Telecom Argentina SA (TEO) 2025 Q2 法說會逐字稿

On behalf of Telecom Argentina, I would like to thank everybody for participating of this conference call. Participants of today's conference call are Roberto Nobile, Chief Executive Officer; Gabriel 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 six-month period and second quarter ending on June 30, 2025. 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 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 cost 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 in general market and economic conditions, and in legislation. Our press release dated August 11, 2025, a copy of which was included in our form 6-K 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 restatement will be applied to the annual financial statements for interim and special periods and that as of and including December 31, 2018. Accordingly, the reported figures corresponding to the first half 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.

Our press release is complemented by our earnings presentation. Please read the disclaimer contained in slide 1 and slide 2 of the presentation. Today, we will go over our business and financial highlights and end the call with a Q&A session.

Now let me pass the quote 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 June 30, 2025. Before diving into the main variables and financial highlights, it is 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, this presentation, we will mention consolidated figures that include four months, from March to June of 2025 of TMA's contribution, figures for Telecom only excluding TMA contribution, and a stand-alone figures for TMA for the first half of 2025, six months.

Having said that, our main operation are financial achievements for the first half of 2025 were as follows. Telecoms consolidated revenues total $2.8 billion. When measuring constant Argentine pesos, revenues increased 44% year-over-year, reflecting a significant improvement compared to the first half of '24, mainly due to the incorporation of TMA's results.

Our consolidated EBITDA margin expanded 30 basis points, reaching 30% in the first half of '25 versus the same period of 2024. This margin would be even higher, reaching 31.6% if we exclude the increase on the run rate in severance charges registered in TMA.

CapEx amounted to approximately $400 million, a 54% real increase in pesos versus the first half of '24. Investment continued to prioritize the expansion of both fixed and mobile accesses networks, particularly the rollout of our fiber-to-the-home network and 5G infrastructure. Our net debt to estimated proforma EBITDA leverage ratio stood at 1.9 times in the first half of '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 slides, the combined mobile subscriber base of Telecom and TMA continue to expand, growing in postpaid. In broadband, our customer base has been increasing thanks to the expansion in FTTH accesses, while TMA's total broadband subscribers are also registering growth. Pay TV subscriptions in Argentina have registered an increase in Telecom. Our vintage platform, personal pay continued to scale, reaching 4.2 million onboarded clients as of June 2025, maintaining a strong market position.

Regarding our financial debt, during May and July, we successfully issued and reopened a new international bond due in 2033 for $1 billion and the proceeds were used to refinance the acquisition loans almost in full. Thanks to the issuance, and other liability management exercises we have carried out, we have been able to significantly extend the average life of our debt while maintaining the cost of our profile.

From slide 4 will provide an update of certain items regarding TMA. In slide 5, we showed the annual and first half key figures of Telecom and TMA. As mentioned earlier, TMA Financials have been consolidated with Telecom since the March 1, 2025. Therefore, the contribution to our consolidated figures represents just four months of TMA's operations.

To provide a clearer perspective, we have included the proforma annual figures along with the first half figures. These figures are provided in US dollars for ease of comparison, but please note that they are for reference purposes only.

As of the end of 2024, our consolidated revenues amounted to $6.3 billion with proforma EBITDA reaching approximately $1.6 billion and CapEx totalling almost $1 billion. Looking at the reported figures for the first half of this year, consolidated revenues on EBITDA reaching $2.8 billion and more than $0.8 billion respectively, with only four months of TMA's contribution. For the first half of 2025, and on a stand-alone basis, TMA generated almost $1.2 billion in revenues and a EBITDA close to $0.3 billion.

In slide 6, we present some highlights regarding TMA's efficiency plan for its operation. 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 EBITDA margin of TMA with Telecom's margin, while both Telecom and TMA are already increasing.

As discussed previously, management and brand fees has been eliminated. An optimization of the procurement process for handset and sims card in tariffs and volume has been achieved. TMS is also moving forward with its plan to reduce video platform operating costs.

