Telecom Argentina SA (TEO) 2025 Q1 法說會逐字稿

On behalf of Telecom Argentina, I would like to thank everybody for participating of this conference call.

The participants of today's conference call are Roberto Nobile, Chief Executive Officer; Gabriel P. Blasi, Chief Financial Officer; and myself, Luis Rial Ubago, Head of Investor Relations. The purpose of this call is to share with you the results of the first quarter ended on March 31, 2025.

If you have not received a press release or presentation, you can call our investor relations office to request documents or download them from the investor relations section of our website located at nvestores.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 answer that could cause Telecom's actual results and operations to differ materially.

Such uncertainties 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 effects of potential changes internal market and economic conditions and in legislation.

A press release date May 12, 2025, a copy of which was included in a Form 10-K in case and sent to the SEC, described 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 or CNV, which establishes that the re-expression will be applied to the annual financial statements for interim and special periods and as of and including December 31, 2018.

Accordingly, the reported figures corresponding to the first quarter of 2025 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. The press release is complemented by our analyst presentation.

Please read the disclaimer contained slide 1 and slide 2 of the presentation. Today we will go over our business and financial highlights and then the call with a Q&As.

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

Thank you, Luis. Good morning and welcome to everyone. Slide 3 summarizes our highlights as of March 31, 2025. Before diving in the many variables and financial highlights, it's important to clarify that throughout this presentation, we are presenting consolidated financials including Telefónica Móviles Argentina or TMA acquired on February 24, 2025.

As such, in this presentation we will mention consolidated figures that include one month, March of 2025 of TMA contribution, figures for Telecom only excluding TMA contribution and standalone quarterly results for TMA. Further details of the transaction will be discussed later in the presentation.

Having said that our main operational and financial achievements for the first quarter of 2025 were as follows. Telecom's revenues total $1.3 billion. When measuring constant Argentine pesos, revenues increased 28% year-over-year, reflecting a significant improvement compared to first quarter '24, mainly due to the incorporation of TMA's results. Our EBITDA margin expanded by nearly 300 basis points, reaching 33.1% in first quarter '25 versus the same period in '24.

This improvement was driven by the top line growth and effective cost management as operating expenses grew below revenues, registering a 23% increase in real terms compared to first quarter '24. CapEx amounted to approximately $165 million and 8% increase versus first quarter '24.

Investment continued to prioritize the expansion of both fixed and mobile access networks, particularly the rollout of our fiber to the home and 5G infrastructure. Our net debt to estimate perform EBITDA leverage ratio is stood up at 1.9 times in first (inaudible) '25 underscoring our strength and ability to sustain a solid credit profile even after incorporating the financing of the acquisition of TMA.

As will be detailed in the following slide, our combined mobile subscriber base, Telecom and TMA continues to expand with growth across both post-paid and pre-paid segments. In Broadband, our FTTH customers base have been growing steadily while TMA's total Broadband subscribers are also registering growth.

Pay TV subscription in Argentina have registered a combined increase. Our Fintech platform personal Pay continued to scale, reaching nearly $3.9 million onboarded clients as of March '25, maintaining a strong market position.

From slide 4, we'll walk through to the most recent developments regarding the acquisition of TMA.

In slide 5, we summarize the transaction rationale of TMA's acquisition. Let's go over the main points. The acquisition of TMI enhance our EBITDA generation while maintaining a stable leverage profile, ensuring financial soundness as we grow. These transactions and lock synergies and efficiencies that will allow us to further improve profitability and customer experience.

TMA is working on an efficiency plan to have greater capacity to execute critical investment accelerated both 5G and FTTH deployment. It's also important to highlight that this is a market repair transaction. TMA has limited profitability and constrained investment capacity. With Telecom's acquisition of TMA. We are addressing this issue and reinforcing the health of the industry.

We are also creating the most competitive Telecom company in Argentina with the ability to compete with global players currently present in the market. And last, with the highest network quality and a great degree of complementarity between fixed and mobile infrastructure. Let's take a closer look at how this acquisition plays out operationally and financially.

Slide 6 presents the annual and first quarter key figures of TEO and TMA. As mentioned earlier, TMA Financials have been consolidated with TEO, since the March 1, 2025. Therefore, the contribution of our quarterly figures represent just one month of TMA's operations. To provide a clear perspective, we have included the most recent annual figures as reported, along with the quarterly figures. These figures are provided in US dollars for ease of comparisons, but please note that they are for reference purposes only.

