Telecom Argentina SA (TEO) 2023 Q1 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 Daniel Nóbile, Chief Executive Officer; Gabriel Blasi, Chief Financial Officer; and myself, Luis Rial Ubago.

The purpose of this call is to share with you the results of the first quarter ended March 31, 2023. You have not received our press release or presentation, you can call our Investor Relations office to request the documents are done now then from the Investor Relations section of our website located at institucional.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 the 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 uncertainties include, but are not limited to, the effects of coming industry and economic regulations, possible changes in the demand for Telecom's products and services, the effect of potential changes in general market and economic conditions and in agitation.

Our (inaudible) dated May 9 of 2023, a copy of which was included in our Form 6-K and sent to 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, CNV, which establishes that the degree 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 first quarter of 2023 included the effects of the adoption of inflationary accounting in accordance with IAS 29. In this presentation, we will also include peers in historical values, which are easier to understand. Our press release is complemented by our earnings presentation. Please read the disclaimer pertained in Slide 1 and 2, our presentation. Today, we will go over our business and financial highlights, and at the end of the -- we will end the call with a Q&A session.

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

Thank you, Luis. Good morning, and welcome to everyone. Moving to Slide 3. We summarize our highlights as of March 31, 2023. Our main operational and financial achievements were our EBITDA margin during the first quarter of 2023 was 30.3%, while we continue to observe pressure from labor costs, we successfully contain increases in other cost items. In the last 12 months first quarter '23, our CapEx was approximately $695 million, equivalent to 17% of our revenues despite facing tighter import restrictions in the first quarter of '23.

Our focus is now on the expansion of our FTTH network to consolidate our position in the fixed market. Cash flow generation has continued to be strong and stable despite the challenging context. In the first quarter 2023, we were able to generate approximately $166 million in free cash flow before the dividend and interest payments. This represents an increase of approximately $40 million compared with the same period of 2022. We continue to increase our prices more frequently.

Our revenues observed smaller GAAP versus inflation in a rising inflation scenario. We have paid dividends in kind of May 1, 2023. Mobile subscriber base continued to grow with a strong postpaid performance, growing 1.6% year-over-year. Mobile data usage measured in average monthly gigabytes per user has grown 12.3%. In broadband, we have observed growth in our FTTH technology, which has become our main focus while our HFC network has remained stable.

Flow unit customers reached EUR 1.3 million, increasing 10% year-over-year. Our fintech personal pay continues to grow, reaching almost 1 million onboarded clients for the first quarter of '23. We are preparing for 5G. We currently count with 194 5G sites, mainly functioning with DSS technology over 4G spectrum. We presented our integrated annual report, our first publication unifying the company's financial and sustainable management information in a single document.

Moving to Slide 4, it shows the company figures for the first quarter of 2023. Telecom's revenues totaled $1 billion. Revenues measured in constant pesos decreased 10% year-over-year. We generated $311 million equivalent in terms of EBITDA. Our EBITDA margin was 30.3%. Telecom's mobile subscribers in Argentina amounting to EUR 20.5 million, increasing more than 320,000 when compared to the first quarter of 2022. Broadband and pay TV clients have totaled $4.1 million and $3.4 million, respectively.

Fixed voice subscribers considering IP telephony lines amounting to EUR 3 million during the first quarter of 2023. Our commercial strategy has allowed us to increase our total conversion unit customers to EUR 2.3 million from EUR 2.1 million in the first quarter of 2022. Up to date, 49% of our broadband customers have a mobile bundle. Regarding our regional operations, we currently have 2.3 million mobile subscribers in Paraguay and 125,000 pay TV clients in Uruguay.

In slide 5 shows the evolution of local inflation that cumulated inflation for the first quarter of fiscal year '23 was 21.7%. And Year-over-year inflation in Argentina as of March 23 has been 104.3%. Inflation rate for the month of March 23 was 7.7%, thus we believe that the local inflation will remain high during all 2023. As mentioned before, the impact of our industry in the CPI is very low as communications has a weight in the index of only 2.8%.

Slide 6 shows our price adjustment policy during 2023. During the second half of 2022 and the first quarter of '23, we have adjusted our pricing policy responding to a rising inflation scenario. We have increased both the frequency and magnitude of our price increases to improve our pass-through of inflation in a quickly complex environment. Thanks to these measures. And although we continue to observe a lag versus inflation, we have been able to improve our revenue trend in real terms as of the first quarter '23.

Slide 7 shows the evolution of our products. We're pleased to report positive results in our mobile segment with an increase of over 245,000 postpaid subscribers, representing a 3% growth and over 75,000 prepaid subscribers, a 0.6% increase. Our postpaid clients now make up 42% of our total mobile client base. Although our Broadband accesses have decreased by 155,000, minus 3.7% year-over-year, mostly by DSL, we observed growth in FTTH, while our HFC segment remains steady. Our client base with Internet speed as 100 megabytes or more increased by 113%.

