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, and myself, Luis Rial Ubago. The purpose of this call is to share with you the results of our fiscal year 2021 and fourth quarter in December 31 of 2021. If you have not received our press release or presentation, you can call our Investor Relations Office to request the documents or download them from the Investor Relations section of our website located at www.investores.telecom.com.ar I would like to go over some safe harbor information and other details of the code. 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 ongoing industry and economic Thank you very much. Our first release, dated March 9th of 2022, a copy of which was included in our form 6K 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, or CMV. which establishes that the pre-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 fiscal year of 2021 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 presentation is complemented by Vernon's presentation. The audience should read the disclaimer contained in slide one and slide two of the presentation. The agenda for today's conference call includes our business and financial highlights, and we will end the call with a Q&A session. Let me pass the phone to Aurea, the CFO, who will start with the presentation.

Moving to slide three. Thank you, Luis. I will try to summarize our highlights for fiscal year 2021. Our main brands have been consolidated under Personnel Flow and Telecom. We increased our prices during 2021 according to local inflation. Our 2021 annual capex amounted to $833 million and our capex to revenue ratio was 20.1%, well above industry standards. We are investing in the best technology to maintain the solid performance of our network. We have achieved an EBITDA margin of 31.2, continuing with our cost reduction initiatives despite the higher local inflation. Our VAT debt is currently 1.9% of our total revenues, reducing significantly against 2020. This figure is currently below industry standards in the country too. Our fintech company, Personal Pay, is now available for Android users and currently has more than 14,000 registered clients. Supporting our employees in terms of COVID-19 has been and will remain being a top priority. We have increased the number of clients versus fiscal year 2020 in our three main products. Nucleo, our subsidiary in Paraguay, continues to show a solid performance as revenues and EBITDA continue increasing in health currency. Our main debt maturities in 2021 has been refinanced or repaid. Our cash flow generation is strong. We have been very successful tapping the local market with both inflation adjusted or dollar linked bonds. We continue to analyze additional drivers of growth in relation with our industry, both in Argentina and abroad. We are very much focused on improving our ESG standard, taking into account best practices. We have launched a new IR website, improving the way we communicate with our investors. We also improved our vendor financing sources mainly through China Development Bank, Export Development Canada, and Finvera, among others in course. Moving to slide four shows the company figures to fiscal year 2021. Elecom's revenues total $4.1 billion. Revenues measured in constant pesos with 7% year to year. The BTA generation remains strong, totaling $1.3 billion. Our VTA margin was 31.2. Telecom mobile subscribers in Argentina amounted to 20.1 million, increasing in almost 1.7 million total clients when compared to fiscal year 2020. Broadband and pay TV clients have also experienced an increase year over year, totaling 4.2 million and 3.6 million, respectively. Fixed voice subscriber without considering IP telephone lines amounting 2.4 million during fiscal year 2021. Our commercial strategy has allowed us to increase our total convergent unique customers to 2.1 million from 1.9 million versus fiscal year 2020, while currently 49% of our broadband customers have a mobile bundle. Finally, turning to our regional operations, we have 2.2 million mobile subscribers in Paraguay, and 135,000 pay TV clients in Uruguay. Size five shows the evolution of local inflation. Year over year, inflation in Argentina since December 21 has been of 50.9%. As demand inflation in January 2022 was 3.9%, we envision that the local inflation will