Moving forward, key efficiency drivers and their analysis for TMA include the following. Achieve efficiencies in programming costs, the optimization of the commercial network, improving channel efficiency and reducing overhead, as well as the elimination of third-party commercial agents and offices. The intention of this plan is to align the EBITDA margin of TMAs with Telecom's margin, where this process is already achieving some important improvements as the first half margin of TMA excluding increase in severance charges is above 26%. In turn, Telecom's EBITDA margin as of the first half of '25 and on a stand-alone basis reaching 32.5%, increasing 280 basis points versus the first half of '24.

Slide 7 goes through the regulatory process of the transaction, including an update of recent developments versus the first quarter '25 in May. On May 2, Telecom sent a formal response to the request for additional information issued by the CNDC. On June 5, the Chamber of the Federal Civil and Commercial Court resolved to suspend the effect of the resolution that prohibit any act of integration with TMA until the appeal filed by Telecom is resolved.

On June 19, The Secretary of Industry and commerce issued a new resolution that notified the company of the technical report issued by the CNDC, which serves as the objection report prior to making a decision. This report represents a formal stage of the procedure that enables the parties to exercise the right of defense, present defenses, or if considered necessary, proposed commitments to mitigate potential anti-competitive effects. According to the methodology adopted by CNDC, the objection report constitutes a preliminary technical evaluation and in no way constitutes the final decision on the matter under consideration.

On August 5, 2025, the company responded in a timely and proper manner to the transfer of the preliminary objection report issued by CNDC. Along with this admission and without this being interpreted in any way as an acknowledgement that the transaction raises a competition defense issue, the company expressed its willingness to assume possible commitments that address the provisional concerns outlined in the preliminary objection report, which if accepted by CNDC and implemented by the company, could constitute feasible remedies to such concerns.

Additionally, the company's legal counsel estimates that under reasonable and normal market conditions, none of these proposed remedies would have a significant adverse effect on the company's business, nor impair its ability to meet its financial obligations. As shown in the timeline, the review process still carries on and based on the experience in accordance to previous historical experiences, it may take something between 12 to 14 months. From day one on the -- of the acquisition, both companies have operated separately and independently and this will continue until regulatory resolution has been reached.

From a slide 8 onwards, we'll take a closer look at the performance of the businesses highlighting operational trends, commercial evolution, and the impact of the recent acquisition on key indicators. Slide 9 highlights the positive evolution of service revenues and ARPU trends, both for Telecom and the ones provided by our subsidiary TMA.

Looking first at Telecom's standalone performance, service revenues have reached $1.9 billion excluding the contribution from TMA, total service revenues grew by 4% year-over-year in real terms, reflecting a solid commercial execution. Furthermore, mobile broadband and pay TV service revenues have been growing in real terms, while only fixed voice and data services revenues have been growing below inflation.

This is mainly explained because that segment contracts are most tied to a fixed rate adjustments and due to the decline in the customer base of the fixed voice segment, in this sense, service revenues without considering fixed and data services are growing at a higher rate of 8% in real terms versus the first half of '24.

If we include the contribution from TMA, total service revenues as of the first half of 2025 increased 44% year-over-year in real terms. Considering TMAs on a stand-alone basis, several revenue grew 7% in real terms during the first half of 2025, reaching approximately $1.1 billion. It is 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 this specific market positioning and operational priorities.

ARPU expressed in US dollar equivalent at the reporting date, continue to show consistency growth across all segments. This performance reflects the effectiveness of our pricing strategy and a consistent stabilization of macroeconomic variables.

Slide 10 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 an increase of almost 90,000 subscribers representing an increase of 1.1% year-over-year. The participation of postpaid subscribers over total mobile subscribers is guaranteed 39% of our total mobile customer base.

During the first half of 2025, we saw the full impact of the updated disconnection criteria for new pre-paid ads, which was implemented in July 2024. This change shortened the period of inactivity required to deactivate dormant prepaid lines, mainly explained the 2.8% reduction in our prepaid subscriber base.

