Earnings Call: Q1 2021

May 11, 2021

Morning. On behalf of Telecom Argentina, I would like to thank everybody for participating in this conference call. The participants of today's conference call are Roberto Nobile, Chief Executive Officer Fabienne Glassy, Chief Financial Officer Fernando Almaseda, Director of Investor Relations and myself, Dael Salangvar, the Denim, Manager of Investor Relations. The purpose of this call is to share with you the results of our Q1 ending March 31, 2021. If you have not received our press release or presentation, you can call our Investor Relations office to request the documents or download them from the Investor Relations section of our website located at www.telecom. Com. Ar. This conference call and presentation is being broadcasted and can also be relayed to our investor website at institutional. Telecom.com. Ar. If you 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, plans, strategies and objectives. Such statements are subject to uncertainties that could cause Telekom's actual results and operations to differ materially. That uncertainties include but are not limited to the effect of foreign industry and economic regulation possible changes in the demand for telecoms products and services the effects of potential changes in general markets and core economic conditions, in legislation and the impact of the outbreak of COVID on the global economy and specifically on the economies of the countries in which we operate as well as in our operations and financial performance. Our press release dated May 10, 2021, a copy of which was included in Form 6 ks as sent to the SEC, describe certain factors that may affect any forward looking statements that could be mentioned during this call. The company has reflected effects of the inflation adjustment adopted by Resolution 777 2088 of the Comision Nacional de Valores, which established that the written expression will be applied to the annual financial statements intermediate and special periods ended as of and included December 31, 2018. Accordingly, the reported figures corresponded to Q1 2020, including the effect of the the action of inflationary accounting in accordance with the IFRS 29. In this presentation, we will also include figures in historical values, which are easier to understand. Our press release is complemented by our earnings presentation. The audience should read the disclaimer contained in Slide 12 of the presentation. 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. Now let me pass the call to Gabriel, our CFO, who will start with the presentation. Thank you, Solange. Good morning, and welcome to everyone. Let's move to Slide 3 that summarize Our main highlights as of Q1 2021. Our business has proven to be very resilient during the challenging scenario. We have been able to achieve a 36.4 percentage EBITDA margin mainly due to our sustainable reduction of OpEx and the recovery of our prices, which have increased 20% on average during the Q1 2021. Our prior price increase was down back a year ago in March 2020. OpEx before G and A Has been reduced substantially by almost 10% in real terms. Our collections are bad debt has improved. Collections in digital channels have increased to around 70% of total collections from the 50% observed at the beginning of last year. During the Q1 'twenty one, nonperforming debt increases for 3.6% to 1.3% of total revenues. On April 30, 21, the Chamber 2 of the Federal Court of Appeals on Administrative Litigation Matters Resolved to grant the appeal filed by the company and revoke the decision of the original instance, ordering the suspension of the effects of Section 1, 2, 3, 4, 5 and 6 of the 3690-twenty and of Enacom Resolution number 1466-twenty 20, 1467-twenty 20 and 204 -21 under non applicability to the company. The company has been able to generate an important amount of cash and equivalents, We have totaled more than $400,000,000 up to date. The above, in addition to our diversified sources of financing, will allow us To increase our fair CapEx forecast for year 2021 from $500,000,000 to $600,000,000 From which a range of $350,000,000 $380,000,000 are maintenance CapEx. Slide 4 shows the company figures for the Q1 2021. In the 1st 3 months of the year, telecom revenues totaled $897,000,000 Revenues measured in constant pesos decreased 7.8% year to year. EBITDA totaled $327,000,000 Our EBITDA margin was 36.4%. Telecom's mobile subscribers in Argentina amounted 18,800,000, reducing in 43,000 total clients when compared to the Q1 2020, mainly on our prepaid segment. On the other hand, we added 130,000 postpaid mobile clients. Broadband and pay TV clients have also experienced an increase, Totaling around €4,200,000 and €3,500,000 when comparing 1st Q 2021 with 1st Q 2020. Fixed voice subscribers without considering IP telephone lines amounting 2,800,000 during the Q1 2021. Thanks to our successful commercial strategy