UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 OF THESECURITIES
EXCHANGE ACT OF 1934
RULE 13a-16 OR 15d-16 OF THESECURITIES
EXCHANGE ACT OF 1934
For the month of October, 2011
Commission
File Number 000-5149
CONTAX PARTICIPAÇÕES S.A.
(Exact name of Registrant as specified in its Charter)
Contax Holding Company
(Translation of Registrant's name in English)
Rua do Passeio, 56 – 16th floor
Rio de Janeiro, RJ
Federative Republic of Brazil
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-Fþ Form 40-Fo
annual reports under cover Form 20-F or Form 40-F.
Form 20-Fþ Form 40-Fo
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.
Yeso Noþ
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.
Yeso Noþ
Contax Participações S.A. (“Company” or “Contax”) (Bovespa: CTAX3, CTAX4; OTC: CTXNY) hereby announces its results for the third quarter of 2011 (3Q11).
The financial information in this report was prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting practices adopted in Brazil, including Brazilian Corporate Law and the pronouncements, guidelines and interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the CVM (Brazilian Securities and Exchange Commission) applicable to the Company’s operations. The 3Q10 information presented herein was modified in relation to the previously reported figures in order to comply with IFRS, thereby ensuring better comparability with the 3Q11 figures, which are also being presented in accordance with IFRS.
| Contents |
| About Contax | 2 |
| Highlights | 3 |
| Main Indicators | 4 |
| Operating Performance | 5 |
| Financial Performance | 7 |
Net Operating Revenue (NOR) | 9 |
Costs and Expenses | 11 |
EBITDA | 14 |
Depreciation/Amortization | 17 |
Net Financial Result | 17 |
Net Income | 17 |
Net Cash/(Debt) | 18 |
Investments (CAPEX) | 18 |
| Other Events | 19 |
| Attachments | 20 |
1. Income Statement | 20 |
2. Balance Sheet | 22 |
3. EBITDA Reconciliation | 23 |
| Disclaimer | 24 |
| About Contax |
Contax S.A. is one of the largest global Business Process Outsourcing (BPO) companies with broad expertise in Customer Relationship Management (CRM). By providing customized consulting services that differentiate it from competitors, Contax is an integral part of its clients’ ecosystem and delivery chain and helps them make the most of their business.
Currently, the Company operates predominantly in the customer service, debt collection, telemarketing, retention, back-office, technology services and trade marketing segments. Contax has 139 clients and its business strategy prioritizes the development of long-term relationships with large companies in diverse market sectors that use its services, including telecommunications, finance, utilities, services, government, healthcare and retail, among others. In September 2011, Contax had operations in Argentina, Brazil, Colombia and Peru, and maintained a commercial presence in the United States and Spain, with a total of115thousand employees.
The Company’s consolidated results presented herein include the results of Contax S.A., Todo Soluções em Tecnologia (Todo!), Ability Comunicação Integrada Ltda. (Ability), Mobitel S.A. (Dedic/GPTI), Contax Sucursal Empresa Extranjera (Contax Argentina), Contax Colombia (“Contax Colômbia”) and the companies making up the Allus Group (“Allus”), Stratton Spain S.L. Allus Spain S.L., Stratton Argentina S.A., Stratton Peru S.A. and Multienlace S.A..
2
| Highlights |
g On August 30, 2011, Contax inaugurated the largest contact center in South America, in Recife, in a ceremony attended by the current Brazilian President, Dilma Rousseff. This new center means that the Northeast now accounts for 43% of Contax’s total contact center operations in Brazil1.
g Net Operating Revenue (NOR)totaledR$874.4 millionin3Q11,41.4%up year-on-year and23.4%more than in2Q11.
g EBITDAcame toR$63.2 million, 20.0%down on3Q10and28.6%up on2Q11.
g The merger of Dedic GPTI, one of Brazil’s largest contact center and IT service companies, was approved by an Extraordinary Shareholder’s Meeting in July 2011. As a result, Dedic GPTI’s results were consolidated in 3Q11.
g The Company issued promissory notes worth R$230 million in July and debentures totaling R$100 million in September. Both will mature in January 2012 and were issued at the CDI + 0.5% p.a. The purpose was to strengthen the Company’s cash position following the disbursements for the Allus acquisition and the amortization of Dedic/GPTI’s debt.
g In August, the Company discontinued Contax Argentina’s operations, which began in October 2010 in Buenos Aires. The acquisition of Allus, which has operations in Córdoba and Mendoza was the main reason for winding up operations in the Argentinean capital, where operating costs are much higher. In accordance with CPC 31 (equivalent to IFRS 5), the impacts resulting from this discontinuation were recognized in the income statement.
g In 3Q11, Contax was nominated for the2011 Multi-Channel Relationship Quality Awardswinning a total ofsix awards. It also took part in the3rdTelemarketing Awards 2011, winning in the Innovation category and in the Best Practices in Process Management. The awards recognize the best telemarketing practices in the Innovation, People Management, IT and Best Telesales Campaign categories.
________________________________
1Figure is based on the number of employees linked to Contact Center operations (35% in December 2010). For comparison purposes, Dedic/GPTI operations, which were added to 3Q11, are excluded.