In broadband, we have observed growth in FTTH accesses while our HFC accesses have remained relatively steady. Our broadband subscriber base has resisted an increase of 1.5% year-over-year, reaching 4.1 million accesses. FTTH currently represents 26% of our total subscriber base in broadband, having more than 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 half of '25, Flow's unique customers reached more than 1.6 million, increases by 161,000 total clients or 11% when compared to the same period in the first half of '24. Pay TV subscriber base has grown 2.3% year-over-year, reflecting an improvement in terms of [metats], mostly due to a very good performance of our Flow Flex product.

TMA provided figures have shown solid results across its core segment, particularly in mobile and broadband. In mobile, we have seen a strong growth in postpaid customers with an increase of 3.1% year-over-year, reaching 9.3 million postpaid accesses. Postpaid customers now represent 48% of TMA's total mobile base. These figures include machine to machine connections for 2.8 million, increasing by 12% versus the first half of '24.

In broadband, TMA continued to demonstrate solid expansion. Accesses grew by approximately 6% year-over-year. 94% of TMA's broadband customer base is FTTH technology. In pay TV, TMA has seen a modest decline. The subscriber base decreased by 6% year-over-year, with a net loss to approximately 27,000 customers, bringing the total to 409,000. But combining the evolution for both Telecom and TMA subscriber basis, we observe growth trend across all major product segments. It -- this being a very positive achievement.

Slide 11 shows the breakdown for revenues. Consolidated revenues total almost ARS3.4 trillion, increasing 44% in real terms versus the first half of '24, showing a 123 nominal increase. The breakdown for our consolidated revenue is as follows. Mobile represents almost 48% of their revenues, while broadband and pay TV add up to 34%. The rest is composed of fixed telephone and data revenues, representing 12% of our revenues and equipment sales the remaining 6%.

For TMA, the revenue breakdown is slightly different with mobile services representing the largest portion at 59%. This is followed by fixed and data services at almost 16% and broadband, which accounts 14%. Equipment sales represents 7%, while pay TV contributes almost 4% of TMA's total revenues.

During the first half of 2025, we have managed to strongly increase our consolidated revenues in real terms versus the same period of 2024 in all main segments where in a consolidated basis, mobile broadband and pay TV reached growth of 71%, 28%, and 14% respectively.

In fixed voice and data, the consolidated increasing revenues was 28% and mainly attributed to TMA's results in corporation in the first half of '25. Considering Telecom stand-alone fixed voice and data revenues have been growing without inflation in a context where data segment contracts are mostly tied to a fixed rate adjustment in combination with the decline in the customer base of the fixed voice segments.

Slide 12 show our regional operations. Our operation in Paraguay cost -- continue with a good performance. We have almost 2.7 million mobile customers which have grown 10% 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 328,000 and 112,000 subscribers, growing 10% and 1% year-over-year respectively. Personal pay onboarded clients in Paraguay amounted to over 950,000.

This operation has a strong EBITDA margin for over 50% while remaining almost a lever with a net debt EBITDA ratio of 0.4 times. Our operation in Uruguay is currently focused on pay TV and we have 170,000 pay TV customers there. We have potential to grow in the local broadband market. We began adding customers at the end of 24 and anticipate a subscriber-based growth throughout '25.

Personal pay has reached 4.2 million onboarded clients, reflecting 44% annual growth. The platform achieved a remarkably increasing total payment volume, which increases 2.6 times and a growth of almost 41% in total payment number.

When compared to June 2024, achieving more than ARS300 billion in remunerated client account balances personal pay holds in a second position in terms of balances invested in mutual funds in the whole fintech industry in Argentina.

Let me pass the call to Luis who will continue with the presentation. Thank you.

Thank you, Gabriel. In slide 13, we provide an overview of our EBITDA margin evolution. During the first half of 2025, consolidated EBITDA increased by 114% in nominal terms of the first half of 2024, generating a nominal EBITDA margin of 31% during the first half of '25. The EBITDA margin in constant currency was 30%, representing an increase of almost 0.3 percentage points versus the margin reported in the first half of 2024.

