Earnings Call: Q2 2021

Aug 9, 2021

Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. The participants of today's conference call are Robert de Nobile, Chief Executive Officer Gabriel Blasi, Chief Financial Officer Fernando Amaseda, Director of Investor Relations are myself, Luca Verges, also part of the Investor Relations team. The purpose of this call is to share with you the results of the 6 month period and Q2 of fiscal year 2021 ended on June 30, 2021. Are, if you have not received our press release or presentation, you can call our Investor Relations office to request the documents are or download them from the Investor Relations section of our website located at www.telecom.com. Ar. Are: This conference call and presentation is being broadcasted and can also be replayed through our investor website at institutional. Telecom.com. Are in Brasovares. I would like to go over some Safe Harbor information and other details of the call. We would like to clarify that during the conference call and Q and A session, we could mention certain forward looking statements about telecom's future performance, are Brands' strategies and objectives. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially. Are: Such uncertainties include, but are not limited to, the effects of ongoing industry and economic regulations possible changes in the demand for telecoms, products and services the effects of potential changes in general market and or economic conditions in legislation and the impact of the outbreak of COVID-nineteen on the global economy and specifically on the economies of the countries in which we operate as well as on our operations and financial performance. Our press release dated August 6, 2021, a copy of which was included in a Form 6 ks and sent to the SEC, describe certain factors that may affect any forward looking statements that could be mentioned during this called. The company has reflected the effects of the inflation adjustment adopted by Resolution 7seventeen of the Comision Nacional de Valores, which establishes that the re expression will be applied to the annual financial statements for intermediate and special periods ended as of and including December 31, 2018. Are: Accordingly, the reported figures corresponding to the first half of twenty twenty include the effects of the adoption of inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures in historical values, which are easier to understand. At our press release is complemented by our earnings presentation. The audience should read the disclaimer contained in Slide 12 of the presentation. Are. The agenda for today's conference call includes our business and financial highlights, and we will end the call with a Q and A session. Are now let me pass the call to Gabriel, our CFO, who will start with the presentation. Thank you, Lucas. Good morning, and welcome to everyone. Are. Moving to Slide 3, we summarize our main highlights as of the first half of twenty twenty one. Are: the full repayment of our 2021 144A bond in June our firm intention to increase our CapEx program for this year are: our commitment to ESG demonstrated by our first integrated report our consistent reduction on operating expenses are: our ability to increase prices since January 2021. Up to date, our increase in prices has been of 30% when the local inflation is running at a rate of 3.5% per month. Our strong reduction in bad debt and normalization of our collection periods, are: our steady performance both in Paraguay and Uruguay our strategy to develop new businesses like our new fintech The confirmation that we have been working on the right path regarding the refinancing of our financial debt. It is important to mention that the company was served with notice of the resolution dated in June 18, 2021, rendered by December 2 of the Federal Court of Appeals are administrative litigation matters in the proceedings Telecom Argentina, Sociedad Anonima, AEM, ENACOM and others are: Reference Preliminary Injunction Autonomous, Docket No. 12,008,081-twenty 20, were by the court decided by majority to reject the extraordinary appeals filed by the National State and the Enacom are against the decision of the court that accepted the company's appeal, revoked the 1st instant court's decision and granting the preliminary injunction requested by Telecom Argentina, are: ordering the suspension of the effects of Section 1, 2, 3, 4, 5 and 6 of decrees 690-twenty are 20 and of Enacom Resolution number 10.1466 are 20,200 and 467-twenty 20 and 2 hundred are: 4-twenty 1 under non applicability to the company. Moving to Slide 4 shows the company figures for the first half of are 2021. During the 1st 6 months of the year, telecom revenue totaled $1881,000,000 Revenues measured in constant pesos decreased 8% year to year. EBITDA totaled $640,000,000 are: Our EBITDA margin was 34%. Telecom's mobile subscribers in Argentina amounting to 19,300,000, increasing in more than 450,000 total clients when compared to the first half of twenty twenty. Are: broadband and pay TV clients have also experienced an increase, totaling €4,200,000 and €3,500,000 when comparing first half of twenty twenty one with first half of twenty twenty. Fixed voice subscribers without considering IP telephone lines amounting 2,600,000 during the first half of twenty twenty one. Are: Our commercial strategy has allowed us to have 2,000,000 convergent unique customers, with 47% of our broadband customer having a mobile bundled. Moving