Telecom Argentina SA

Good morning and welcome to Kabul Vision Holdings conference call. Today the team will discuss nine months and third quarter 2024 results as per the earnings release distributed last Thursday, November 7th. My name is Drew 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 questions, please contact FIG Corporate Communications. Comments made by the company may contain forward-looking statements about Cabo Vision Holdings' future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause Cabo 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 Cabo Vision 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 receive the report or need any assistance during today's call, please contact FIG Corporate Communications in New York at 917-691-4047 or the company in Buenos Aires at 5411-4309-3417. CVH has also posted the webcast presentation that can be found at www.cabalvisionholding.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 speaker, Mrs. Samantha Olivieri, Head of Investor Relations, and Julianne Rashia, Senior Analyst. For the Q&A session, they will be joined by Mr. Ignacio Driolet, CVH's Executive Director and Chairman. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Drew. 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, I will now pass the call to Julian for the macro overview.

Thank you, Samantha. Please move to slide four. As we mentioned in the previous calls in the first month in office, the government implemented a stabilization program based on three key anchors, a fiscal anchor, an exchange rate anchor, and a monetary anchor. For the first time in over a decade, a fiscal surplus was achieved On the exchange rate front, the government stabilized the currency through a crawling peg policy set around 2% monthly adjustment within a framework of currency controls. Additionally, monetary issuance was stopped. The government also advanced in adjusting relative prices, in particular for regulated services. Regarding inflation, there was a progress in slowing down the speed of price increases. The rate of deterioration was more pronounced during the initial month. However, in recent months, this acceleration has moderated, aligning more closely with the 2% monthly crawling pay. The central bank has focused on improving its balance sheet by eliminating remunerated liabilities and gradually rebuilding gross international reserves. In addition, the recent tax amnesty program leads to an increase in private sector USD deposits of nearly $16 billion, 86% in just two and a half months. This inflow of foreign currency, along with substantial agricultural sector exports and increased corporate bond issuance, boosted the central bank's gross reserves to over $30 billion. Market confidence in the economic program has shown signs of improvement. Since the change in government, the country's risk index has dropped by 62% and fallen below 900 points, the lowest level in the last five years. This is an encouraging indicator given the need to re-access international debt markets. The stabilisation programme is having a negative impact on activity and consumption. It is estimated that the economy will contract by 3.5% this year, but will grow by 5% in 2025. The decline is concentrated in the early months of the year, after which a plur was reached and gradual signs of improvement begin to emerge. The monthly economic activity estimator has increased for the second consecutive month, but is still showing a 3.8% year-on-year decline compared to August 2023. The best-performing sectors this year are agriculture and energy, while the sectors still lagging are industry, construction, and retail. Looking forward, despite the progress made, the current administration will face several challenges. The legislative election next year, which will retest approval levels during the stabilization lifting currency controls, and returning to international debt markets. Now, I will pass the call back to Samantha. Thank you.

Thank you, Julián. We will now continue with CBH key financials. Slide 6 shows the key financials for the nine-month 2024. The company has reflected the effects of inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores, CMB, 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 nine months of 2024 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standard 29. For comparative purposes, The results, restated by inflation corresponding to September 2023, contain the effect of year-over-year inflation as of September 2024, which amounted to 209 percent. In this presentation, we included some figures in historical values for the sake of clarity. CVH owns 39.08 stake in TEO and is controlling shareholder of Telecom Argentina. It consolidates 100 percent of its operations. Revenues in nominal terms increased 220%. In constant currency, revenues for the nine months of 2024 dropped 10.4% from 3,185.1 to 2,852.3 billion pesos, mainly driven by lower service revenues. The increasingly higher inflation during 2023 was challenging to fully pass through to prices for our services. EBITDA reached approximately 820.5 billion pesos in constant currency, a 10.4% decrease compared to nine months 23, driven by lower revenues, partially upset by lower operating costs. EBITDA margin reached 28.8%, similar to the level for the same period of the previous year. It is worth mentioning that as part of its efforts to gain efficiency and thanks to the digitalization of processes, Telecom has accelerated the right-sizing of its structure, particularly in third quarter 24. EBITDA margin for nine months 