We will make some special consideration in this regard in the following slides. Slide 14 shows the evolution of EBITDA year-over-year and the impact of the different components of revenues and costs. As a result of the incorporation of TMA into unconsolidated financials, our total cost increased in absolute terms. However, they did so at a slower pace in revenues, which led to an improvement in profitability.

In real terms, the EBITDA increased by ARS317 billion or 46% year-over-year, reflecting both the positive contribution from TMA and ongoing efficiency efforts. The lines that contribute the most to this margin expansion were 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 programming and content costs.

As Gabriel mentioned earlier, it is important to highlight that if we exclude the effect of the increase in the run rate of several charges of TMA during the first half of 2025, the consolidated margin will reach 31.6%, thus registering an expansion of 190 basis points versus the first half of 2024.

Slide 15 shows the companies consolidating their results and EBIT. Our consolidated EBIT increased in the first half of 2025 as we registered lower TMA expenses and an expansion of the EBITDA in real terms. We're recording an operating income for the first half of 2025 of more than ARS176 billion.

The operating margin during the first half of 2025 was 5.2% of consolidated revenues in real terms and in historical figures, the same margin was about 24%. During the first half of '25, the company recorded a consolidated net loss of almost ARS76 billion compared to a net income of almost ARS1.2 trillion in the first half of 2024.

This result obtained in the first half of 2024 was financial in nature. The strong real appreciation of the peso that occurred during the past year 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 half of 2024. During the first half of 2025, the evolution was slightly different with inflation being lower than peso evaluation and generating effects exchange losses that impacted our financial results.

Slide 16, displays a summary of the company's consolidated CapEx in PP&E and intangible assets during the first half of 2025, which amounted to over ARS480 billion or an equivalent of almost $400 million at the official effects rate. This represents a consolidated intensity of revenues of 14.3%. This amount is 54% higher when compared to the previous year in constant pesos. Technical CapEx was mainly composed by investments in our access network and technology representing 57% of the CapEx during the first half of 2025.

Over the course of the first half, 38 new sites were deployed, while nearly 197 existing sites were upgraded. We also added 211 new 5G sites operating in a 3.5 gigahertz band during the year. In our fixed access network, we increased the deployment of new FTTH over 6.4000 new blocks, and we perform overlay of almost 4.2000 blocks of HFC network. Approximately, 33% of our CapEx of the first half of 2025 was allocated to installations and customer premise equipment or CPE, which are installations and equipment in the homes of our clients, and 10% to our international operations.

Slide 17 describes our consolidated cash flow generation during the first half of 2025 compared with the same period of 2024. Our cash flow generation net of payments for the acquisition of TMA included in investment activities remained robust. The cash flow generation before dividend and interest payments during the first half of 2025 was almost $200 million.

It is important to mention that during the second quarter of 2025, TMA has made payments corresponding to taxes, including compensator interest arising from the impact of the acquisition of TMA by Telecom Argentina in its previous corporate reorganization with Telefonica Argentina Sociedad Anonima and in consideration of some specific requisites under Argentine tax regulations. Excluding the effect of these payments, free cash flow would have reached a figure of almost $70 million higher.

Slide 18 shows our key figures for the first half of 2025. The conversion to US dollars is sustained dividing the figures in constant pesos as of the end of each period and using the end of period spot FX rate for each year. Estimated proforma EBITDA was equivalent to almost $1.8 billion for the last 12 months as of June 2025.

These figures considers the sum of Telecom's stand-alone EBITDA and an estimate performed EBITDA for TMA. Our gross debt amounted to $3.7 billion as of June 2025 due to the incorporation of the financing of the acquisition of TMA.

As of June 2025, the company holds cash and equivalents $4.3 billion and thus, our net debt was $3.3 billion. Consequently, our net debt to estimated proforma EBITDA leverage ratio stood at 1.9 times in the first half of 2025.

Now, I will pass the call to Gabriel, who will continue with some highlights regarding our financing activities.