Despite a reduction of 139,000 paid TV subscribers, which represent a 4% decrease year-over-year, our platform continued to perform well. In the first quarter '23, Flow’s unique customers reached EUR 1.3 million, increasing by 116,000 total clients or 10% when compared to the same period in 2022. Our fixed voice segment experienced a continued reduction in accesses mainly in traditional fixed copper lines, but we remain confident in our overall strategy and our ability to adapt to challenging market conditions.

Moving to Slide 8, it shows the evolution of our service revenues. Service revenues totaled ARS 200 billion, decreasing 10% in real terms versus first quarter '22. Our revenue breakdown as of March 23 showed an increase in the participation of mobile services when compared to March 2022. The breakdown is as follows: mobile revenues, 40.8%. Broadband revenues 21.9%, pay TV revenues, 18.6%. Fixed telephony and data revenues, 11.4%, equipment sales revenues, 6.5%.

Thanks to our pricing strategy, we were able to adjust the trend showing the year-over-year decline of our revenues in real terms, even with higher inflation levels. We currently observe a gap versus inflation in terms of our revenues of 10%.

Slide 9 describes the main trends in our mobile and Broadband businesses. During the first quarter of 2023, the mobile market remained stable in terms of portability with no significant changes. Our postpaid performance has been solid, increasing the postpaid participation of our mobile customer base to 42%. Mobile Internet usage has continued increasing, reaching an average of 5.6 gigabytes per user per month during the first quarter of '23 and growing over 12% year-over-year.

Additionally, we continue to increase our average broadband speeds. 81% of our total subs have speeds of at least 100 megabytes per second comparing with 37% during the first quarter of ’22. This means that our subscribers with speeds above 100 megabytes have multiplied by 2.1x. Thanks to commercial actions we doubled the connection speed for our clients in FTTH and HFC technologies during the previous year. Additionally, we have observed growth in FTTH connections, which increased by 74% versus the first quarter '22, respectively.

Moving to Slide 10. It shows our businesses in Paraguay. Our operation in Paraguay continued to build a solid track record. Nucleo generated $50 million and $24 million equivalent in revenues and EBITDA, respectively, during the first quarter '23. EBITDA margin of Nucleo as of March 23 was pretty strong and close to 50%. As of March 31, 2023, mobile customers totaled $2.3 million. The mobile financial service that our subsidiary provides (inaudible) reached over 285,000 subscribers. Fixed Internet services subscribers amounted to more than 245,000 growing 17% versus the first quarter of '22. In the Pay TV segment, Flow customers totaled 97,000, growing 10% year-over-year. The fixed network deployment in the main cities of Paraguay growing 14% versus first quarter '22 and reaching 693,000 homes passed.

Slide 11 shows some key performance indicators of our fintech personal pay. As of March 23, personal base onboarded clients reaching more than 955,000, growing 12x year-over-year. We find that this growth is very encouraging, and we're also growing also outside of telecom client base as 15% of these clients belong to other local telco operators. The total payment number has also been increased accordingly. In March of 2023, it reached almost 1.5 million operation, and it has multiplied by more than 23x when compared to March 2022. Total payment volume has increased by 78% in comparison to December 2022.

Growth in our digital wallet is leveraged on a strong value proposal for the company clients and for clients outside Telecom as well. And we offer a range of strategic partnership with various shops and businesses provided our clients with exclusive benefits. During the first quarter, (inaudible) continued to expand the differential of its product, incorporating the new functionality of remunerated balances for all its users, which allows them to generate profits by simply having their money available in the wallet.

I will now pass the call to Luis Rial Ubago, who will go over our financial performance.

Thank you, Gabriel. In Slide 12, we provide an overview of our main financial figures. Consolidated revenues grew by 81% on nominal terms during the first quarter of 2023, reaching more than ARS 200 billion. When analyzing said figure adjusted by inflation, revenues amounted to more than ARS 214 billion, showing a decrease of 10% in real terms, this is the same figure in 2022. This lag versus inflation has observed a downward trend as we adjusted our pricing policy, as we mentioned before, and is explained, among others, by the effect of certain discounts and promotions we granted after price increases to retain our customers in a strong competitive environment.

Service revenues showed an 82% nominal increase, reflecting the price increases we mentioned before. EBITDA increased by 55.4% year-over-year in nominal terms, generating an EBITDA margin of 30.7% in the first quarter 2023. EBITDA margin in real terms was 30.3%. Additionally, our operating costs before D&A have also grown below inflation, decreasing 4% in real terms versus the first quarter of 2022. We have continued to manage our cost structure to reduce the impact of rising labor costs.

