Telecom Argentina SA (TEO) 2021 Q3 法說會逐字稿

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 Roberto Nóbile, Chief Executive Officer; Gabriel Blasi, Chief Financial Officer; Germán Horacio, Director of Investor Relations; myself, Lucas Berges.

The purpose of this call is to share with you the results of the 9-month period and third quarter of fiscal year 2021 and then on September 30, 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 inversores.telecom.com.ar.

I would like to go over some safe harbor information and other details of the call. We would like to clarify that during this conference call and Q&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 Telecom's actual results and operations to differ materially, such as certain things include, but are not limited to, the effects of ongoing industry and economic regulations, possible changes in the demand for Telecom's products and services, the effect of potential changes in general market and/or economic conditions, in legislation and the impact of the outbreak of COVID-19 on the global economy and specifically on the economies of the countries in which we operate, as well as our operational and financial performance.

Our press release dated November 9, 2021, a copy of which was included in our Form 6-K and sent to us through the SEC, describes certain factors that may affect any forward-looking statements that could be mentioned during this call.

The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Comisión Nacional de Valores, which establishes that re-expression will be applied to the annual financial statements for intermediate and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the 9 months of 2020 included 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. Our press release is complemented by our earnings presentation. The audience should read the disclaimer contained in Slide 1 and Slide 2 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&A session.

Now let me pass the call to Gabriel, our CFO, who will start the presentation.

Thank you, Lucas. Good morning, and welcome to everyone.

Moving to Slide 3 summarizes our main highlights as of September 30, 2021. Our main operational and financial achievements were: We presented a new corporate identity, and our main brands have been consolidated under Personal, Flow and Telecom. We have been able to increase prices during 2021 and to reduce the gap with inflation. We increased our CapEx plan for this year to a range between $650 million to $700 million. We will continue to invest in the best technology to maintain the solid performance of our network.

We have achieved an EBITDA margin of 32.6%, continuing with our cost management initiatives despite the higher local inflation. Our bad debt is currently 2% of our total revenues, which is below industry standards. We have launched our fintech company, Personal Pay, in an open beta version. We currently have more than 8,000 registered clients.

Supporting our employees in terms of COVID-19 has been and will remain being a top priority for the company. We are working on the refinancing of our debt maturities due in 2022. We expect to access local capital markets in case we need additional financing because of the prior point. Our cash flow generation is strong. We are developing a new sustainability plan based on ESG standards. Inflation in Argentina is currently about 50% per annum; however, the impact of our industrial and inflation index is only 2.8%. We have launched our new IR website, improving the way we communicate with our investors.

Slide 4 shows the company figures of the 9 months of 2021. Telecom's revenues totaled $3 billion. Revenues measured in constant pesos decreased 7.7% year-to-year. Notwithstanding this and due to the price increase performed, service revenues in cost at pesos as of September 21 during the third quarter of '21 -- and if we move to Slide 7, we show our price adjustment during September 2021. Sorry, mistake -- during -- have increased, again, notwithstanding the service revenues cost at pesos on September '21 -- during the third quarter '21 have increased 0.5% when compared with the second quarter 2021. EBITDA totaled $1 billion. Our EBITDA margin was 32.6%. Telecom's mobile subscribers in Argentina amounted to 19.5 million, increasing more than 860,000 total clients when compared to the first 9 months of 2020. Both clients have also experienced an increase year-over-year, totaling 4.2 million. Pay TV subscribers have remained steady at 3.6 million when comparing the first 9 months of 2021 with the same period of 2020.

Fixed voice subscribers without considering IP Telephony lines, amounting to 2.5 million during the first 9 months of 2021. Our commercial strategy has allowed us to increase our total convergent unique customers to 2.2 million, with 49% of our broadband customers having mobile [bandwidth]

Slide 5 summarizes the change in our corporate image and commercial brands. In October, the company launched a new institutional visual identity and changed its commercial brands. This re-branding aims to better express and enhance the synergies of our services. Personal now offers full connectivity to its customers with the best service experience, Thanks to its fixed and mobile networks. Our Personal brand currently integrates our mobile broadband and fixed voice services, observing the Fibertel brand.

Flow is the brand for all our pay TV and content-related services. It is currently a meeting point for entertainment, where the contents of the most important streaming platforms on the market are also integrated. Finally, we have launched our telecom brand for the B2B segment, previously named Telecom FiberCorp. The company will continue to offer digital solutions for the corporate and government segments with focus not only in connectivity but also in IoT services. The company has also renewed its institutional Investor Relations website, improving the contact and communication with its investors.

