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 Lassi, Chief Financial Officer, and myself, Luis Rial Ubago. The purpose of this call is to share with you the results of the fourth quarter of fiscal year 2023, ended on December 31st of 2023. If you have not received a 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.investors.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 cause telecoms' actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of ongoing and economic regulations, possible changes in the demand for telecoms' products and services, the effects of potential changes in general market and economic conditions, and in legislation. Our press release announcing the company's results as of the end of fiscal year 2023, a copy of which was included in a 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 , which establishes that the re-expression will be applied to the annual financial statements for intermediate and special period ended as of and including December 31st of 2018. Accordingly, the reported figures corresponding to the fiscal year 2023 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 this 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 call to Gabriel, CFO, who will start with the presentation.

Thank you, Luis. Good morning and welcome to everyone. Moving to slide 3, it summarizes our highlights as of December 31 of 2023. Our main operational financial achievements were Our EBITDA margin during fiscal year 23 was 28.1%. We managed to improve the margin on a year-over-year basis due to effective cost management initiatives and an improvement in the path through of inflation to revenues. In 2023, our CAPEX was approximately $598 million, equivalent to 23% of our revenues. We have successfully executed our CAPEX plan, despite having faced certain delays due to tighter import restrictions in Argentina. The current focus of our CAPEX is on the expansion of our FTTH technology, as well as expanding our mobile network and developing 5G. Our cash flow generation remains strong despite the challenging context. Without considering the 5G spectrum acquisition during 2023, we were able to generate approximately $400 million in free cash flow before dividends and interest payments. In real peso terms, this figure amounts to $324 billion and represents an improvement compared with 2022. Our mobile subscriber base continues to grow, increasing almost 4% year over year. Mobile data usage measured in average monthly gigabytes per user has grown 11%. In broadband, our FTTH accesses keep growing rapidly, and during the last quarter they have contributed to stabilize our customer base, while our HFC network has remained fairly stable. Flow Unique Customer reached more than 1.4 million, increasing 10% year over year. Additionally, our pay TV business continues to grow in Paraguay. Our fintech, Personal Pay, has already achieved a relevant market position, reaching more than 2 million onboarded clients as of December 2023, while becoming the second player in the market in terms of clients' remunerated account balances. 5G rollout is underway. We acquired 100 megahertz of spectrum in the 3.5 gigahertz band and we currently count with more than 100 5G sites working in set band. During the year, we successfully pay down or refinance all of our dead maturities during the year while improving the composition of our dead. Moving to slide four, it shows the company's figure of 2023. Telecoms revenues total almost $2.5 billion. Revenues measured in constant pesos decreased 9% year over year as we have improved our path through of inflation to our revenues. We generated $716 million equivalent in terms of EBITDA. Our EBITDA margin was 28.1%. It is important to remark that the figures in dollars included in this presentation are obtained converting figures in constant pesos as of the end of an specific period. using the same end of period spot exchange rate. These figures are included merely for the purpose of providing a general reference and are not obtained through any type of dual currency account in US dollars carried out by the company. Due to this, figures in US dollars as of the end of fiscal year 2023 had been temporarily affected by the abrupt devaluation of the peso that took place in mid-December. Telecom's mobile subscribers in Argentina amounted to 21 million, increasing in more than 760,000 when compared to 2022. Broadband and paid TV clients have totaled 4.1 million and 3.4 million, respectively. Fixed voice subscribers, considering IP telephony lines, amounting to 2.9 million during 2023. During 2023, our total convergent unique customers amounted to 2.3 million, increasing from 2.1 million a year before. Up to date, 46% of our broadband customers have a mobile phone. Our regional operations remain very solid. We are the second most important player in the mobile market in Paraguay and in the pay TV market in Uruguay, with 2.3 million and 119,000 respectively. Slide 5 shows our price adjustment during 2023. The accumulated inflation in Argentina for the fiscal year 2023 was 211.4% and in January 2023 it has been of 20.6% for the month. Since May 2023 we have adjusted our pricing policy responding to a rising inflation scenario. Moving to monthly prices increases. We have increased both the frequency and magnitude of our price increases to improve our path through of inflation to our service revenues in an increasingly complex environment. Thanks to these measures, we have been able to reduce the lag versus inflation during the fiscal year 2023. Slide 6 shows the evolution of our products. In our mobile segment, we have observed a total increase of more than 760,000 subscribers, representing an increase of 3.8% year-over-year. This was mainly related with the good performance of our prepaid segment, where we registered a stronger customer recharge rate. We managed to increase our subscriber base for the fifth quarter in a row. In general terms, our postpaid customer base has been registering a downselling to prepaid, not affecting the overall mobile customer base. Our postpaid participation over total mobile subscribers continues to be strong, reaching 39% of our total mobile customer base. In our broadband segment, we have observed growth in FTTH accesses while our HFC accesses have remained relatively steady. Thanks to this, we have been able to revert the trend registered during the last quarter of 2022 and the first quarter of 2023 and stabilize our broadband subscriber base in a challenging competitive environment. In turn, we have observed a reduction in XDSL accesses which we are migrating to FTTH. Moreover, average speeds in our customer base keep growing. 