Telecom Argentina SA

Good morning. 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 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 nine-month period and third quarter of fiscal year 2022 ended on September 30th of 2022. If you have not received or previously released 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. I would like to go over some same 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' 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 telecoms' products and services, The effects of potential changes in general market and 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. Our press release, dated November 9, 2022, a copy of which was included in a form 6K and sent to the SAC, 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 CMB, which establishes that the re-expression will be applied to the annual financial statements for intermediate and special periods in the SOF and including December 31 of 2018. Accordingly, the reported figures corresponding to the nine-month period 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 value 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 pass the call to Gabriel, our CFO, who will start with the presentation.

Thank you, Luis. Good morning and welcome to everyone. Moving to slide three, it summarizes our main highlights as of September 30 of 2022. Our main operational and financial achievements were our EBITDA margin during the first nine months of 2022 was almost 29%. Main pressures came from our labor costs, partially offset by some other cost lines in which we have contained the pressure coming from high inflation rates. Our CAPEX was approximately US dollar 580 million, representing 60% of our revenues. Thank you very much. In broadband, we observed growth in our HFC and FTTH subscriber base. Flow unit customer reached 1.3 million, increasing 18% year over year. We launched a version of Flow in a prepaid modality called FlowFlex. Our fintech personal pay reached almost 528,000 onboarded clients. In August, we reopened our class 12 issuance of local nodes, obtaining $75 million equivalent at a yield of minus 2.1% in U.S. dollars. We sold our Costanera building in the city of Buenos Aires for a total amount of $6 million. We received an advance of $2 million in September 22. ESG. In September, we held the Sustainability Week, an internal event in which both internal and external speakers participated. Finally, we recorded a goodwill impairment, which includes the goodwill generated as a result of the merger between Cablevisión and Telecom in January 2018 for 208 billion pesos due to the deterioration of market conditions. In slide 4 shows the company figures for the nine-month period of fiscal year 2022. Telecom's revenues totaled $3.2 billion. Amidst a rising inflation environment, revenues measured in constant pesos decreased 12% year-over-year. EBITDA generation totaled $0.9 billion. Our EBITDA margin was 28.7%. As of September 30, 2022, total mobile subscribers amounted approximately 20 million, increasing almost 500,000 total clients when compared to the same period of 2021. Postpaid clients represented 43% of our subscriber base. Broadband and pay TV clients totaled 4.2 million and 3.5 million respectively. Fixed voice subscribers, considering IP telephony names, amounted to 3.1 million during the first nine months of 2022. We have increased our total convergent unique customers to 2.2 million, increasing in almost 60,000 clients when compared to the third quarter of 2022, while currently 52% of our broadband customers have a mobile bundle. Finally, turning to our regional operations, we have 2.3 million mobile subscribers in Paraguay and 131,000 paid TV clients in Uruguay. Slide 5 shows the evolution of local inflations. Year-over-year inflation in Argentina as of September 2022 has been of 83%. Inflation has accelerated as of July of 2022, jumping to monthly levels of 6.07%. Year-to-date inflation as of September 2022 was 66.1%. The impact of our industry in inflation index is not meaningful, as communications has already a weight of 2.8% within this index. Moreover, communication services registered the lower year-over-year variation in comparison with other items of the CPI. Slide 6 shows our price adjustment during 2022. As we mentioned, local inflation in Argentina is currently running at very high levels. Accordingly, up to date, we have performed five price increases during 2022. During the end of September, we have increased our prices for mobile and during October for the fixed services, and these price increases were a notch above income magnitude, close to 18-19%, in comparison with the rest of the price increases that we did during the year. During this month, we're performing another increase in our mobile prices of 17% in average. In the current macro and competitive situation, it's encouraging to see that notwithstanding the fact that we are increasing the price to cope with inflation or our services, more frequently we have not observed any significant loss in terms of market share or substantial decrease of our customer base. Slide 7 shows the evolution of our products. Mobile segment postpaid subscribers have increased in more than 460,000 clients or 5.7%. As we have mentioned, our postpaid clients represent 43% of our total mobile client base. Total prepaid subscribers remain almost constant, increasing in almost 15,000 clients or 0.1%. This evolution is explained mostly due to a decrease in non-recharging customers. Our recharging prepaid customer base continues to serve a solid performance, growing year over year and showing a higher volume of recharges when compared with the previous year. Broadband. Our customer base is stabilized. We continue to observe growth in the HFC and FTTH segments, and we have registered a decline in accesses in the XDSL segment. Our pay TV subscriber base has experienced a reduction of 61,000 accesses, which represents a decrease of 1.7%. Our Flow platform continues to show a good performance. During the 9 months of 2022, Flow's unique customers reached 1.3 million, increasing in almost 200,000 total clients, or 18.3% when compared to the same period in 2021. 