Telecom Argentina Q1 2023 Earnings Call Transcript

There are 4 speakers on the call.

Operator

Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. The participants of today's conference call are Roberto Nobile, Chief Executive Officer Gabriel Blasi, Chief Financial Officer and myself, The purpose of this call is to share with you the results of the Q1 ended March 31, 2023. If you have not received our press release or presentation, you can call our Investor Relations office to request the documents are done now then from the Investor Relations section our website located at imbersores. Telecom.com.ar.

Operator

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 and A session, we could mention certain forward looking statements about Telicom's future performance, plans, strategies and objectives. Such statements are subject to uncertainties could cause Telecom's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of occurring industry and economic regulations possible changes in the demand for telecoms products and services the effects of potential changes in general market and our economic conditions and in legislation. Our press release date May 9, 2023, a copy of which was included in our Form 6 ks as sent to the SEC, describe certain factors that may affect any forward looking statements that could be mentioned during this call.

Operator

The company has reflected the effects of the inflation adjustment adopted by Resolution 7.70seveneighteen of the Comision Nacional de Valores or CMB, which establishes that the degree expression will 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 Q1 of 2023 included the effects of the adoption Inflationary Accounting in accordance with IIS 29. In this presentation, we will also include peers in historical values, which are easier to understand. Our press release is complemented by your earnings presentation. Please read the disclaimer contained in Slide 12 our presentation.

Operator

Today, we will over we will go over our business and financial highlights, and at the end of the we will end the call with a Q and A session. Now please let me pass the call to Gabriel, our CFO, who will start with the presentation.

Speaker 1

Thank you, Luis. Good morning, and welcome to everyone. Moving to Slide 3, it summarizes our highlights as of March 31, 2023. Our main operational and financial achievements were: our EBITDA margin during the Q1 of 2023 was 30.3%. While we continue to observe pressure from labor cost, we successfully contained increases in other cost items.

Speaker 1

In last 12 months Q1 'twenty three, our CapEx was approximately $695,000,000 equivalent to 17% of our revenues Despite facing tighter import restrictions in the Q1 of 'twenty three, our focus is now on the expansion of our FTTH network consolidate our position in the fixed market. Cash flow generation has continued to be strong and stable despite the challenging context. In the Q1 2023, we were able to generate approximately $166,000,000 in free cash flow before the Dividends and interest payments. This represents an increase of approximately $40,000,000 compared with the same period of 2022. We continue to increase our prices more frequently.

Speaker 1

Our revenues observe smaller gap versus inflation in a rising inflation scenario. We have paid dividends in kind of May 3, 2023. Mobile subscriber base continue to grow with a strong postpaid performance, growing 1.6% year over year mobile data usage measured in average monthly gigabytes per user has grown 12.3%. In broadband, we have observed growth in our FTTH technology, which has become our main focus, While our HFC network has remained stable Flow unit customers reached 1,300,000, increasing 10% year over year Our FinTech Personal Pay continues to grow, reaching almost 1,000,000 onboarded clients for the Q1 'twenty 3. We are preparing for 5 gs.

Speaker 1

We currently count with 194 5 gs sites, mainly functioning with DSS technology over 4 gs spectrum. We presented our integrated annual report, our first publication unifying the company's financial sustainable management information in a single document. Moving to Slide 4, it shows the company figures for the Q1 of 2023. Telecom's revenues totaled $1,000,000,000 Revenues measured in constant pesos decreased 10% year over year. We generated $311,000,000 equivalent in terms of EBITDA.

Speaker 1

Our EBITDA margin was 30.3%. Telecom's mobile subscribers in Argentina amounting to 20,500,000, increasing more than 320,000 when compared to the Q1 20 22 Broadband and Pay TV clients have totaled 4,100,000 and 3,400,000 respectively fixed voice subscribers considering IP telephone lines amounting to 3,000,000 during the Q1 of 2023. Our commercial strategy has allowed us to increase our total convergent unique customers to 2,300,000 from 2,100,000 in the Q1 of 2022. Up to date, 49% of our broadband customers have a mobile bundle. Regarding our regional operations, we currently have 2,300,000 mobile subscribers in Paraguay and 125,000 pay TV clients Uruguay.

