when the service – which now covers 103 cities and towns – was launched. This product has been leveraging the sale of packages combining fixed-line phone broadband Internet access and TV services.
Added to the 32,000 cable TV clients in Uberlândia and Araguari, State of Minas Gerais, the Company closed the year with 94,000 TV clients, up 18.4% year-over-year. It is also worth highlighting the launch of HDTV resolution for cable TV and satellite plans in December 2011.
Data for the Corporate Market in the Authorization Area
In addition to voice services, the Company offers data solutions to the corporate market in its authorization area, which includes major cities in Brazil’s Southeast Region. With client service and relationships as its distinct features and its state-of-the-art IP network, Algar Telecom has been attracting clients quickly. In 2011, revenues from these services amounted to R$ 380.8 million, up 32.9% from 2010.
In 2011, Algar Tecnologia, a wholly-owned subsidiary of the Company, recorded rises both in contact center services – with the activation of large operations – and in IT services – with an expansion to other geographical areas. To facilitate the transition of its revenue mix, in which IT services are expected to account for a larger share, Algar Tecnologia started up an operational efficiency plan that led to the termination of underperforming contracts. This initiative has a negative impact on results in the short term, but it is in line with the Company’s future strategic focus of increasing the share of IT services and, therefore, margins. These services rose by 35% and already account for 24% of the Company’s total revenues in 2011.
The telecommunications engineering business – for which subsidiary Engeset is responsible – attracted new contracts during 2011, highlighting ADSL installation, data and project management services. Algar Mídia, in turn, recorded an increase mainly in the directory and guide segment and in the online service segment.
Economic and Financial Performance (R$ million)
In 2011, Algar Telecom’s consolidated gross revenues amounted to R$ 2,156.5 million, up 10.9% from 2010, driven mainly by voice and data services for the corporate market in the authorization area (32.9%), business process and technology outsourcing services (24.1%) and pay television services (124.5%). Revenues rose in line with the Company’s strategic planning. In 2011, less than half of overall revenues came frsom voice services (44%); 30% from data and broadband services, 14% from business process outsourcing, 4% from IT, 3% from TV and 5% from other services. These figures show the Company’s ability to diversify its revenues and develop new businesses and services.
The main figures and changes are shown by segment and in detail below. Revenues are presented on a consolidated basis; therefore, they already include eliminations among business segments.
Revenues from telecom services, which comprised 77% of the Company’s overall revenues in 2011, amounted to R$ 1,659.1 million, up 7.7% year-over-year. This increase mainly resulted from higher revenues from voice and data solutions for the corporate market in the authorization area as well as pay television and broadband services, which more than offset the drop in revenues from fixed-line local traffic, long-distance calls and cards.
Consolidated gross revenues from business process and technology outsourcing services (18% of total revenues) came to R$ 392.7 million in 2011, rising by 24.1% in comparison to 2010, when R$ 316.4 million revenues were recorded. This rise was due to 19.0% higher revenues from process outsourcing services and 35.0% higher IT revenues. At the close of 2011, IT services accounted for 24.0% of total revenues from this segment.
Consolidated gross revenues from Algar Telecom’s complementary businesses totaled R$ 104.7 million, versus R$ 87.5 million in 2010, climbing by 19.7%. The telecommunications engineering business recorded a growth of 28.3% due to the contracts signed during the year. Revenues from phone directories and guides, in turn, rose by 9.0% owing to the improved performance of directory and guide services and online services.
Algar Telecom’s consolidated net revenues stood at R$ 1,682.2 million in 2011, against R$ 1,510.8 million in 2010, an 11.3% rise.
Consolidated Operating Costs and Expenses
(*) Including other operating revenues (expenses).
(1) fixed-line phone, mobile phone, data communication and pay television services.
(2) business process and IT outsourcing.
(3) phone directories and guides, and telecommunications engineering.
The EBITDA of the Telecom segment was R$ 361.8 million in 2011, 3.3% higher than in 2010. The margin stood at 29.3% versus 30.5%, a 1.1 p.p. drop owing to non-recurring expenses on strategic consulting services and training programs related to the expansion of the Company’s retail services to new geographical areas.
