Converge Reports Record Results in 4Q2020, Doubling its Residential Subscribers Base

Media Release

Doubled home subscribers base to more than one million resulting in 71% Y.O.Y revenue growth (FY2020, Y.O.Y.), and increased profitability with Php8.2 billion EBITDA (52.5% EBITDA) margin) and Php3.4 billion net income (21.6% net income margin)

FY2020 Key Highlights

  • Converge continued to accelerate growth and profitability in FY2020 with 71% YoY
    revenue growth, 76% YoY EBITDA growth and EBITDA margins expanding from 51.0%
    in FY2019 to 52.5% in FY2020
  • Strong subscriber growth contributed to 99% YoY residential revenue growth
    Enterprise business growing at 9% YoY in FY2020 as businesses are adapting to the
    new normal
  • Record roll-out of almost 1.5 million new FTTH ports in FY2020 resulting in 25%
    household coverage across the Philippines and 43% household coverage in Luzon
  • Continuous focus on capital efficiency resulting in 20% ROIC in FY2020
  • On track to complete nationwide backbone expansion in 1H2021 and do full commercial
    launch in new regions in Visayas and Mindanao in 2H2021

Part 1 of 2

MANILA, March 12, 2021 – The Philippines’ largest and only pure-play high-speed fixed broadband operator, Converge Information and Communications Technology (Converge ICT) Solutions, Inc. (PSE: CNVRG) (“Converge”) continued to deliver record results, doubling its subscriber base in 2020 and reaching approximately 1,038,000 residential subscribers by the end of December 2020.

As the fastest growing fixed broadband operator in the Philippines, the Company deployed approximately 1.5 million new fiber-to-the-home (“FTTH”) ports in FY2020 which is more than 1.75 times the number of FTTH ports deployed in FY2019. As at December 30, 2020, Converge’s nationwide network reached more than 6.1 million homes, on track to reach the Company’s target to cover approximately 55% of households in the Philippines by 2025.

Strong Financial Performance – Industry-leading Trifecta with 71% YoY Revenue Growth, 52.5% EBITDA Margin and 20% ROIC in FY2020 Solid Revenue Growth in both Residential and Enterprise Businesses With strong and continued subscriber take-up, consolidated revenues grew by more than 71% from Php9,139 million in FY2019 to Php15,652 million in FY2020. Revenues from our residential business doubled from Php6,354 million in 2019 to PhP12,628 million in 2020, driven by a 96% YoY growth in our subscriber base coupled with an improvement in residential average revenue per user (“ARPU”). On the other hand, enterprise revenues grew by around 9% YoY, from Php2,786 million to Php3,024 million as businesses in the Philippines are starting to adapt to the new normal.

With the growing demand for internet services, our residential subscriber base doubled during the year, reaching approximately 1,038,000 subscribers by December 2020 from 530,000 by the end of 2019. At the same time, we maintained our residential blended ARPU for FY 2020 at Php1,298 in FY2020, in line with FY2019 level of Php1,293.
Despite the Covid-19 pandemic-related headwinds in the Philippine enterprise connectivity market, our enterprise business continued to grow, generating Php3,024 million in FY2020 representing a 9% YoY growth from FY2019. While we saw a dip in enterprise revenues in the second quarter of FY2020, enterprise revenues stabilized in the third and fourth quarters, as Converge saw a pick-up in demand from SME clients and recorded new wholesale contracts
with government clients and large international global carriers.

Converge doubles subscribers base in 2020.

Record Profitability in 2020

Converge achieved an EBITDA of Php8,218 million in FY2020, representing an increase of 76% from FY2019 and surpassing our YoY revenue growth of 71% in the same period. Our EBITDA growth reflects our industry leading revenue growth coupled with prudent management of direct costs, including our international bandwidth and leased line costs, and indirect costs such as our general and administrative expenses. As a result, Converge’s consolidated EBITDA margins continued to expand from 51.0% in FY2019 to 52.5% in FY2020.

