This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good morning and welcome to Cablevision Holdings conference call. My name is Jamie and I will be your conference operator today. After the speaker's remarks, 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 screens. Today we will discuss Cablevision Holdings results for the nine months and third quarter 2021. 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 following the call. I will now introduce our speakers, Mrs. Samantha Olivieri, Head of Investor Relations, and Ms. Valentina Lopez, Senior Analyst. Additionally, Mr. Sebastian Bardengo, Executive Director and Chairman, will also be available for today's question and answer session. The team will be discussing the results as per the earnings release distributed last Tuesday, November 9th. If you have not received 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 CBH has also posted the webcast presentation that can be found at www.cvh.com.ar under the IR section. Comments made by management may contain forward-looking statements about Cablevision Holdings' future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause Cablevision Holdings' actual results and operations to differ materially. Such uncertainties include but are not limited to the effects of the impact and duration of the COVID-19 pandemic, 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 the general market, economy, or in regulatory conditions. We ask that you refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the conference call over to Mrs. Samantha Olivieri. Ma'am, please go ahead.
spk02: Thank you, Jamie. Good morning, everyone, and thank you for joining us. Today's call will begin with a discussion of recent events then move forward to a brief macro overview and to the company's income statements and operating results, followed by a review of the financial position. Before discussing our results for the quarter, let me share with you the latest regulatory decisions by the Argentine government. Please move to slide four. The Argentine government issued The Decree 690-2020, later confirmed by the Congress, declaring mobile, fixed-voice, broadband, and pay-to-be as public essential services and freezing their prices until the end of 2020, while then stating INACOM as a regulatory agency in charge of enforcing the decree and regulating the industry prices. In May 2021, the Second Chamber of the Federal Court of Appeals on Administrative Litigation Matters granted TELECOM a preliminary injunction suspending the effects of Sections 1, 2, 3, 4, 5, and 6 of Decree 690-20 and of NACOM Resolutions No. 1466-2020, 1467-2020, and 204-21. On June 18, 2021, the Second Chamber of the Federal Court of Appeals on Administrative Litigation Matters resolved by majority to reject the extraordinary appeals filed by the national government and ENACOM against the injunction granted in favor of Telecom. In October 2021, the same court extended the injunction granted in favor of Telecom for an additional period of six months. As a consequence of such injunction, Telecom may manage the pricing policy of its services as before the Decree 690-2020. Now, we will continue with an update of the tender offer process. Then we will move on to a brief macro overview and to the company's operating results, followed by the review of the financial position. Let's move to page 5, where you will see a summary of the relevant aspects of the change of control tender offer. As we mentioned in our last call, by the end of December 2019, a first-instance judge of the Federal Administrative Litigation Matters Court admitted the claim filed by Mr. Vurgenio in his capacity as a shareholder of Cablevision Holdings and resolved that on basis of paragraph K, Article 32 of the Resolution 779-2018, issued by the CMV, Regulating Capital Market Law No. 26831, passed in May 2018, CVH no longer had an obligation to launch a mandatory tender offer as a result of the change of control in Telecom Argentina. While CVH did not appeal the Court's decision and agreed with the position of the claimant, the CMV appealed such a decision with the Court of Appeals. For those unfamiliar with the term, CMV is Comisión Nacional de Valores, which is the local equivalent of the SEC. In September 2020, the Court dismissed the appeal filed by CMV and confirmed the decision of the first instance court in favor of the claimant, Mr. Daniel Burgueña. Later, in October 2020, the Federal Court of Appeals denied CMV's request to have the case heard by the Argentine Supreme Court Recurso Extraordinario, and the CMV filed a complaint against this decision with the Supreme Court. Now it is the Supreme Court that has to evaluate if it will or not accept the case. There's no timeframe to do so. Finally, I want to mention that the legal proceedings about the price of the tender offer filed by the CVH with the Federal Civil and Commercial Court is still waiting for the first instance decision. We will keep the public informed about any news relating the tender offer process. Having gone through the discussion of the TO process, please let me pass the call to Valentina.
