Telecom Argentina SA

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, Fernando Balmaceda, Director of Investor Relations, and myself, Solana Paratedena, Manager of Investor Relations. The purpose of this call is to share with you the results of our second quarter ended June 30, 2020. If you would like not receive our press release or presentation, you can call our investor relations office to request the documents or download them from the investor relations section of our website located at www.telecom.com.ar. This conference call and presentation is being broadcasted and can also be replayed to our investor website at institutional.telecom.com.ar slash investors. I would like to go over some, say, hardware 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 telecoms' future performance, plans, strategies, and objectives. Such statements are subject to uncertainties that could cause telecoms, after results and operations, to defer material. Such uncertainties include but are not limited to the effect of ongoing industry and economic mobilizations, possible changes in the demands for telecoms 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 economies of the countries in which we operate as well as on our operations and financial performance. Our press release dated August 14th, 2020, a copy of which was included in our form 6K and sent to the SEC, describes certain factors that may affect any forward-looking statement that could be mentioned during the call. The company has reflected the effect of inflation adjustment adopted by resolution 777 from 2018 of the Comisión Nacional de Valores, the CMB, We have established that re-expression will be applied to the annual financial statements for intermediate and special periods ended as of and including December 31st, 2018. Accordingly, the reported figures corresponding to the first quarter included the effect of the adoption of inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures of 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 2 of the presentation. The agenda for today's conference call is described in slide 3 and includes our business and financial highlights. We will end the call with a Q&A session. Now let me pass the call to Gabriel Lassi, our CFO, who will start with the presentation.

Thank you, Solange. Good morning and welcome to everyone. Slide 4 shows an outlook of the company figures for the second quarter 2020. During the first half of 2020, Telecom's revenue totaled $1.8 billion. The revenues measured in constant pesos decreased 3% year to year. EBITDA total 679 million dollars in planning 35.5% EBITDA margin, growing constant pesos 5.3% year over year. Our mobile subscribers in Argentina amounted to 18.8 million remaining relatively stable when comparing with the previous quarters. Broadband and pay-to-be clients increasing slightly totaling around 4.1 million and 3.5 million respectively. Fixed voice subscribers without considering IP telephone lines amounting to 3 million. Thanks to our successful commercial strategy focused on the bundling and upselling of our products, we currently have 1.8 million convergent unique customers, with 43% of our broadband customers having a mobile bundle. We continue with slide 5, presenting our new IT transformation projects. During June, we launched our digital core as part of our backend transformation program for Apple. This has enabled us to operate under a unified, convergent and efficient system and processes for the back office. With the implementation of SAP for HANA and Ariba, we have accomplished this objective in our operating model. Based on best market practices, it allowed us to work in a simpler and more collaborative and transparent way. More than 6,000 employees were trained through 150 virtual webinars and more than 50 virtual internal courses. Regarding our main BSS transformation project fund, we have been able to complete the third and fourth migrations of mobile customers, adding 2.5 million prepaid and postpaid clients during May and August respectively. Currently, a total of 2.8 million customers can enjoy this new digital experience supported by 2.5 thousand commercial advisors. We have also planning to end 2020 with all of our mobile customers migrating to our new CRM and to have our QuadPlay MVP ready by October. Slide 6 shows you the evolution of our service revenues. Service revenues total almost 124.7 billion pesos, decreasing 1.4% in real terms versus same period 2019, in a period when inflation reached 42.8% year over year. The share of communication services in the national CPI is approximately 2.8%. Our revenue breakdown as of June 2020 shows an increase in mobile revenue share and a lower share of pay TV revenues when compared with the previous quarter. The breakdown results as follows. Mobile revenue 38%, broadband revenue is 22%, pay TV revenue is 20%, fixed telephone and data 15%, equipment sales 5%. Our main drivers of growth are explained on slide 7. We have been able to continue reducing the gap between inflation and real ARPU figures, which currently is around 1% below inflation, while being able to keep a steady of our customer base. Postpaid mobile, broadband, and our IP video platform, ColdFlow, are the main pillars of our business. In the first half of 2020, postpaid subscribers accounted for 41% The company has registered a positive