Speaker 1

Slide 5 shows the evolution of local inflation. The accumulated inflation for the Q1 of fiscal year 'twenty three was 21.7 percent year over year inflation in Argentina as of March 23 has been of 104.3 percent inflation rate for the month of March 23 was 7.7%, thus we believe that the local inflation will remain high during all 2023. As mentioned before, the impact of our industry in the CPI is very low as Communications has a weight in the index of only 2.8%. Slide 6 shows our price adjustment policy during 2023. During the second half of twenty twenty two and the Q1 of 'twenty three, we have adjusted our pricing policy responding to a rising inflation scenario.

Speaker 1

We have increased both the frequency and magnitude of our price increases to improve our path through of inflation in a increasingly complex environment. Thanks to these measures, and although we continue to observe a lag versus inflation, we have been able to improve our revenue strength in real terms as of the Q1 'twenty three. Slide 7 shows the evolution of our products. We are pleased to report positive results in our mobile segment with an increase of over 245,000 postpaid subscribers, Representing a 3% growth and over 75,000 prepaid subscribers, a 0.6% increase Our postpaid clients now make up 42% of our total mobile client base. Although our broadband accesses decreased by 155,000 minus 3.7 percent year over year, mostly By DSL, we observed growth in FTTH, while our HFC segment remains steady.

Speaker 1

Our client base with Internet speed of 100 megabytes or more increased by 113%. Despite the reduction of 139,000 paid TV subscribers, which represent a 4% decrease year over year, Our Flow platform continued to perform well. In the Q1 'twenty three, Flow's unique customers reached 1,300,000, increasing by 116,000 total clients or 10% when compared to the same period in 2022 Our fixed voice segment experienced a continued reduction in accesses, mainly in traditional fixed copper lines, but we remain confident in our overall strategy Our ability to adapt to a challenging market conditions. Moving to Slide 8, it shows evolution of our service revenues. Service revenues totaled ARS 200,000,000,000, decreasing 10% in real terms versus Q1 2022.

Speaker 1

Our revenue breakdown as of March 23 showed an increase in the participation of mobile services when compared to March 2022. The breakdown is as follows: mobile revenues, 40.8 percent broadband revenues, 21.9 percent Pay TV Revenues, 18.6 percent Fixed Telephony and Data Revenues, 11.4 percent Equipment sales revenues, 6.5 percent. Thanks to our pricing strategy, we were able to adjust the trend showing the year over year decline of our revenues in real terms, even with higher inflation levels. We currently observe a gap versus inflation in terms of our revenues of 10%. Slide 9 describes the main trends in our mobile and broadband businesses.

Speaker 1

During the Q1 of 2023, the mobile market remained stable in terms of portability, with no significant changes. Our postpaid performance have been solid, increasing the postpaid participation of our mobile customer base to 42%. Mobile Internet usage has continued increasing, reaching an average of 5.6 gigabytes per user per month During the Q1 'twenty three and growing our 12% year over year. Additionally, we continue to increase our average broadband speeds. 81% of our total subs have speeds of at least 100 megabytes per second, comparing with 37% during the Q1 of 'twenty 2.

Speaker 1

This means that our subscribers with speeds above 100 megabytes have multiplied by 2.1x. Thanks to our commercial actions, we doubled the connection speed for our clients in FTTH and HFC Technologies during the previous year. Additionally, we have observed growth in FTTH Connections, which increased by 74% versus the Q1 'twenty two, respectively. Moving to Slide 10, it shows our businesses in Paraguay. Our operation in Paraguay continued to build a solid track record.

Speaker 1

Nucleo generated $50,000,000 $24,000,000 equivalent in revenues and EBITDA, respectively, during the Q1 'twenty three. EBITDA margin of Nucleo as of March 23 was very strong and close to 50%. As of March 31, 2023, Mobile customers totaled 2,300,000 the mobile financial service that our subsidiary provides, Visetera Personal, Reaching over 285,000 subscribers Fixed Internet services subscribers amounted to more than 245,000, growing 17% versus the Q1 2022. In the pay TV segment, flow customers totaled 97,000, growing 10% Year over year, the fixed network deployment in the main cities of Paraguay, growing 14% versus Q1 2022 Unreaching 683,000 Homes Passed. Slide 11 shows some key performance indicators of our FinTech, Personal Pay.