Thank you, Luis. Continuing with the financials, it's slide 19. We walk through the key financing activities executed by the company during 2025. We began the year with the acquisition of TMA which was supported by two major loan facilities. We secured a syndicated loan for $970 million from a consortium of international banks, including BBVA, Citi, Deutsche Bank and JP Morgan and Santander.

In parallel, we obtained a $200 million bilateral loan from ICBC. To partially refinance this obligation, we successfully tapped the international capital markets. In May, we issued an $800 million US note in class '24 notes 2033 followed by an additional $200 million through a recap of the notes in July.

On the local front, we continue to diversify our funding sources. We placed two local notes for a total amount equivalent to approximately $100 million. Additionally, we secured $260 million funds equivalent to US dollars in local institution loans during 2025 further strengthening our liquidity position. Altogether, the total fund raised year-to-date amount to approximately $2.6 billion reinforcing our financial flexibility and supporting strategy initiatives.

In slide 20, we summarize the successful liability management strategy over the past years illustrated by the exercises we have performed in previous years and especially during 2025. We have been able to maintain the financial cost and significantly extend the average life of our maturity profile even under a very volatile and challenging global capital markets evolution.

We have been consistently improving the profile of our debt. The average cost of our dollar debt has remained well below the EMBI and increased below the widening of the 10-year US Treasury yield, which means we were able to mitigate the increasing global interest rate during the past years.

We successfully perform liability management to maintain the average life of our debt between three and four years, maintaining the cost of the debt in US dollar constant. As a final remark, we wanted to highlight that our financial strategy has enhanced our flexibility and continue to position us for improved long-term stability.

Thanks, Gabriel. Slide 21 shows the breakdown of our proforma debt maturity profile. As of June 2025, our total outstanding debt principle amounts to $3.6 billion including $180 million equivalent of local notes that have been already repaid in July 2025 and $112 million of our international classified notes that were fully repaid in August.

Looking at our upcoming maturities, we remain focused on practically managing our debt profile. The major financial commitments scheduled for 2025 have already been met and we don't face any important debt maturities for the remainder of the year. Our maturity profile for the upcoming years remains manageable, and we will continue with our liability management strategy aiming to reduce costs and expand tenors. Additionally, we maintain a very good relationship with the multilateral and export credit agencies and have availability of financing from local banks.

In slide 22, we would like to highlight a very important milestone in our sustainability strategy and environmental commitment. Telecom Argentina has achieved the approval of its near-term decarbonization targets by the Science-Based Targets Initiative, or SBTI. This positions Telecom as one of the few companies in Argentina with targets validated under international standards further strengthening our ESG strategy and our response to increasing scrutiny from investors and corporate clients regarding measurable and credible climate plans.

SBTI validation not only enhances our carbon disclosure project score or CDP, but also provides us with a strategic advantage in accessing sustainable financing such as green bonds, ESG-linked loans, and climate focused investment funds by having robust and verifiable targets. This strengthens our environmental strategy by reaffirming our previous environmental commitments to this SBTI validation, which includes achieving carbon neutrality by 2050 and increasing the share of renewable energy in total consumption to 50% by 2030, which is currently at 25%. This international recognition reinforces our conviction that sustainability is a key pillar for Telecom's Argentina's long term growth and competitiveness.

Finally, in slide 23, we conclude with some final remarks and highlights for this period. The acquisition of TMA by TEO presents an opportunity to repair the market and enhance Argentina's connectivity, accelerate 5G and FTTH deployment, and strengthen Telecom's operational scale and efficiency.

We show sustained commitment to operational efficiency, driving improvements in customer experience and profitability. Regulatory process continues to advance with all required filings submitted to the relevant authorities and timelines being met. We maintain strong access to international capital markets and financial institutions both locally and abroad, enhancing our ability to secure competitive and diversified funding.

Our then maturity profile remains well balanced, supported by a prudent financial management, and also we are strengthening our environmental commitment as mentioned during this presentation.

So thanks to you all. With this, now we are more than pleased to answer any questions you may have. Q&A session will be opened immediately. Thank you very much.