3
| Main Indicators |
| Quarterly Data | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | ||||
| Key Figures | 3Q11 | 2Q11 | 3Q10 | Δ% | Δ% | |
| Net Revenues | (R$ Million) | 874.4 | 708.8 | 618.2 | 23.4% | 41.4% |
| EBITDA | (R$ Million) | 63.2 | 49.2 | 79.1 | 28.6% | -20.0% |
| EBITDA Margin | (%) | 7.2% | 6.9% | 12.8% | 0.3 p.p. | -5.6 p.p. |
| Net Income (loss) - Ongoing Operations | (R$ Million) | (2.3) | 7.6 | 24.6 | n.m. | n.m. |
| Net Income (Loss) | (R$ Million) | (7.6) | 5.0 | 24.6 | n.m. | n.m. |
| Cash* | (R$ Million) | 353.1 | 308.5 | 370.6 | 14.5% | -4.7% |
| Debt* | (R$ Million) | (898.2) | (488.6) | (280.9) | 83.8% | 219.8% |
| Net/(Debt) Cash* | (R$ Million) | (545.1) | (180.1) | 89.7 | 202.7% | n.m. |
| Capex** | (R$ Million) | 58.6 | 280.4 | 51.5 | -79.1% | 13.8% |
| Workstations* | (units) | 52,277 | 46,730 | 36,789 | 11.9% | 42.1% |
| Employees* | (units) | 115,242 | 100,523 | 84,551 | 14.6% | 36.3% |
| n.m. not measured | ||||||
| * Final position in each period | ||||||
| ** Includes Allus Group acquisition ammount of R$ 253.5 million (R$ 11.8 million on 3Q11 and R$ 241.7 million on 2Q11) | ||||||
| Year-to-Date Data | 9M11 vs. 9M10 | |||
| Key Figures | 9M11 | 9M10 | Δ% | |
| Net Revenues | (R$ Million) | 2,204.9 | 1,759.6 | 25.3% |
| EBITDA | (R$ Million) | 162.3 | 214.9 | -24.5% |
| EBITDA Margin | (%) | 7.4% | 12.2% | -4.9 p.p. |
| Net Income (loss) - Ongoing Operations | (R$ Million) | 18.2 | 74.6 | -75.7% |
| Net Income | (R$ Million) | 7.7 | 74.6 | -89.6% |
| Cash* | (R$ Million) | 353.1 | 370.6 | -4.7% |
| Debt* | (R$ Million) | (898.2) | (280.9) | 219.8% |
| Net/(Debt) Cash* | (R$ Million) | (545.1) | 89.7 | n.m. |
| Capex** | (R$ Million) | 357.7 | 106.6 | 235.5% |
| Workstations* | (units) | 52,277 | 36,789 | 42.1% |
| Employees* | (units) | 115,242 | 84,551 | 36.3% |
| n.m. not measured | ||||
| * Final position in each period | ||||
| ** Includes Allus Group acquisition ammount of R$ 253.5 million (R$ 11.8 million on 3Q11 and R$ 241.7million on 2Q11) | ||||
4
| Operating Performance |
In July 2011, an Extraordinary Shareholders Meeting approved the merger of Dedic GPTI, one of Brazil’s largest contact centers and IT service companies. As a result, Dedic GPTI’s results were consolidated in 3Q11, contributing with additional net revenue of R$142.2 million.
In 2Q11, the Company concluded the acquisition of Allus, one of Latin America’s leading contact center service providers, with operations in Argentina, Colombia and Peru and commercial activities in the United States and Spain. Allus’s results were consolidated in May, contributing revenue of R$51.4 million in 2Q11 (May and June). In 3Q11, the full quarter’s results were consolidated, contributing revenue of R$77.3 million.
The acquisition of the Allus Group is directly in line with the Company`s international expansion strategy, with a focus on Latin America. With the acquisition of Allus and Dedic/GPTI, Contax took an important step towards consolidating its leadership of the contact center and debt collection market in Brazil, becoming one of the most complete BPO providers, committed to supporting its clients throughout their entire consumer relations chain.
Contax managed to advance in their performance, developing their indicators of productivity and human resources in this quarter, although the current level of unemployment imposes challenges for the industry as a whole. This scenario has impacted Contax operating margins due to low unemployment rate and increase of wages at higher levels.
Contax has been diversifying its operational locations in an attempt to minimize the problem, increasing its presence in more suitable regions, i.e. those with a greater supply of skilled labor, such as some of the large cities in the Northeast.
At the end of August, Contax inaugurated the largest contact center in South America, in the Santo Amaro neighborhood of Recife. The new unit has approximately 6,000 work stations and a capacity of up to 14 thousand employees.
This new center means that the Northeast now accounts for around 43% of Contax’s total contact center operations2in Brazil. Thanks to the increased diversification of its operations and the consequent reduction of its exposure to the Southeast region, as well as other measures to attract, retain and motivate its operators, certain productivity indices began to improve in 3Q11, when the passive turnover and absenteeism indices both recorded a decline.
__________________________
2Figure is based on the number of employees linked to Contact Center operations (35% in December 2010). For comparison purposes, Dedic/GPTI operations, which were added to 3Q11, are excluded.
5
During the first half of 2011, Contax began to implement new procedures for an important client through a new contract model for Customer Service designed to increase productivity by ensuring the Company’s greater involvement in the client’s systems and processes. Under this new model, the revenue from these operations will be based on the size of the client’s customer base. At the same time, the Company is encouraged to invest in and improve customer service processes, increasing quality and efficiency, and as a result, benefiting from higher productivity. The transition to the new operational model pushed up personnel costs in 1H11 motivated by a temporary increase in call volume and the consequent downsizing of staff. In 3Q11, however, the operational readjustment and more appropriate sizing led to better productivity indicators for this operation, reflected in the more efficient use of operator’s time and better performance. In addition to higher margins, further productivity gains will come from ongoing investments in improving the center’s systems. This new model will be extremely important for Contax’s future, adding even more value to its services and better margins perspectives on capture of performance gains.
Shortly after the acquisition of Dedic/GPTI, we began the process of integrating the company, seeking to capture synergies as quickly as possible, particularly in regard to the personnel management structures. This led to certain non-recurring impacts, mainly due to employment termination costs.