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 more than 370,000 lines. Moving to slide 8, it shows the evolution of our service revenues. Currently, almost 40% of our total revenues are generated by the mobile businesses and then another 40% is generated by pay TV and broadband. Fixed and data represent 12% and includes not only fixed voice, but also our B2B businesses, of which an important part is denominated in US dollars. The handset business represents around 6% of our revenues. Our service revenues have amounted to 440 billion pesos, decreasing 12% in real terms. This gap versus inflation is considerably less in mobile and broadband service revenues, with pay TV lagging the most. as mentioned our fixed voice and data businesses include some portion of its revenues that are adjusted to the evolution of the official effects which mainly explains under performance versus inflation in this sense including our subsidiaries approximately 16 percent of our revenues are related to the evolution of the effects Slide 9 describes the main trends in our mobile and broadband businesses. During 2022, personnel had a positive net inflow of postpaid mobile clients from our competitors. Our postpaid performance is very solid, increasing the postpaid participation of our mobile customer base to 43%. Mobile Internet usage has continued increasing, reaching an average of almost 5 GB per user per month during the 9-month period of 2022. Additionally, we continue to increase our average broadband speeds. 79% of our total subs have speeds between 50 and 1,000 MB per second, comparing with 68% during the first 9 months of 2021. This was mainly explained by the growth in HFC and FTTH connections with increase by 3% and 104% versus 9 months 2021 respectively. Moving to slide 10 shows our businesses in Paraguay. Our operation in Paraguay continues to keep to a solid track record. Nucleo generated $156 million and $75 million equivalent in revenues and EBITDA respectively during the nine months of 2022. The BDA margin of Nucleo as of September 2022 was very strong and close to 50%. As of September 30 of 2022, mobile customers totaled 2.3 million. The mobile financial services that our subsidiary provides, Billetera Personal, reached almost 290,000 subscribers. Fixed internet services subscribers amounting to more than 230,000, growing 28% versus the third quarter of 2021. In the paid TV segment, flow customers totaled 44,000 and in personal HD, 49,000. The fixed network deployment in the main cities of Paraguay continued to increase, growing 37% versus the first quarter of 2021 and reaching 655,000 homes passed. Slide 11 shows some key performance indicators of our fintech personal pay. As of September 2022, personal pay on boarded clients amounted to almost 528,000, growing 2.2 times versus the previous quarter. We find that this growth is very encouraging and we are growing also outside of telecom clients base as almost 18% of these clients belong to other local teleco operators. The number of prepaid card accounts have multiplied by 2.6 times amounting to almost 292,000. Thank you very much. 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 nine-month period of 2022, consolidated revenues grew by 44% on nominal terms, reaching 370 billion pesos. When analyzing said figure adjusted by inflation, revenues amounted to almost 471 billion pesos, showing a decrease of 12% 12% in real terms, which is the same figure in 2021. EBITDA increased by 24% year-over-year in nominal terms, thus generating an EBITDA margin of 29%, while EBITDA margin in real terms was 28.7%. Operating costs before DNA have grown below inflation, decreasing 7.1% in real terms as of the nine-month period of 2021. We have continued to manage our cost structure to reduce the impact of rising labor costs. Slide 13 shows the company's EBITDA and the impact of the different components of revenues and costs. During the nine months of 2022, the company has been able to contain the pressure coming from inflation in most of its cost lines, as almost all of them experienced a decrease or remain in line when compared with inflation. We have observed good results in programming and content costs, interconnection costs, and some other items like charges for lawsuits and other contingencies on rents and internet capacity included in other costs. These cost management initiatives have partially offset the rise in labor costs, which have increased over inflation and explained most of the emerging contraction year over year. Labor costs represent 25% of our revenues and have increased 5% in real terms when compared to the nine-month period of 2021. Slide 14 shows the company net results and EBIT. The EBIT decrease in cost and measuring unit is explained mainly by the decrease in EBITDA in real terms and by the goodwill impairment commented by Gabriel, which includes mainly the goodwill generated as a result of the merger between Cablevisión and Telecom. In the nine-month period of 2022, the company had a net loss of 163 billion pesos, mainly explained by the aforementioned impairment for a total amount of 208 billion pesos and by a negative income tax of 4.3 billion pesos, partially offset by a positive net financial result of 75 billion pesos. The positive financial results were mainly driven by inflation adjustment gains and lower net interest charges. In slide 15, we