spk01: Thank you, Samantha. I will continue with the macro overview. Let's move on to slide six. Argentina's economy is going through a deep crisis with no precedents, worsened by the COVID-19 pandemic. And even though the second wave has been overcome and the economy has shown some level of recovery, the risk derived from new variants is turning the context more worrisome and challenging. Moreover, the midterm elections are taking place in this complex scenario, and from a macroeconomic and financial perspective, its results are decisive in the government strategy moving forward. In addition, the costs associated with the required macroeconomic adjustment needed to address the prevailing imbalances will likely be greater, given the negotiations with the IMF to avoid the chance of falling into arrears next year. Regarding the economic activity, after a plunge of 2020, it has started a recovery path, but at a slower pace than the countries of the region. GDP is expected to close the third quarter of 2021 with an increase of 9% and 2.2% on an annual basis and compared to the previous quarter, respectively. As a result of such expectations, the economic growth forecast has been revised upward to around 8% by the end of the year, mainly driven by the easing of restrictions during the second half of 2021 and the economic activities returning to normal. However, a slower dynamic is expected for the coming quarter. It is worth noting that the evolution of economic activity has come with increasing inflation. As we can see in the consumer price index graph, even though the government is tightening price controls and reinforcing its intervention on the FX market as the main way to anchor inflation, prices keep accelerating at a higher than expected rate. increasing more than salary, regulated tariffs, and official FX rate. At the end of September of 2021, inflation was 52.5% on an annual basis, the highest rate registered in the year, even above the 36.1% inflation registered in 2020. Regarding the current account and fiscal balances, as we can see in the graph, Argentina has registered another period of current account surplus, mainly fostered by the effects of tourist restrictions, and a high primary fiscal deficit. On the fiscal front, even though the primary fiscal account had a positive performance during the first half of 2021, public spending has accelerated since June, ahead of elections, and is expected to maintain this low pace until the end of the year, accounting for a primary fiscal deficit of 3.8% in terms of GDP. Lastly, it is important to mention that the central bank growth results remain weak, currently accounting around $42.5 billion, especially considering the sovereign foreign debt profile. As we can see in the last graph of the slide, even considering that Argentina has been benefited from the IMF's special drawing rights to boost its effects research, a consistent and comprehensive macroeconomic program with the IMF is crucial in the short term to ease the burden of death maturity. Coming up, we expect the Argentine economy to continue to show high levels of difficulties, especially considering that there is not a clear macroeconomic path. We still believe that a new agreement with the IMF is critical to achieve lower economic uncertainty. In this sense, the main challenges that the current administration will also face are the reduction of the fiscal and monetary imbalances, the ability to contain inflation as the economic activity recovers, and the maintenance of the current health situation, which has allowed the normalization of economic activities. Now I will pass the call back to Samantha.
spk02: Thank you, Valentina. We will now continue with CBH Keys Financials. Slide 8 shows the highlights for the nine months 2021. The company has reflected the effects of the inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores, 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 nine-month 2021 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 2020 contain the effect of the year-over-year inflation of September 2021, which amounted to 52.5%. In this presentation, we include some figures and historical values for the sake of clarity. CVH owns 39.08 stake in Telecom and is controlling shareholder of Telecom Argentina. It consolidates 100% of its operations. In constant currency, revenues for the nine months 21 dropped 7.7% from 317.5 to 293 billion pesos. mainly driven by lower revenues from mobile services, broadband, cable TV, and fixed telephony and data services, partially offset by higher equipment sales revenues. EBITDA reached approximately 95.2 billion pesos in constant currency, an 8.9% decrease compared to nine months 20, driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 35.7% to 32.5%. EBITDA and nominal pesos amounted to 86.3 billion pesos, 26% higher than nominal EBITDA for nine months 20, while inflation for the same period was approximately 52.5%. Net income totaled 1,392 million from negative 1,681 million reported during nine months 20. The increase in net income is mainly the result of positive financial results versus negative figures in 2020, driven by FX differences as per IAS 29, partially offset by lower EBIT and higher income tax accounting as a result of the increase of the tax rate passed by Congress in June 2021 applied to deferred income. The FX black prevented the impact of losses and results due to the re-evaluation of the debt in dollars as happened in previous quarters. The equity shareholders net income for the period amounted to $509 million, and is mainly the result of positive financial results from holding of the bonds received as a dividend in CVH level. Now let's continue on to slide nine for a discussion of the operating results in third quarter 21. Revenues in third quarter 21 decreased by 5.8 percent with prices for ICT services frozen for the most of 2020. 