Speaker 1

As of March, 23, personnel pays on boarded clients reaching more than 955,000, growing 12 times year over year. We find that this growth is very encouraging, and we are also growing also outside of telecom client base as 15% of these clients belong to other local tel Corporators. The total payment number has also been increases accordingly. In March of 2023, it reached almost $1,500,000 operation, And it has multiplied by more than 23x when compared to March 2022. Total payment volume has increased by 70 8% in comparison to December 2022.

Speaker 1

Growth in our digital wallet is leveraged on a strong value proposal for the company clients for clients outside Telecom as well, and we offer a range of strategic partnership with various shops and businesses, providing our clients with exclusive benefits. During the Q1, PersonalPay continued to expand the differential of its product, incorporating the new functionality of remunerated balances for all its users, which allows them to generate profits by simply having their money available in the wallet. I will now pass the call to Luis Realvago, who will go over our financial performance.

Operator

Thank you, Gabriel. In Slide 12, we provide an overview of our May financial figures. Consolidated revenues grew by 81% on nominal terms during the Q1 of 2023, reaching more than ARS200 1,000,000,000. When analyzing said figure adjusted by inflation, revenues amounted to more than ARS 214,000,000, showing a decrease of 10% in real terms versus the same figure in 2022. This lag versus inflation has observed a downward trend as we adjusted our pricing policy, as we mentioned before, and is explained among others by the effect of certain discounts and promotions we grant after price increases to retain our customers in a strong competitive environment.

Operator

Service revenues showed a 82% nominal increase, reflecting the price increases we mentioned before. EBITDA increased by 55.4 percent year over year in nominal terms, generating an EBITDA margin of 30.7% in the Q1 of 2023. EBITDA margin in real terms was 30.3%. Additionally, our operating costs before the NANDA have also grown below inflation, Decreasing 4% in real terms versus the Q1 of 2022. We have continued to manage our cost structure to reduce the impact of rising labor costs.

Operator

Slide 13 shows the evolution of EBITDA year over year and the impact of different components of revenues and costs. During the Q1 of 2023, the company was able to contain the pressure coming from inflation in the majority of its cost lines, as most of them trends are decreased or remain in line when compared with inflation. We observed good results in programming and content costs, interconnection costs some other items like handset costs. The company's efforts have been successful as evidenced by these cost lines now decreasing their shareholder revenues. These cost management initiatives have partially offset the rise in labor costs, which have increased above inflation and explain most of the margin contraction year over year.

Operator

Labor costs represent 24% of our revenues versus 21% in the Q1 of 2022 and have increased 4% in real terms when compared to the Q1 of 2022 fees for services, maintenance and materials are also affected by the increase in salaries of contractors. Operating costs, excluding amortization, depreciations and fixed asset impairments, total ARS149.7 billion in the Q1 of 2023, We presented a decrease of $6,800,000 or minus 4.4 percent compared to the Q1 of 2022. Slide 14 shows the company net results and EBIT. The EBIT decrease in constant currencies is explained mainly by the decrease in EBITDA in real terms. This combined with the inflation adjustment over D and A resulted in an operating margin of minus 1% of consolidated revenues.

Operator

In historical figures, the same margin was 21%. In the Q1 of 2023, The company had a net income of ARS28 1,000,000,000 mainly due to positive net financial results of almost ARS19.4 billion unto a positive income tax of almost MXN11.8 billion. Slide 15 shows a summary of the company's CapEx in PP and E and intangible assets during the Q1 of 2023, which amounted to more than ARS 25,000,000 or an equivalent of $121,000,000 at the official FX rate. This amount is 24.2 lower when compared with the same year last period. Our consolidated amount of CapEx for the Q1 of 2023 amounted to 12% of our total revenues.