Another important initiative to increase profitability was the discontinuation, in August, of Contax Argentina’s operations in Buenos Aires. The acquisition of Allus, which has operations in Córdoba and Mendoza was the main reason for winding up operations in the Argentinean capital where operating costs are much higher, especially in regard to labor and installations. The Buenos Aires operation only had one telecom client, now serviced by Allus’s site in Mendoza. Allus also has sufficient additional capacity to capture the potential growth of the Argentinean market. The discontinuation of this operation had an impact of around R$5 million, which was incurred in 3Q11.
With the aim of easing the impact of rising costs, the Company concluded in August with an important financial sector client a contract readjustment. In addition to the agreed readjustment, the company negotiated the internalization of the Telecom-linked costs by the client. Also, other operating adjustments geared towards boosting productivity are under way, such as a reduction in the number of service cells in an attempt to obtain greater synergy and optimization of the operators at the switching centers. The impact from the renegotiation was partial in 3Q11 because its conclusion took place in the second half of August
6
| Financial Performance |
| Quarterly Data | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | |||
| (R$ Thousand) | 3Q11 | 2Q11 | 3Q10 | Δ% | Δ% |
| Net Revenues | 874,368 | 708,777 | 618,174 | 23.4% | 41.4% |
| Cost of Services Rendered | (722,318) | (596,918) | (492,335) | 21.0% | 46.7% |
Personnel | (594,772) | (492,503) | (380,434) | 20.8% | 56.3% |
Third-party | (85,426) | (71,868) | (84,392) | 18.9% | 1.2% |
Rent and Insurance | (35,287) | (26,761) | (22,724) | 31.9% | 55.3% |
Other | (6,833) | (5,786) | (4,785) | 18.1% | 42.8% |
| SG&A | (76,375) | (56,908) | (40,213) | 34.2% | 89.9% |
| Other Oper. Expenses, net | (12,451) | (5,781) | (6,548) | 115.4% | 90.2% |
| EBITDA | 63,223 | 49,170 | 79,078 | 28.6% | -20.0% |
| Deprec. & Amort. | (46,200) | (32,813) | (31,335) | 40.8% | 47.4% |
| EBIT | 17,024 | 16,356 | 47,743 | 4.1% | -64.3% |
| Financ. Res., net | (20,300) | (6,783) | (447) | 199.3% | 4,442.4% |
| Other Fin. Inc. & Exp., net | 454 | 481 | 6 | -5.7% | 7,466.3% |
| Income before inc.tax | (2,821) | 10,054 | 47,301 | n.m. | n.m. |
| Inc. Tax & Social Contr. | 830 | (2,196) | (22,444) | n.m. | n.m. |
| Non-controlling Shareholders Interest | (281) | (302) | (227) | -6.9% | 23.9% |
| Net Income (loss) from Ongoing Operations | (2,272) | 7,557 | 24,631 | n.m. | n.m. |
| Net Income (loss) from Discontinued Operations | (5,312) | (2,510) | (40) | 111.6% | 13,054.7% |
| Net Income (loss) | (7,584) | 5,047 | 24,590 | n.m. | n.m. |
| n.m. not measured | |||||
7
| Year-to-Date Data | 9M11 vs. 9M10 | ||
| (R$ Thousand) | 9M11 | 9M10 | Δ% |
| Net Revenues | 2.204.851 | 1.759.560 | 25,3% |
| Cost of Services Rendered | (1.832.862) | (1.415.703) | 29,5% |
Personnel | (1.510.478) | (1.132.518) | 33,4% |
Third-party | (218.826) | (201.526) | 8,6% |
Rent and Insurance | (86.261) | (68.861) | 25,3% |
Other | (17.298) | (12.798) | 35,2% |
| SG&A | (182.752) | (109.935) | 66,2% |
| Other Oper. Expenses, net | (26.896) | (19.017) | 41,4% |
| EBITDA | 162.342 | 214.906 | -24,5% |
| Deprec. & Amort. | (109.887) | (90.532) | 21,4% |
| EBIT | 52.456 | 124.374 | -57,8% |
| Financ. Res., net | (25.971) | 56 | n.m. |
| Other Fin. Inc. & Exp., net | 1.389 | 41 | 3.299,7% |
| Income before inc.tax | 27.872 | 124.471 | -77,6% |
| Inc. Tax & Social Contr. | (8.943) | (49.488) | -81,9% |
| Non-controlling Shareholders Interest | (773) | (366) | 111,2% |
| Net Income (loss) from Ongoing Operations | 18.157 | 74.617 | -75,7% |
| Net Income (loss) from Discontinued Operations | (10.424) | (40) | 25.716,1% |
| Net Income (loss) | 7.733 | 74.577 | -89,6% |
| n.m. not measured | |||
8
Net Operating Revenue (NOR)
Net Operating Revenue (NOR) (R$ Million)
NORtotaledR$874.4 millionin3Q11,41.4%up on3Q10, orR$256.2 millionin absolute terms, chiefly due to: i) the increased volume of operations with existing clients (R$22 million); ii) contractual price adjustments (R$10 million), partially reflecting the cost increases; iii) new business in several segments including telecommunications, finance, government, healthcare, media, industry and services (R$5 million); and iv) the incorporation of Allus’s international operating revenue of R$77.3 million; and v) the incorporation of Dedic/GPTI’s revenue of R$142.2 million.
In comparison with2Q11,the23.4%, orR$165.6 million, increase was chiefly due to the incorporation of Dedic/GPTI’s revenue and Allus’s international operating revenue (three months in 3Q11 versus two months in 2Q11) and contractual readjustments with existing clients of the Brazilian core business.