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 43%, while inflation for the same period was approximately 52.5%. The main source of our revenues is our fixed infrastructure. Broadband, ATB, and fixed telephony and data services amounted to 54.3% of the total, while mobile services participation stood at 38.4%. EBITDA increased by 26% year-on-year in nominal terms, representing an EBITDA margin of 30.4%, while EBITDA margin in real terms decreased to 29.5%. The net income for the period attributable to equity shareholders was $1,590 million in constant pesos, mainly as a result of CVH participation in telecoms net income and positive financial results from holding of bonds received as dividend at CVH level. Now let's move on to slide 10. Mobile revenues represent approximately 38.4% of our revenues and decreased 8.4% in real terms when comparing third quarter 21 versus third quarter 20. Personal Argentina clients increased 4.7% to 19.5 million and postpaid clients amounted to 42% of total mobile clients compared to 41% in 2020. The company has been able to increase its postpaid subscriber base improving its ARPU and reducing churn. Mobile internet usage increased, reaching an average of more than 4.2 gigabytes per user per month in the first half of the year. Thanks to the CapEx deployment, Telecom has been able to increase the number of its 4G subscribers. This rapid growth in subscribers that use 4G network has been the main driver of data traffic increase. In Argentina, ARPU restated in constant currency, decreased by 7.1%, to 568 pesos in nine months 21, and monthly churns showed a significant improvement, decreasing to 1.1% from 2.2% in nine months 20. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile internet. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net addition in Argentina and has been increasing the number of subs over the last three years. Please turn to slide 11. Revenues for fixed services, including broadband, cable TV, and fixed telephony and data services, decreased by 5.2% in real terms. The broadband business has performed well despite a tough macroeconomic environment. The number of subscribers increased 1.8% to 4,248.3,000, and monthly churn increased to 1.5%. Ad point real terms decreased to approximately 1,580.5 pesos. With prices frozen from May to December 20, price increases in January, June, and September 21, and higher internet speeds sold to our customer base were not enough to compensate for the inflation. It should also be noted that due to our cross-selling strategy, fixed products have been offered with some discounts to encourage positive mobile portability. Around 68% of the 4.2 million broadband customers reached in third quarter 21 subscribe to services with speeds 50 megabytes or higher. Moving to the cable TV subscribers, the customer base remains stable at 3.6 million, showing a slight increase year over year. Furthermore, Flow unique customers achieved 1.1 million, a 12% increase from figures observed over a year ago. During the last 12 months, Flow, through its Flow app version, has continued to expand its penetration in areas where personal has a great presence, mainly the northern region of Argentina. This has allowed an increase in the capture of cable TV subscribers in regions which the company reaches through its XDSL and fiber-to-the-home network. ARPO in real terms decreased by 10.7% to 1,749.2 pesos during nine months 21, and monthly churn increased to 1.1%. Please turn to slide 12. The company has been trying to offset the inflation impact on revenues and costs, but its price increases were suspended in 2020 by a series of government decrees. Year-over-year inflation of September 30th of 2021 amounted 52.5%, while inflation for the first nine months of 2021 amounted to 37%. As of September 2021, our subsidiary Telecom has made the following adjustments to the prices of its services. Mobile prices were increased by 10%. Pay TV services, including premium services such as HBO and Fox, were increased by 10%. Football pack increased by 19%. Broadband prices for services with speeds up to 25 megabytes per second were increased 10% and for services with speeds higher than 25 megabytes by 8%. Prices of fixed voice basic services were increased by 10%. 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 were in the range of the inflation for the nine month period of 2021 but weren't enough to offset the annual inflation, 52.5% year-over-year of September, thus resulting in lower revenues when measured in constant basis. The company will continue to monitor its cost structure, competitive environment, and 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 the next slide 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 service, maintenance, materials, and supply costs, taxes, and fees for the regulatory authority and programming content costs. On slide 14, we show the performance of EBITDA and behavior of the different components of revenues and costs. The company continues with its efforts to expand efficiencies has shown some positive results despite a challenging economic context. Operating costs, excluding costs of equipment and handsets, decreased in real terms 0.5%, and bad debt expenses showed a significant reduction representing 2.2% of the total revenues in third quarter 21 versus 3.2% in third quarter 20, thanks to actions taken during 2020, such as the increased digitalization of customer payments. Salaries increased above inflation reflect reflecting agreements reached with the different unions. Cost of equipment and handsets increased above inflation, mainly due to higher cost of equipment sold. As a result, operating costs increased 0.8% in real terms, and driven by the reduction in revenues, EBITDA decreased by 18.6% in real terms, while margin contracted to 29.5%. Next slide, please. In third quarter 21, CAPEX as a percentage of revenues was 21.8% lower than the same period of the previous year, mainly as a result of investments in our network. 