85% of our subscribers have speeds of 100 MB or more. In Pay TV, our Flow platform continues to perform well and our Pay TV accesses have remained steady quarter over quarter. In the fourth quarter of 23, Flow's unique customers reached 1.4 million, increasing by 133,000 total clients, or 10%, when compared to the same period in 2022. Flow Flex, our broadband subscription modality, also delivered good results during fiscal year 23. The reduction observed in our TotalPay TV customer base is in line with the decrease observed in the market as a whole for this segment, thus our market share has remained constant. Our fixed voice segment continues to register a reduction in accesses mainly in our traditional fixed copper network which we are replacing partially with the new IP telephone accesses over our HFC and FTTH networks. Moving to slide 7, it shows the breakdown of our revenues. Service revenues totaled over 1.9 trillion pesos, decreasing 10% in real terms versus fiscal year 22, showing a 108% nominal rise, reflecting the strong influence of the price increase we performed. Our revenue breakdown as of December 2023 showed an increase in the participation of mobile services and equipment sales when compared to December 2022. Mobile and broadband are the segments where we have been able to greatly improve the path through of inflation to revenues. Mobile represents 40% of the revenues while broadband and pay TV add up to almost another 40%. The rest is composed of fixed telephony data revenues represented almost 12% of our revenues and equipment sales, 7.4. Slide eight walks us through our core businesses. We have a very good quality of product in mobile and the fastest network in the country. We are the leaders in terms of revenue share as our ARPU are higher than the competition by approximately 20-30%. We also have better pricing power in mobile. Our strategy is to continue to uphold the quality of our service, improving our NPS which has registered an improving trend since 2019. In this sense, 5G is a pillar. The deployment of 5G will be directed to the main high-density centers and large urban centers, seeking to maximize and prioritize investment with high-value mobile and convergent customers in these areas. It will evolve based on the consumption and evolution of 4G to 5G assets. Turning to our broadband segment, our network passes over 65% of the homes of the country, while the average speed of our network is over 100 megabytes per second. Our FTTH deployment strategy consists in deploying fiber specifically in those areas with XDSL connections, which we are actively offered to migrate to FTTH, while also performing overlay on HFC, Seeking to decompress that network and upgrade its performance. So, in fact, we are leveraging on the very good quality of our HFC network while actively migrating our legacy XDSL accesses. In the Pay TV businesses, Flow is our IP video platform with the best experience. Our value proposition in Pay TV aims to transform the video business into an entertainment platform. We are exploiting our Flow video platform, which we observe that has very good usage and NPS metrics in comparison with the legacy HD. In fact, we have seen good results in our paid TV during the fourth quarter of 2023, where we managed to stabilize our customer base while we are still observing encouraging growth in our Flow platform, both in FlowFull and FlowFlex modalities. Slide 9 shows our regional operations. Our operation in Paraguay is performing very well. We are the second most important player in the mobile market with 2.3 million customers and we also have a fixed broadband and pay TV offering in that country with 274,000 and 106,000 subscribers respectively. We have a fintech business in Paraguay through our digital wallet, Billetera Personal, which counts with 288,000 clients. This operation has a strong EBITDA margin of almost 50% while remaining almost a lever with a net debt to EBITDA ratio of only 0.03 times. Our operation in Uruguay is currently focused on pay TV, and we have 119,000 pay TV customers there. We have potential to grow in the local broadband market as the local regulator is beginning to open into competition. We are beginning to deploy a fixed broadband network in certain locations. During the last year, we started a cybersecurity business in Chile under the brand name Wigbo. There, we are expanding our presence in the market and growing our customer base. In slide 10, we present how we are building our digital business ecosystem. We offer B2B solutions and services to accompany the digital evolution processes of companies. Our main products include connectivity, cybersecurity solutions, cloud solutions, and Data Center Services, Digital Tools to Enhance Productivity and Internet of Things Services, which include special custom-tailored solutions for connectivity and remote monitoring. And we have a specific set of business initiatives for the agricultural segment, mining industries and oil and gas companies. During the last week, we presented the first connectivity cluster in rural areas. The project aims to cover an area of more than 500,000 hectares with continuous connectivity where Telecom will enable new mobile sites with 4G technology and IoT networks. We are also present in the fintech business with our digital wallet, Personal Pay, which currently counts with more than 2 million onboarded clients. We launched a year ago, and in an industry with exponential growth, we already have a relevant position. During this year, it has incorporated a new function and many more. I will now pass the call to Luis who will go over our financial performance.