remain high during 2022. The impact of our industry inflation index is only 2.8%, as you can see in the lower part of the graph. Therefore, the impact of our sector onset index is not meaningful. Slide 6 shows our price adjustment during 2021 and in January 2022. In mobile, prices have increased 50% for postpaid plans and in similar percentage for prepaid. In the last half of December, mail impacting 2022, the increase for postpaid and prepaid mobile was 15% and 16% respectively. In broadband, the prices of our DXL services have increased 42% during 2021 and 16% in January 2022. and many more. Our pay TV prices Thank you very much. in 2021 and 60% in January 2022. Moving to slide seven, we show the evolution of our products. On the mobile segment, postpaid subscribers have increased in almost 500,000 clients or 6.4%. Prepaid subscribers have increased in 1.2 million clients or 11.2%. Our postpaid and prepaid shares are 41% and 49% respectively. Broadband accesses have increased in almost 90,000 and 2.2 year over year, mainly growing in the HLC and FPTH segments. In pay TV, we obtained 700,000 new accesses, which represent an increase of 0.5%, mostly leverage on the performance of our flow platform. In fixed voice, the reduction of accesses has continued mailing traditional fixed copper lines. On the other hand, our IP telephone accesses have increased in more than 370,000 lines. Moving to slide eight, shows the evolution of our service revenues. Service revenues total almost 396 billion pesos, decreasing 7.7% in real terms versus fiscal debt. Our revenue breakdown as of December 2021 showed an increase in the participation of handset sales and a decrease in fixed telephone and data services when compared to December 2020. The breakdown is as follows. Mobile revenues 38%, broadband revenues 21%, Pay TV Revenues 19%, Fixed Telephony and Data Revenues 14%, Equipment Sales Revenues 7%. If we move to the following slide, we describe the main trends in our mobile and broadband businesses. As of December 2021, post-pay subscribers amounted 41% of our total customer base. The chart in the upper left shows the competitive landscape wireless per month. Personal is in blue color. Positive numbers show incoming clients and negative numbers show client loss against the competition. During 2021, personal has a positive net inflow of mobile clients. Mobile internet usage has continued increasing, reaching an average of more than 4.2 gigabytes per user per month in 2021. In addition, there has been an important increase in broadband speeds. 70% of our total subs have a split between Thank you very much. Thank you. Our broadband flow as our IPTV service and mobile. Our broadband network has the best coverage around the country, consistently improving service. Average speed reached 85 megabytes per second in the case of our FTTH network and 81 megabytes of our HFC technology, passing through 60% of total homes in the country. Flow is our premium IPTV product and is currently a meeting point for entertainment, allowing clients to have direct accesses to video, music, gaming, and to other leading streaming applications in the market. Our mobile network is the fastest in the country, reaching almost 98% urban coverage and with the best download upload speed as measured by a speed test during December 2021. Slide 11 shows the evolution of our business in Paraguay. Núcleo's subsidiary generated $206 million and $100 million in revenues and VTA, respectively, during fiscal year 2021, growing by 11% and 22% in her currency, respectively. Revenues breakdown was as follows. Browsing services 45%, voice 16%, data 7%, broadband 15%, TV services 8%, and other services with approximately 9%. As of December 31 of 2021, mobile customer total 2.2 million. Clients of visitera personal and mobile financial services that our subsidiary provides reached almost 280,000. Fixed internet services subscribers amounted to more than 196,000, growing 50% versus fiscal year 2020. The pay TV segment flow customer total 33,000 and impersonal HD 56,000. The fixed network deployment in the main cities of Paraguay has been increasing rapidly, growing 25% during fiscal year 2021, and reaching 569,000 homes passed. I will now pass the call to Luis Rial Ubago, who will go over our financial performance. Thank you, Luis.