As of the end of 2024, our consolidated revenues amounted to nearly $6.5 billion, with the EBITDA reaching approximately $1.4 billion and CapEx totalling almost $380 million. These figures are obtained by the zoom of parts approach, adding up the result for both companies and the reported figures of TMA on a standalone basis as of fiscal year 2024.

Looking at the reported quarterly figures, we see a considerable increase in consolidated revenues and a EBITDA just with the corporation of one month of TMA reaching $1.3 billion and more than $420 million respectively, with just one month of TMA's contribution. For the quarter, TMA itself generated almost $650 million in revenues and at the EBITDA of just over $160 million.

It is important to highlight TMA's EBITDA as of March '25 and moving forward is and will be impacted by the following May items. Elimination of brand fees and management fees for the month of March 2025 with TMA incurred through an agreement with its former controlling parent and which we are immediately discontinued as part of the acquisition.

The company will not incur similar fees in relation to TMA. Changes in accounting policies to have the criteria to current Telecom standards to allow consolidation, where the main ones are the capitalization of client acquisition costs and of CPS and installations in the home of the customers. These items will provide a noticeable improvement in TMA's EBITDA margin since in the last reported figure of fiscal '24 and highlight the significant potential TMA brings to Telecom.

In slide 7, we present some highlights regarding the efficiency plan for TMA's operations. Please note that TMA's Board of Directors and Management are already progressing with some of these initiatives while others will be implemented in the near future. The intention of this plan is to align the EBITDA margin of TMA with telecoms margin in a normalized level of 30% or obtained in fiscal year '24, where this process is already achieving some important improvements at the first '25 margin of TMA is 25%.

Moving forward, key efficiencies drivers include the following. The elimination of brand management fees of TMA with its former parent, a reduction of redundant mobile size cost which will reduce leasing and maintenance expenses, optimizations of the procurement process of hundreds of sim cards entirely from volume, lower advertising activity and costs, and as well as marketing effort under a unified strategy.

Improvement in the bad debt ratios of TMA aligning with telecoms ratios and credit policy. The optimization of the commercial network, improving channel efficiency and reducing overhead. Lower programming and video platform operating costs as we consolidate platforms and renegotiate content agreements.

The optimization of the commercial network, improving channel efficiency, and elimination of third-party commercial agents and offices. The optimization of administrative expenses including insurance, logistics, security, and facility related costs.

In slide 8 will reflect how the acquisition strengths our position as the leading provider of connectivity solutions in Argentina. As a result of the acquisition, the new market landscape reflects and strengthens consolidated presence across all key segments.

In mobile, the market share according to Enacom figures. After the acquisition reaches 58%. This is a highly dynamic segment with low entry and exit barriers and where the customer portability is very high. In fact, according to official data from ENACOM, Argentina has recorded an average of $2.6 million mobile portability operations per year or the last six years to seven years indicating how the customers effectively select providers according to convenience and quality standards.

In Broadband, our market share of acquisition stands at 46% in a consolidated basis, allowing us to deliver more consistent and high quality fixed connectivity services nationwide. In traditional Pay TV we hold 38% of the market. However, if we Broadband the view to include the mainstreaming platforms which are increasingly relevant in the media landscape, our market share adjust for to approximately 16%, reflecting a much more competitive and diversified television market.

It is important to note that due to the high complementarity of both networks for a great quantity of our fixed segment customers, the competitive offerings remains unchanged as we maintain a healthy market structure.

Slide 9 illustrates how the acquisition of TMA enhances our network capabilities, and positions as to deliver best in class services nationwide. Both companies are quadruple play operators offering mobile fixed Broadband and TV services by combining our complementary strengths we're improving the value proposition of to our customers through better connectivity and a more robust entertainment platform laid by flow.

Telecom contributes with state of the art infrastructure, nationwide mobile coverage, and early 5G leadership. It has also been recognized by ookla six times for having the fastest mobile network in the country. TMA in turn has received five awards for the fastest fixed Broadband with the same server company.

Geographically, our networks are highly complementary. Telecom leads in the north, while telephonic is stronger in the south, allowing us to expand coverage and service quality across the entire country where most of the overlapping remains at the center of the country.

Together, the combined operation includes approximately 15,000 mobile sites and over $7.5 million fiber to the home, plus giving us the scale and infrastructure needed to support the growing demand for high-speed connectivity. In short, this acquisition creates a more powerful, more efficient network capable of delivering faster speeds, broader coverage, and greater reliability to millions of Argentinians.

Slide 10, go through the regulatory process of the transaction. This slide outlines the regulatory approval roadmap following the transaction announcement. We officially signed the transaction on February '24 and promptly initiated the regulatory process.

