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Digicel Group earnings hit by currency movements

Published:Tuesday | November 29, 2016 | 12:00 AM

Digicel Group reported a marginal dip in revenue and earnings in its September second quarter, due in part to currency fluctuations in key markets, according to an investor release from UK bank Barclays.

Revenue for the telecoms, which operates in 32 countries across the Caribbean and Pacific islands, fell seven per cent to US$638 million, while its earnings before interest, tax, depreciation and amortisation, or EBITDA, declined 14 per cent to US$253 million, said Barclays in its analysis of Digicel Group's recent developments and earnings.

The telecoms, whose international operations were built out from Jamaica, declined to comment on the numbers.

"As a privately held company, we do not provide comment on our financials," said Antonia Graham, head of group public relations in response to Gleaner Business queries.

During the quarter, July to September, Digicel's top markets were: Jamaica, which accounted for 17 per cent of revenues; Haiti, 15 per cent; Papua New Guinea, 14 per cent; and Trinidad & Tobago, 10 per cent.

The Jamaica operation grew revenue by 11 per cent, year on year.

In terms of Jamaica, revenues increased 11 per cent year on year - or 17 per cent in constant currency - due to mobile subscriptions, along with fibre to the home (FTTH) contributions, higher 'business solutions' revenues, and higher international traffic transit. Mobile subscribers increased one per cent year on year to 2.2 million subscribers and smartphone penetration increased to 64 per cent, up from 75 per cent a year prior, said Barclays.

Haiti's revenues grew three per cent. Subsequent to the quarter, the country was affected by the passage of Hurricane Matthew, resulting in US$16 million of damage to Digicel's network in that market. The damage was covered by insurance, said Barclays.

Overall, the Caribbean country markets reported results in line with expectations. Digicel Pacific results, however, were weaker than expected due to continued macroeconomic headwinds in Papua New Guinea, stated Barclays.

A number of the main markets experienced double-digit depreciation in the review period, while Jamaica's currency depreciation was seven per cent.

"While we believe adverse foreign exchange headwinds will continue to pressure results through fourth-quarter 2017, a number of currencies have stabilised over recent months, which we believe could provide relief for the credit in fiscal year 2018. As a result, we expect mobile average revenue per user (ARPU) will decline by 10 per cent in the third-quarter 2017 and fourth- quarter fiscal year 2017," stated Barclays.

Barclays continues to view the fiscal period ending March 2017 as a transformational year for Digicel, with free cash flow expected to be negative. It should rebound to US$100 million in financial year 2018, excluding restructuring charges, while top line growth is expected to be driven by data packages and business solutions. As a result, Barclays estimates that Digicel will reduce its gross leverage from at 6.0x in financial year 2017 to 5.3x in the next period.

Barclays still maintains a favourable overweight rating for the telecoms.

"While we acknowledge investor concerns related to Digicel Pacific given the weak macroeconomic backdrop in Papua New Guinea, we continue to view cash flows from Digicel Pacific Limited as an important source of cash for the Hold Co bonds and believe the operations in the country are close to bottoming-out," stated Barclays.