Moving to Slide 6, it shows the evolution of local inflation. Last 12 months Argentina inflation as of September '21 has been 52.5%. Monthly inflation in 2021 has ranged from 2.6% to 5.2%. The impact of our industry in the inflation index is already 2.8%. Therefore, we do not have an important impact on [said] index. We envision that the local inflation will remain high during 2022, but cost adjusting to the general index pose a significant challenge to company margins, which will be able to deal with, thanks to the strong efficiencies achieved and a strong investment base.

Moving to Slide 7 shows our price adjustment to September 2021. After having our prices constant most part of 2020 from March to December, we decided to increase prices 20% during the first quarter of 2021. In June, we increased our prices again in 10%. And in September, we had a third price increase of 10% on average. In mobile, prices have increased 10% on average. In broadband, the prices of the service with speed up to or equal to 25 megabytes per second, mainly on our DSL services have increased in 10%. Price of servicing with a speed higher than 25 megabytes per second increased by 8%. All prices of Pay TV services, including the premium services as HBO and have increased by 8%, while our football pack has increased by 19%. Prices of fixed voice basic services were increased 10% on average.

We have done a substantial contribution during quarantine as of working capital, avoiding bad debt or cut off on price freeze not yet fully recovered as we have seen.

Mobile segment moving to Slide 8, showing the evolution of our products. On the mobile, postpaid subscribers have increased 5.2%, while prepaid subs have increased 4.3%. Our postpaid and prepaid shares are 42% and 58%, respectively.

Fibertel. Our customer base increased 1.5% year-over-year, mainly growing through the HFC and FTTH segments. In Pay TV, accesses have remained almost constant, mostly leveraged on the better performance of our platform. In fixed voice, the reduction of accesses has continued, mainly in traditional fixed copper lines. On the other hand, our Fibertel IP accesses have increased in almost 370,000 lines.

Slide 9 shows the evolution of our services revenue. Service revenue totaled ARS 272 billion, decreasing 9% in real term versus 9 months of 2020 in a period where our inflation was 52.5%.

Our revenue breakdown as of September 2021 is similar to our previous quarters with a slight increase in mobile and broadband. The breakdown is as follows: mobile revenue, 38%; broadband revenues, 21%, Pay TV revenues, 20%; Fixed Telephony and Data revenues, 14%; Equipment Sales revenues, 7%. Our main trends in our mobile and broadband businesses are explained on Slide 10.

Postpaid mobile and broadband are the 2 main drivers of our performance. During this quarter, we have been able to grow both our postpaid and broadband clients. As of September 2021, postpaid subscribers amounted 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 shows incoming clients and negative numbers show clients lost against the competition.

Mobile internet usage has continued increasing, reaching an average of more than 4.2 gigabytes per user per month in 2021. In addition, there has been an important increase in broadband speeds. 68% of our total subs have speeds between 50 and 1,000 megabytes per second comparing with 58% during the first 9 months of 2020. This was mainly explained by the growth in HFC and FTTH connections.

On Slide 11, we summarize the competition advantages of our networks and products. Telecom's leadership in Argentina -- telecommunication markets is leveraged on 3 main strategic assets: broadband flow as is our IP TV service and mobile. Our broadband network has the best coverage around the country, achieving average speed of 82 megabytes per second in the case of our FTTH network and 74 megabytes of our HFC technology, reaching 60% of homes passed over data homes in Argentina.

Flow has evolved into a meeting point for entertainment, allowing clients to have direct access to be there music, gaming and 2 other leading streaming applications in the market. Our mobile network is the fastest in the country, reaching almost 98% urban coverage and with the best download upload speed, as measured by Speedtest as of October 2021.

Moving to Slide 12 is a summary of our operations in Paraguay. Nucleo generated $166 million and $77 million in revenues and EBITDA, respectively, during the first 9 months of 2021. The revenue breakdown was as follows: browsing services, 44%; voice, 16%; data, 6%; broadband, 14%; TV services, 8% and other services were approximately 12%. As of September 30, 2021, mobile customers totaled 2.2 million. Clients of Billetera Personnel, a mobile financial service that our subsidiary provides, reached almost 270,000 customers.

Fixed Internet service subscribers amounted to more than 180,000. In the Pay TV segment, Flow customer totaled 30,000 and in Personal HD 60,000. The fixed network deployment in the main city of Paraguay have been increasing rapidly, reaching 490,000 homes passed. Additionally, Nucleo Internet subscribers totaled more than 180,000 increasing almost 1.5x versus the first 9 months of 2020.