The business process and technology outsourcing services segment recorded EBITDA of R$ 36.1 million in 2011 against R$ 43.7 million in 2010, with margins of 8.7% and 12.9%, respectively. The fall in the margin resulted from the combination of: the implementation of major contact center service operations, which produce steadily rising results; the expansion of IT operations to new geographical areas, which requires start-up costs; and the termination of some underperforming contracts with low recovery prospects. Algar Tecnologia set in motion an operational efficiency plan – designed to optimize costs and expenses, and boost profitability – to cope with the stabilization period of the start-ups, as well as facilitate the transition of its revenue mix, in which IT services are expected to start having a larger share.
Complementary businesses recorded R$ 13.1 million EBITDA in 2011, down 8.3% from 2010. The EBITDA margin was 8.2%, against 11.1% in 2010. This decrease is related to recently signed telecommunications engineering contracts, the costs in which have been incurred without compensation in revenues.
As a result of the above-mentioned events, Algar Telecom’s consolidated EBITDA came to R$ 411.1 million in 2011, up 0.4% year-over-year. The consolidated margin was 24.4%, versus 27.1% in 2010.
Algar Telecom’s net financial expenses totaled R$ 87.5 million in 2011, versus R$ 67.3 million in 2010. The 29.9% increase mainly resulted from a higher Selic rate in comparison to 2010, higher debt related to the investments made in 2011 and Imposto sobre Operações Financeiras (IOF) (Tax on Financial Transactions) due to funding operations.
The Company recorded consolidated net income of R$ 144.4 million in FY 2011, a 10.2% rise in relation to that recorded in 2010, R$ 131.0 million. Net margin was 8.6%, flat year-over-year.
At the close of 2011, Algar Telecom’s gross debt stood at R$ 814.8 million (R$ 667.5 million in 2010), 93% of which denominated in local currency and 7% in foreign currencies – fully hedged against exchange rate risks. Net debt, in turn, stood at R$ 636.5 million, against R$ 471.5 million in 2010. The R$ 165.0 million increase is explained by the funding operations required by the investments made in the year, which amounted to R$ 371.9 million. The net debt/EBITDA ratio stood at 1.5 times in 2011, versus. 1.2 in 2010.
The debt has a long-term profile, with just 22.8% maturing in the short term (12/31/2012). Of the total debt, 74% was pegged to CDI, 19% to TJLP and 7% to IPCA. The average cost stood at 11.79% in 2011, against 11.57% in 2010.
In 2011, R$ 371.9 million was invested, 57% more than in 2010, when CAPEX totaled R$ 237.4 million. A total of 39% of that amount was allocated to voice and data products; 12% to the Minas project – expansion of the retail services to new geographical areas acquired through the Band H auction; 11% to the CTBC I.você program, which includes the migration of all the Company’s networks to Next Generation Networks (NGNs); 7% to the business process and technology outsourcing services business; 5% to pay television services; 17% to the client base maintenance and the remaining 9% to the Company’s different services and segments.
Operational Performance
Telecom
At the close of 2011, Algar Telecom had 1.9 million Revenue Generating Units (RGU) in its telecom segment, an increase of 13.2% in relation to 2010, driven by all the services.
The Company, despite the industry situation, closed 2011 with a rise of 15.8% in the number of fixed-line phone terminals, reflecting an expansion in the service both in the authorization area and in the concession area. In the authorization area, the number of terminals rose by 41.5%, as a result of the offering of integrated voice and data solutions for corporate clients, whose revenues increased by 32.9% in the period. In concession area, fixed lines amounted to 693,000 at the close of the year, up 7.6% from 2010, driven by the offering of packages combining fixed-line phone, broadband and pay television services.
Mobile Phone Services
In 2011, Algar Telecom’s mobile phone service client base climbed by 5.6% year-over-year, closing the year with 612,000 clients. The post-paid segment grew by 12.0%, from 183,000 clients in December 2010 to 205,000 in December 2011. In turn, the pre-paid segment, with 406,000 clients, grew less (by 2.7%) due to a client base clean-up in late 2011. At the close of 2011, 34% of Algar Telecom’s mobile phone clients had post-paid plans and an Average Revenue Per User (ARPU) of R$ 34.50.