Operator

Notwithstanding the fact that we observed certain levels of seasonality in our CapEx, our investment level was influenced by tighter import restrictions in the first Q of 2023. As we commented on other opportunities, our CapEx plan is flexible, and we have been investing way above the global average ratio of CapEx to revenues during previous years, and the performance of our network is currently very solid. Technical CapEx mainly composed by investments in our access network and technology. The balance was allocated to installations and customer premise equipment, or CPE, and to our international operations. During the Q1 of 2023-twenty 1, new mobile sites were deployed, while other 361 existing sites were upgraded, 52 are under construction.

Operator

We expanded our FTTH network of 2,200 new blocks, including the overlay of our HFC network. We also increased the penetration of our HFC network by 4,300 plus. Up to date, we count with 194 5 gs sites, most of them working on the DSS technology. Slide 16 describes cash flow generation during the Q1 of 2023 compared with the same period of 2022. Our cash flow generation has remained robust.

Operator

Despite experiencing a lower EBITDA in real terms, our free cash flow has increased due to a reduction in CapEx and working capital during this period. In the Q1 of 2023, our free cash flow before dividends and interest payments amounted to approximately $166,000,000 which represents an improvement compared to the same period in 2022. Slide 17 shows our key figures for the Q1 of 2023 in constant measuring units converted to the effects of each year. Our gross debt amounted to $2,700,000,000 as of March 31, 2023 the company holds cash equivalents for more than $440,000,000 as of the same date, having net debt of almost $2,300,000,000 Our net debt to EBITDA ratio is 2.1x, remaining relatively stable versus the one obtained by the end of the fiscal year 2022. Slide 18 shows the breakdown of our financial debt.

Operator

Total outstanding debt as of March 2023 amounted to almost $2,700,000 We currently have a very clean maturity profile. As mentioned before, we have been working to increase the participation of peso denominated debt issued in the local capital markets. Nowadays, our debt denominated in foreign currency, 67% of our total debt. We expect to continue accessing the local capital markets for our potential financing needs, as we have been doing lately. During 2023, although maturities are very manageable, on almost 50% of the maturities for this year and denominated in pesos, which can be easily refinanced in the local markets and with local financial institutions, taking into account the solid credit profile of telecom.

Operator

Additionally, we have entered into a new export credit line with Export Development Canada, or EDC, for up to $50,000,000 on May 5, 2023. So with this, now we are more than pleased to answer any questions you may have. So however, before we start, We would like to remind you how you can address your questions during the Q and 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 questions.

Operator

Thank you very much. Hi. We have a question coming from Frelan Mendez from JPMorgan. Hi, Frelan. We will unmute you, so you can proceed with questions.

Operator

Thank you. Yes, very, very fine. Thank you, Florent.

Speaker 2

Thank you. Thank you, guys, for taking my question. Could you explain a little bit more your goals on the FTTH network expansion? What are the CapEx implication? And within the goal that you have, how much is overlay and how much is incremental footprint.

Speaker 2

Thank you.

Speaker 3

Hi, Feline. Hello, everyone. This is Roberto. I don't have the details right now, but definitely the idea that we have is to Expand like 10,000 blocks in new fields, in greenfields And another 10,000 blocks overlay. That's when you compare to the number of blocks we In HFC, we have 140,000 blocks in HFC.

Speaker 3

So we are trying to build the HFC, the FTTH overlay on HFC on the main cities. That's the whole idea, especially in the Sierra Buenos Aires and Hevia And Rosario and Cordova. That's our main focus, and then we will keep on deploying the overlay in other areas, but our focus is to make sure that all the main CDs of Buenos Aires are covered with FTTH overlay HFC. Greenfield is very few blocks comparing to our whole footprint. That's I mean, we have done something new in Mendoza, but that's 2,500, 2,500 blocks in Mendoza and we are starting some deployment in San Juan.

Speaker 3

Those 2 cities we have never been there. So it's a whole greenfield deployment. But apart from that, we are all working on trying to upgrade our copper network [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And on the other side, robust in our services in the HFCD footprint. We

Operator

have another question from Freeland. Please go ahead, Freeland.

