Telecom Argentina SA

Good morning everyone and welcome to Cablevision Holdings conference call. Today the team will discuss results for the first half and second quarter of 2024 as per the earnings released distributed last Monday, August 12th. My name is Chris and I will be your conference operator today. This call is for investors and analysts only. Therefore questions from the media will not be taken at this time. However, If you are a member of the media and have a question, please contact FIG Corporate Communications. Comments made by the company may contain forward-looking statements about cable vision holdings, future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause cable vision holdings, actual results, and operations to differ materially. Such uncertainties include but are not limited to the effects of the impact of new or ongoing industry and economic regulations, possible changes in demand for Cablevision Holdings products and services, and the effects of more general factors such as changes in general market, economic, or in regulatory conditions. Please refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. If you have not received a report or need any assistance during today's call, please contact FIG Corporate Communications in New York at 917-691-4074, or the company in Buenos Aires at 5411-4309-3417. CZH has also posted the webcast presentation that can be found at www.cablevisionholding.com slash investors. Following the presentation, there will be a question and answer session. You may submit your questions throughout the event by clicking in the submit a question box on your screen. I will now introduce our speakers. Mrs. Samantha Olivieri, Head of Investor Relations. For the Q&A session, she will be joined by Mr. Ignacio Drolier, CVH's Executive Director and Chairman. It is now my pleasure to turn the conference over to Mrs. Samantha Olivieri. Please go ahead, ma'am.

Thank you, Chris. Good morning, everyone, and thank you for joining us. Today's call will begin with a brief macro overview and continue with a review of the company's income statements and operating results, followed by a review of the financial position. Having gone through the agenda for today's webcast, please move to slide four for the macro overview. As we mentioned in the previous calls, in its first months in office, the new administration implemented an economic program of controlled shop, which simultaneously attacked several fronts, including the fiscal deficit, the correction of relative prices, primarily the official exchange rate and utility tariffs, and the central bank's balance sheet by both recomposing international reserves and reducing the remunerated liabilities of the monetary authority. While the government is seeing results from its program, the cost in terms of economic activity and employment level is proving to be significant. There is a considerable deceleration in inflation rate, but the economic recovery and wages recomposition are progressing slower than expected. After the significant decline recorded in the first three months of the year, the economy seems to have found a floor in the second quarter. As a matter of fact, the monthly estimator of economic activity surveyed by the index, EMAE, approximately for the real GDP, presented a breaking point in its last measurement. After falling back six months in a row in year-on-year terms, This indicator registered its first increase of the year in May of 2.3%, equivalent to 1.3% increase when compared to the previous month. It is worth noting, however, that this result is mainly explained by the very good performance of the agricultural sector when compared to the values of the record drought of 2023. In this sense, the agricultural sector as a whole has observed average year-on-year increases of just over 60% in the last three months, which contribute to cushioning the worrying setback that still persists in several critical sectors of the economy, such as industry, construction, and commerce. Looking ahead, we understand that the priority of the economic policies will continue to be to strengthen the deceleration of the inflation and the recomposition of the central bank's reserves. In order to achieve this, preserving the balance of the public accounts, a fundamental pillar of the current program, is crucial. The speed of the recovery of the economic activity in general and private consumption in particular, as well as the daily dynamics of foreign and currency purchases by the monetary authority and the evolution of the exchange rate gap of alternative dollars are issues to be closely monitored in this delicate context. Slide 6 shows the key financials for the first half of 2024. The company has reflected the effects of the inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores, CMV, which establishes the re-expression of figures must 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 the first half of 2024 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results restated by inflation corresponding to June 2023 contain the effect of year-over-year inflation as of June 2024, which amounted to 271.5%. In this presentation, we included some figures and historical values for the sake of clarity. CBH owns 39.08 stake in TEO and as controlling shareholder of Telecom Argentina, it consolidates 100% of its operations. Revenues in nominal terms increased 247% in constant currency. Revenues for the first half of 24 dropped 13.3% from 1,921.7 to 1,667 billion pesos, mainly driven by lower service revenues. increasingly high inflation is challenging to fully pass through to prices of our services. EBITDA reached approximately 494 billion pesos in constant currency, a 9.1% decrease compared to first half 23, driven by lower revenues partially upset by lower operating costs. EBITDA margin increased to 29.6% compared to 28.3% in first half 23. EBITDA nominal pesos amounted to 461.5 billion, 266% higher than the nominal EBITDA for first half 23, while average inflation rate for the same period was approximately 276.4. And the end of period year-over-year inflation