Company forecasts over 100% revenue growth over 24 months
Tuesday August 17, 2004 12:00 am EDT
MADRID, Spain --August 17th, 2004 -- ITS Networks Inc (OTCBB:ITST- News)
today announced plan to achieve profitable annualised sales between 16
Million Euros to 20 Million Euro by mid 2006 from its current level of 8
Million Euro. The President of ITS Networks Inc, Gustavo Gomez, has
provided the following open letter to current shareholders and the
investment community at large in order to update all parties on the
Company´s operational progress.
Introduction
ITS Networks has faced many challenges since its incorporation in 2000 but
not one of these has put the company to the test more than the purchase in
November 2002 of Teleconnect Communicaciones S.A. It has taken nearly two
years to restructure and "clean-up" the bankrupt company and it is now when
we will start to reap the benefits of all our efforts.
With the situation at Teleconnect stabilized, the strategy of ITS Networks
is to grow current revenue levels of 8 Million Euro to 16 Million to 20
Million Euros over the next two years by aggressively marketing our existing
products and services as well as through the launch of new services in the
Spanish market and the negotiation of commercial agreements with other
potential foreign players which have complimentary services to our own and
wish to enter the Spanish marketplace.
Overview
Since its inception in 1995, ITS Europe has offered long distance voice
service to its clients; foreign residents on the south coast of Spain. It
soon developed other services such as indirect fixed lines, calling cards or
intelligent numbers (906/902, similar to the U.S. equivalent toll-free 800
or toll 8XX numbers). In 2000, ITS Europe went public, through a reverse
merger with Technology Systems International, giving birth to ITS Networks
(ITSN).
In early 2000, ITSN undertook an aggressive expansion of the business with
the opening of 5 offices in Spain and growing staff 3 fold. Due to the
economic conditions in early 2001, the company went through the necessary
restructuring by downsizing to the one original office in Marbella and staff
headcount adjusted accordingly with significant losses being incurred
associated with such a cost-cutting restructuring.
In March, 2002, I joined the Company with the mission and challenge of
leading ITS on its transformation path to profitable growth. As a first
task, a new management team was put in place with the proper telecoms and
business knowledge to implement the necessary measures to ensure the
turn-around of the existing operations of ITSN over the following months.
As part of this initiative, in November 2002 and while reducing costs, ITS
Networks took over Teleconnect Comunicaciones S.A. in Spain; a prepaid card
player since 1999 and on the verge of declaring bankruptcy. This initiative
quickly took ITS Networks from its revenue levels of 2 Million euro per year
to levels of 8 Million euro per year and also graced the Company with its
own infrastructure and assets; thus significantly increasing shareholder
value.
Herman de Haas joined the Executive management team of ITSN in February 2003
as Vice-President and Chief Operations Officer. In June 2003 he was also
appointed as CEO of Teleconnect . Herman joined the company with extensive
organizational and operational engineering experience having been, amongst
other positions, Director of Operations for McDonalds in Holland.
To this date, Management has continued to restructure ITS Networks, taking
advantage of the synergies with Teleconnect, reducing headcount 53% from 68
to 32, redesigning the operations resulting in savings of over 100,000 euros
per month, handling the unexpected hidden liabilities, cleaning the
excessive debt in Teleconnect and stabilizing the company in the local
market. Today Teleconnect is prepared to take off from a solid foundation
of good products, efficient operations, excellent people, a recognized
brand, and newly developed services.
Over the next three years the prepaid business volume is expected to grow
300% from its current level of 500,000 euros per month to over 2,000,000
euros per month due to more aggressive pricing based on improved and lowered
costs of termination. Once the planned new hardware platform is in place,
before year end, we will start the wholesale of international traffic, a new
line of business which should account for an additional 100.000 euros per
month. Other areas such as mobile-based services will also have a positive
contribution to the quality and features of our products which are designed
to meet the demands of this consumer driven market. Management´s aim and
commitment is to build ITS Networks into a $25M to $35M revenue company
within 3 years.