9
NOR by Service Type (R$ Million and Share in %)
In product terms,Customer Servicecontinued to account for the majority of3Q11NOR, with59.0%of the total, 4.7 p.p. downyear-on-yearand 2.3 p.p. less than in2Q11.Telemarketing / Retentionaccounted for20.0%of NOR, 2.1 p.p. up on3Q10and 0.7 p.p. up onthe previous quarter, whileDebt Collectionaccounted for9.5%, 3.1 p.p. down on thesame period last yearand 0.8 p.p. less than theprevious three months. TheTrade Marketingsegment (Ability) accounted for3.4%of NOR in3Q11, 0.4 p.p. down on2Q11. Other services increased by 2.4 p.p. due to the inorganic growth of IT operations following the acquisition of GPTI (Dedic’s technology company).
10
Costs and Expenses
| Quarterly Data | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | |||
| Costs and Expenses (R$ Thousand) | 3Q11 | 2Q11 | 3Q10 | Δ% | Δ% |
| Net Operating Revenue (NOR) | 874,368 | 708,777 | 618,174 | 23.4% | 41.4% |
| Total Costs and Expenses | (811,145) | (659,607) | (539,096) | 23.0% | 50.5% |
| % of NOR | 92.8% | 93.1% | 87.2% | -0.3 p.p. | 5.6 p.p. |
Cost of Services Rendered | (722,318) | (596,918) | (492,335) | 21.0% | 46.7% |
| % of NOR | 82.6% | 84.2% | 79.6% | -1.6 p.p. | 3.0 p.p. |
Personnel | (594,772) | (492,503) | (380,434) | 20.8% | 56.3% |
Third-party | (85,426) | (71,868) | (84,392) | 18.9% | 1.2% |
Rent and Insurance | (35,287) | (26,761) | (22,724) | 31.9% | 55.3% |
Others | (6,833) | (5,786) | (4,785) | 18.1% | 42.8% |
| SG&A | (76,375) | (56,908) | (40,213) | 34.2% | 89.9% |
| % of NOR | 8.7% | 8.0% | 6.5% | 0.7 p.p. | 2.2 p.p. |
| Other Oper. Expenses, net | (12,451) | (5,781) | (6,548) | 115.4% | 90.2% |
| % of NOR | 1.4% | 0.8% | 1.1% | 0.6 p.p. | 0.4 p.p. |
| n.m. not measured | |||||
| Year-to-Date Data | 9M11 vs. 9M10 | ||
| Costs and Expenses (R$ Thousand) | 9M11 | 9M10 | Δ% |
| Net Operating Revenue (NOR) | 2,204,851 | 1,759,560 | 25.3% |
| Total Costs and Expenses | (2,042,509) | (1,544,655) | 32.2% |
| % of NOR | 92.6% | 87.8% | 4.9 p.p. |
Cost of Services Rendered | (1,832,862) | (1,415,703) | 29.5% |
| % of NOR | 83.1% | 80.5% | 2.7 p.p. |
Personnel | (1,510,478) | (1,132,518) | 33.4% |
Third-party | (218,826) | (201,526) | 8.6% |
Rent and Insurance | (86,261) | (68,861) | 25.3% |
Others | (17,298) | (12,798) | 35.2% |
| SG&A | (182,752) | (109,935) | 66.2% |
| % of NOR | 8.3% | 6.2% | 2.1 p.p. |
| Other Oper. Expenses, net | (26,896) | (19,017) | 41.4% |
| % of NOR | 1.2% | 1.1% | 0.1 p.p. |
| n.m. not measured | |||
11
Costs and expensestotaledR$811.1 millioninthe third quarter of 2011,50.5%upyear-on-yearand23.0%more than in2Q11. As a percentage of NOR, costs and expenses increased by 5.6 p.p. over 3Q10 and dipped by 0.3 p.p. over the previous quarter. The year-on-year upturn was primarily due to the following factors: i) increases in salaries, charges and benefits throughout the first six months, not yet offset by increased revenue; ii) the merger of Dedic/GPTI, due to higher SG&A expenses on total revenue, and labor termination costs throughout 3Q11.
A more detailed breakdown of the Company’s costs and expenses follows below.
Cost of Services Rendered
3Q11 versus 3Q10
The Cost of Services Rendered totaledR$722.3 millionin3Q11,46.7%orR$230.0 millionup year-on-year. As a percentage of NOR, this item increased by 3.0 p.p., from 79.6%, in 3Q10, to 82.6%.
·Personnel:increase ofR$214.3 million, or56.3%, basically reflecting: i) the incorporation of Allus and Dedic/DPTI’s personnel costs totaling R$192 million, as well as increases in salaries, charges and benefits (R$22.3 million).
·Third-party Services:growth ofR$1.0 million, essentially due to the increase in infrastructure maintenance and facilities-related services (electricity, security, cleaning and building maintenance) and the incorporation of Dedic/GPTI and Allus’s costs.
·Rent and Insurance:increase ofR$12.6 million, or55.3%, reflecting the leasing of new sites and the expansion of existing ones, contractual adjustments in the last 12 months and the incorporation of Allus and Dedic/GPTI’s rent and insurance costs.
3Q11 versus 2Q11
The Cost of Services Rendered increased byR$125.4 million, or21.0%, between2Q11and3Q11.As a percentage of NOR, this item declined by 1.6 p.p., from 84.2% in 2Q11, to 82.6%.
·Personnel:growth ofR$102.3 million, or20.8%, basically reflecting the expansion of the workforce due to the incorporation of personnel costs of Dedic/GPTI from July 1, and Allus. The latter was incorporated in May and therefore only had a partial impact in 2Q11 (May and June). It is worth noting that in the second quarter the Company experienced a one-off upturn in operations due to contracutal changes with an important client, which would now be subject to a fixed monthly charge per customer base member. As a result, Contax had to increase the number of operators and then reduce them at the end of the period, when the call volume decreased, thereby jeopardizing the personnel line. In 3Q11, however, the Company benefited from a better productivity for these operations, thanks to a more efficient traffic planning and use of operators.