amounted to 271.5%. Net income resulted in a profit of 856 billion pesos from 150.5 billion reported during first half 23. This increase in net income is mainly explained by financial net results as a variation of the parity between the official exchange rate and the U.S. dollar was lower than the inflation for the period, resulting in positive foreign exchange results, partially offset by income tax. The equity shareholders net income for the period amounted to 329.7 billion pesos and is mainly the result of CBH's stake in Telecom. Now let's continue on slide eight for a discussion of the operating results for the second quarter of 24. Revenues in the second quarter of 2024 decreased by 8.3%, albeit price increases for our services. Keeping up with the high level of inflation the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal terms increased 247%, lower than the average inflation rate for the period, resulting in lower revenues when measured in constant pesos. The main source of our revenues is our fixed infrastructure. Broadband, pay-to-be, and fixed telephony and data services amounted to 52.4% of the total. Mobile service participation decreased slightly, reaching 40% from 40.5% in first half 23, driven by lower ARPU in real terms, given the competitive dynamic of the industry and the migration from postpaid to prepaid subs in the customer base with an increase in mobile subs. EBITDA increased by 301% year-on-year in nominal terms, representing an EBITDA margin of 31.7%, while EBITDA in real terms increased 1.5% and the margin increased to 29.1%, higher than the 26.3% margin of second quarter 23. The net income for the period attributable to the equity shareholders was 19,568 million in constant pesos, mainly as a result of CBH participation in Telecom's net income. Now let's move on to slide eight. Mobile revenues represented approximately 40% of our revenues and decreased 8.9% in real terms when comparing second quarter 24 versus second quarter 23, mainly explained by lower ARPU in a highly competitive environment and a change in the prepaid and postpaid mix, partially upset by an increase in sales. Personal Argentina clients increased 2.8% to 21.2 million, of which postpaid clients amounted to 38%. Mobile internet usage increased, reaching an average of 6.5 gigabytes per user per month in the first half of 24. In Argentina, in a highly competitive environment and influenced by an increase in prepaid clients which have a lower ARPU, ARPU restated in constant currency decreased by 18.2% to 4,743.5 pesos in the first half of 24, and monthly churn decreased to 1.6%, from 1.8% in first half of 23. Since they roll it as a strategic CapEx plan and the convention offer, the company has turned around its trend of negative net addition portability in Argentina and has been increasing the number of subs over the last six years, even in highly competitive market. Telecoms CapEx deployment has also allowed it to obtain the award for the fastest 4G network in Argentina from UCLA at the 2024 Mobile World Congress in Barcelona for the fifth year in a row. Now, please turn to slide nine. Revenues for fixed services, including broadband cable TV and fixed telephony and data services, decreased by 5.2% in real terms, mainly driven by the challenging inflationary dynamic. Legacy Copper fixed voice service continues experiencing a reduction in accesses, partially upset by an increase in IP telephony lines. Data services are agreed in US dollars, offsetting the decrease in legacy telephony revenues. On the B2B services, Telecom's strategy is to position itself as an integrated service provider for large customers by offering convergent ICT solutions, including fixed and mobile voice, data, internet, multimedia, data center, and application services through sales, consulting, management, and specialized and targeted cost sales customer services. Broadband subscribers remain stable at 4.1 million, while monthly churn increased to 1.9% in first half of 24 from 1.7% in first half of 23. Nonetheless, there is growth in the fiber to the home segment, resulting in an increase of average speeds. 86% of our customers have accesses with speeds of 100 megabytes or higher versus 83% in first half of 23. ARCO in real terms increased to approximately 16,034.2 pesos. Thanks to the effective pricing policy implemented since 2023, price increases during 2023 and first half of 24, and higher internet speeds sold to our customer base allows Telecom to increase broadband ARPU in real terms for the second quarter in a row. Moving to the cable TV subscribers, the customer base decreased slightly to 3.3 million following industry trends, While Flow Unique customers achieved 1.5 million, a 10.6% increase from figures observed over a year ago. Through its proposal as a content aggregator, Flow includes not only linear TV, series, on-demand movies, documentaries, and co-productions, but also music, gaming, and exclusive events. I-Point Real Terms decreased by 33.2% to 11,098.1 pesos during the first half of 2024, mainly due to the challenge presented by the high inflation and commercial discounts granted according to customer retention policy. Monthly churn increased to 2%. Please turn to slide nine. The company has been trying to offset inflation impact on revenues and costs, but the increasingly high inflation dynamic of the last two years and the stress price increases generated on the subscriber base recovering terrain is a challenge. Year-over-year inflation as of June 30th of 2024 amounted to 271%, while average inflation for the same period was 276.4%. During 2023, given the increasing inflation, our subsidiary Telecom increased prices of its services with greater frequency and has continued with this policy during the first half of 2024. In response to the increasingly complex inflationary dynamic, it began increasing prices on a monthly basis, which has allowed it to close the gap between inflation and ARPUs. In parallel, it has undertaken retention actions, mainly granting discounts to our clients. These price increases have resulted in higher ARPU and