Second Quarter 2012 Results - Entel

Second Quarter 2012 ResultsAugust 6, 2012Consolidated Cost of Operations(in millions of Chilean Pesos)2Q12 2Q11 % Var. 1Q12 6M12 6M11 % VarCost of OperationsAccess charges & Payments to corresp.Salaries and expenses292,834 235,681 24% 272,535 565,369 462,181 22%52,229 44,535 17% 51,230 103,459 88,310 17%34,742 30,801 13% 32,006 66,748 60,852 10%Outsourced, Supplies and Equipment Services 7,764 5,486 42% 7,392 15,156 11,952 27%Bad debt provisions 10,946 8,193 34% 10,290 21,236 13,830 54%Advertising, Sales commissions & expenses 53,081 40,127 32% 48,127 101,208 76,481 32%Depreciation, amortization and ImpairmentOthers79,631 67,158 19% 72,773 152,404 132,379 15%54,441 39,381 38% 50,717 105,158 78,377 34%Consolidated cost of operations during the quarter totaled Ch$ 292.8 billion, increasing 24%compared to 2Q11. This increase was a result of: a) 32% increase in advertising, salescommissions and sales expenses, mostly related to mobile prepaid equipment sales costs inthe Consumers segment, impacted by higher valued handsets, coupled with non-recurringcharges of Ch$2.9 billion. In addition, advertising costs were up, related to the Entel Visa cardlaunched in 4Q11, while sales commissions increased across all segments, aligned with thecustomer base expansion, b) Depreciation, Amortization and Impairments grew 19%, especiallydriven by postpaid handsets in the mobile business, associated with deeper smartphonepenetration and customer base growth, and to a lesser extent, due to higher depreciation fromnetwork infrastructure and IT projects, c) 12% higher access charges and payments tocorrespondents, mainly supported by higher mobile traffic in all segments as a result of thecustomer base expansion and higher activity in the traffic business. This increase was partiallyoffset by Americatel Perú associated with a reduction in access charge rates for local telephonyservices, which took place in 1Q12, coupled with lower traffic in the LD and wholesalebusiness, d) salaries and expenses increased 13% due to inflation adjustments in salaries,headcount increases to meet demand and in call centers due to higher business activity in bothPerú and Chile, e) bad debt increased 34%, basically in mobile services driven by higherrevenues across all segments together with increased penetration in the middle and low incomesegments in Consumers, f) Outsourced, supplies and equipment services grew 42%, principallyin the Consumers segment related to higher demand and customer service, together with higherdata/IT services costs in the Corporate & SME segment to meet new contracts, g) other costsrose 38%, tied to network and site rentals, consultancy, maintenance and energy, as well as theabsence of a one-time benefit accrued in 2Q11 related to VAS services.Cost of operations in the first six months 2012 increased 22%.EBITDA and Operating IncomeDerived from the aforementioned results, EBITDA during the quarter was Ch$ 138.4 billion, a4% increase when compared to the Ch$ 133.1 billion reported in 2Q11. This increase wasbasically generated by progress in Network Rentals (including traffic business), and to a lesserextent, the Consumers segment, Americatel Perú and Call Centers.5