In September 2020, Converge started to draw down on its international capacity from the Telstra IRU (Indefeasible Right of Use) contract, reducing the need to lease additional international bandwidth capacity. This, together with prudent management of our other international lease agreements, has resulted in a reduction of bandwidth and leased line cost from 9.1% of total revenues in 2019 to 6.0% of total revenues in 2020. The continued improvement in EBITDA margin was also due to the Company’s early investments in establishing a sustainable and scalable operating cost structure.

Net income after tax increased from Php1,942 million in FY2019 to Php3,388 million in FY2020. This resulted in an increase of Net Income margins to 21.6% in FY2020 from 21.3% the year prior, despite the increase in finance costs brought about by drawdowns in loan facilities. The Philippine Senate ratified the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill in February 2021, which has been transmitted for the signature by the President of the Philippines. If passed, the CREATE bill is expected to decrease our corporate income tax rate
from currently 30% to 25%, effective July 1, 2020.

Industry Leading ROIC and Strong Balance Sheet

Converge’s Return on Invested Capital (“ROIC”) was 20.0% in FY2020 (see Annex I, Exhibit [7] for details). This industry-leading performance is a result of Converge’s consistent disciplined approach in deploying capital to expand its fiber network, and tracking key capital efficiency indicators such as our port utilization ratios. Despite the substantial additions of almost 1.5 million new FTTH ports to our network in FY2020, Converge has been able to increase the blended port utilization ratio from approximately 26% in December 2019 to 30% in December
2020. As of December 2020, we had achieved an average utilization of 44% on all FTTH ports deployed in NCR in December 2019 (12 months after deployment) and an average utilization of 55% on all FTTH ports deployed in NCR in June 2019 (18 months after deployment).

Converge’s balance sheet and cash flows remain strong with ample liquidity and gearing comfortably within bank covenants. After its IPO in October 2020 where Converge raised net proceeds of Php7,828 million, the Company is in a net cash position (as measured by total financial debt less cash and cash equivalents) of Php1,644 million as of December 31, 2020. In the first two months of 2021, the Company signed two seven-year credit facilities with an
aggregate amount of PHP10,000 million (~US$208 million) with two leading Philippine commercial banks and one short term Php1,000 million (~US$21 million) credit facility with a Philippine commercial bank, increasing Converge’s total undrawn debt facilities to Php30,400 million (~US$633 million) as of February 28, 2021. Our weighted average cost of debt from drawn debt facilities decreased from 5.14% in December 2019 to 5.06% in December 2020, reflecting a lower interest rate environment and increased strength of Converge’s credit profile.

We believe that our long-term debt facilities with five commercial banks, together with the Company’s available cash and increasing operating cash flows, provide Converge with sufficient headroom to execute its capital expenditure plans in the mid-term.

Residential Subscriber Base Doubled in 2020

In November 2020, Converge reached the important milestone of one million residential subscribers and celebrated by providing free speed increases to its subscribers of up to 300Mbps. By end of 2020, the Company had approximately 1,038,000 residential subscribers, which is almost double the 2019 residential subscriber base of almost 530,000. In the last quarter we added a total of 176,944 new residential subscribers (gross adds), representing a 120% increase compared to the total gross subscriber additions in the fourth quarter of 2019. In the fourth quarter of 2020, more than 95% of these newly connected subscribers continue to be first time fixed broadband users, highlighting the unserved and underserved state of the broadband market in the Philippines.

Converge CEO Mr. Dennis Anthony Uy noted that, “As the home became both office and classroom amid the global pandemic, we further accelerated our fiber network rollout to deliver high-speed broadband connectivity to more Filipinos, reaching underserved and unserved areas in the country.”

Converge’s monthly residential churn rate was approximately 1.35% during the last three months of 2020, down from 1.63% in the third quarter of the same year. The low rate of voluntary churn (c. 5% of total churn) reflects Converge’s ability to meet or exceed its customers’ expectations on product quality, value for money and customer service. (/)

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