Slide 13 shows the evolution of EBITDA year-over-year and the impact of different components of revenues and costs. During the first quarter of 2023, the company was able to contain the pressure coming from inflation in the majority of its cost lines as most of them experience a decrease or remain in line when compared with inflation. We observed good results in programming and content costs, interconnection costs and some other items like handset costs. The company's efforts have been successful as evidenced by this cost lines, not decreasing their shareholder revenues. These cost management initiatives have partially offset the rising labor costs, which have increased above inflation and explain most of the margin contraction year-over-year.

Labor costs represent 24% of our revenues versus 21% in the first quarter of 2022 and have increased 4% in real terms when compared to the first quarter of 2022. Fees for services, maintenance and materials have also affected by the increase in salaries of contractors. Operating costs, excluding amortization, depreciation and fixed asset impairments totaled 149.7 billion in the first quarter of 2023, representing a decrease of EUR 6.8 billion or minus 4.4% compared to the first quarter of 2022.

Slide 14 shows the company's net results and EBIT. The EBIT decrease in constant currency is explained mainly by the decrease in EBITDA in real terms. This, combined with the inflation adjustment of our D&A, resulted in an operating margin of minus 1% of consolidated revenues. In historical figures, the same margin was 21%. In the first quarter of 2023, the company had a net income of ARS 28 billion, mainly due to positive net financial results of almost MXN 19.4 billion and to a positive income tax of almost MXN 11.8 billion.

Slide 15 shows a summary of the company's CapEx in PP&E and intangible assets during the first quarter of 2023, which amounted to more than MXN 25 billion or an equivalent of $121 million at the official FX rate. This amount is 24.2% lower when compared with the same year last period. Our consolidated amount of CapEx for the first quarter of 2023 amounted to 12% of our total revenues. And withstanding the fact that we are sure certain levels of seasonality in our CapEx, our investment level was influenced by tighter import restrictions in the first Q of 2023.

As we commented in other opportunities. Our CapEx plan is flexible, and we have been investing way above the global average ratio of CapEx to revenues during previous years, and the performance of our network is currently very solid. Technical CapEx was mainly composed by investments in our access network technology. The balance was allocated to installations and customer premise equipment or CPE and to our international operations.

During the first quarter of 2023, '21, new mobile sites were deployed while other 361 existing sites were upgraded and 52 are under construction. We expanded our FTTH network over 2,200 new blocks, including the overlay of our HFC network. We also increased the penetration of our HFC network by 4,300 blocks. Up to date, we come with 194 5G sites, most of them working under DSS technology.

Slide 16 describes our cash flow generation during the first quarter of 2023 compared with the same period of 2022. Our cash flow generation has remained robust. Despite experiencing a lower EBITDA in real terms, our free cash flow has increased due to a reduction in CapEx and working capital during this period. In the first quarter of 2023, our free cash flow before dividends and interest payments amounted to approximately $166 million, which represents an improvement compared to the same period in 2022.

Slide 17 shows our key figures for the first quarter of 2023 in constant measuring units converted to the effects of each year. Our gross debt amounted to $2.7 billion as of March 31, 2023. The company holds cash and equivalents for more than $440 million as of the same date, having net debt of almost $2.3 billion. Our net debt-to-EBITDA ratio is 2.1x, remaining relatively stable versus the one obtained by the end of the fiscal year 2022.

Slide 18 shows the breakdown of our financial debt. Total outstanding debt as of March 2023 amounted to almost 2.7 million. We currently have a very clean maturity profile. As mentioned before, we have been working to increase the participation of peso-denominated debt issued in the local capital markets. Nowadays, our debt denominated in foreign currency, 67% of our total debt. We expect to continue accessing the local capital markets for potential financing needs as we have been doing lately.

During 2023, our debt maturities are very manageable and almost 50% of the maturities for this year are denominated in pesos, which can be easily refinanced in the local markets and with local financial institutions taking into account the solid credit profile of Telecom.

Additionally, we have entered into a new export credit line with Export Development Canada, or EDC, for up to $50 million on May 5, 2023. So with this, now we are more than pleased to answer any questions you may have. So however, before we start, we would like to remind you how you can address your questions during the Q&A session, which we will open immediately.

Please use the raise hand bottom to let us know that you want to formulate a question. We will let you know when it's your turn to speak. And we will mute you so you can press with your questions. Thank you very much.

We have a question coming from (inaudible) JPMorgan.

Could you explain a little bit more your goals on the FTTH network expansion? What are the CapEx implication? And what you -- and we think the goal that you have, how much is overlay and how much is incremental footprint?