Broadband
Broadband connections, the Company’s strategic focus, grew by 20.1%, from 277,000 in 2010 to 332,000 in 2011. Types I and II ADSL connections totaled 276,000, accounting for 40% of the total number of fixed terminals in the concession area, where the Company serves the residential market. Always attentive to clients and market developments, Algar Telecom launched in late 2011 Ultra Broadband Internet access plans able to transmit data at up to 100 Mbps per second through Hybrid Fiber-Coaxial (HFC) cable and GPON networks.
As concerns 3G services, an important complement of the Company’s service offering, the number of clients increased by 46.5%, from 38,000 in 2010 to 56,000 in 2011, because the Company repositioned the product.
Pay Television
Satellite TV clients totaled 61,000 at the close of 2011, a rise of 33.1% in relation to May 2010, when the service – which now covers 103 cities and towns – was launched. This product has been leveraging the sale of packages combining fixed-line phone broadband Internet access and TV services.
Added to the 32,000 cable TV clients in Uberlândia and Araguari, State of Minas Gerais, the Company closed the year with 94,000 TV clients, up 18.4% year-over-year. It is also worth highlighting the launch of HDTV resolution for cable TV and satellite plans in December 2011.
Data for the Corporate Market in the Authorization Area
In addition to voice services, the Company offers data solutions to the corporate market in its authorization area, which includes major cities in Brazil’s Southeast Region. With client service and relationships as its distinct features and its state-of-the-art IP network, Algar Telecom has been attracting clients quickly. In 2011, revenues from these services amounted to R$ 380.8 million, up 32.9% from 2010.
Business Process and Technology Outsourcing Services
In 2011, Algar Tecnologia, a wholly-owned subsidiary of the Company, recorded rises both in contact center services – with the activation of large operations – and in IT services – with an expansion to other geographical areas. To facilitate the transition of its revenue mix, in which IT services are expected to account for a larger share, Algar Tecnologia started up an operational efficiency plan that led to the termination of underperforming contracts. This initiative has a negative impact on results in the short term, but it is in line with the Company’s future strategic focus of increasing the share of IT services and, therefore, margins. These services rose by 35% and already account for 24% of the Company’s total revenues in 2011.
Complementary Businesses
The telecommunications engineering business – for which subsidiary Engeset is responsible – attracted new contracts during 2011, highlighting ADSL installation, data and project management services. Algar Mídia, in turn, recorded an increase mainly in the directory and guide segment and in the online service segment.
Economic and Financial Performance (R$ million)
| CONSOLIDATED FINANCIAL SUMMARY | 2010 | 2011 | % var. |
|---|---|---|---|
| GROSS REVENUES | 1,944.8 | 2,156.5 | 10.9% |
| Telecom | 1,540.9 | 1,659.1 | 7.7% |
| Business process and technology outsourcing services | 316.4 | 392.7 | 24.1% |
| Complementary businesses | 87.5 | 104.7 | 19.7% |
| NET REVENUES | 1,510.8 | 1,682.2 | 11.3% |
| EBITDA | 409.4 | 411.1 | 0.4% |
| NET REVENUES | 131.0 | 144.4 | 10.2% |
| CAPEX | 237.4 | 371.9 | 56.6% |
| NET DEBT | 471.5 | 636.5 | 35.0% |
| NET DEBT/EBITDA | 1.2 | 1.5 | - |
Consolidated Gross Revenues
In 2011, Algar Telecom’s consolidated gross revenues amounted to R$ 2,156.5 million, up 10.9% from 2010, driven mainly by voice and data services for the corporate market in the authorization area (32.9%), business process and technology outsourcing services (24.1%) and pay television services (124.5%). Revenues rose in line with the Company’s strategic planning. In 2011, less than half of overall revenues came frsom voice services (44%); 30% from data and broadband services, 14% from business process outsourcing, 4% from IT, 3% from TV and 5% from other services. These figures show the Company’s ability to diversify its revenues and develop new businesses and services.