24, excluding the effect of severance payments, would have been 31.7% versus 30% for the same period of previous years. EBITDA nominal pesos amounted to 733.5 billion pesos, 239% higher than nominal EBITDA for the nine months of 23, while average inflation for the same period was approximately 258.9%, and the end-of-period year-over-year inflation amounted to 209%. Net income resulted in a profit of 947.3 billion pesos from 266.3 billion reported during 9 months 23. This increase in net income is mainly explained by the 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 362.2 billion pesos and is mainly the result of CBH's stake in Telecom. Now let's continue on slide seven for our discussion of the operating results for the third quarter. Revenues in third quarter 24 decreased by 4.6%. Albeit price increases for services, keeping up with the high level of inflation the Argentine economy has experienced over the past 12 months has been a challenge. In addition, commercial discounts are granted according to customer retention policy for some of our services. Revenues in nominal terms increased 220%. 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 TV, and fixed telephone and data services amounted to 51.6% of the total. Mobile service participation increased slightly, reaching 40.8% from 40.6% in 9 months 23, driven by the decrease in share of pay TV revenues over total revenues. EBITDA increased by 202 percent year-on-year in nominal terms, representing an EBITDA margin of 28.7 percent, while EBITDA in real terms decreased 13.1 percent and margin decreased to 27.1 percent, lower than the 29.8 percent margin of third quarter 23. As we mentioned, TLECOM has accelerated the rightsizing of its structure, particularly in this quarter. EBITDA margin, excluding the effect of severance payments, was 31.2% in third quarter 24 versus 31.1% for the same period of the previous year. The net loss for the period attributable to the equity shareholders was $7,427 million in constant pesos, mainly as a result of CVH participation in telecoms net income. The decrease in net income is mainly explained by a negative income tax charge versus a positive charge in third quarter 2023, lower EBITDA, and lower positive net financial results, partially offset by lower depreciation and amortization. Now let's move on to slide eight. Mobile revenues represented approximately 40.8% of our revenues and decreased 4.3% in real terms when comparing third quarter 24 versus third quarter 23, mainly explained by lower ARCU in a highly competitive environment and a change in the prepaid and postpaid mix, partially offset by an increase in subs. WebSanal Argentina clients increased 3.2% to 21.4 million, of which postpaid clients amounted to 38%. Mobile Internet usage increased, reaching an average of 6.5 gigabytes per user per month in nine months, 24. In Argentina, in a highly competitive environment and influenced by an increase in prepaid clients which have lower ARPU, ARPU is stated in constant currency decreased by 14.3% to 5,458.9 pesos in nine months, 24, and monthly churn decreased to 1.5% from 1.8% in nine months, 23. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net additions in Argentina and has been increasing the number of subs over the last six years, even in a highly competitive market. Telecom's 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. Please turn to slide nine. Revenues for fixed services, including broadband, cable TV, and fixed telephony and data services, decreased by 3.7% in real terms, mainly driven by the challenging inflationary dynamic affecting pay TV and a reduction in fixed telephony clients. Legacy Copper fixed voice service continues experiencing a reduction in accesses, partially upset by an increase in IP telephony lines. Data services offset 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 post-sale customer services. Internet services revenues increased 14.5% year-over-year in real terms. Broadband subscribers decreased 1.1% to 4 million, while monthly churn increased to 1.9% in 9 months 24 from 1.7% in 9 months 23. Nonetheless, there is growth in the fiber-to-home segment, resulting in an increase in average speeds. 87% of our customers have accesses with speeds 100 megabytes or higher versus 84% in nine months, 23. ARPU in real terms increased to approximately 18,657.7 pesos. Thanks to the effective pricing policy implemented since 2023, price increases during 2023 and 2024, and higher internet speeds sold to our customer base allowed Telecom to increase broadband ARPU in real terms for the third quarter in a row. Moving to the cable TV subscribers, the customer base increased to 3.4 million, mainly explained by the success of Flow Flex, which is 100% digital with no decoder or installation needed. Flow Unique customers achieved 1.5 million, an 8.8% increase from figures observed over a year ago. For its proposal as content aggregator, Float includes not only linear TV, series, on-demand movies, documentaries, and co-productions, but also music, gaming, and exclusive events. Alpo in real terms decreased by 30.1% to 12,698.6 pesos during nine months 24, mainly due to the challenge presented by the high inflation and commercial discounts granted according to customer retention policies. Monthly churn increased to 2.1%. Please turn to slide nine. The company has been trying to offset the impact of inflation on revenues and costs, but with the increasingly high inflation dynamic of the last few years and the stress price increases generated on the subscriber base, recovering terrain has been a