I will now pass the call to Fernando Balmaceda, who will go of our financial.

Thank you so much, Gabriel. In Slide 13, we provide an overview of our main financial figures.

During the first 9 months of 2021, consolidated revenues on nominal terms grew by 36%, reaching ARS 258.2 billion. When analyzing figure adjusted by inflation, revenues amounted to almost ARS 293 billion, showing a decrease of 8% in real terms. Service revenues showed a 33% nominal increase in a context where prices were frozen from March to December 2020.

EBITDA increased by 26% year-over-year in nominal terms, thus generating an EBITDA margin of 33.6%. EBITDA margin in real terms was 32.6%. The company continued to manage its cost structure with operating costs before D&A decreased by 3% in real terms versus the 9 months of 2020.

Slide 14 shows the company EBITDA and the impact of the different components of revenues and costs. Operating costs were 3% lower in real terms. The company performed an efficient cost management process as almost all of our cost lines experienced a decrease in real terms with exception of labor and handsets costs, mainly to the increase in prices and higher sales. Our EBITDA has been affected mainly by the higher labor costs due to salary increases that we agreed with our unions and nonunion employees, which were in the range of 22.5% for the second half of 2021.

It's important to mention that our bad debt expenses decreased by 55.4% versus the 9 months of 2020 as a direct consequence of the several actions that management has been taking place during 2020 and 2021. A percentage of bad debt related to total sales is very low, 1.8% and, and our collections are performing normally.

In Slide 15, the company's operating income totaled almost ARS 1.2 billion, while EBIT has decreased 96% in real terms. The EBIT decrease in constant measuring unit is explained by the increase in D&A and by the disposals and impairment of fixed assets, which increased more than 12% in real terms year-over-year. Mainly due to the D&A increase, operating margins reached 0.4% of consolidated revenues, while in historical figures, the same margin was 19%.

In the first 9 months of 2021, the company had a net income of ARS 1,025 million, mainly due to tax expenses of only ARS 31 billion, which were partially offset by the company's positive net financial results of ARS 30.5 billion. The income tax figure, which includes a higher charge coming from the increase in the tax rate imposed by law, while the positive financial results were driven by an improvement in FX results in real terms and inflation adjustment gains.

Slide 16 shows a summary of the company's CapEx and PP&E and intangible assets through the 9 months of the year, which amounted to almost ARS 554 billion for an equivalent of $546 million at the official FX rate. This amount is 1% higher when compared with the same last year's period.

Our consolidated amount of CapEx amounted to 18% of total revenues, which is a very important ratio according to global industry standards. Technical CapEx was mainly composed of installation and customer premises equipment, or CPE. The balance was allocated to network and technology and for international operations, both in Paraguay and Uruguay.

During the 9 months of 2021, 120 new mobile sites were deployed and more than 1,500 existing sites were upgraded. The capacity of HFC access network is continuously increasing, mainly through segmentation of areas. We continue to deploy FTTH fixed asset technology. More than 7,000 blocks were commercially enabled and other 2,500 were built.

Slide 17 describes our cash flow generation during the 9 months of 2021 as compared with the same period of 2020. Our cash flow generation is currently very solid. In the 9 months of 2021, the operating free cash flow amounted to approximately $419 million equivalent. This variation versus the 9 months of 2020 is mainly explained by the decrease in our EBITDA in real terms.

Slide 18 shows our key figures for the last 12 months as of the third quarter of 2021 in constant measuring unit. Company's revenues amounted to almost ARS 389 billion, while EBITDA amounted to almost ARS 123 billion. Last 12 months EBITDA margin was 31.6%. Our gross debt amounted to ARS 248.5 billion as of September 2021, decreasing 9.3% from December 2020.

After the dividend payment of August 2021, the company holds cash and equivalents of ARS 20 billion, having a net debt of ARS 223 billion. Our net debt-to-EBITDA ratio is 1.82x.

Slide 19 shows the breakdown of our financial debt. As mentioned during the last quarter, our debt restructuring process has been extremely successful. Total outstanding debt as of September 2021 amounted to $2.5 billion. For the rest of 2021, our debt maturities are completely manageable and very low. For 2022 and 2023, our debt maturities remain within the range of $630 million to $500 million reduced considerably until the maturity of our 2026 bond. We're working with banks and regarding the refinancing of our 2022 debt maturities.

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