The Spanish Market Opportunity
The incumbent telco (Telefónica) has done an outstanding job in preserving
market dominance in its national market, while expanding very aggressively
abroad while maintaining an essentially sound balance sheet with acceptable
debt levels. Telefónica has been fined in the past by the Regulator (FCC
equivalent) for not facilitating the entry of new competitors. These
regulatory actions should assist in the "new wave" of operators like
ITSN/Teleconnect.
Reduced competition in the mobile market, with only three players in GSM
(there is a fourth UMTS-only licensee, Xfera, that is dormant today) and no
Virtual Mobile Operators (VMO) in operation, has ensured profitability for
all three market participants. Once again, Telefónica has performed better
than most of the other incumbent mobile operators in other countries
(Telefonica keeps well over 50% market share). The failure of Xfera and the
limited competition might foster the opportunities for VMOs, a clear area of
opportunity for ITS if the Regulator enforces and encourages competition in
this area.
The highly developed tourist industry (over 60 million foreign tourists
travel to Spain annually), the very fast growing population of immigrants
(around 3 million now) along with the large base of Small & Medium-sized
Enterprises (SME), compared to other countries where large corporations have
a much larger percentage of GDP, create very interesting opportunities for
niche players like ITS due to its new fixed line and mobile prepaid account
based service, GOTEL, and other mobile-based services to be launched in the
near future.
Products and Sales
ITS Networks, through Teleconnect Comunicaciones, is embarking upon a
challenging development program to seize and consolidate a leadership
position in very attractive segments of the Spanish telecommunications
market:
o Addressing one of the largest, fastest growing, and most underserved
market niches: the diverse groups of non-Spanish consumers of
telecommunications that are present in Spain which require a low caost long
distance alternative when calling back "home" (over 60 million foreign
tourists each year, around 2-3 million foreigners residing now in Spain and
thousands of businesses in Spain owned by foreigners, etc.).
o Serving Spanish SMEs that are intensive in international
telecommunications traffic.
o New services developed internally and now ready for launch which will help
double existing revenue levels.
ITS Networks´ 2000 revenues, until the acquisition of Teleconnect in
November 2002, had barely surpassed the 2 Million Euros per annum based
primarily on a post-paid long distance residential service. With the
acquisition of Teleconnect, with ITS stock and the assumption of limited
debt, ITS Networks consolidated Teleconnect prepaid telecom service revenues
to reach revenues of 8 Million euros per year.
With proper funding in place, management anticipates Teleconnect will reach
revenue levels of 16M to 20M euros over the following 24 months.
What´s Ahead
Some very interesting strategic opportunities arise out of the past:
1. Many of the "infrastructure-heavy" players who executed a "land grab"
strategy in the late 90´s and early 2000/1, have either folded or those that
have held on may be looking for a merger or other forms of
collaborations.
2. The "commodity" market (fixed line telephony, prepaid cards, etc.) is
very unpopulated in coastal and rural areas thus making penetration of the
Teleconnect offering more accessible and attractive.
3. Most of the resellers have developed a reputation for poor quality and
customer service while Teleconnect has focused on developing high quality
products and services.
4. Financially wounded investors in past failed new technology companies are
eager to venture into the telecommunications sector again, but with
different criteria; this time looking for innovative solutions, with a
sustainable growth strategy, and a positive short-term return on
investment.
5. Insufficient competition in the mobile communications market is of
concern for Regulators. There are currently more than twice as many mobile
phones in Spain than fixed lines.
6. The fast-growing market in Spain of non-Spanish consumers is poorly
addressed by large operators.
Which lead to the following market opportunities for ITS:
1. Multiple new entrants who are excellent "bargain basement" acquisition
targets, offering cheap infrastructure (selectively), client base, and, in
some cases, brand name recognition.
2. Significant market share growth available in coastal and rural areas for
a competitor with low overhead costs and therefore able to offer a superior
price/quality service.
3. Excellent conditions available for resellers as operators seek to utilize
and amortize current infrastructure burdens through increased traffic
volumes.
4. Market niches available in new technologies, where "first-to-market"
advantages are significant.
5. New mobile legislation allows new product range for resellers with
existing distribution network.