subscriber inflow during the first six months of the year, reflecting our efforts to optimize the quality and capacity of our mobile network. As mentioned before, the growth in this segment has been mainly supported by our convergent offers to cable TV and Internet subscribers that were not mobile clients of the company before. showing a net result of 27,000 customers coming from our competition in the first half of the year. Mobile Internet usage has also increased, reaching an average of more than 3.9 GB per user per month in the first semi-annual period of 2020. In addition, there has been an important growth in broadband speeds, considering that 55% of our total subscribers have speeds between 50 and 300 MB, compared to 18% by the end of last year. Our product flow has delivered solid results. We have almost 1.1 million flow boxes inside homes that are advancing toward the objective of network digitalization. We keep on increasing the speed and capacity of our broadband customer base, leveraging on our strong HFC network and responding to the higher usage of fixed networks generated by COVID-19. In slide 8, we describe latest regulatory decisions taken by the ENACOM and the Argentine Central Bank. In May, due to the COVID-19, our industry has agreed jointly with ENACOM to freeze tariffs of our products until the end of August 2020. Concurrently, all companies in the industry were not required to increase salaries until August 2020. Both inclusive plans and reduced services are being provided to clients. In the case of the reduced services, they are only provided to clients who have not paid their service on time. It's worth mentioning that in March 2020, the Secretary of Power issued a decree which determined the temporary suspensions of the interruption of fixed mobile, telephone, internet and cable TV services, among others, in the case of non-payment of three bills by a certain group of clients until the end of September 2020. This was then extended to six bills until December 2020. As of June 2020, clients with reduced services represent less than 2% of the company's subscribers base. Since the products had very limited capacity, as of June we were recovering same clients at a rate higher than 60%. On May 28, 2020, the Argentine Central Bank decided that companies which have liquid assets abroad must first use self-funds to pay their dollars commercial and financial debt, thus not allowing the local companies to access the FX market, official FX rate, unless they can prove that they do not have any liquid funds outside Argentina. Due to the above, the company decided to initiate the refinancing of its financial debt, which will be explained lately in this presentation. I will now pass the call to Fernando Balmaceda, who will go over our financial performance.

Thank you so much, Gabriel. In slide 9, we show the evolution of local inflation. As of June 2020, the year-over-year increase in inflation has been 42.8%, while during the second quarter of the year it's been 5.4%. Regulated prices have increased 35.2% year-on-year and remaining flat during the second quarter of 2020, thus generating an increase in the general inflation index. The breakdown that we are including shows that the most important weight in the index comes from food and beverage, transport and clothing, among other items, while the share of communication service in the CPI amounts to a very low percentage, which is 2.8%. Going to slide 10, for the first half of 2020, consolidated revenues on nominal terms grew by 43%, reaching almost 125 billion pesos. When analyzing said figure adjusted by inflation, revenues amounted to more than 131 billion pesos, showing a decrease of 3% in real terms. The company has been trying to offset the inflation impact on its revenues and costs. Service revenues showed a 45% nominal increase while mobile revenues grew more than 8% in real terms when comparing the first half 2020 to the first half 2019. In the case of ATV, revenues related to local soccer league programming have not been generated, considering that the activity has been suspended. EBITDA increased by 54% year-over-year in nominal terms, thus generating an EBITDA margin of 37%. EBITDA margin in real terms was 36.5%. The company performed well in terms of cost controls. Operating costs before DNA decreased on 7% in real terms versus the first half of 2019. The company performed an effective cost management and almost all coastlines experienced a decrease in real terms, with exception of interconnection and distribution costs, which increased mainly due to the rise in FX rates and bad debt expenses. that were higher as a consequence of the general economic situation. In slide 11, we show the company's EBITDA and the impact of the different components of revenues and costs. It was a positive evolution of handset costs, which decreased 34% in real-year terms, mainly by a lower number of sales. Operating costs were also 7% lower in real-year terms. For any efficiencies were obtained both in programming and content costs. There were no costs related to the local soccer league because it has been suspended. Administration costs also registered a good performance, decreasing 9% in real terms. Commercialization expenses remain stable, mainly as bad debt expenses, including the rain, increased above inflation, impacted by the deterioration of the