On March 3, we filed with CNDC, the Argentina Antitrust Authority. On March 7, we submitted the formal approval request to ENACOM, the National Telecom communication Regulator.

On May 2, the company responds to the request for additional information issued by the CNDC. As shown in the timeline, the review process is expected to take approximately 6 to 12-months or 14-months post transaction according to our previous historical experiences.

This place the likely approval window between September '25 and April '26. From day one of the acquisition, both companies have operated separately and independently, and this will continue until regulatory resolution has been obtained. The process is transparent and well structured, and we are actively engaged with authority to support a timely and constructive outcome.

Slide 11 summarizes the timeline, rational and regulatory remedies associated with some of the group's most relevant historical mergers and acquisitions. These M&A processes took place under different market contexts, political environment, and administration over the years. Importantly, all of them were reviewed and approved by the regulatory authorities with approval periods ranging from 6 to 14 months.

In the case of the Cablevisión and Fibertel merger and the Telecom and Nextel operation, it is worth noting that no remedies were imposed by the regulators. From the Multicanal revision merger remedies were required by the regulator and the company not only complied fully, but when above what was mandated. For example, an investment plan of $180 million was agreed, and in practice this investment plan was far exceeded with investment totalling more than $1.1 billion.

Later, during the Telecom completion merger process, the regulator did impose a few remedies. All of them were carried out in full compliance and without significant operational impact. In summary, our group has a solid record of managing complex processes responsibly, always adoring to regulatory framework and delivering on commitments.

Moving to slide 12, we'll take a closer look at the performance of the businesses, highlighting operational trends, commercial evolution, and the impact of the risk acquisition on key indicators.

Slide 13 provides an overview of our pricing strategy highlighting the evolution of service revenue in our portraits both for Telecom and the ones provided by our subsidiary TMA. Looking first at Telecom standalone performance, excluding the one month contribution from TMA, service revenue grew by 5% year-over-year in real terms, reflecting solid commercial execution in a highly dynamic environment.

If we include the one month contribution from TMA total service revenues as of the first quarter of 2025, increased 26% year-over-year in real terms, clearly illustrating the significant impact of the acquisition.

To give you a sense of the scale of TMA business during the first quarter of 2025, its service revenue grew 17% in real terms, reaching approximately $600 million. It's also important to clarify that Telecom does not determine TMA's pricing strategy. TMA continues to define and implement its own commercial strategy independently in line with the specific market positioning and operational priorities.

In terms of ARPU performance measured in US dollars equivalent at the reporting date, we observe a strong upward trend across all the segments. This reflects both our ongoing efforts to align pricing with service value and the gradual normalization of macroeconomic conditions.

Slide 14 shows the evolution of our products. Our pricing strategy has yielded positive results in terms of the evolution of our subscriber base. For Telecom, in the mobile segment, we have observed a total increase of more than 180,000 subscribers represented an increase of 0.9% year over year. This was mainly related to the good performance to ARPU per segment.

Our postpaid subscriber increased by 0.4% year over year and it is the fourth consecutive quarter of growth. The participation of postpaid subscribers over total mobile subscribers is guaranteed 39% of our total mobile customer base. In Broadband, we have observed growth in FTTH accesses while our HFC accesses have remained relatively steady.

Our Broadband subscriber base has registered decrease of 1.1% year-over-year, but the quarter-over-quarter trend showed an increase of 0.6%. In turn, FTTH currently represents 24% of our total subscriber base in Broadband. Currently, we have almost $1 million accesses in this technology. In Pay TV, our flow platform continues to perform well, and our Pay TV accesses have grown year over year.

During the first Q25, flows unique customers reached almost $1.6 million, increasing by 95,000 total clients or 6% when compared to the same period in first quarter '24. Pay TV subscriber base has grown 0.7% year over year reflecting an improvement in terms of net ads, mostly due to the very good performance of our Flow Flex product.

TMA provided figures have shown solid results across its segments, particularly mobile and Broadband, reflecting the strength of its commercial execution and network offering. In mobile, we have seen strong growth in postpaid customers with an increase of 1.5% year-over-year, reaching approximately 9.2 million postpaid accesses.

Postpaid customers now represent 49% of TMA's total mobile base. These figures include machine-to-machine connection from $2.7 million, 11% up. Against first quarter '24. In Broadband, TMA continued to demonstrate solan. Broadband access grew by approximately 7% year over year. 93% of TMA Broadband customer base is FTTH technology.