12
·Third-party Services:increase ofR$13.6 million, or18.9%, mainly due to the increase in the amount of infrastructure maintenance and facilities-related services (electricity, security, cleaning and building maintenance), due to the full incorporation of the costs of Dedic/GPTI and Allus (in the latter case, versus two months only in 2Q11).
·Rent and Insurance:increase ofR$8.5 million, or31.9%, chiefly reflecting certain contractual adjustments and the full incorporation of Allus and Dedic/GPTI’s costs.
Selling, General and Administrative Expenses
3Q11 versus 3Q10
SG&A Expensesclosed3Q11atR$76.4 million,89.9%, orR$36.2 million, up on3Q10, essentially due to the incorporation of Allus and Dedic/GPTI’s support expenses related to personnel, infrastructure and facilities, as well as a non-recurring upturn in expenses from specialized third-party services in order to support the recently announced Company acquisitions.
3Q11 versus 2Q11
Third-quarter SG&A expensesclimbed byR$19.5 million, or34.2%, over2Q11, mainly due to the incorporation of Allus and Dedic/GPTI’s support expenses related to personnel, infrastructure and facilities (3 months in 3Q11 versus 2 months in 2Q11 in the case of Allus).
Other Operating Revenue and Expenses
Other Operating Revenue and ExpensestotaledR$12.5 millionin3Q11,R$5.9 millionup on3Q10andR$6.7 millionmore than in2Q11,reflecting the increased provisions for contingencies as a result of new labor lawsuits entered in this quarter.
13
EBITDA3
EBITDA (R$ Million) and Margin EBITDA (%)
Third quarter EBITDA totaled R$63.2 million, 20.0% down on 3Q10 and 28.6% up on 2Q11, accompanied by an EBITDA margin of 7.2%, 5.6 p.p. down year-on-year and 0.3 p.p. more than the previous quarter.
In general terms,3Q11 EBITDApresented improvement on a quarterly comparison, although it continued to be affected by increases in salaries, charges and benefits throughout the first half that were not fully offset by increased revenue. In August, the Company concluded contractual renegotiations with an important client in the financial sector, but the new price only had a partial contribution on the quarter. The incorporation of Dedic/GPTI, recognized for the first time in 3Q11, also had a negative impact on the consolidated margin, mainly due to necessary adjustments in order to integrate the company and optimize operations, all of which generated non-recurring costs. On the other hand, the productivity indices of this operation did improve in September as a result of the adjustments, pointing to further improvements ahead. It is also worth noting that the non-recurring impact from the winding up of Contax Argentina’s operations in Buenos Aires was reclassified under “discontinued operations” in 2Q11, in accordance with CPC 31 (equivalent to IFRS 5), and no longer impacts EBITDA.
On the other hand, there was a substantial improvement over 2Q11 in regard to operational productivity through the more efficient use of operators’ hours and a reduction in average turnover and absenteeism. The latter factor was also impacted by the Company’s greater presence in regions with a more favorable job market
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3EBITDA is net income before tax, net financial expenses, expenses with depreciation and amortization and non-operating income and expenses. EBITDA is not recognized under IRFS, does not represent cash flow in the periods presented, should not be considered an alternative to net income and is not an indicator of performance. EBITDA is presented and used by Contax to measure its own performance. Contax believes that certain investors and financial analysts use EBITDA as an indicator of its operating performance.
14
The variations in the EBITDA margin are explained in more detail below.
EBITDA Margin 3Q11 X 3Q10 (In p.p.)
In comparison with 3Q10, the EBITDA margin narrowed from 12.8% to 7.2%, the 5.6 p.p. reduction being chiefly due to:
· Loss of 1.8 p.p.*due to adjustments of salaries, charges and benefits throughout the first half, which were not fully offset by the impact of higher prices on revenue;· Loss of 1.7 p.p. from the reduction in productivity due to: (i) slightly higher turnover and absenteeism indices than in 3Q10; and (ii) the new contract model with a telecom client, whose productivity gains have not yet been fully captured;· Loss of 1.6 p.p. due to non-recurring operational adjustments from the integration of the acquired companies in 3Q11, particularly in regard to the personnel costs. As a result, there were certain non-recurring impacts, mainly due to the termination of employees, as well as other costs with specialized third-party operational support services.
· Gain of 0.2 p.p. from new businesses, especially Allus’s international operations;
· Loss of 0.7 p.p. from other costs and expenses, mainly related to the increased provisions for contingences as a result of new labor lawsuits. Idleness also moved up due to the migration of certain operations to the Northeast.
__________________________
*Net Adjustments: the net effect on EBITDA margin of the contractual price increases and the increases in direct costs (salaries etc.).
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EBITDA Margin 3Q11 X 2Q11 (In p.p.)
In comparison with 2Q11, the EBITDA margin widened from 6.9% to 7.2%, mainly due to:
·Gain of 0.5 p.p.* chiefly due to the price adjustment negotiated with an important financial sector client, which had a partial impact on the quarter.
· Gain of 1.8 p.p. from increased productivity, due to reduced idleness and the more efficient use of the average time and performance of the operators for an important telecom client, which partially offset the non-recurring costs increases as a result of the change in the contract model. In addition, the initiatives to confront the heated labor market, were already reflected in the improved turnover and absenteeism indicators in important operations;
·Loss of 1.7 p.p. caused by non-recurring operational adjustments due to the integration of the acquired companies in 3Q11, particularly in regard to the personnel management structures;
·Gain of 0.1 p.p. from new businesses, especially Allus’s operations;
·Loss of 0.6 p.p. from other costs and expenses, mainly related to the increased provisions for contingences as a result of new labor lawsuits.