Speaker 2

Thank you. What are the CapEx implications of this FTTH plan? Should we expect an increase in the short term or it should go into your run rate CapEx levels that we see today? And my second question would be regarding mobile pricing. Do you see peers following a similar price keen as yourselves like increasing the frequency of price hikes to match inflation.

Speaker 2

Thank you.

Speaker 3

Okay. Yes, probably I didn't answer that on the previous question. Thank you for asking again. The idea is to Keep on having the same level of CapEx. We are not thinking of a migration from HFC C2 FTTH, but we are thinking of services over 300 megabytes Per Secco being migrated to FTTH, not all of them.

Speaker 3

Despite that, ONTs, which are the CPAs that run-in the homes of our customers when you are serving FTTH services are like 40% less expensive than cable modems, which are the CPEs that are used in HFC. So actually there is It is convenient for the company to increase the number of FTTH customers of new customers. So that the if you take a look into what we are buying, we are not buying like 70% of our CPEs today are ONTs on for FTTH services despite previously 100% was cable models for our HFC network. So this is a combination that really improves our CapEx expenditure. I can't remember the second question.

Speaker 3

Luis, can you help me?

Operator

Yes, it was regarding the how we are seeing the pricing from the competition in the mobile segments.

Speaker 3

Yes. Pricing on the mobile area is I mean, all We are all followers. We are all followers of inflation. So that's been something that the industry has been moving with inflation throughout the year. If you take a look into postpaid, postpaid prices increased more than 100%.

Speaker 3

So And this is not only us, probably the others are a little behind, maybe 20% or 30% below that in terms of ARPU, that definitely we are all moving and trying to move forward. There was one competitor that instead of increasing prices in We increased prices in January and in March, and this competitor increased like a third part of our price increase in March and do it in April also. Different strategies, but we're all following or trying to catch up inflation. The main problem we have It's not on the mobile, I wouldn't say on the mobile. Mobile is ARPU is doing well.

Speaker 3

The industry has some troubles trying to increase prices or adjust prices to inflation. We're not talking about increased pricing. We are adjusting prices to inflation on the fixed services, on the broadband and on TV services. That's where Other competitors are very aggressive on prices. We call about they are selling 3 empanadas.

Speaker 3

It's a way of selling that it is really very, very cheap. And we have this increase of inflation during the first This last semester in Argentina has really challenged us the way We delivered the price increases. As of last year, we were increasing prices every 3 months. This year, we started the year with a 20% increase in January and a 10% increase In March, that's a 30% increase. If you consider our customer base, It's exactly the same as in Argentina, 30% of them have a formal salary, which increased with inflation And the 70% of the others are not part of the formal employment of Argentina.

Speaker 3

Therefore, Their income is not following inflation, it's below that. So we have a very high pressure from our customers, trying not to being increased so much. So in this Q1, we have a little more of our customers are calling to our reps, Our call centers asking for a rebate or for a discount, additional discount. We have an 85% of success in terms of trying to giving the customer discount and keeping then satisfied. But we are we have more customers calling us, so that 85% was not really enough.

Speaker 3

We need to increase that number and we have our goal of net at 0 for the next quarter and for the next quarters coming. So we're trying to rework our procedures And the way we increase prices on a monthly basis to reduce this risk and trying to make sure that we can keep all our customers with us.

Operator

So it seems we have no more questions for the moment. So Thank you very much for participating in our quarterly conference call. Please do not hesitate in contacting us or we are the Investor Relations department for any further inquiries you may have. So good morning to all, and have a nice day. Thank you very much.

Speaker 3

We have one question from Julio Luis. Sorry. What?

Operator

So I'm sorry, I think I got it directed to you, Roberto. Do you wish to answer that? We don't have the question right here.

Speaker 3

Sorry, you may ask Julia to

Operator

Yes, we will unmute you. Julia, we will unmute you right away, so you can Please proceed with your question. I'm sorry. I'm sorry, Julio, please send us your question via email or let's have a call, so we can proceed and answer that. So thank you very much.

Operator

Good morning to all and see you in the next call.

Earnings Conference Call
Telecom Argentina Q1 2023
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