Digicel's operating profit nears US$1b

Digicel should net US$170-million cash inflow from Claro deal

Wednesday, June 08, 2011

Digicel Group's operating profit neared US$1 billion last calendar year, up from the US$726 million EBITDA it posted for 2009, according to Business Observer calculations based on data released by ratings agency Fitch last week.

In its most recent ratings of Digicel — which operates in 30 markets across the Caribbean, El Salvador and the Pacific — Fitch placed the ratio of total debt to earnings before interest, taxes, depreciation and ammortisation (EBITDA) at 4.9 times, while total debt was approximated at US$4.6 billion.

By Business Observer estimates, this means that Digicel's EBITDA was approximately US$938 million for the twelve months to December 31, 2011.

In February, Digicel Group announced that for the third quarter of its financial year its revenue hit US$580 million (420.6 million euro) and EBITDA rose by 32 per cent year-on-year to a record high of US$240 million, which annualised translates to operating profit of US$960 million.

Past revenue and profit postings showed Digicel Group's financial performance improved significantly since 2006.

In its 2005 financial year, five of its six wireless operations were EBITDA positive and generated a consolidated EBITDA of US$155 million, adjusted for non-recurrent items, while the 12 months to December 31, 2006 the group earned US$132 million in EBITDA from US$948 million in revenue.

However, by 2008, Digicel's consolidated revenues and EBITDA reached approximately US$1.73 billion and US$676 million, respectively, followed by revenues of US$1.72 billion and operating EBITDA of US$726 million for the 12 months to December 31, 2009.

Fitch last week upgraded several of Digicel's corporate notes citing "continued strong operating performance, increasingly diversified revenue and cash flow generation, improved free cash flow generation and expectation of stable credit metrics".

Moreover, the ratings agency said it viewed the overall long-term effect of the transaction with America Movil as positive to credit quality.

"In Fitch's opinion, Digicel will strengthen its competitive position in Jamaica, which is the most important country in terms of EBITDA generation for the company, despite losing some cash flow diversification," said its release last week. "Digicel will sell its El Salvador unit and the business unit in Honduras; the latter belongs to affiliate Digicel Holdings (Central America) Limited (DHCAL), in which DGL owns 43.4 per cent. In exchange for this, Digicel will receive US$355 million in cash, of which US$185 million will be used to repay project finance debt in Honduras and America Movil's Jamaican unit, Claro Jamaica."

Over the past several years, Digicel expanded into new markets — from six operations in 2005 to 30 up to the end of 2010 — and rapidly captured considerable share of those markets, which Fitch said has led to diversified cash flow generation and asset base leading to lower business risk.

The rapid growth has seen Digicel Group's subscriber base grow from 4.1 million at end-2006 to 7.1 million at end-2008 to 11.7 million at the end of last year. At the same time, the telecommunications group has seen the concentration of its operating cash flow shift from Jamaica in 2006 — when it was already operating in 20 Caribbean markets and when Jamaica represented 67 per cent and 73 per cent of restricted group's revenues and EBITDA, respectively — to include Haiti, Trinidad & Tobago, Eastern Caribbean operations and PNGas the most important contributors to EBITDA.

However, Fitch believes that "pro forma cash flow coming from Jamaica and Haiti remains material at a Fitch estimate of 45%, although lower than in the past" as these economies are more vulnerable than others where Digicel operates. It also expects that growth in EBITDA from Papua New Guinea (PNG) should further diversify cash flow generation from Jamaica and Haiti in the coming years.

"Eventually the mix should be increasingly weighted toward PNG as it has more room for growth than the other operations mentioned," added Fitch's release issued last week.

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Digicel's operating profit nears US$1b