Pay TV TMA has seen a more decline. The subscriber base decreased 2.3% year-over-year with a net loss of approximately 10,000 customers, bringing the total to 417,000. At the consolidated level when combining the evolution of the common TMA we observe growth trend across all major product segments. This being a very positive achievement.

Slide 15 shows the breaking count of revenues. Consolidated service revenues total almost ARS1.3 trillion, increasing 26% in real terms versus first Q24 showing a 113% nominal increase. The breakdown of our consolidated revenues is as follows. Mobile represents almost 46% of their revenues while Broadband and Pay TV add up to another 36%. The rest is composed of fixed telephone and data revenues representing above 11% of our revenues and equipment sales, the remaining 6%.

For TMA, the revenues breakdown is slightly different with mobile services representing the larger portion at 59.3%. This is followed by fix and data services at 15.4% and Broadband will account for 14.1%. Equipment represents 7% while Pay TV contributes 3.5% of TMA's total revenues.

During the first year of 2025, we have managed to strongly increase our consolidated revenues in real terms versus the same period in 2024 in all main segments. Where in a consolidated basis, Mobile Broadband and Pay TV reaches its growth of 43%, 23%, and 9%, respectively.

Slide 16 shows our regional operations. Our operation in Paraguay continues with the growth performance. We have almost 2.6 million mobile customers which have grown 12% year over year. Our fixed Broadband and Pay TV offering in that country also continues to show good results. Our Broadband and Pay TV subscribers amount to 322,000 subscribers and 112,000 subscribers growing 13% and 4% year-over-year, respectively. Personal Pay onboard clients in Paraguay amounted to almost 900,000.

This operation has a strong EBITDA margin of approximately 50% while remaining almost on level with the net debt EBITDA ratio of 0.3 times. Our operation in Uruguay is currently focused on Pay TV and we have 111,000 Pay TV customers there. We have potential to grow in the local broad market as we obtain licenses to offer the service in certain locations in the country.

We began adding customers at the end of 2024 and anticipate a subscriber-based growth throughout 2025. As of the first quarter of 2025, we have more than 25,000 homes passed. Personal Pay has almost 3.9 million onboarded clients reflecting 55% annual growth. The platform achieve a remarkably increase in Total Payment volume TPV, which increases 3.5 times and a growth of almost 65% in Total Payment Number TPN when compared to March '24.

Achieving pace of PHP356 billion in remunerated client account balances, personal pay holds the number two position in terms of balancing investment in mutual funds in the whole fintech industry in Argentina. Let me pass the call to Luis. We'll continue with the presentation.

Thank you.

Thank you, Gabriel. In slide 17, we provide an overview of our main financial figures. Consolidated revenues grew by 115% on nominal terms during the first quarter of 2025, reaching PHP1.3 trillion. When analysing that figure adjusted by inflation. Revenues amounted to almost PHP1.4 trillion, showing an increase of 28% in real terms was to the same figure in the first queue of '24.

As we have mentioned in our consolidated fears, we included one month contribution from TMA. During the first Q of 2025, EBITDA increased by 123% in nominal terms as to the first Q of 2024, generating a nominal EBITDA margin of 34% during the first quarter of 2025. The EBITDA margin in constant currency was 33.1%, representing an increase of almost 3% points versus the margin reported in the first Q of '24.

Slide 18 shows the evolution of EBITDA year-over-year and the impact in different components of revenues and costs. As a result of the incorporation of TMA in our consolidated financials, our total cost increased in absolute terms. However, they did so at a slower pace than our revenues, which led to a significant improvement in profitability.

In real terms, the EBITDA increased by PHP129 billion or 40% year over year, reflecting both the positive contribution from TMA and undergoing efficiency efforts. The lines that contributed the most to the margin expansion were labour costs, mainly due to the reduction in Handsets Costs in Telecom and to lower salaries, social security, and benefit expenses in real terms.

Fees for services, maintenance and materials, mainly due to lower cost of maintenance materials and supplies, interconnection costs due to the optimization of links and sites, and at lower levels of interconnection traffic.

And finally, we also observed a good evolution of our bad debt ratio which continued its favourable trend, representing 1.9% of total revenues as of March 31, 2025, versus 2.5% in the first quarter of 2024.

Slide 19 shows the company's net results and EBIT. Our EBIT increased in the first Q of 2025 as we register lower D&A expenses and an expansion of the EBITDA in real terms. We recorded an operating income for the first Que of 2025 of more than PHP111 billion.