focused on the building and upselling of our products, we currently have 1,900,000 convergent unique customers With 46% of our broadband customers having a mobile bundle. Moving to Slide 5. It shows our price adjustments in January 2021. In mobile, prices of the plants with 1 gigabyte of data have increased by 5%, While those with more than 1 gigabyte have increased by 20%, in broadband, the prices of the services with speed up or equal to 25 megabytes per second, Mainly fiber Tel lite have increased 10%. Prices of services with a speed like higher than 25 megabyte per second increased by 20%. Oil prices of pay TV services, including premium services such as HBO and Fox, have increased 20%. The price of the football pack has increased 25%. Prices of fixed voice basic services were increased by 5% and Argentina digital services by 20%. Slide 6 shows the evolution of our products. Mobile segment postpaid subscribers have increased 1.7% While prepaid subs have decreased 1.6%, increasing our postpaid market share. Fibertel, our customer Base increased 2.1% year over year, mainly growing the HFC and FTTH segments. Pay TV ARPU, pay TV accesses have grown 8.8% year over year, mostly leveraged on our Flowpad platform. Fixed voice ARPU, the reduction of accesses has continued, mainly in traditional fixed copper lines, while fiber The accesses have increased by more than 250,000 lines. Slide 7 shows the evolution of our service revenue. Service revenues totaled almost ARS85 1,000,000,000, decreasing 9.2% in real terms versus Q1 2020, in a period where inflation reached 42.6% year over year. Our revenue breakdown as of March 2021, shows an increase in mobile revenues and equipment sales and a lower share of broadband and pay TV revenues. The breakdown is as follows: OLED revenues 37% broadband revenues 21% pay TV revenues 20% fixed telephone and data revenues 14% equipment sales revenues 7%. Our Merck trends in mobile and broadband are explained on Slide 8. We have been able to keep almost constant of our customer base while growing the usage of our products. Postpaid mobile and broadband are the 2 main pillars of our performance. As of March of 2021, Postpaid subscribers amounting to 42% of our total customer base. The chart in the upper left shows the competitive landscape, wireless per month. Personal is in blue color, positive numbers show incoming clients and negative numbers show clients lost against the competition. As mentioned, we have obtained a positive net flow of postpaid clients, which have been mainly supported by our convergent offers to cable TV and Internet subscribers That were not mobile clients of the company before. Mobile Internet usage has continued increasing, reaching an average of more than 3.9 gigabytes per user per month in 2020. In addition, there has been an important increase in broadband speeds. 61% of our total subs have speeds between 50,000 megabytes per second comparing with 52 during Q1 of 2020. Slide 9 is a summary of our operations in Paraguay. Nucleo generated $51,000,000 $23,000,000 in revenues and EBITDA, respectively, during the Q1 of 2021. The revenue breakdown Wazlosporos: browsing services, 44% voice, almost 16% data, almost 7% broadband, 13% TV services, 8%, another services with approximately 14%. As of March 31, 2021, mobile customers totaled 2,200,000. Clients of Bichetera Personal, a mobile financial service that our subsidiary provides reached more than 250,000. Fixed Internet services subscribers amounted to 155,000. In the pay TV segment, flow customers Total 26,000 and in personnel HD 60,000. The fixed network deployment in the main cities of Paraguay has been increasing rapidly, Reaching 456,000 homes passed. Additionally, nucleus Internet subscribers totaled 155,000, increasing almost 2.5x versus the Q1 2020. I will now pass the call to Fernando, who will go over our financial performance. Tomas. Thank you so much, Gabriel. Slide 10 shows that during the Q1 of 2021, consolidated revenues on nominal terms Grew by 30%, reaching almost ARS79,100,000,000. When analyzing said figure adjusted by inflation, revenues amounted to almost ARS 82,500,000,000, showing a decrease of 7.8% in real terms. Service revenues showed a 28% nominal increase in a context where prices We're frozen for the most part of 2020. EBITDA increased by 37% year over year in nominal terms, Thus, generating an EBITDA margin of 37.8%. EBITDA margin in real terms was 36.4%. The company performed well in terms of cost controls. Operating costs before D and A decreased by 10% in real terms, vis a vis Q1 of 2020. As mentioned, the company has achieved an aggressive cost reduction. Slide 11 shows the company's EBITDA and the impact of the different components of revenues and costs. Operating costs were 10% lower in real terms. The company performed an efficient cost management process as almost overall cost lines experienced a decrease in real terms, With exception of