to Slide 5, shows our price adjustment during June 2021. Are: After having our prices constant for most part of 2020, for March to December, we decided to increase prices in 20 are having a good time to present during the Q1 of 2021. In June, we increased our prices again in 10%. We might continue with said prices increases are: If the local inflation continues at current levels, I will need to take pace of that inflation. In mobile, prices have increased 10% on average. Have broadband the prices of the services with speeds up to equal to 25 megabytes per second, mainly at Hyperton Lite have increased in a 15% price of services with speeds higher than 25 megabytes per second by 10%. Are: Oil prices of pay TV services, including the premium services just such as HBO and Fox as well as the football pack, have increased are up by 10%. Prices of fixed boxes, basic services were increased by 10% on average. Are moving to Slide 6, shows the evolution of our products. On the mobile segment, postpaid subscribers have increased 5.6%, while prepaid subs have increased 0.2%. Our postpaid and prepaid shares are 42% 58%. Are: FiberTel, our customer base, increased 3.1% year over year, mainly growing in the AHC are FTTH segments. In pay TV, accesses have grown 1.3% year over year, mostly leveraged on our Flow platform. Are: In fixed voice, the reduction of accesses has continued, mainly traditional fixed copper lines. On the other hand, our fiber to IP accesses have increased by more than 350,000 lines. In Slide 7, we show the evolution of our service revenues. Are: Service revenue totaled ARS 167,000,000,000, decreasing 10.8% in real terms versus first at the start of 2020, in a period where the annual inflation was 50.2%. Are: Our revenue breakdown as of June 2021 is similar to our previous quarters with a slight increase in equipment sales. Are: The breakdown is as follows: mobile revenues, 38% broadband revenues, 21% pay TV revenues, 20% fixed telephone and data revenues 14% equipment sales revenue 7%. Our main trends in mobile and broadband are explained on Slide 8. Are: We have been able to keep constant of our customer base and clients have been growing in the usage of our products. Are: Postpaid, mobile and broadband are the 2 main drivers of our performance. As of June 2021, postpaid subscribers amounted are 42% of our total customer base. The chart in the upper left shows the competitive landscape wireless per month. Are: Personal is in blue color, positive numbers show incoming clients and negative numbers show clients lost against the competition. Are: Mobile Internet usage has continued increasing, reaching an average of more than 4.2 gigabytes per user per month in 2021. Are: In addition, there has been an important increase in broadband speeds. 63% of our total subs have speeds between 50 are 1,000 megabytes per second compared with 45% during the first half of twenty twenty. Are: Slide 9 is a summary of our operations in Paraguay. Nucleo generated EUR103 1,000,000 are €48,000,000 in revenues in U. S. Dollar terms and EBITDA, respectively, during the first half of twenty twenty one. Are: Revenue breakdown was as follows: browsing services, 43% voice, 16% data, 6% broadband, 14% are: TV services, 8% and other services, approximately 13%. As of June 30, 2021, mobile customers totaled €2,200,000. Clients of Vigera Personal, a mobile financial services our subsidiary provides, reached more than 250,000. Fixed Internet services subscribers amounted to 198,000 in the pay TV segment, low customers to TAG 28,000 and in personnel, HV 60,000. I will now pass the call to Fernando Balmaceda, who will go over our financial performance. Thanks so much, Gabriel. Slide 10 shows that during the first half of twenty twenty one, consolidated revenues on nominal terms grew by 32%, are reaching ARS 164,800,000,000. Again, when analyzed in September adjusted by inflation, are: Revenues amounted to ARS108,000,000,000, showing an increase of 9% in real terms. Are: Service revenues showed a 29 nominal increase in a context where prices were frozen are from March to December of 2020. EBITDA increased by 26% year over year in nominal terms, are: Thus, generating an EBITA margin of 35.3%. EBITA margin in real terms was 34%. Are: The company performed well in terms of cost controls. Operating costs before G and A decreased by 5% in real terms versus the first half 2020. As mentioned, the company has achieved an aggressive cost reduction strategy. Slide 11 shows the company's EBITDA and the impact of the different components of revenues and costs. Operating costs were 5% lower in real terms. Are: The company performed an efficient cost management process as almost all our cost lines experienced a decrease in real returns, with exception of handset costs, mainly due to the increase in prices and higher sales. It is important to mention that our bad debt expenses decreased by 61.3% versus our first half twenty twenty as a direct consequence of the several actions that management has been taking place during 2020 2021. Our percentage of bad debt related to total sales is very low, 1.7%, and our collections are performing normally. Let's move to Slide 12, where we can see that the company's operating income totaled almost are ARS5.3 billion, while EBIT has decreased 76% in the near terms. The EBIT decrease in constant measuring units is explained by the increase are: D and A and disposal and impairment of tax assets, which increased almost 12% in real