The main figures and changes are shown by segment and in detail below. Revenues are presented on a consolidated basis; therefore, they already include eliminations among business segments.
Telecom
Revenues from telecom services, which comprised 77% of the Company’s overall revenues in 2011, amounted to R$ 1,659.1 million, up 7.7% year-over-year. This increase mainly resulted from higher revenues from voice and data solutions for the corporate market in the authorization area as well as pay television and broadband services, which more than offset the drop in revenues from fixed-line local traffic, long-distance calls and cards.
Business Process and Technology Outsourcing Services
Consolidated gross revenues from business process and technology outsourcing services (18% of total revenues) came to R$ 392.7 million in 2011, rising by 24.1% in comparison to 2010, when R$ 316.4 million revenues were recorded. This rise was due to 19.0% higher revenues from process outsourcing services and 35.0% higher IT revenues. At the close of 2011, IT services accounted for 24.0% of total revenues from this segment.
Complementary Businesses
Consolidated gross revenues from Algar Telecom’s complementary businesses totaled R$ 104.7 million, versus R$ 87.5 million in 2010, climbing by 19.7%. The telecommunications engineering business recorded a growth of 28.3% due to the contracts signed during the year. Revenues from phone directories and guides, in turn, rose by 9.0% owing to the improved performance of directory and guide services and online services.
Consolidated Net Revenues
Algar Telecom’s consolidated net revenues stood at R$ 1,682.2 million in 2011, against R$ 1,510.8 million in 2010, an 11.3% rise.
Consolidated Operating Costs and Expenses
| SUMÁRIO FINANCEIRO CONSOLIDADO | 2010 | 2011 | % var. |
|---|---|---|---|
| OPERATING COSTS AND EXPENSES | (1,252.3) | (1,416.7) | 13.1% |
| Personnel | (450.6) | (545.0) | 21.0% |
| Materials | (42.2) | (43.7) | 3.7% |
| Third-party services | (245.2) | (288.3) | 17.6% |
| Interconnection | (220.0) | (210.1) | -4.5% |
| Connection means - Exploração Industrial de Linha Dedicada, or Industrial (EILD) (Exploitation of Dedicated Lines) | (29.6) | (39.7) | 34.3% |
| Marketing and Advertising | (27.2) | (29.3) | 7.5% |
| ADA | (12.5) | (16.7) | 33.3% |
| Others(*) | (74.7) | (98.3) | 31.6% |
Operating expenses and costs (not including depreciation and amortization) amounted to R$ 1,416.7 million. The 13.1% rise year-over-year resulted mainly from:
- Personnel costs and expenses (up R$ 94.4 million): (i) personnel costs in Business process and technology outsourcing services climbed by R$ 69.0 million due to both the addition of new clients (direct cost) and the termination of some contracts, which led to termination expenses; (ii) R$ 23.7 higher personnel expenses in the three business segments owing to the wage adjustment arising from the general wage agreement, higher sales commissions and an increase in headcount due to the expansion of the Company.
- Third-party service costs and expenses (up R$ 43.1 million): (i) R$ 20.2 million higher costs in programming and transmission maintenance of satellite TV – a product launched in May 2010; (ii) R$ 8.2 million higher costs in the expansion of business process and technology outsourcing services (including maintenance and repair work in all sites, staff transportation and advisory services); (iii) R$ 4.4 million higher costs in network maintenance, training and product development; (iv) R$ 4.0 million higher costs in back office and consulting services; and (v) R$ 1.0 million higher billing costs due to the larger number of clients.
- EILD costs (up R$ 10.1 million): higher expenses on third-party network fees to serve corporate clients in the Company’s authorization area.
- “Other” costs and expenses (up R$ 23.6 million): (i) R$ 6.5 million higher rent costs in the business process and technology outsourcing services segment due to the sites leased for the implementation of the new contact center operations; (ii) R$ 5.0 million higher costs in infrastructure leasing, easement and real estate in the telecom segment; and, (iii) R$ 3.5 million higher costs in motor vehicle and real estate rentals in the telecommunications engineering business In addition to the above-listed higher cost, other operating revenues fell by R$ 5.9 million.