summarize some important highlights regarding the impairment we just mentioned. The most significant goodwill held by the company was generated by the merger between Telecom Argentina and Cablevisión, which became effective on January the 1st of 2018. It is important to remark that in order to determine the original value of this goodwill, The consideration phase was based on the fair value of the shares of Telecom on the last business day before the effective date of the transaction. The New York Stock Exchange market price of the ADR of Telecom on save day was $36.63 per ADR. As of September 30, 2022, the price of the ADR of Telecom was $4.01, decreasing 89% versus the value considered the effective date of the merger. Due to the deterioration of economic conditions in Argentina and to the lower market value observed in the telecommunications industry as a whole, telecoms share price in pesos has particularly underperformed inflation during 2021 and 2022, while fixed assets had increased their book values based on the inflation rate in accordance with the requirements of IAS 29. These market factors mainly explain the current difference between the book value of the Goodwill and its fair value, which has determined the need to recognize an impairment of 208 million pesos that has impacted our EBIT and net income. Finally, it is very important to remark that the aforementioned impairment does not affect assets other than Goodwill and has no impact over the company's operations, EBITDA, or its cash generation capacity. For further details about this environment, we encourage you to refer to note 26 to the consolidated financial statements as of September 30th, 2022. Slide 16 shows a summary of the company's capex in PP&E and intangible assets during the nine month period of 2022, which amounted to almost 75 billion pesos or an equivalent of 508 million dollars of the official effects rate. Our consolidated amount of CAPEX amounted to almost 16% of our total revenues and is 24% below in real terms as of the first nine months of 2021. Technical CAPEX was focused on the deployment and modernization of our 4G mobile access sites, the deployment of last mile networks with the TTH architecture, installations and equipment in the homes of our clients or CPE. During the nine-month period of 2022, 64 new mobile sites were deployed, more than 1,000 sites were upgraded, and another 20 are under construction. We expanded our FTTH network over 5.7 thousand new blocks. Additionally, we performed an overlay with FTTH over our HFC network in 4.6 thousand blocks. We also increased the operating capacity of our HFC network by 50 thousand blocks. And additionally, we have expanded our FTTH network in Mendoza over 550 new locks. As of September 2022, we have also deployed 109 5G DSS sites with connection speeds up to 15 gigabytes per second. We expect to count with a total of 170 sites working with DSS technology for the end of the year. Slide 17 describes our cash flow generation during the nine-month period of 2022 compared with the same period of 2021. Our cash flow generation is currently very solid, remaining stable when compared with the previous quarter. As of September 2022, the operating free cash flow amounted to approximately $413 million equivalent. The impact of a lower VDA in real terms on free cash flow has been partially offset by a lower amount of capex during this year. Our free cash flow before dividends and interest payments during the first nine months of 2022 has been $369 million equivalent. Slide 18 shows our key figures for the third quarter of 2022 in constant measuring year. Our gross debt amounted to $2.7 billion as of September 30th, 2022, decreasing 9.7% from December 2021. The company holds cash and equivalents for $268 million, and our net debt amounts to approximately $2.4 billion. Our net debt to EBITDA ratio remains slightly below two times. Slide 19 shows a quarterly evolution of some key ratios. Our bad debt or revenue ratio had a positive evolution since 2020, where it reached levels of 4% mainly due to COVID-19. During 2021, the low bad debt ratio was mainly explained by post-pandemic collection improvements. In 2022, this ratio was mainly affected by the economic situation in Argentina. In the nine-month period of 2022, our bad debt or revenues was 2.5%. Our capex over revenues for the last 12 months of September 2022 was 18.4%. This figure is slightly below the level of 2022 and 2021. Our maintenance capex is in the range of $300 to $350 million per year, so we have a lot of flexibility in this sense, as we are investing well above said figure. Gross debt to EBITDA was at 2.2 times when net debt to EBITDA was lower than 2 times. Both ratios still very solid when compared with adult telcos. Slide 20 shows the breakdown for financial debt. In August, we reopened our class 12 issuance of local notes, obtaining $75 million equivalent at a yield of minus 2.1%. Total outstanding debt as of September 2022 amounted to $2.7 billion. During the third quarter, we have been reducing our overdraft exposure with local banks. Our debt maturities for the next month, 2022, are mostly denominated in pesos, and our debt maturities for 2023 are very manageable, and less than 50% of these maturities are denominated in US dollar. Currently, our maturity profile is significantly clear. This means that under the current rules of the central bank, we have access to the fixed market in order to pay down our debt with pesos up to 2026, where we have the maturity of our Class I notes. We expect to continue accessing the local capital markets for our potential financing needs. In fact, the participation of debt in our local capital markets has increased versus previous year, reaching approximately 31% since September of 2022.