Thank you, Gabriel. In slide 12, we provide an overview of our main financial figures. During the fiscal year of 2021, consolidated revenues grew by 39% on nominal terms reaching 357.3 billion pesos. When analyzing said figure adjusted by inflation, revenues amounted to more than 425 billion pesos, showing a decrease of 7% in real terms. Service revenues show a 37% nominal increase. It is worth mentioning that our prices were frozen from March 2020 to December 2020. EBITDA increased by 29% year-over-year in nominal terms. that's generating an EBITDA margin of 31.9%. EBITDA margin in real terms was 31.2%. Operating costs before D&A decreased by 2% in real terms versus fiscal year 2020 as the company continued to manage cost structure. Slide 13 shows the company's EBITDA and the impact of the different components of revenues and costs. Operating costs were 2% lower in real terms. During 2021, the company managed its cost structure in an efficient way, as almost all of our customers experienced a decrease or remain in line when compared with inflation. The exception being labor and asset costs. Salaries increases with your unionized and non-unionized employees were in line with inflation and ranged between 45% and 55%. Cost of Hands and Souls may increase mainly due to the increase in prices and higher sales of devices in Argentina. It is important to mention that our bad debt expense decreased by 51.1% versus fiscal year 2020, thanks to a strong strategy followed by the company to improve its collection efficiency. Our percentage of bad debt related to total sales is very low, 1.9% versus 3.6% in fiscal year 2020, and our collections are performing normally. In slide 14, we show the evolution of our main business drivers in 2021 compared to the evolution of inflation. In the first half of 2021, our service revenues grew above inflation as we increased our prices in an average 20% in January and 10% in June. During the second half of 2021, while inflation accelerated, we increased our prices to match trade evolution. New salary agreements for the 2021-2022 period were closed and increased our labor costs. In slide 15, the company's net income totaled 9.9 billion pesos while EBIT was negative in real terms. The heavy decrease in constant measuring units is explained by the increase in DNA, disposals, and impermanence of fixed assets, which increased almost 9% in real-time year-over-year. That increase was explained by new PP&E and intangible assets during 2021. Mainly due to the DNA increase and the inflation adjustment, operating margins were minus 0.7 of consolidated revenues. while in historical figures, the same margin was 18%. In fiscal year 2021, the company had a net income of 9.9 million pesos, mainly due to positive net financial results, 45.6 billion pesos, partially offset by an income tax charge of 33.3 billion pesos. The positive financial results were driven by an improvement in FX results in real terms and inflation adjustment gains, while the income tax figure includes a higher charge coming from the increase in the tax rate imposed by the local IRS. Slide 16 shows a summary of the company's CapEx and MPP&E and intangible assets during fiscal year 2021. which amounted to more than 85 billion pesos or an equivalent of 833 million dollars the official tax rate. This amount is almost 2% higher when compared to the same last year period. Our consolidated amount of capex amounted to 20% of our total revenues which is a very important ratio according to global industry standards. Technical CapEx were mainly composed of installations and customer-premise equipment or CPE. The balance was allocated to network and technology and to our international operations in Paraguay and Uruguay. During 2021, 212 new mobile sites were deployed and more than 2,200 existing sites were upgraded. We expanded our FTTH network over 10,600 new blocks. Additionally, we performed an overlay with FTTH in 4,400 blocks of HFC networks. We also increased the capacity of HFC access network mainly through segmentation of areas. Additionally, we continue with the deployment of the first 5G network in Argentina and the new sites. We currently have 20 sites located in Buenos Aires City, Rosario, and the Atlantic Coast. Slide 17 describes our cash flow generation during fiscal year 2021 compared with the same period of 2020. Our cash flow generation is currently very solid. In 2021, the operating pre-cash flow amounted to approximately $527 million equivalent. The variation versus fiscal year 2020 is mainly explained by the decrease in our ABD ABBA in real terms. Slide 18 shows key figures for the fiscal year 2021 in constant measuring year. Our gross debt amounted to 266.7 billion pesos as of December 31 of 2021, decreasing 11.2 from December 2020. The company holds cash in equivalents for almost 31 billion pesos, having a net debt of 236 million pesos. Our net debt to VDI ratio is 1.78 times, remaining relatively stable versus fiscal year 2020. Slide 19 shows a quarterly evolution of some key ratios. Our bad debt to revenues ratio had a positive evolution since 2020, where it reached levels of 4% mainly due to COVID-19. CapEx over revenues has been increasing since the first quarter of 2020, remaining above 17%, which is the average ratio for the industry. Gross debt to a BDA remained in levels lower than two times, while net debt to a BDA was lower than 1.8 times, both ratios being very solid when compared with other costs. Slide 20 shows the breakdown of financial debt. Our liability management transactions have been extremely successful. Total outstanding debt as of December 2021 amounted to $2.5 billion. As we have done in 2020, we have refinanced our loans with IDB and IFC in December 2021. We have extended our 2022 and 2023 maturities of cell loans to new maturity schedules ending in 2024 and 2026. or 2022 and 2023, the maturities are very much with almost 35% of debt in those years being denominated in pesos. Due to international capital market conditions, we are currently expecting to continue accessing the local capital markets for any important financing need that we may have during this year. Slide 21 summarizes the financial distractions that we have done during 2021, showing how the company anticipates financing needs, obtaining new sources of financing. During the last year, we successfully completed the issuance of Class 8 to 11 notes, issuing Peso denomination, sorry, Peso inflation-adjusted or dollar-linked bonds. Nucleo Paraguay completed the issuance of Series 4 and Series 5 notes. We also closed to new export credit facilities. The first were guaranteed by PINVEA in May 2021, and the second one by the Export Development Canada, or EDC, in January 2022. Finally, on December 15, 2021, we refinanced the loans with IFC and IDB, changing their multi-sanctioned schedule and more than doubling their rush plan. With this, now we are more than pleased to answer any questions you may have. 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, send a message to IRT.com Argentina to the Q&A menu, identifying yourself and stating that you have a question, or alternatively, use the hand button 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 unmute you so you can proceed with your question. Thank you. Hi, we have a question coming from Marcelo Santos from JP Morgan. Hi Marcelo, we are unmuting you so you can ask your question directly. Please go ahead. Thank you.