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 third quarter 21, 39 new mobile sites were deployed and more than 500 existing sites were upgraded. The CapEx program will continue evolving according to Argentina's economic condition, network performance, and customer requirements. Going to the debt financial position, as per slide 17, as of September 21, we have reported a total financial debt of 248.7 billion pesos and net debt of 221.5 billion pesos, equivalent to 2.2 billion in U.S. dollars. Of the total debt, I'm sorry, 100% of the debt is at operating level in Telecom Argentina. Of the total debt, 74.3% is dollar-denominated, 21.3% is in Argentine pesos, including dollar-length local emissions, and the rest is in Guaraníes and Raminli. Our U.S. dollar cost of debt is approximately 6.3%. For the rest of 2021, maturities are manageable and very low. For 2022 and 2023, debt maturities remain within the range of $500 million each year and then reduce considerably until the maturity of our 2026 notes. Telecom Argentina is currently working on refinancing of 2022 maturities. Net debt to adjusted EBITDA coverage ratio as of the end of September 2021 was 1.8%. As a last remark, on September 8th, CVH paid the dividend in kind approved by its shareholders in the extraordinary meeting held in August for a gross market value of 82.84 pesos per share in the local market. That concludes our comments. We are now ready to take your questions. Operator?
spk00: And ladies and gentlemen, 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 quick send. We will now pause for a few seconds in order to allow participants to write their questions.
spk02: I'm getting a question in the question box. This is a question from Alejandra Aranda from Itaú. To the extent that you could comment on how you're viewing the company's performance and the challenge of maintaining profitability versus market share in the current context. And how are you thinking about the trade-off and what is your mandate or profitability threshold? Also given current restrictions, how are you thinking about capex and dividends? Thank you for your question, Alejandra. First, let me say that we encourage our investors to participate in telecoms conference calls to hear firsthand from their management about the operation. They may provide guidance in terms of operating margins, capex, commercial plans, and any other relevant matter about the business. That being said, as a shareholder, as we've discussed before, Argentina has been going through particularly difficult conditions in the past two years with high inflation, government intervention in the economy, and a new regulatory framework, which has posed a challenge for margins to the telecommunication industry in general. Given the context, margins for 2021 fall within CVH expectations. Of course, it is a challenge to increase prices, but the industry as a whole has a need to compensate for cost inflation, so we expect other players will also find themselves in the need to increase prices in order to maintain profitability. Regarding the margin, as telecoms management stated in this week's earnings call, The next price increase will be communicated to be effective from January 22. Thus, we expect the margin of the fourth quarter to be in line with the margins for the third quarter and the year to end in about 32 percent, which given the macro context, as we said, falls within our threshold. Margins for coming year will depend on the ability to increase prices and control costs, but we expect 2022 will present a macro scenario similar to 2021. Regarding CAPEX, Telecom has given guidance of about $650 to $700 million for 2021 and 2022. Next year, CAPEX may be adjusted according to the macro situation of Argentina and the company's cash flow, balancing the need to ensure liquidity and the necessary investments in the network to guarantee performance and service levels. And as about dividends, CBH has a healthy liquidity position that allows it to cover its operative needs and no debt. Therefore, as long as there isn't any investment opportunity to fund, it could be reasonably expected that CBH will pass through to its shareholders any dividend collected from Telecom, as we have been doing during the past years. In addition, we think Telecom will continue being able to pay dividends without affecting, of course, its capex and operations.
spk00: And once again, if you do have a question, please type it in the box. And it appears that we have no further questions at this time. I would like to turn the program back over to Samantha Olivier for any closing remarks.
spk02: Thank you, Jamie. Thank you all for your interest and your questions. Should you have any further questions, please don't hesitate to contact our IR team. On behalf of CVH, have a great day, everyone.
spk00: Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Disclaimer