general economic context. The final result was a 290 pips increase in EBITDA in real terms when compared with the first half of 2019. In slide 12, we show the evolution of our collections and non-performing debt. Collections through digital tenants have increased to 65% of total collections from the 50% observed at the beginning of the year. Additionally, the gap of real collections versus our forecast has decreased substantially. At the beginning of the COVID-19 lockdown, the level was almost 30% negative. Currently, our collections are at a normal level and have been possibly influenced by extraordinary collections in our B2B business. During our second coup 2020, non-performing debt in retail business increased mainly due to the effect of the COVID-19 lockdown from 2.4% to 2.7%. Since June, said trend is moving to more normal levels and has been benefited by the recovery rate of our reduced service clients. In slide 13, we can see the company's operating income total almost 14.5 billion pesos. The added increase in cost of measuring units is explained by a lower increase in DNA and disposals and impairment of the excesses vis-a-vis the increase in EBITDA, 4% in real terms year over year. Operating margins reach 11% of consolidated revenues, while in historical figures, the same margin has increased to 24% from 20% in the first half of 2019. Net income in the first half of 2020 decreased more than 7.6 billion pesos, mainly reflecting effects losses due to the depreciation of the peso and higher interest expenses in the net financial results. In slide 14, there's a summary of the company's investments in the first half of the year. Telecom has investment They invested almost 34.4 billion pesos, including rights of use of assets, being this amount 34% lower when compared to the same last year's period. Such increasing capex is mainly explained by strategy to protect the company's cash position. Technical capex were mainly composed of installation, Installations and Customers Premise Equipment or CPE. The balance was allocated to network and technology and to our international operations both in Paraguay and Uruguay. During the second quarter of 2020, more than 39 new mobile sites were deployed. Moreover, we continue to increase the capacity of our HFCS network mainly through segmentation of areas focusing particularly in the AMBA region in order to respond to our customers high broadband usage due to the pandemic. 2.4 thousand FTT8 and 2.3 thousand 1 gigawatts HFC blocks were enabled. Additionally, we completed the first phase of our cloud foundation initiative by uploading a set of business obligations to the Amazon Public Cloud. In slide 15, we describe our cash flow generation when comparing the first half of 2020 with the first half of 2019. During the first half of 2020, operating free cash flow amounted to approximately $361 million. The increase in EBITDA and the reduction in capex mainly explain the additional $79 million in free cash flows when compared to the first half of 2019. Turning to slide 16, we show our key figures for the last 12 months as of June 2020 in constant measuring unit. The company's revenues amounted to more than 255 billion pesos, while the EBITDA amounted to almost 90 billion pesos. EBITDA margin was 34%. A gross debt amounted to 183 billion pesos as of June 30, 2020. The company has been able to generate an important amount of cash and equivalents having a net debt of 131 billion pesos, reducing our net debt in real peso terms when compared with the 31 of December 2019. Our net debt to EBITDA ratio was at 1.46 times. Slide 17 shows the breakdown of our financial debt. Total outstanding debt as of June 30, 2020 amounted to almost 2.6 billion dollars. As mentioned, the Argentina Central Bank has not allowed companies to access the effects market at the official effects rate for commercial and financial debt payments in foreign currency unless they can prove that they do not have any liquid funds outside of Argentina. This was the main reason why the company decided to initiate a liability management strategy that we will cover in the following slides. Slide 18 summarizes the latest financial transactions the company has done. On August 3, 2020, Telecom concluded an exchange offer of the outstanding 6.5% notes due in 2021. Holders validly tendered 362.2 million of notes due 2021. The acceptance rate was 77.74%, high enough to demonstrate our solid trade profile and structure of the exchange offering. An additional amount of $135.4 million of notes due 2025, 2025, which we consider to be new money was raised to repay our loan with Deutsche Bank London branch and CPPIB Credit Investments Inc. In summary, the company issued $388.9 million of new amortizing notes due 2025 with an 8.5% semi-annual coupon. Due to the above, the company has considerably optimized its capital structure. Our next step will be to extend the amortizations of our multilateral loans and we have already started with this process. In slide 19, we show our performer maturity profile as of June 2020 after the exchange we just mentioned. and maturities in US dollars are in the range of 100 to 500 million dollars between 2021 and 2022 and are reduced until the maturity of 2026 notes. Having concluded with the presentation and before going to Q&A session, let me pass the presentation to Roberto Nóbile, our CEO.