6. Become the telecoms supplier of choice for the foreigners in Spain.
7. Explore possible joint ventures with foreign companies looking to enter
Spain with services complementary to those of ITSN (Teleconnect).
ITSN is in the process of raising the required capital to implement its
strategic plan, ensuring attractive rate-of -return investments by:
o Focusing only on profitable market niches that are sizable and where ITSN
can beat its competitors, like the market of non-Spanish consumers of
telecommunications in Spain and new innovative services developed
in-house..
o Leveraging the industry experience and contacts of its management team,
and negotiating proprietary agreements with key operators (UNI2, BT,
Jazztel) to ensure top quality service and increased profit margins.
o Increasing recurring revenue through an aggressive marketing campaign
which will fuel the growth of the distribution network for ITS without a
heavy financial investment
o Investing selectively in own infrastructure based on new technologies
which have a quick pay back period.
o Acquiring "bargain" operators which are experiencing financial
difficulties, restructuring the balance sheets and the operations, taking
advantage of the economies of scale, and leveraging the assets of these
players to obtain valuable synergies with the existing ITS business.
o Increasing customer loyalty through constant focus on personalized
customer care, billing, one-stop-shopping capacity, and customer loyalty
programs.
o Negotiating with foreign companies that have already approached ITSN´s
affiliate in Spain, Teleconnect looking for an entry door to the Spanish
market.
Conclusion
ITS Networks affiliate in Spain, Teleconnect, has strengthened its balance
sheet, reduced it operating costs by over 30% from the same time last year
and over 60% for two years ago, and has developed new products ready for
launch. In May 2004, ITS Networks signed a placement agreement with
Europartners Company Limited to raise $5M usd over the next several months
for investing in ITS Networks activities. We anticipate seeing the results
of Europartners´ capital-raising efforts before the end of this year.
ITS Networks has relied upon a selected small group of principal
shareholders that have demonstrated, especially over these last 12 months,
their unconditional support for the Company, the management team, the
operational steps taken and the objectives and future aspirations we have as
a group. With insider ownership of 80%, management and large investors´
interests are aligned with public shareholders.
In short, the management team remains committed to making a success of the
Company for its shareholders and clients by developing ITS Networks into a
true holding company with investments and activities in various business
sectors and countries.
MARKET(ITST.OB)...................|||INVESTMENT DATA
Price..(as of August 16, 2004)$.35|||Revenue (ActualFY2004)........$7,6Mil
Shares Outstanding......56,008,280|||Loss pershare..................($.04)
Market Capitalization.....$19.6Mil|||Revenue (EstimateFY2005).(US)$13-$15 Mil.
Est. Float (shs.).........:.3.2Mil|||Revenue (Estimate FY2006)...(US)$22-$26Mil.
52 Week High/Low…………...$1.22/$.17 Insider Ownership…………………………....80%
Fiscal Year End……………….Sept. 30th Website………………...……www.teleconnect.es
About ITS Networks:
ABOUT ITS NETWORKS:
ITS Networks, Inc. through its wholly owned subsidiary Teleconnect
Comunicaciones S.A., a Spanish telecommunications company, is a major player
in the prepaid telecoms industry in Spain. ITS Networks, Inc. is quoted on a
U.S. stock exchange. ITS Networks provides commercial and residential users
in Spain with a very competitive array of prepaid services.
www.teleconnect.es
Contact Information:
Rick Lutz
LC Group
404-261-1196
lcgroup@mindspring.com
Forward Looking Statements:
Except for the historical information contained herein, the statements in
this press release are forward-looking statements that involve risks and
uncertainties. Potential risks and uncertainties include, without
limitation, continued competitive pressures in the marketplace; the effect
competitive and economic factors and the Company´s reaction to them may have
on consumer and business buying decisions with respect to the Company´s
products; the ability of the Company to make timely delivery of new products
and successful technological innovations to the marketplace; the continued
availability of certain components and services essential to the Company´s
business currently obtained by the Company from sole or limited sources.
More information on potential factors that could affect the Company´s
financial results is included from time to time in the Company´s public
reports filed with the SEC.
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