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 the six-month period and second quarter of fiscal year 2022, ending on June 30 of 2022. If you have not received our 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 same hardware information and other details of the coin. 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' actual results and operations to differ materially. Such incentives include but are not limited to the effects of ongoing industry and economic regulations, possible changes in the demand for telecoms products and services, the effects of potential changes in general market and our economic conditions in legislation, and the impact of the outbreak of COVID-19 on the global economy and specifically on the economies of the countries in which we operate, as well as on our operations and financial performance. The press release dated August 9, 2022, a copy of which was included in a Form 6-K and sent to the SEC, describes certain factors that may affect any forward-looking statements that could be mentioned during this call. The company has reflected the effects of the inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores or CNP, which establishes that the re-expression will be applied to the annual financial statements for intermediate and special periods ended as of and including December 31st of 2018. Accordingly, the reported figures corresponding to the first half of 2022 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 Rani'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. Now, let me call the call to Gabriel, our CFO, who will start with the presentation. Thank you, Luis.

Good morning and welcome to everyone. Moving to slide 3 summarizes our main highlights as of June 30 of 2022. Our main operational and financial achievements were our VTA margin during first half of 22 was 30.6%. We continue to perform cost management to reduce the impact of rising labor costs. Our capex for the first half of 2022 was approximately $300 million. Cash flow generation remains solid and stable. We moved forward with price increases of our services in a challenging inflation scenario. Our mobile subscriber base continues to grow. We launched a new solution to migrate Flows analogic services to digital. Our fintech personal pay continues to grow, reaching almost 235,000 onboarded clients. We have launched Ubiquo, our cybersecurity company in Chile. We have acquired the company Negocios y Servicios SA, which strengthens our operations and footprint in the province of Mendoza. We have canceled the total amount of the principal remaining under the term loan for $140 million. We entered into a new loan agreement with IFC and on July 15, 2022, we received a disbursement of 184.5 million dollars. We have paid dividends in kind on June the 2nd, 2022 for an equivalent of $150 million. We have closed the auction to buy 137,000 megawatts of renewable energy, which represents around 22% of the total megawatts consumed by the company. This will allow us to reduce our carbon emissions in a 20% coming from a total of 281,000 tons. Slide 4 shows the company figures for the first half of fiscal year 2022. Telecom's revenues totaled $2.1 billion. Revenues measured in constant pesos decreased 10% year to year. The BTA generation totaled $0.6 billion. Our BTA margin for the first half of 2022 was close to 31%. Telecom's mobile subscribers in Argentina amounted to 20.1 million, increasing in more than 800,000 total clients when compared to the first half of 2021. Broadband and pay TV clients remain almost constant totaling 4.2 million and 3.5 million respectively. Fixed voice subscribers without considering IP telephony lines amounted to 2.2 million during the first half of 2022. Adding IP lines, our fixed voice subscriber base amount for almost 3.1 million. Our commercial strategy has allowed us to increase our total convergent unique customers to 2.1 million from 2 million versus the second quarter of 2021, while currently 50% of our broadband customers have a mobile bundle. Finally, turning to our regional operations, we have 2.3 million mobile subscribers in Paraguay and 132,000 paid TV clients in Uruguay. Moving to slide five, it shows the evolution of local inflation. Year over year, inflation in Argentina as of June 2022 has been of 64%. Inflation has accelerated during the second quarter. Year-to-date inflation as of June 2022 was 36.2% and we envision that the local inflation will remain high during 2022. The impact of our industry in the inflation index is not meaningful amounting only 2.8%. In the last four quarters, communications price increases were below the general CPI index. Moreover, communications registered the lower year-over-year variation in comparison with other items of the CPI. Slide 6 