terms year over year, are: Mainly due to the D and A increase, operating margins reached 3% of consolidated revenues, while in historical figures, are the same margin was 21%. In the 1st semester 2021, the company had an end loss of are ARS1.672 million, mainly to tax expenses of ARS25 1,000,000,000, are, which was partially offset by the company's operating profit and positive net financial results. Slide 13 shows a summary of the company's CapEx during the first half of the year, which amounted to almost ARS33 billion are an equivalent of $344,000,000 at the official tax rate. This amount is 50% higher when compared with the same last year's period. Our consolidated amount of CapEx amounted to 18% of our total revenues, are from on premise equipment or CPA. The balance was allocated to network and technology and to our international are at operations both in Paraguay and Uruguay. During the first half of twenty twenty one, 81 new mobile sites were deployed are more than 1,000 existing sites were upgraded. The capacity of our HFC access network continues increasing mainly through segmentation and division of areas. More than 4,000 blocks were provided with FTTH are TTH, fixed asset access technology. Slide 14 describes our cash flow generation during the first half of twenty twenty one are compared with the same period of 2020. During the first half of twenty twenty one, the operating free cash flow amounted to approximately are $256,000,000 equivalent, dollars 133,000,000 less than in the first half of twenty twenty. Are: This variation is mainly explained by the increase in EBITDA and the increase in CapEx in constant currency. Are: Slide 15 shows our key figures for the last 12 months as of the Q2 of 2021 in constant measuring unit. Are: The company revenues amounted to almost ARS361,000,000,000 while the EBITDA amounted to more than ARS 118,000,000,000. Are: Last 12 months EBITA, margin was 32.8%. Our gross debt amounted to are ARS240,000,000,000 as of June 30, 2021, decreasing 4.2% from December 2020. The company has been able to generate an important amount of cash and equivalents, having a net debt of ARS 189,000,000,000. Are: Our net debt to EBITDA ratio is at 1.6x. Slide 16 shows the breakdown of our financial debt. Are. As mentioned during the last quarters, our debt refinancing process has been extremely successful. Are: During the year 2020, we will refinance $777,000,000 of our financial debt and cancel are $200,000,000 of the same debt. Total outstanding debt as of June 2021 amount to almost 2 point are $5,000,000,000 On June on 15 June 2021, we repaid the outstanding amount of our 2021 plus 8 loans. Are: Total consideration was $106,600,000 100 and are €3,200,000 in principal and €3,400,000 in interest payments. For the rest of 2020 1, our debt maturities are completely manageable and very low. For 2022 and 2023, our debt maturities remain within the range of are $500,000,000 and then reduced considerably until the maturity of our 2026 notes. Are We are already talking with banks and multiyearals on the refinancing of our 2022 and 2023 debt maturities. Are: Now I will pass the presentation to Lucas Perugeris, who will give the final remarks. With this, now we are more than pleased to answer any questions you may have. However, before we start, we would like to remind you how you can address your questions during the Q and A session, which we will open immediately. Are: Please send a message to IR Telecom Argentina through the Q and A menu, identifying yourself and stating that you have a question. Are alternatively use the hand button to let us know that you want to formulate a question. We will let you know when it's your turn to at Okay. We have the first question from are Thomas Santos from JPMorgan. You can now speak. You are on mute. Hi, good morning. Thanks for taking my questions. Are Good afternoon, to you, actually. The first question is on the CapEx outlook, if it remains at $600,000,000 for this year or If anything has changed on that front. And the second question is, if we think that in the next couple of quarters, you have the capacity to offset inflation, are: We see that you're increasing prices, but inflation is also coming very high. What are the what is the outlook like for the 3rd, Q4 or Maybe next year, should we expect telecom to be able to offset in ARPU inflation? That's the 2 questions. Thank you. Are: [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Okay, Marcelo. Thank you for your questions. Well, regarding the CapEx, as a result of the good cash generation that the company had in pesos during the first half of the year, we took the decisions to increase the CapEx that primarily we established for the year, meaning that are: On a consolidated pace, our total CapEx, including our CapEx of our subsidiaries, would be over $700,000,000 more in the are $770,000,000 as total. Of course, this figure is directly related to how the devaluation pace evolves in Argentina and how we translate the pesos to final dollars. But as a final question, there is no reduction of CapEx for this year. On the contrary, We are going to invest on our near 20% more than what we stated at the beginning of the year. Regarding the second part of the question are about the inflation pace. It is important to address that although we can think that during this year, our inflation adjustment of prices has been able to cope with inflation in terms of the speed of the trend, meaning of this loop of the curves. Are: There is a piece of inflation that was all the effect of last year freeze that we are not able to recover. When you look at Ola yet and when you look at our total results, the company are in terms of inflation is behind if you take the consideration of our total prices are since the merge up to now, our total price structure regarding the inflation pace has a gap of almost 30% on an accumulated basis. Of course, in the long run, all these tend to normalize, but the situation is present. Are: Just to add to Gabriel's this is Roberto. Hello to everyone. Are: In addition to what Gabriel said, first of all, regarding the CapEx, we started the year with a are forecast of $500,000,000 for the total year. But remember, we try to forecast the CapEx like are in different stages. As long as the numbers were good, we are granted another $100,000,000 and then since the numbers were still good and the cash generation was good enough and the capacity that we have to do was there. We decided to move forward are moved to almost $770,000,000 by the end of the year, including our subsidiaries. Are: So this is the way we have been managing our CapEx investments, and are: We are obviously trying to accelerate as much as we can as long as we as the cash flows are good enough. On the price increases, we have already have communicated to our customers and to Enacom a 10% price increase are starting from September 1. That is in addition to the 30% that we have already are adjusted up to June. And we will see if that's enough for the year or not, but That will depend on the pace of the inflation rate coming from for the next months. Are: What we are seeing is a decrease in the inflation rate in the monthly inflation rate. So are With this 10% in September, we should probably reach the end of the year are as it is and keeping track of inflation of 2021 inflation. Are: We're still behind with this 7 or 8 months period of 2020 That we were not able to increase prices by inflation. Are. Are open. Okay. We have a new question from Nicolas Giannone from Binance Capital. You can now speak. Are Hi, good morning, everyone. Hope you're doing well, and thanks for taking my question. Actually, it's more of an update on the legal front. Are: I think the last time I read about the case, the government was about to draw upon a Persaltum. And are in the press release, you said that it has not been treated yet. I just wanted to know if that refers to this presaltum and if effectively, this would be the last stage are of the case, right? If once the court rules over this per seltum, this would be over. Thanks. Are: [SPEAKER JOSE MARIA ALVAREZ PALLETE:] Thank you, Nicolas. As long as we know the parceltum is not are the right procedure for the government to appeal. They have appealed to the court and the court has said no, so it has been rejected. So as long as we move forward, are: There is no new procedure from the government on our case. There could be remember that are: Telecom has been granted legal coverage. The whole industry has been granted also legal coverage against the are: 2 other cable operators in Niciones, 2 cable operators in Cordova, another cable operator are in San Luis that were granted the same coverage and also Telecentro and DirecTV have been granted in the in court the legal coverage. Are: So this is more like an industry thing, and we feel are strong that this situation will remain. Are. Great. That was really clear. And just one more question on the financing side. Are: I think Fernando commented that you were already in talks with multilateral organisms for the maturities of next year. Just wondering if are, I don't know exactly the terms or the checklist of these organisms to grant new credit lines, but considering that you are upping your CapEx for this year and perhaps next year as well, do you think you could be able to be granted new credit lines and new just refinancing considering the current macro situation and the macro and FX situation, right? Are: Yes. Thank you for the question. Well, regarding the ability of the company to get additional financing lines, are: At present, we are negotiating with Cynosure, the great agent of the Chinese government. Are the 2nd tranche. Remember that last year we granted a loan of $100,000,000 Now we are granting a second stage of that loan just in case we need that, it's important because as the grades of the multilateral agencies, That type of financing has somehow assured the effect channel under Banco Central Regulation. Are also we have granted additional financing related to Finvera and other creditors are from Exim Bank, from Canada and even from the United States. All those are financing that the companies at present are discussing with different type of creditors. On the Pure Financial side, we are at present we have for next year are the following one. We just only have $140,000,000 of maturity, are, which is not related to the multilateral agents, meaning that $140,000,000 are maturing next year on the term note is the remain of the original €1,000,000,000 bridge that we received are during the beginning of the consolidation of the 2 conference. That transaction is the only transaction that we might think, has not under the present regulatory environment, are the obligation of Banco Central to provide the dollars directly as statutory from a Banco Central regulation they have when it is a multilateral agency finance, meaning that IDB, IFC, are Sainos Uram, that type of credit, all