challenge. Nonetheless, it is worth mentioning that the deceleration of inflation and the effective pricing policy the company has implemented has allowed it to increase prices above inflation over the past month, resulting in higher revenues in real terms quarter over quarter. Year-over-year inflation as of September 30th of 2024 amounted to 209%, while inflation average for the same period was 258.9%. During 2023, given the increasing inflation, our subsidiary Telecom increased prices of its services with greater frequency and has continued with this policy during 2024. In response to the increasingly complex inflationary dynamic, it began increasing prices monthly, which has allowed it to close the gap between inflation and apples. In parallel, it has undertaken retention actions, mainly granting discounts to its clients. These price increases have resulted in higher ARPA 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 rises in a strong competitive environment, were not enough to offset the interannual inflation in mobile, pay TV, and fixed telephony, thus resulting in lower revenues when measured in constant pesos versus the nine-month 23, while ARPU for broadband services increased interannually for the second quarter in a row. The company will continue to monitor its 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 the cost structure before we discuss quarter-over-quarter EVTA performance. Among the most significant operating costs and expenses are salaries, fees for services, maintenance, materials, and supplies costs, and taxes and fees with the regulatory authority. On slide 12, we show the performance of EBITDA and the behavior of 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 hands, decreased in real terms 0.6%. Most of the company's cost components, except for severance payments and other operating income and expense, decreased in real terms, reflecting efficiencies achieved by the company management in terms of costs. As we mentioned before, telecom is accelerating its rate sizing. As a consequence, severance payments increased significantly during this quarter and represented 4.1% over revenues, from 1.3% in third quarter 2003. Salaries before the effect of severance payments decreased 10% in real terms. Total operating costs, including severance payments, decreased 1 percent in real terms, lower than the reduction in revenues. Thus, EBITDA decreased by 13.1 percent in real terms and margin reached 27.1 percent. Next slide, please. It is worth mentioning that even in the challenging macro environment, this is the second quarter in a row sequential revenue growth since fourth quarter 22, and the third quarter with EBITDA before severance payments, sequential growth, reflecting the efficiencies achieved in terms of cost and the pricing policy executed to tackle increasing inflation. Slide 14, please. In third quarter 24, investments as a percentage of revenues was 18.8% or 12.3% before rights of use from leases, lower than the same period of the previous year. Investments decreased 22.2% year over year. The CAPEX plan is flexible, and the company has been investing above 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 the fiber to the home network, including overlay over 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 the customer's requirements. Going to the debt financial position as per slide 16. As of September 2024, we have reported a total financial debt of 2,663.4 billion pesos and net debt of 2,310.4 billion pesos equivalent to 2.4 billion in U.S. dollars. The year-over-year increase of total debt measured in constant pesos is mainly explained by the effect of the 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 debt for the acquisition of Spectrum, additional debt to subscribe Bob Real bonds in order to settle commercial debt generated by the restrictions in access to the FX market with the past administration, net of maturities canceled during the same period. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 48% is cross-border dollar denominated, 45% is in Argentine pesos, including dollar-linked local emissions, and the rest is in Guaraníes and Raminmi. During the past years, 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, TELCOM has access to the official FX market for all its financial debt maturities. In addition, during July and August this year, TELCOM accessed the international markets, conducting liability management transactions that have allowed it to significantly improve the maturity... over 2029, 2030, and 2031. Furthermore, in October, Telecom reopened its international 2031 bond, raising an additional 200 million US dollars, which will be applied to improve the profile of its debt. From 2024 to 2026, debt maturities remain manageable. Please note that the debt profile graph does not include the aforementioned transaction, as it is dated as of September 30th. Net debt to adjusted EBITDA coverage A ratio as at the end of September 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. Drew?

Thank you. At this time, we will open the floor for your questions. If you would like to ask a question, please type it in the box. and click send. We will now pause for a few seconds in order to allow participants to write their questions. And it appears that we have no questions at this time. I would like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, Drew. Thank you all for attending the conference today. Should you have any questions in the future do not hesitate to contact our IR team. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.