shows our price adjustment during 2022. In mobile, during December 2021, mainly impacted in 2022, we have increased prices for postpaid and prepaid by 15% and 16% respectively. In April, we have increased both postpaid and prepaid prices by 11%. In July, we have increased postpaid plans by 13% and prepaid plans by 7%. In broadband, the prices of our XDSL services have increased by 16% in January, 12% in April, and 13% in July 2022. Prices of our HFC and FTTH services increased by 13% in January, 9% in April, and 10% in July. The subscription prices of our pay TV services have increased by 13% in January. Additional services such as Football Pack and Premium Channels have increased up to 15% in the same period, both in April and July of 2022, prices of our pay TV services increased by 12%. Prices of fixed voice basic services have increased by 16% in January, 12% in April and 13% in July. Slide seven shows the evolution of our products. Mobile segment Postpaid subscribers have increased in more than 300,000 clients or 3.9%. Our postpaid share is currently 42%. Prepaid subscribers have increased in almost 500,000 clients or 4.4%. We have observed a strong growth in the prepaid segment driven by our commercial initiatives. Broadmark accesses remain steady. We have experienced a reduction of accesses in the ex-DSL and the new growth with HFC and FTTH segments. Pay TV subscriber base remains almost constant, resisting a slight decrease of 0.8%. Growth is mostly leveraged on the performance of our Flow platform. Additionally, we have launched our new ISBDT solution for analog Pay TV customers, which allows the upgrade of their glassy cable connection to digital. In fixed voice, the reduction of accesses has continued, mainly in traditional fixed copper lines. On the other hand, our IP telephony accesses have increased in more than 350,000 lines. Moving to slide A, it shows the evolution of our services revenues. Service revenues total almost 248 billion pesos, decreasing 10% in real terms versus first half of 21 in a period where year-over-year inflation was 64%. Our revenue breakdown as of June 2022 showed an increase in the participation of mobile and broadband services and a decrease in fixed telephone and data services when compared to June 2021. The breakdown was as follows. Mobile Revenues 39%, Broadband Revenues 22%, Pay TV Revenues 19%, Fixed Telephone and Data Revenues 13%, Equipment Sales Revenues 6%. Slide 9 describes the main trends in our mobile and broadband businesses. As of June 2022, mobile postpaid subscribers amounted to 42% of our total customer base. The chart in the upper left shows the postpaid competitive landscape per month. During the first half of 2022, personal had a positive net inflow of mobile clients. Mobile internet usage has continued to increase, reaching an average of more than 4.8 GB per user per month during the first half of 2022. Additionally, we continue to increase our average product speeds. 77% of our total subs have speeds between 50 and 1000 MB per second, compared with 63 during the first half of 2021. This was mainly explained by the growth in HFC and FTTH connections, which increased by 5% and 103% versus the first half of 2021, respectively. Our HFC and FTTH connections currently register average speeds of approximately 90 megabytes per second. Slide 10 shows our businesses in Paraguay. Nucleo generated $104 million and $50 million in revenues and EBITDA respectively during the first half of 2022. The EBITDA margin of Nucleo as of June 2022 was very strong and close to 50%. Revenues breakdown was as follows. Browsing services 42%, voice 15%, data 6%, broadband 18%, TV services 8%, and other services with approximately 12%. As of June 30 of 2022, mobile customers totaled 2.3 million. The mobile financial service that our subsidiary provides, named Billetera Personal, reached almost 280,000. Fixed internet services subscribers amounted to more than 220,000, growing 32% versus the first half of 2021. In the pay TV segment, flow customers totaled 39,000 and personal HD 51,000. The fixed network deployment in the main cities of Paraguay continued to increase, growing 39% versus the first half of 2021, and reaching 633,000 homes passed. Slide 11 shows some key performance indicators of our fintech, personal pay. As of June 2022, personal page onboarded clients amounting to 235,000, growing three times versus the previous quarter. Almost 15% of these clients belong to other local telcos operators. The number of prepaid car accounts have multiplied by more than three times, amounting to almost 113,000. Additionally, Personal Page's first advertising campaign in the local media was launched in July. I will now pass the call to Luis Rial Ubago, who will go over our financial performance.