that have like a privilege under Banco Central are international rules to be providing the dollars for payment. So although we are almost covered in that event because at $140,000,000 is something that we can easily get in the local financing market and to get the dollar from COS Central. Are: We are already having conversations in different type of instruments, and we must say that the outlook is very positive. Are: There are certain developments in the market in Latin America like the green bonds, the other type of are both related to multilateral agencies that post opportunities where telecom might find additional space. Are and also it is important to address that the company has been able in the middle of last year and the quarantine to refinance $800,000,000 and we have just fully repaid our work are with the $100,000,000 remaining of the $500,000,000 of the 2021 notes. So all that consideration regarding the credit of the company is well received among our investors. We have just started conversations with our group of creditors with very positive outlook, where I must say that all of them are willing to support the company are in a way of easing our financial securities. Are, I would say, which is, by the way, is not absolutely necessary. This is just a precaution that we want in terms of not waiting to the end because as I mentioned, we have the ability to go directly to the original maturities and as the biggest part of all this obligation, our preferred foreign exchange channel, we can replace the financing locally, which is by the way what we have been doing with the last maturity. So I think that, that give us a very good support and gives you a good color in terms of are now ready to begin. Are now are a question from Otis Baarde. You are now unmute. Thank you so much for the call. Just one quick question that is related to the margins dynamics of the Q2 that decreased a lot against the Q1, mainly it's impacted by the labor cost. So I was wondering are what are you expecting in terms of the EBITDA margins for the rest of the year and which was the agreement with Unions are in terms of salaries increases. Okay, yes, as you have observed are You have observed the Yes, if you can mute, we are receiving some noise on the line. Are, as you have observed, of course, on the Q2, the biggest impact that we have was the adjustment of salaries according are to the bargaining process with EU Indias. That's the main reason of the increase. Having said that, are: In general terms, our EBITDA margin is quite strong considering the general circumstance. And you can probably see with the exception of the cost that I already mentioned, the rest of the costs of the company are willing to be managed well behind inflation based. And the reason to that has 2 different reasons. 1 is that or 3. The first one is the level of activity that we have been of course, when you compare to last year and the year to year comparison, the second quarter, are: We were in the worst moment of the pandemic and really was the lowest level of activity in the country as a whole. Are, and that is reflected in the evolution year to year on the Q2. The second aspect which is relevant for this comparison is related to the fact that we tend to increase our activity as the general situation of the quarantine and pandemic are consequences tend to get milder. As that gets better, it's easier to increase our activity. Also, as we have mentioned, we are increasing our level of activity in general terms. That has implication. But having said that, I must also say that we are receiving the benefits are of the big investment that the company has been doing in the last 2 years, especially on the IT front and on the different are digital platforms that we are implementing. With all that, we have certain synergies that are being included in the figures that we have been discussing. As for instance, when you look at the evolution are compared to the inflation of our administration costs, they have been constantly lower of inflation and getting a very strong reduction in real terms, and that is also related because of the application of all these new platforms that simplify our processes. Are: So putting all these together, I will say probably the margin that we are having today, which by the way, has the impact of the inflation adjustment included in it, and this is something that are you must take in consideration because certain figures are adjusted automatically and that is the are part of the accounting, I will say, particularities that we have to deal with. I will say that the general margin of the company will keep this pace, not thinking of we are having an increase by the end of the year. We have an election year, general expenditure is going to increase. We have accelerated our CapEx and increase it and all that. As I mentioned, it put pressure on those margins, but we think that we are going to cope to be successful in terms of keeping the margin at a good pace from now to the end of the year. Are. So just to add that salaries are going will be to receive an impact or increase of 20% by the rest of the year, just to complete the picture. And that's probably is the most relevant effect that you will see on percent of the total cost. Are: Thank you very much for participating in our quarterly conference call. Please do not hesitate in contacting our Investor Relations department for any further inquiries you may have. Good morning to all and have a nice day.