__________________________________
*Net Adjustments: the net effect on EBITDA margin of the contractual price increases and the increases in direct costs (salaries etc.).
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Depreciation
Depreciation came toR$46.2 millionin3Q11,47.4%, orR$14.9 million, up on3Q10, reflecting investments in the last 12 months to support business growth, as well as the absorption of depreciation associated with Allus and Dedic/GPTI’s operations. In comparison with2Q11, depreciation moved up byR$13.4 millionor40.8%,mainly due to the effects of the Dedic/GPTI acquisition and the accounting practices of useful life of fixed assets between subsidiary and controlling company.
Financial Result
In3Q11, theNet Financial Resultwas a net expense ofR$20.3 million,R$19.9 millionhigher than the net expense recorded in3Q10, basically reflecting the increase in interest expenses due to the greater volume of debt. It is worth noting that in 3Q10, Contax had a net cash position of R$89.7 million, versus net debt ofR$545.1 millionat the end of September.
In comparison with2Q11, the net financial expense increased byR$13.5 million,due to the incorporation of Dedic/GPTI’s debt and the increase in overall debt due to the new funding operations in 3Q11. The Company issued Promissory Notes worth R$230 million in July and Debentures totaling R$100 million in September and also took out a loan from the BNDES.
Net Income (Loss)
In3Q11, Contax posted aNet LossofR$ 7.6 million,R$32.2 milliondown on the net income of R$24.6 million recorded in3Q10, mainly due to the R$15.8 million reduction in EBITDA detailed above, the R$14.9 million upturn in depreciation, the R$19.9 million increase in the net financial expense and the discontinuation of Contax Argentina’s operations in Buenos Aires (R$5 million), partially offset by the R$23.3 million reduction in income and social contribution taxes.
The Net Lossfell byR$12.6 million overthe net income of R$5.0 million reported in 2Q11, basically due to the reduction in EBITDA, the increase in the net financial expense and higher depreciation, as well as the impact of the discontinuation of Contax Argentina in Buenos Aires.
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Net Cash / (Debt)
Cash and cash equivalents closed3Q11atR$353.1 million,R$44.6 million, or14.5%,up on2Q11, due to the funding operations in 3Q11, which totaled R$409 million (Promissory Notes of R$230 million, Debentures of R$100 million and a BNDES loan of R$67 million, and also another borrowing of lower amount), less amortizations of approximately R$241 million.
Aiming to optimize the capital structure and reduce the average cost of the debt, Contax prioritized the amortization of the more costly debt, especially that assumed due to the consolidation of Dedic/GPTI.
The higher cash position had also a contribution of R$32 million of operating cash flow.
In regard to cash outgoings, it is worth mentioning the payment of R$95 million in dividends and cash of R$62 million on the investment program.
Gross debt totaledR$898.2 millionin September2011,R$409.6 million, or83.8%, up on the previous quarter, reflecting new funding and the incorporation of Dedic/GPTI’s debt.
Net Debtclosed the quarter atR$545.1 million, R$365.0 millionup on the end of2Q11for the same reasons mentioned above.
| Quarterly Data | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | |||
| Net Cash/(Debt) Reconciliation | 3Q11 | 2Q11 | 3Q10 | Δ% | Δ% |
| (+) Cash and equivalents | 259,377 | 235,159 | 306,522 | 10.3% | -15.4% |
| (+) Financial Investments | 93,692 | 73,325 | 64,075 | 27.8% | 46.2% |
| (-) Loans & financing | (562,880) | (488,588) | (280,882) | 15.2% | 100.4% |
| (-) Promissory Notes | (335,328) | - | - | n.m. | n.m. |
| Net Cash/(Debt) | (545,139) | (180,103) | 89,715 | 202.7% | n.m. |
| n.m. not measured | |||||
Investments (CAPEX)
Contax’s operational investments totaled R$46.8 million in 3Q11, 63.3% of which allocated to business growth, especially the expansion of the sites in Bahia and Pernambuco.
Also in 3Q11, the company disbursed R$11.8 million on the acquisition of Allus, due to the adjustment of the initial purchase price, in turn due to the fact that the company’s working capital was higher than at the time of the acquisition.
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| Investments | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | 9M11 vs. 9M10 | |||||
| (R$ Thousand) | 3Q11 | 2Q11 | 3Q10 | 9M11 | 9M10 | Δ% | Δ% | |
| Growth Revenue | 29,601 | 25,117 | 42,549 | 67,785 | 84,329 | 17.9% | -30.4% | -19.6% |
| Reinvestments | 15,834 | 12,202 | 7,157 | 33,604 | 18,889 | 29.8% | 121.3% | 77.9% |
| Others | 1,335 | 1,400 | 1,781 | 2,813 | 3,411 | -4.6% | -25.0% | -17.5% |
| Investments on operations | 46,771 | 38,719 | 51,486 | 104,202 | 106,629 | 20.8% | -9.2% | -2.3% |
| Investments on acquisitions | 11,807 | 241,719 | - | 253,526 | - | -95.1% | n.m. | n.m. |
| Total Investment | 58,578 | 280,438 | 51,486 | 357,728 | 106,629 | -79.1% | 13.8% | 235.5% |
| n.m. not measured | ||||||||
| Other Events |
·On July 20, 2011, Contax initiated payment of the dividends approved by the Extraordinary Shareholders’ Meeting of April 25, 2011. The total amount was R$100 million and the amount per common (CTAX3) and preferred share (CTAX4) was R$1.5641 gross (restated to July 20, 2011). Shares have been traded ex-dividend on the Bovespa since April 19, 2011, based on shareholders’ positions on April 16, 2011.