handset costs, mainly due to the increase in prices and higher sales and interconnection and transmission costs, increased mainly through the impact of the tax. The higher EBITDA margin is mainly explained by a 67.7 percent increase in bad debt being a direct consequence of the several actions that management taken during 2020. Our percentage of bad debt related to total sales is very low, 1.3%, And our collection periods are performing normally. Most of our clients are paying on a digital basis, around 70% in the Q1 2021, visavis56 percent in Q1 2020, thus strongly improving our average collection period. Let's move to Slide 12, Well, we can see that company's operating income totaled almost ARS5.4 billion. EBIT was decreased Has decreased 35% in real terms. The EBIT decrease in constant measuring unit This is explained by the increase in D and A and disposal and impairment of fixed assets, which increased almost 6% in real terms year over year Due to the higher CapEx deployed and the effect of the inflation over such assets. Mainly due to said increase in D and A in real terms, Operating margins reached 7% of consolidated revenues, while in historical figures, the same margin has increased to 24% from 22% in the Q1 2020. Net income in the Q1 2021 increased in more than ARS9.0 billion as the drop in operating income mentioned above was more than offset by the accounting profits from FX differences. The exchange delay avoided the impact of losses in results due to the revolution of the debt in dollars As it happened in the Q1 2020, where inflation was 7.8% versus a 7.6% devaluation, Well, in the Q1 of 2021, inflation was 13% and the devaluation was 9.3%. Slide 13 shows a summary of the company's CapEx during the Q1 of this year, ARS 14,000,000 or an equivalent of $154,000,000 at the official FX rate. This amount is 14% higher when compared to the same amount of last year's period. Our consolidated amount of CapEx amount to almost 70% of our total revenues. Our CapEx program will continue evolving according to Argentina's condition economic condition, Network performance and customer's requirements. Technical CapEx were mainly composed of installation and customer premise equipment or CPE. The balance was allocated to network and technology and to our international operator operations in Paraguay and Uruguay. In the Q1 of 2021, 43 new mobile sites were deployed and more than 410 existing sites were upgraded. The capacity of our HFS access network continues increasing, mainly through segmentation and division of areas. 970 blocks were provided with FTTH fixed asset access technology. In February 2021, we have begun with the deployment of 5 gs Moi sites in Argentina, which allow us It allows connections piece of up to 10 gigabytes per second, having a response 10x higher than the 4 gs networks. This new technology allows the client to connect multiple devices at the same time. Slide 14 describes our cash flow generation during the Q1 of 2021 when compared with the same period of 2020. During the Q1 of 2021, the operating free cash flow amounted to approximately 143,000,000 US dollars equivalent. Despite having a relatively stable EBITDA in constant US dollars and an increase in CapEx, The company was able to generate an additional $65,000,000 in free cash flow when compared to the same period of last year. The variation in working capital mainly explains the additional positive flow. There was a decrease in bad debt due to different actions taken by the company at the end of 2020, the effects of which impact in the first two 2021 results. Currently, our collections are at normal levels and have been possibly influenced by extraordinary collections in our B2B business. Slide 15 shows our key figures for the last 12 months as for the Q1 2021 in constant measured unit. Company's revenues amount to more than ARS 333,000,000,000 while EBITDA amounted to almost ARS 100 and ARS15 1,000,000, EBITDA margin was 34.4%. Our gross debt amounted to ARS 222,000,000 as of March 31, 2021, decreasing 1.3% from December 2020. The company has been able to generate an important amount of cash and equivalents from a net debt of ARS 185,000,000,000. Our net debt to EBITDA ratio is at 1.61x. Slide 16 Xin shows the breakdown of our financial debt. Total outstanding debt as of March 2021 amounted to more than 2 point $4,000,000,000 Our debt profile and capital structure has improved significantly after the refinancing process that we have done during 2020. Our dollar denominated maturities for 2021 amount to approximately $140,000,000 Well, the rest is composed of peso denominated debt. For 2022 and 2023, our debt maturities remain within the range of $500,000,000 and then reduce considerably until the maturity of our 2026 notes. We expect to cancel our June 2021 bond Maturity with cash. We have full access to the official FX rate, and we will proceed according to Banco Central Argentina regulations.