Thank you, Gabriel. In slide 12, we provide an overview of our main financial figures. During the first half of 2022, consolidated revenues grew by 40% on nominal terms, reaching 231 billion pesos. When analyzing said figure adjusted by inflation, revenues amounted to more than 264 billion pesos, showing a decrease 10% in real terms versus the same figure in 2021. Service revenues show a 41% nominal increase. EBITDA increased by 24% year-over-year in nominal terms, thus generating an EBITDA margin of 31.2%. In turn, EBDA margin in real terms was 30.6%. Operating costs before P&A decreased by 5.6% in real terms versus the first half of 2021, as the company continued to manage its cost structure to reduce the impact of rising labor costs. Slide 13 shows the company's EBDA and the impact of the different components of revenues and costs. Operating costs were 5.6% lower in real terms. During the first half of 2022, the company has successfully contained the pressure coming from inflation in most of its cost line, as almost all of them experienced a decrease or remain in line when compared with inflation. We have been observing good results in programming and counter costs, interconnection costs, and commissions and advertising. In turn, the main exceptions were labor costs and bad debt expenses, which have increased over inflation. Salaries increases with our unionized and non-unionized employees have closed the annual negotiation for 2021 and 2022 with increases of approximately 62%. But the expenses increase was mainly explained by the higher economic situation in Argentina, which has a direct impact on our clients' incomes. Understanding this situation, our percentage of bad debt related to total sales has decreased during the second quarter, reaching 2.1%, and our collections are performing normally. In slide 14, we show the evolution of our main business drivers during the first six months of 2022 compared to the evolution of inflation. It is important to remark that as inflation accelerates, we observe different adjustment dynamics over time between salaries and price increases. The adjustment speed of revenues versus inflation determined by the frequency and magnitude of price increases is currently slower than the adjustment speed of salaries. In the first half of 2022, when inflation accelerated, new salary agreements for the 2022 and 2022 period were closed, increasing our labor costs. On the contrary, other service costs have been increasing not only below inflation, but also below service revenues. In slide 15, the company's net income totaled 31.9 billion pesos, while EBIT was negative in real terms. The average decrease in cost of measure given it is explained mainly by the decrease in the BDA in real terms. This, combined with the inflation adjustment over DNA, resulted in an operating margin of negative 3% of consolidated revenues. In historical figures, the same margin was 19%. In the first half of 2022, the company had a net income of 31.9 billion pesos, mainly due to positive net financial results of almost 38.7 million pesos and to a positive income tax of almost 1.6 billion pesos. The positive financial results were driven mainly by inflation adjustment gains and lower net interest charges. Site 16 shows a summary of the company's capex in P&E and intangible assets during the first half of 2022, which amounted to more than 38 billion pesos, or an equivalent of $309 million at the official FX rate. This amount was 29.5% lower when compared to the same last year period. Our consolidated amount of capex amounted to almost 50% of our total revenues. Technical CAPEX was mainly composed by investments in our access network and technology. The balance was allocated to installations and customer premise equipment or CPE and to our international operations in Paraguay and Uruguay. During the first half of 2022, 30 new mobile sites were deployed, while more than 40 were built and another 500 existing sites were upgraded to expand our FTTH network over more than 3,000 new blocks. Additionally, we performed an overlay with FTTH over our HFC network in 2,800 blocks. We also increased the upstream capacity of our HFC network in 12,000 blocks. Additionally, we announced our new regional investments, mainly in the province of Mendoza. We will expand our FTTH network in that location to almost 100,000 homes, and we are going to build 58 new mobile sites to increase our mobile coverage. Slide 17 describes our cash flow generation during the first half of 2022 compared with the same period of 2021. Our cash flow generation is currently very solid, remaining stable when compared with the previous year. In the first half of 2022, the operating free cash flow amounted to approximately $256 million equivalent. The variation versus the first half of 2021 is explained by the decrease in our EBITDA in real terms, but the impact of free cash flow has been partially offset by a lower amount of capex during this year. In slide 18, we see our key figures for the first half of 2022 in constant measuring units. Our gross debt amounted to $2.7 billion after June 30 of 2022, increasing 6.8% from December of 2021. The company cost cash and equivalents for almost $210 million after the dividend income payment of June 2022, or an equivalent of $150 million. In consequence, our net debt was almost $2.5 million. Our net debt to VDA ratio was at 1.94 times. Slide 19 shows a quarterly evolution of some key ratios. Our ratio of adept over revenues has had a positive evolution since 2020, where it reached levels of 4% mainly due to COVID-19. Currently, this ratio was mainly affected by the economic situation in Argentina. We are following up on this issue closely and monitoring our collections. In the first half of 2022, our adept over revenues ratio decreased to 2.4%. In the first cap of 2022, our capex over revenues was almost 15%. This percentage is below the level of 2020 and 2021, mainly due to additional capex we didn't advance during the previous year. Gross debt to EBITDA remained at 2.1 times, while net debt to EBITDA was lower than 2 times. Both ratios are very solid when compared with other tech codes. Slide 20. shows the breakdown of a financial debt. Our latest liability management transactions have been very successful. During July, we received from IFC a disbursement for an amount of $184.5 million. Additionally, we have canceled the total amount of the principal remaining under the term loan due to 2022 for $140 million. In 2022 and 2023, our debt maturities are very manageable and less than 50% of the maturities for those years are denominated in U.S. dollars. Total outstanding debt as of June 2022 amounted to $2.7 billion on a performance basis. We are expected to continue accessing the local capital markets for our potential financing needs. The participation of debt in our local capital markets has increased versus previous years, reaching approximately 30% as of June 2020.