· On October 4 and 5, the contact center sector participated in public hearings promoted by the Superior Labor Court (TST) to discuss the social and economic aspects of outsourcing. There were 51 speakers at the hearings. In his opening speech, the President of the TST, Minister Jorge Dalazen spoke about the advance of outsourcing in the economy, which has made the discussion of the “final activity” and “intermediate activity” concepts more complex.
It is worth noting that there is currently no specific legislation regarding outsourcing and the judiciary has been treating discussions of such matters under Precedent 331 of the Superior Labor Court (TST), which authorizes the outsourcing of companies’ “intermediate activities”, which leaves the subject open for conflicting and subjective interpretations.
Speakers representing contractors and/or independent specialists spoke highly of the contact center sector as a specialized and independent activity, as did our trade association, the Brazilian Teleservices Association (ABT). The company continues to monitor and participate in discussions on the subject.
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| ATTACHMENTS |
1) Consolidated Income Statement for the Period
| Income Statement | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | |||
| (R$ Thousand) | 3Q11 | 2Q11 | 3Q10 | Δ% | Δ% |
| Net Revenues | 874,368 | 708,777 | 618,174 | 23.4% | 41.4% |
| Cost of Services Rendered | (761,286) | (626,704) | (521,203) | 21.5% | 46.1% |
| Gross Profit | 113,082 | 82,073 | 96,971 | 37.8% | 16.6% |
| Operating Revenue (Expenses) | (115,903) | (72,019) | (49,670) | 60.9% | 133.3% |
| Selling Expenses | (8,497) | (8,537) | (6,720) | -0.5% | 26.4% |
| G&A Expenses | (75,112) | (51,400) | (35,962) | 46.1% | 108.9% |
| Financial Results | (20,300) | (6,783) | (447) | 199.3% | 4442.4% |
Financial Revenues | 9,309 | 8,943 | 7,979 | 4.1% | 16.7% |
Financial Expenses | (29,609) | (15,726) | (8,426) | 88.3% | 251.4% |
| Other Operating Revenues | 5,626 | 5,985 | 6,895 | -6.0% | -18.4% |
| Other Operating Expenses | (17,620) | (11,284) | (13,436) | 56.2% | 31.1% |
| Income Before Taxes | (2,821) | 10,054 | 47,301 | n.m. | n.m. |
| Income tax and Social Contribution | 830 | (2,196) | (22,444) | n.m. | n.m. |
| Non-controlling Shareholders Interest | (281) | (302) | (227) | -6.9% | 23.9% |
| Net Income (loss) from Ongoing Operations | (2,272) | 7,557 | 24,631 | n.m. | n.m. |
| Net Income (loss) from Discontinued Operations | (5,312) | (2,510) | (40) | 111.6% | 13,054.7% |
| Net Income (loss) | (7,584) | 5,047 | 24,590 | n.m. | n.m. |
| Number of Shares Excluding Treasury (in '000) | 64,334 | 59,419 | 59,319 | 8.3% | 8.5% |
| EPS (R$) | (0.04) | 0.13 | 0.42 | n.m. | n.m. |
| * n.m. not measured. | |||||
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| Income Statement | 9M11 vs. 9M10 | ||
| (R$ Thousand) | 9M11 | 9M10 | Δ% |
| Net Revenues | 2,204,851 | 1,759,560 | 25.3% |
| Cost of Services Rendered | (1,930,035) | (1,498,686) | 28.8% |
| Gross Profit | 274,816 | 260,874 | 5.3% |
| Operating Revenue (Expenses) | (246,944) | (136,403) | 81.0% |
| Selling Expenses | (25,472) | (19,051) | 33.7% |
| G&A Expenses | (169,994) | (98,434) | 72.7% |
| Financial Results | (25,971) | 56 | n.m. |
Financial Revenues | 29,374 | 21,976 | 33.7% |
Financial Expenses | (55,346) | (21,920) | 152.5% |
| Other Operating Revenues | 15,918 | 12,823 | 24.1% |
| Other Operating Expenses | (41,424) | (31,796) | 30.3% |
| Income Before Taxes | 27,872 | 124,471 | -77.6% |
| Income tax and Social Contribution | (8,942) | (49,488) | -81.9% |
| Non-controlling Shareholders Interest | (773) | (366) | 111.2% |
| Net Income (loss) from Ongoing Operations | 18,157 | 74,618 | -75.7% |
| Net Income (loss) from Discontinued Operations | (10,424) | (40) | 25,716.1% |
| Net Income (loss) | 7,733 | 74,577 | -89.6% |
| Number of Shares Excluding Treasury (in '000) | 64,334 | 59,319 | 8.5% |
| EPS (R$) | 0.12 | 1.26 | -90.4% |
| * n.m. not measured. | |||
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2) Consolidated Balance Sheet
| Balance Sheet (R$ Thousand) | |||
| Assets | 09/30/2011 | 06/30/2011 | 09/30/2010 |
| Total Assets | 2,266,822 | 1,614,680 | 1,290,855 |
| Current Assets | 682,654 | 523,830 | 565,023 |
| Cash and equivalents | 259,377 | 235,159 | 306,522 |
| Restricted cash | 4,946 | 4,163 | - |
| Credits (Clients) | 348,182 | 241,071 | 173,004 |
| Deferred and Recoverable Taxes | 24,776 | 11,026 | 56,453 |
| Prepaid expenses | 45,372 | 32,411 | 29,044 |
| Non-current Assets | 1,584,168 | 1,090,850 | 725,832 |