nominal terms across all services, as shown in exhibits 19 to 22. The nominal price increases, coupled with certain discounts and promotions to retain customers following these prices, in a strong competitive environment were not enough to offset the inter-annual inflation in mobile, pay-to-be, and fixed telephony, thus resulting in lower revenues when measured in constant basis versus first half of 23, while ARPU for broadband services increased inter-annually in real terms for the second quarter in a row. The company will continue to monitor It's cost structure, competitive environment, client behavior, and household income in order to decide on future price increases to help compensate for inflation and maintain sustainability. Let's move to slide 11 for a discussion of cost structure before we discuss quarter-over-quarter EBITDA performance. Amongst the most significant operating costs and expenses are salaries, fees for services, maintenance materials, and supplies costs, and taxes and fees for the regulatory authorities. On slide 12, we show the performance of EBITDA and the behavior of the different components of revenues and costs. The company continues with its cost management efforts and has shown positive results despite a challenging economic context. Operating costs, excluding cost of equipment and handsets, decreased in real terms 10.9%. All of the company's cost components decreased in real terms, reflecting efficiencies achieved by the company's management in terms of costs. Total operating costs decreased 11.8% in real terms, higher than the reduction in revenues. Thus EBITDA increased by 1.5% in real terms and margin reached 29.1% compared to 28.3% in process of 23. Next slide, please. It is worth mentioning that even in the challenging macro environment, this is the fifth quarter in a row with positive emerging performance and the first quarter with both revenue and EBITDA sequential growth since first quarter of 21, reflecting the efficiencies achieved in terms of cost and the pricing policy executed to tackle the increasing inflation. Slide 14, please. In the second quarter of 24, investments as a percentage of revenues was 16.7% or 11.7 before rates of views from leases, higher than the same period of the previous year, lower, I'm sorry, than the same period of the previous year investment decreased 2.1 percent year over year the capex plan is flexible and the company has been investing above the global average ratio of capex to revenues during previous years in order to achieve its goals in terms of network performance and coverage which is currently strong technical capex was mainly allocated to network and technology and customer premise equipment or cpe the balance was allocated to our international operations in paraguay and uruguay During the last quarter, the company continued with the deployment and upgrading of existing sites and expansion of its fiber to the home network, including the overlay of the HFC network. Following the frequency auction in 2023, it has over 100 5G sites working on the newly acquired 3.5 GHz band and plans to reach 200 sites by the end of the year. The CAPEX program will continue evolving according to Argentina's economic conditions, network performance, and customers' requirements. Going to the debt financial position as per slide 16, as of June 2024, we have reported a total financial debt of 2,564 billion pesos and a debt of 2,168.8 billion pesos, equivalent to 2.4 billion in U.S. dollars. The year-over-year decrease of total debt measured in constant pesos is mainly explained by the effect of inflation being higher than the jump in the FX rate for the same period, resulting in lower debt when measured in constant pesos, partially upset by the increase in the debt for the acquisition spectrum, additional debt to subscribe to real bonds in order to settle commercial debt generated by the restrictions and access to the FX market for the past administration, net of maturities canceled during the same period. 100% of the debt is at operating level in Telecom Argentina. Of the total debt, around 51% is cross-border dollar denominated, 42% is in Argentine pesos, including dollar-linked local emissions, and the rest is in Guaraníes and Mimbe. Telecom has been accessing the local market for its financing needs, tackling the increase in interest rates and reducing cross-border risk. As per current central bank regulations, Telecom has access to the official FX rate market for all its financial debt maturities. From 2024 to 2026, debt maturities remain manageable. Nonetheless, it is worth mentioning that during July and August, Telecom accessed the international markets conducting liability management transactions that will allow it to significantly improve the maturity profile and average life of its debt. After giving effect to these transactions, debt maturities for 2025 and 2026 remained around $700 to $600 million, extending maturities over 2029, 2030, and 2031. Net debt to adjusted EBITDA coverage ratio as of the end of June 2024 was 2.2 times, a significant improvement versus the December 2023 figure a testament of the company's resilience to changing macroeconomic conditions. That concludes our comments. We are now ready to take your questions. Operator?

Thank you. At this time, we will open the floor to your questions. As a reminder, if you do have a question, please type it in the Submit a Question box on your screen and click Send. We will now pause for a few seconds in order to allow participants to write their questions. And again, if you do have any questions, please type them in the box below the webcast window and click the send button. And at this time, we are showing no further questioners in our queue, and this does conclude our question and answer session. So at this time, I would like to turn the conference back over to Samantha Olivieri for any closing remarks.

Thank you, Chris. We thank you for joining our conference call today. Should you have any questions, do not hesitate to contact our IR team. Have a good day.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.