Hi, good morning to all. Thanks for taking my questions. I have two. The first one is if you could provide a CapEx outlook for the year of 2022 and what would that depend on? Usually you mentioned like depending on how things go, you would And the second is, besides this price increase that you have conducted in January, what would be the next one? Would that be one in June as well, this year? Thank you very much.

I'll take on the CapEx. Thank you for your question, Marcelo. Regarding the capex amount for this year, of course, it will be very, very related to the general evolution of Argentina in terms of what happens with foreign exchange rate and the availability of dollars. Although we have good access up to now to U.S. dollars and we have plenty sources of financing, we can escape from the general situation of the local market, and that will be clearly something we need to keep an eye on. Having said that, I will say that we are thinking in the range of $600 million as a general rule. Always remember that as we have these, I will say, momentarily imbalances between inflation and the official foreign exchange rate, this may vary significantly. But for the time being, we are not planning to have a capex, I will say, pretty different to what happened last year. depending on the general evolution of Argentina. Today, we have a very good new with the signature with the IMF in the Congress. And of course, all that will help to clarify the situation. The second aspect, I would prefer not to give you just an indication, we need to, always advise in advance our price increases with 30 days. That's something the company does. But I might say that we are confident that we might be able, as of the present situation, to keep on track with similar situation to what happened last year in terms of price increases. Of course, having said this, two important issues to consider. One is that we have a gap that was generated during 2020 when we still couldn't recover. That represents about 11 billion pesos pending to fully recover. And the other aspect that you must have in consideration, of course, is the general situation of Argentina regarding the speed of inflation. If inflation speeds up, it makes difficult here for us to catch up. If we think that the government is going to cope with the signature of IMF and what is proposed there, we might think that that situation might change slightly in the trend and that will help us to continue recovery.

Hi, we now have another question coming from Ignacio Sinichowski from Invertir en Bolsa. Hi Ignacio, please go ahead with your question. Thank you.

Hi, good morning. Thank you for taking my question. The first question was partially answered, so I will go directly to the second one. A bit of margin was, I mean, hit in and many more. Thank you.

Ignacio, thank you for your question. Well, although the company doesn't provide guidance, I will try to give you some color of how we approach to the VTA margin. The VTA margin or the shape of the VTA margin is mainly affected, as you for sure see if you follow the company quarter to quarter. It varies significantly when we raise salaries or we raise our prices. Those are the two main components that affect directly the VTA margin in the short run. In this type of very strong inflation environment, as you also can imagine, these two, if they are not completely synchronized and they are not completely balanced, they might bring certain imbalances in the margin concurrently. I think that it will depend on how inflation pace in the country follows. If the country goes to an acceleration process of inflation, it may be harder for us to keep up with the BDA margins as stated. If not, if inflation gets milder, it's much easier for us to go with that. Having said that, I would say that our expectancies in certain way are to keep evident margins in good health like last year.

Hi, we have a follow-up question from Alonso Mesa from La Reina Vial. Alonso, we want to meet you, and please go ahead with your question. Thank you. Hi, thank you for taking my question.

I have two questions, actually. So the first one is, for me, it is not quite clear why sales in real terms were almost 80% lower than 2020. If you go to Friday, every day, you were able to Close, you were able to eliminate the crisis. So perhaps you can clarify on that.

And take a look.

What are your thoughts on the private revolution for 2022?

Well, thank you for your question, Alonso. Although you have some echo, and I think that I hear properly. If not the case, please rephrase. Yes, as you mentioned, when you compare with the inflation index, our evolution in real terms, the company income reduced 7% or 8%. but I will say that comparison is not completely fair. As you have saw in the presentation, the participation of our services in the index is pretty mild, is less than 3%, meaning that when you simply adjust by inflation and make the comparison, you are putting a lot of additional components in inflation that have a very different outlook. As for instance, food, which is, What has been constantly moving forward in Argentina at a very strong pace and has fueled most of the inflation pace. Having said that, as I recall this, up to now with certain limits, we have been able during 2021 to cope with inflation pace, meaning that we have been pretty consistent in terms of moving ahead Thank you very much. The inflation pace gets milder, it's easier for the company to recover that. When inflation comes down, it's much easier for us to recover those imbalances in the long run. When inflation continues to pick up, it's much more difficult for us. Having said that, I would say that if inflation pace this year behaves in a similar way than last year, meaning that it doesn't speed up its growth level, we think that we may be able to continue with this vis-a-vis trend coping with the inflation pace.

So you would say that 100% of the volume in sales in EBITDA is explained by inflation?

Well, EBITDA is not 100% because we also have dollar income and dollar expenses, which are pretty balanced. One-third of the company cost is labor cost, which is directly related to the salaries increases. And the inflation, the ability of the company to move the prices is very related to how we cope with inflation pace in our revenues. Which this year, 2021, we have been pretty consistent in terms of coping with our cost. But as we mentioned, when compared to the general level of inflation in the economy, we lose an 8%. But if you make that comparison, for instance, regarding food, the price increase in food in Argentina is much, much higher. It's probably double that.

For the time being, we have no more questions, and we wish to thank you very much for participating in our quarterly conference call. Please do not hesitate in contacting our investor relations department for any further inquiries you may have. Good morning to all, and have a nice day. Thank you very much.