| Judicial deposits | 141,724 | 113,392 | 81,823 |
| Cash Investments | 93,692 | 73,325 | 64,075 |
| Restricted cash | 30,640 | 26,073 | 2,006 |
| Deferred and Recoverable Taxes | 153,799 | 87,568 | 39,832 |
| Credits Receivable | 10,253 | 9,893 | 10,576 |
| Others assets | 4,925 | 3,506 | 2,389 |
| Goodwill on Investiments | 338,346 | 178,176 | 74,365 |
| Plant, property and equipament | 572,379 | 448,441 | 377,849 |
| Intangible Assets | 238,409 | 150,475 | 72,917 |
| Liabilities | 09/30/2011 | 06/30/2011 | 09/30/2010 |
| Total Liabilities | 2,269,595 | 1,617,171 | 1,292,665 |
| Current Liabilities | 1,119,481 | 703,192 | 501,585 |
| Short-term loans & financing | 162,570 | 126,127 | 61,359 |
| Debentures and Promissory Notes | 335,328 | - | - |
| Suppliers | 96,641 | 78,225 | 69,933 |
| Wages and benefits | 407,752 | 302,021 | 272,596 |
| Taxes payable | 50,757 | 37,193 | 85,906 |
| Dividends payable | 8,638 | 103,737 | 3,192 |
| Contigent consideration | 10,130 | 4,163 | 2,000 |
| Others | 47,666 | 51,726 | 6,599 |
| Long-term Liabilities | 659,040 | 541,352 | 379,204 |
| Long-term loans & financing | 400,310 | 362,461 | 219,523 |
| Provisions | 131,669 | 101,845 | 85,594 |
| Contigent consideration | 75,474 | 76,106 | - |
| Deferred Taxes | 50,602 | - | - |
| Others | 984 | 940 | 74,087 |
| Shareholders' Equity | 488,301 | 370,135 | 410,066 |
| Capital Stock | 258,329 | 223,873 | 223,873 |
| Capital reserves | 101,658 | 16,799 | 13,634 |
| Equity valuation adjustments | 10,115 | 3,962 | - |
| Revenue reserves | 118,329 | 118,329 | 96,172 |
| Stock in Treasury | (10,636) | (10,636) | - |
| Accrued Income | 7,733 | 15,317 | 74,577 |
| Minority Interest | 2,773 | 2,492 | 1,810 |
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| 3) EBITDA Reconciliation | |||||
| Quarterly Data | 3Q11 vs. 2Q11 | 3Q11 vs. 3Q10 | |||
| EBITDA Reconciliation | 3Q11 | 2Q11 | 3Q10 | Δ % | Δ % |
| Net Income | (2,272) | 7,557 | 24,631 | n.m. | n.m. |
| (-) Non-controlling Shareholders Interest | 281 | 302 | 227 | -6.9% | 23.9% |
| (+) Income Tax & Social Contr. | (830) | 2,196 | 22,444 | n.m. | n.m. |
| Operating Income | (2,821) | 10,054 | 47,301 | n.m. | n.m. |
| (-) Other Exp. & Rev. | (454) | (481) | (6) | -5.7% | 7,466.3% |
| (+) Financial Expenses | 29,609 | 15,726 | 8,426 | 88.3% | 251.4% |
| (-) Financial Revenues | (9,309) | (8,943) | (7,979) | 4.1% | 16.7% |
| (+) Depreciation and Amortization | 46,200 | 32,813 | 31,335 | 40.8% | 47.4% |
| EBITDA | 63,223 | 49,170 | 79,078 | 28.6% | -20.0% |
| n.m. not measured | |||||
| For comparative purposes, the data reported refer only to Ongoing Operations | |||||
| Accumulated Data | 9M11 vs. 9M10 | ||
| EBITDA Reconciliation | 9M11 | 9M10 | Δ% |
| Net Income | 18,159 | 74,617 | -75.7% |
| (-) Non-controlling Shareholders Interest | 773 | 366 | 111.2% |
| (+) Income Tax & Social Contr. | 8,943 | 49,488 | -81.9% |
| Operating Income | 27,874 | 124,471 | -77.6% |
| (-) Other Exp. & Rev. | (1,389) | (41) | 3,299.7% |
| (+) Financial Expenses | 55,346 | 21,920 | 152.5% |
| (-) Financial Revenues | (29,374) | (21,976) | 33.7% |
| (+) Depreciation and Amortization | 109,887 | 90,532 | 21.4% |
| EBITDA | 162,342 | 214,906 | -24.5% |
| n.m. not measured | |||
| For comparative purposes, the data reported refer only to Ongoing Operations | |||
| Ownership Breakdown (September 30, 2011) | |||||
| Contax Equities | Total Capital | Treasury | CTX Participações | Portugal Telecom Brasil | Free-Float |
| Common (CTAX3) | 24,966,582 | 351,796 | 17,869,937 | - | 6,744,849 |
| Preferred (CTAX4) | 39,719,499 | - | 4,136,975 | 2,782,190 | 32,800,334 |
| Total | 64,686,081 | 351,796 | 22,006,912 | 2,782,190 | 39,545,183 |
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| Disclaimer |
The information contained in this document relating to the business prospects, estimates of operating and financial results, and growth prospects of Contax are merely projections and as such are based exclusively on Management’s expectations concerning the future of the business. These forward-looking statements depend materially on changes in market conditions, the performance of the Brazilian economy and the industry and international markets and are therefore subject to change without prior notice.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 27, 2011
CONTAX PARTICIPAÇÕES S.A. | ||
| By: | /S/ Marco Norci Schroeder | |
Name: Marco Norci Schroeder Title: Chief Financial and Investor Relations Officer | ||
FORWARD-LOOKING STATEMENTS
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.