The operating margin of the first Q's '25 was 8.2% of consolidated revenues in real terms and in historical figures, the same margin was above 26%. In the first Q of '25, the company recorded a net income of more than PHP93 billion compared to a net income of over PHP1 trillion in the first Q of '24.

The result in the first Q of 2024 was financial in nature. A strong real appreciation of the Peso during the period generated significant gains, mainly related to our foreign currency denominated financial debt. This appreciation led to positive exchange differences in real terms, which accounted for most of the net income reported in the first quarter of 2024. In the first quarter of 2025, the evolution was similar, but the real appreciation level was significantly lower.

Slide 20 displays a summary of the company's consolidated CapEx in PP&E and intangible assets in the first quarter of 2025, which amounted to over PHP170 billion or an equivalent of $165 million at the official effects rate. This represents a consolidating intensity of revenues of 13%. This amount is 80% higher when compared to the previous year in constant Pesos.

Technical CapEx was mainly composed by investments in our access network and technology, representing 55% of the CapEx during the first Q of 25. Over the course of the first quarter, '24 new sites were deployed, while nearly 185 existing sites were upgraded. We also added 31 new 5G sites operating in the 3.5 gigahertz band during the year.

In our fix access network, we increased the deployment of new FTTH over 1900 new blocks, and we perform overlay of 300 blocks of HFC network. Approximately 34% of our CapEx of the first Q of 2025 was allocated to installations and Customer Premise Equipment or CPE, which are installations and equipment in the homes of our clients, and 11% to our international operations.

Slide 21 describes a cash flow generation during the first Q of '25 compared with the same period of 2024. Our cash flow generation, net of Payments for the acquisition of TMA included in investment activities remain robust. It has been affected mostly by an increase in working capital needs, which is in the process of improvement as a commercial vendor financing conditions return to normal.

In turn, a consolidated FTTH measured in equivalent US dollars increased significantly from 2021, while our CapEx increase was less significant. Consequently, our cash flow generation before dividends and interest payments during the first year of 2025 was $80 million.

Slide 22 shows our key figures for the first Q's 2025. The conversion to US dollars is obtained, dividing the figures in constant Pesos as of the end of each period and using the end of period spot effects for each year as we did with any other figures during this presentation.

Estimated pro-forma EBITDA was equivalent to almost $1.77 billion for the last 12 months as of March 2025. This figure considers the sum of telecoms stand-alone in EBITDA and an estimated performer EBITDA for TMA. Our gross debt amounted to $3.8 billion as of March 2025 due to the incorporation of financing of the acquisition of TMA.

As of March 2025, the company holds cash on equivalents for $0.5 billion and thus our net debt was $3.3 billion. Our net debt to estimated pro forma EBITDA leverage ratio stood at 1.9 times in the first Q of 2025.

Slide 23 shows the breakdown of our debt maturity profile. As of March 2025, our total outstanding debt principal amounts to almost $3.7 billion. The increase versus the fiscal year 2024 is mainly explained by the financing obtained in connection with the acquisition of TMA which was consolidated into our balance sheet following the closing of the transaction in late February.

Looking at our coming maturities, we remain focused on proactively managing our profile. Approximately 30% of the maturity for 2025 are in foreign currency when nearly 70% are in local currency. These maturities are mostly concentrated in the second half of the year. We expect to continue accessing the local and international capital markets for our potential financing needs in the future as we have been doing lately.

Additionally, we maintain a very good relationship with the multilateral and export credit agencies, and we have availability of financing for local banks.

Finally, in slide 24, we conclude with some final remarks and highlights for this period. The acquisition of TMA by TEO presents an opportunity to enhance Argentina's connectivity, accelerate 5G and FTTH deployment, and strengthens Telecom's operational scale and efficiency. So, in this presentation, we summarize the important upgrade in terms of the financial metrics that this acquisition has brought to Telecom.

Post transaction, the market remains competitive across all core segments Mobile, Broadband and Pay TV with high portability, mobile, and diverse offers in Broadband and Pay TV including OTT alternatives. The regulatory approval process is being conducted normally without required filings submitted to the competent authorities.

The acquisition consolidates our premium network infrastructure, creating the most extensive and complementary network footprint in the country, with approximately 15,000 mobile sites and over 7.5 million homes passed with FTTH. And the maturity profile remains well balanced, supported by prudent financial management and recent access to both local and international capital markets. And finally, the company offers value for investors in a consumption recovery scenario for Argentina.

With this, now we are more than pleased to answer any questions you may have. We will open our Q&A session immediately. Thank you very much.