Thank you very much, Gabriel. In slide 11, we provide an overview of our main financial figures. Consolidated revenues grew by 110% on nominal terms during 2023, reaching more than 1.1 trillion pesos. When analyzing said figure adjusted by inflation, revenues amounted to more than 2 trillion pesos, showing a decrease of 9% in real terms versus the same figure in 2022. The lack versus inflation is explained, among others, by the effect of certain discounts and promotions we grant after price increases to return our customers in a strong competitive environment. As mentioned, this lack has been reducing during this year, thanks to a pricing strategy which delivered a strong pass-through of inflation to revenues. EBITDA increased by 120% year-over-year nominal terms, generating an EBITDA margin of 29.1% during 2023, In turn, EBITDA margin in real terms was 28.1%. Additionally, our operating costs before DNA have also grown below inflation, decreasing 10% in real terms versus the fiscal year of 2022. We have continued to manage our cost structure to reduce the impact of inflation. During the fourth quarter of 2023, we managed to increase our margin for the third quarter in a row when compared to the same period the year before. This is a good indicator that our pricing and cost management strategies are guiding us in the right direction despite the headwinds coming from the macroeconomic situation in Argentina. Slide 12 shows the evolution of EBITDA year-over-year and the impact of different components of revenues and costs. During fiscal year of 2023, the company was able to contain the pressure coming from inflation in most of its coastlines. as most of them experienced a decrease or remained in line when compared with inflation. We observed good results in labour costs, programming and content costs, interconnection costs and some other items such as bad debt. The company's efforts have been very successful, as evidenced by most cost lines keeping the same share of our revenues, with almost every cost line decreasing more than our revenues in real terms. This allowed us to increase our EBDA margin for 2023 in a year-over-year basis. Slide 13 shows the company's net results and EBIT. EBIT registered an improvement in 2023 due to the fact that in 2022 the company recognized an impairment of goodwill amounting to 759 billion pesos in cost as currency as of December 2023 that was allocated to depreciation, amortization, and impairment of fixed assets. The operating margin during fiscal year 2023 was minus 6.1% of consolidated revenues, and in historical figure, the same margin was 20.3%. The company had a net loss of 249 billion pesos in 2023, mainly due to the influence of the strong devaluation that the PECSO experienced in real terms, which affected a financial debt denominated important currency. Slide 14 displays a summary of the company's capex in PP&E and intouchable assets during 2023, which amounted to more than 483 million pesos for an equivalent of $598 million at the official FX rate. This figure includes the investment in 5G spectrum for an equivalent of $214 million. This amount is almost 23% higher when compared to the previous year in contest pesos. Our consolidated amount of capex for the fiscal year 2023 represented more than 23% of our revenues when including the 5G spectrum and around 15% of our total revenues without considering said investment. Our investment level was influenced by the import restrictions in fiscal year 2023. In overall, and despite this situation, we have fully executed our CAPEX plan for this year and the performance of our network is currently very solid. Technical CAPEX was mainly composed by investment in our access network and technology. Our investments are mainly geared to enhance our access network. During 2023, 229 new mobile sites were deployed, while 1,418 existing sites were upgraded. We have acquired 5G spectrum, 100 MHz in a 3.5 GHz band that we are already using to provide this new technology. Additionally, up to date, we count with 105G sites working on said band. In our fixed access network, we increased the deployment of new FTTH over 15,000 new logs. including the overlay of our HFC network. We also improved the upstream capacity of our HFC network by almost 17,000 blocks. The balance of our CapEx was allocated to installations and customer premise equipment or CPE, which are installations and equipment in the homes of our clients and to international operations. Slide 15 describes our cash flow generation during 2023 compared with the same period of 2022. Our cash flow generation remains very robust, factoring in the macroeconomic situation in Argentina. It has been affected mostly by a lower EBITDA in real terms and higher CAPEX, mainly associated with investment in 5G spectrum. Without considering this one-off investment, our cash flow generation before dividends and interest payments would have been equivalent to more than 400 million US dollars. In dollar terms, total free cash flow generation experienced a reduction of approximately $330 million in 2023. In fact, without considering 5G spectrum, the reduction would have been of $115 million, mostly explained by the huge devaluation we already discussed. Slide 16 shows our key figures for 2023. The conversion to US dollars is obtained by converting these figures in constant pesos at the end