I don't have the details right now, but definitely, the idea that we have is to expand like 10,000 blocks in new fields, in Greenfields and another 10,000 blocks overlay. When you compare to the number of blocks we have in HFC, we have 140,000 blocks in HFC. So we're trying to build HFC, FTTH overlay on HFC on the main cities. That's the whole idea, especially in the (inaudible). That's our main focus, and then we will keep on deploying the overlay in other areas. But our focus is to make sure that all the main cities of ends are covered with FDA overlay HFC.

Greenfield is very few blocks comparing to our whole footprint. We have—that’s something new in Mendoza, but that's [2.5 thousand] in Mendoza. And we are starting some deployment in San Juan. Those 2 cities we have never been there. So it's a whole Greenfield deployment. But apart from that, we are all working on trying to upgrade our copper network and on the other side, roboting our services in the HFC footprint.

We have another question from (inaudible).

What are the CapEx implications of these FTTH plan? Should we expect an increase in the short term? Or it should go into your run rate CapEx levels that we see today? And my second question would be regarding mobile pricing, do you see peers following a similar price scheme as yourselves like increasing the frequency of price hikes to match inflation.

Yes, probably I didn't answer that on the previous question. Thank you for asking again. The idea is to keep on having the same level of CapEx. We are not thinking of a migration from HFC to FTTH, but we are thinking of service over 300 megabytes per second being migrated to FTTH, not all of them. Despite that, ONTs, which are the CPAs that run in the homes of our customers when you are serving FTTH services are like 40% less expensive than codes, which are the CPEs that are used in HFC.

So actually, there is -- it is convenient for the company to increase the number of FTTH customers of new customers. So that the -- if you take a look into what we are buying, we are not buying like 70% of our CPEs today are ONTs on for FTTH services. Despite previously 100% was a cable model for our HFC network. So this is a combination that really improves our CapEx expenditure. I can’t remember the second question, Luis, can you help me?

Yes, it was regarding the -- how we are seeing the pricing from the competition in the mobile segment.

Pressing on the mobile area is -- I mean, all -- we're all followers. We are all followers of inflation. So that's been something that the industry has been moving with inflation throughout the year. If you take a look into postpaid, postpaid prices increased more than 100%. So -- and this is not only us. Probably the others are a little behind, maybe 20% or 30% below that in terms of ARPU, but definitely, we are all moving and trying to move forward.

There was one competitor that instead of increasing prices, we increased prices in January and in March, and this competitor increased like 1/3 part of our price increase in March and do it in April also. The different strategies, but we're all following or trying to catch up inflation. The main problem we have is, it's not on the mobile, I wouldn't say in the mobile ARPU is doing well. The industry has some troubles trying to increase prices or adjust prices to inflation.

We're not talking about increased pricing. We are adjusting prices to inflation on the fixed services, on the broadband and on TV services. That's where other competitors are very aggressive on prices. We call about -- they are selling at 3 (inaudible). It's a way of selling that it is really very, very cheap. And we have this increase of inflation during the first -- this last semester in Argentina has really challenged as the way we delivered the price increases. As of last year, we were increasing prices every 3 months. This year, we started the year with a 20% increase in January and a 10% increase in March. That's a 30% increase.

If you consider our customer base -- it's exactly the same as in Argentina, 30% of them have a formal salary, which increased with inflation, and 70% of the others are not part of the formal employment of Argentina. Therefore, their income is not following inflation is below that. So we have a very high pressure from our customers trying not to being increased so much.

So in this first quarter, we have a little more of our customers are calling into our reps, our call centers asking for a rebate or for a discount, additional discount. We have an 85% success in terms of trying to -- given the customer discount and keeping them satisfied. But we have more customers calling us, so that 85% was not really enough. We need to increase that number. And we have our goal of net at 0 for the next quarter and for the next quarters coming. So we're trying to rework our procedures and the way we increase prices on a monthly basis to reduce this risk and trying to make sure that we can keep all our customers with us.

So it seems we have no more questions for the moment. So thank you very much for participating in our quarterly conference call. Please do not hesitate in contacting us or invest (inaudible). We are the Investor Relations department for any further increase you may have. So good morning to all and have a nice day. Thank you very much.

One question from (inaudible). I'm sorry, I think that directed to Eurobet. Do you wish to answer that. We don't have the question right here.

Sorry, you may ask (inaudible).

(inaudible) we will admit you right away. So you can please proceed with your questions. I'm sorry. (inaudible), you are muted this precede with your question. Sorry, I'm sorry, July. Please send out your question via e-mail or let's have a call. So we can proceed and answer that. So thank you very much. Good morning to all, and see you in the next call.