Microcell Reports Strong Third Quarter 2004 Results

Business Wire, Oct 27, 2004

MONTREAL -- Increase in quarterly revenues of 20% driven by 77,722 postpaid net additions OIBDA of $37.6 million, up 46% year-over-year

Microcell Telecommunications Inc. (TSX: MT.A)(TSX: MT.B) announced today its consolidated financial and operating results for the third quarter and nine months ended September 30, 2004.

Operating income before depreciation and amortization ("OIBDA") for the third quarter of 2004 grew by 46% to $37.6 million from $25.7 million in 2003, despite $4.2 million in special charges incurred for advisory fees related to the strategic review process that was initiated by the Company to maximize value for its securityholders, as well as for expenses arising from the accelerated vesting of employee stock options. The significant improvement was the result of a $29.2 million, or 20%, year-over-year increase in total revenues, partially offset by a $17.4 million, or 14%, increase in total operating expenses before depreciation and amortization. Total revenues for the third quarter of 2004 amounted to $175.4 million, compared with $146.2 million for the same quarter in 2003, while total operating expenses before depreciation and amortization were $137.8 million, compared with $120.4 million.

"Our third-quarter results were shaped by strong subscriber growth and rigorous expense management, resulting in solid operating margin improvement," said Andre Tremblay, President and Chief Executive Officer of Microcell Telecommunications Inc. "Not only did we achieve record quarterly revenues and OIBDA, but we also had our best non-fourth quarter ever in terms of gross subscriber additions. The key catalysts for subscriber growth in the quarter came from the favourable consumer response to our back-to-school promotions that featured an attractive array of MMS-capable handsets and other service options, many of which are exclusive to Fido, as well as from the continuing positive impact of City Fido(TM) in Vancouver and Toronto. Our third-quarter performance was particularly gratifying given ongoing intense competitor activity. More importantly, however, these operating results reflect our continued focus on achieving profitable growth by pursuing a postpaid-oriented market strategy that will positively impact subscriber acquisition and customer mix, as well as accelerate top-line growth."

"In the third quarter, we achieved good subscriber growth with a substantial upturn in retail net additions," stated Jacques Leduc, Chief Financial Officer and Treasurer of Microcell Telecommunications Inc. "On a net basis, we added 75,773 new subscribers in the third quarter of 2004, compared with 41,292 for the same quarter last year and 16,652 in the previous quarter. Gross subscriber additions, which escalated month by month during the quarter, amounted to 179,532, reflecting a continuation of our recent robust customer growth trend. More significantly, 70 percent of these gross additions were new postpaid subscribers, reflecting the ongoing successful execution of our market strategy. In fact, our postpaid subscriber base has increased by 41% since the third quarter of 2003. As a result, the proportion of postpaid subscribers in our customer base has increased from 45% to 57%. This combined with seasonally strong ARPU of over $44 per month for retail subscribers contributed to a 20% improvement in total revenues over the same period. Through double-digit revenue growth and good cost control, we achieved an OIBDA of $37.6 million for the third quarter, a result that nearly equals the amount we generated for the first half of the year. As a result of our operating performance for the first nine months of the year, we remain on track to meet our previously stated targets for full-year 2004."

On a year-to-date basis, total revenues amounted to $482.1 million, up 15% from $419.4 million for the first nine months of 2003, while total operating expenses before depreciation and amortization increased to $401.4 million from $331.1 million. This resulted in an OIBDA of $80.7 million for the first three quarters of 2004, down from $88.2 million for the same period last year. Despite the impact on operating expenses from the acquisition of approximately 141,000 additional subscribers during the first nine months of 2004 compared with the previous year, the decline in OIBDA was due primarily to the incurrence of special charges related to the takeover bid process in the amount of $9.7 million.

Primarily as a result of higher OIBDA, net income increased to $2.9 million for the third quarter of 2004 from $1.3 million in the previous year. Year-to-date, despite decreases in interest expense as well as depreciation and amortization due to a sizeable reduction in long-term debt and capital assets following the implementation of its recapitalization plan on May 1, 2003, the Company reported a net loss of $23.0 million, compared with net income of $61.7 million for the same period in 2003. Net income for the first nine months of 2003 arose mainly from a foreign exchange gain of $148.7 million, compared with a foreign exchange loss of $15.8 this year. The substantial foreign exchange gain recorded in 2003 was attributable to the favourable impact of the appreciation of the Canadian dollar against the U.S. dollar on a significantly higher level of U.S.-dollar denominated debt outstanding prior to the completion of the Company's capital reorganization on May 1, 2003.