of each period and using the end of period spot effects for each year. Our gross debt amounted to $2.6 billion as of December 31, 2023. The company holds cash in equivalent for $344 million, having a net debt of about $2.3 billion. EBDA as of the end of fiscal year 2023, using the aforementioned conversion method for figures in pesos to US dollars, was approximately equivalent to $717 million. Slide 17 gives more insight regarding the impact of the macroeconomic situation on our figures and debt. The FX increase of plus 132% in December of 2023 impacted our figures measured in US dollars. The magnitude and timing of this devaluation did not allow us to fully pass it through inflation to our figures by the end of fiscal year 2023. As mentioned, we are converting constant peso figures using the FX as of the end of this year, and this means that the FX movement impacts fully on our fiscal year 2023 figures. In fact, our EBITDA in fiscal year 2023 converted to US dollars decreased by a fraction of the FX increase, minus 34% versus the last 12 months EBITDA as of September 2023, while our net debt remained almost constant. Also, given the 5G spectrum option, we had to take an additional loan of 120 million US dollars to finance this strategic asset. This was also a factor on our debt. Additionally, in 2023, the past administration imposed an error of restrictions to access the FX market to pay for imports. Given the options currently provided by the central bank, we are managing the stock of commercial debt that was accumulated due to the aforementioned restrictions. During the last years, we have been very active in liability management, allowing us to improve the profile of our debt. In 2023, we successfully issued local notes for a total bar value of $480 million equivalent, at an average negative yield of minus 6.5%, and with an average tenor of three years. With these transactions, we reduced the participation of our cross-border debt with very convenient cost and tenors. We continue to obtain cross-border financing even in this challenging context. We have entered into new loan tranches with ADB and CDB and a new export credit line with EDC. Slide 18 shows the breakdown of our financial debt. Total outstanding debt as of December 2023 amounted to more than $2.5 billion. We have successfully paid down or refinanced all of our financial debt commitments during 2023. We have refinanced more than $600 million in a very challenging year, of which more than 50% were cross-border maturities. During 2023, we turned mostly to local capital markets to refinance our maturities, but we maintain a very good relationship with our main creditors, such as the multilateral and export credit agencies. As we have been working to deconcentrate our maturity profile, the remaining maturities going forward remain manageable. In slide 19, we summarized some important highlights regarding the company's resiliency to a tax risk. In our balance sheet, we count with physical assets such as our real estate and telecommunications infrastructure that are valued in US dollars and are bought, sold, and leased in that currency. Also, our capital position is composed mostly by US dollar denominated assets. Additionally, our income statement provides flows that give us a natural hedge. Our operation in Paraguay covers almost 50% of our consolidated interest payments. We are able to pass through most of the inflation to prices, even with inflation accelerating. And additionally, we have the ability to increase our revenues above inflation when it begins to slow down as we manage our discount and promotion policies, leverage on the recovery of our clients' purchasing power or wealth effect as inflation reduces. In a context where FX stays relatively stable, this will allow us to increase our figures in U.S. dollars. We are hedged in terms of our P&L with more revenues tied to the U.S. dollar than expenses in that currency. Turning to slide 20, we conclude with some final remarks underlining some favorable highlights about the company. We managed to maintain our EBITDA margin in a challenging context in Argentina. In the fixed segment, we managed to stabilize our customer base in a strong competitive environment. We are investing in new technologies such as 5G and FTTH in order to improve our connectivity services. We increased the participation of local financing, which has allowed us to take advantage of a lower cost of financing and to accept the increase in the base rate of our floating rate debt. Finally, we continue to provide long-term value for our investors. We have a solid and stable free cash flow generation before dividends and interest payments, generating between $400 and $500 million annually during the last three years, considering ordinary capex for each year. We paid a dividend every year since the merger, and our weighted average dividend yield has been 7.7%. So 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 in the Q&A session, which we will open immediately. Please use the raise 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 very much. Well, we have a question here from Ernesto Gonzalez from Morgan Stanley. I will read it. What trends are you seeing so far in the first quarter? And how are your clients taking price increases amid inflation levels? And could you please provide some color on CapEx for 2024?