EBITDA
| EBITDA and margin | 2010 | 2011 | % var. |
|---|---|---|---|
| Telecom(1) | 350.4 | 361.8 | 3.3% |
| Margin | 30.5% | 29.3% | - |
| Outsourcing/ TI(2) | 43.7 | 36.1 | -17.6% |
| Margin | 12.9% | 8.7% | - |
| Complementary businesses(3) | 14.3 | 13.1 | -8.3% |
| Margin | 11.1% | 8.2% | - |
| CONSOLIDATED EBITDA | 409.4 | 411.1 | 0.4% |
| Margin | 27.1% | 24.4% | - |
(2) business process and IT outsourcing.
(3) phone directories and guides, and telecommunications engineering.
The EBITDA of the Telecom segment was R$ 361.8 million in 2011, 3.3% higher than in 2010. The margin stood at 29.3% versus 30.5%, a 1.1 p.p. drop owing to non-recurring expenses on strategic consulting services and training programs related to the expansion of the Company’s retail services to new geographical areas.
The business process and technology outsourcing services segment recorded EBITDA of R$ 36.1 million in 2011 against R$ 43.7 million in 2010, with margins of 8.7% and 12.9%, respectively. The fall in the margin resulted from the combination of: the implementation of major contact center service operations, which produce steadily rising results; the expansion of IT operations to new geographical areas, which requires start-up costs; and the termination of some underperforming contracts with low recovery prospects. Algar Tecnologia set in motion an operational efficiency plan – designed to optimize costs and expenses, and boost profitability – to cope with the stabilization period of the start-ups, as well as facilitate the transition of its revenue mix, in which IT services are expected to start having a larger share.
Complementary businesses recorded R$ 13.1 million EBITDA in 2011, down 8.3% from 2010. The EBITDA margin was 8.2%, against 11.1% in 2010. This decrease is related to recently signed telecommunications engineering contracts, the costs in which have been incurred without compensation in revenues.
As a result of the above-mentioned events, Algar Telecom’s consolidated EBITDA came to R$ 411.1 million in 2011, up 0.4% year-over-year. The consolidated margin was 24.4%, versus 27.1% in 2010.
Net Financial Income
Algar Telecom’s net financial expenses totaled R$ 87.5 million in 2011, versus R$ 67.3 million in 2010. The 29.9% increase mainly resulted from a higher Selic rate in comparison to 2010, higher debt related to the investments made in 2011 and Imposto sobre Operações Financeiras (IOF) (Tax on Financial Transactions) due to funding operations.
Net Income
The Company recorded consolidated net income of R$ 144.4 million in FY 2011, a 10.2% rise in relation to that recorded in 2010, R$ 131.0 million. Net margin was 8.6%, flat year-over-year.
Debt
At the close of 2011, Algar Telecom’s gross debt stood at R$ 814.8 million (R$ 667.5 million in 2010), 93% of which denominated in local currency and 7% in foreign currencies – fully hedged against exchange rate risks. Net debt, in turn, stood at R$ 636.5 million, against R$ 471.5 million in 2010. The R$ 165.0 million increase is explained by the funding operations required by the investments made in the year, which amounted to R$ 371.9 million. The net debt/EBITDA ratio stood at 1.5 times in 2011, versus. 1.2 in 2010.
The debt has a long-term profile, with just 22.8% maturing in the short term (12/31/2012). Of the total debt, 74% was pegged to CDI, 19% to TJLP and 7% to IPCA. The average cost stood at 11.79% in 2011, against 11.57% in 2010.
Capital Expenditures
In 2011, R$ 371.9 million was invested, 57% more than in 2010, when CAPEX totaled R$ 237.4 million. A total of 39% of that amount was allocated to voice and data products; 12% to the Minas project – expansion of the retail services to new geographical areas acquired through the Band H auction; 11% to the CTBC I.você program, which includes the migration of all the Company’s networks to Next Generation Networks (NGNs); 7% to the business process and technology outsourcing services business; 5% to pay television services; 17% to the client base maintenance and the remaining 9% to the Company’s different services and segments.