Telecom Argentina Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 3 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 Glassey, Chief Financial Officer and myself, Luis Villaluagu. The purpose of this call is to share with you the results of this 6 month period Our Q2 ended on June 30, 2023. If you have not received our press release or presentation, you can call our Investor Relations office to request The documents are downloaded then from the Investor Relations section of our website located at imbersores.

Operator

Telecom.com. 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 Telecom's future performance, plans, strategies and objectives. Such statements are subject to uncertainties that would cause Telecom's actual results and operations to differ materially. Such uncertainties include, are not limited to the effects of ongoing industry and economic regulations possible changes in the demand for telecoms products and services the effects, potential changes in general market and or economic conditions and in legislation.

Operator

Our press release dated August 9, 2023, a copy of which was included in our Form 6 ks and sent to the SEC, describe 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 7.70seveneighteen of the Comision National de Baldores or CMV, which establishes that the re expression will be applied to the annual financial statements for intermediate and special periods ended as soft and including December 31, 2018. Accordingly, the reported figure corresponding to the first half of twenty twenty three Included the effects of the adoption of the inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures in historical values, which are easier to understand. Our Please read the disclaimer contained in Slide 12 of the presentation.

Operator

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

Speaker 1

Good morning, everybody. Thank you, Luis, and welcome. Moving to Slide 3, it summarizes our highlights As of June 30, 2023, our main operational and financial achievements were: our EBITDA margin during the first half of twenty Free was 28.4%. Pressure capping from labor cost lowered its intensity during the quarter, While we successfully contain increases in other cost items. In the last 12 months, as of the first half 23, our CapEx was approximately $655,000,000 equivalent to 16% of our revenues.

Speaker 1

Although we have faced certain delays due to tighter import restrictions in Argentina, we are successfully executing our CapEx plan. Our focus is now on expansion of our FTTH network to consolidate our position in the fixed market. Cash flow generation remains strong despite the challenging context. In the first half of twenty twenty three, we were able to generate approximately $308,000,000 in free cash flow before dividends and interest payments. This represents an improvement of approximately €52,000,000 compared to the same period in 2022.

Speaker 1

We continue to increase our prices more frequently. As of March 23, we began to implement our price increases on a monthly basis. This has contributed Our mobile subscriber base continued to grow, increasing almost 3% year over year. Mobile data usage Measured in average monthly gigabytes per user has grown 15%. In broadband, we have observed growth in our FTTH technology, Which has become our main focus, while our HFC network has remained stable.

Speaker 1

During the last quarter, New FTTH accesses contributed to keep our customer base stable and outgrew other technologies. Flow unit customers reached 1,300,000, increased 7% year over year. Additionally, our pay TV business continues to grow in Paraguay. Our Fintech personnel pay continue to grow, reaching almost 1,200,000 onboarded clients for the first half of twenty twenty three. 5 gs inception is underway.

Speaker 1

We currently count with 220 5 gs sites, most of them working with DSS technology. We have successfully canceled all of our financial debt commitments up to date, thus significant decrease in our maturity profile for the remainder of the year. Moving to Slide 4, it shows the company figures for the first half of twenty twenty three. Telecom's revenues totaled $2,000,000,000 Revenues measured in constant pesos decreased 9% year over year as we have improved our pass through of inflation To our revenues, we generated $573,000,000 equivalent in terms of EBITDA. Our EBITDA margin was 28.4%.

Speaker 1

Telecom's mobile subscribers in Argentina amounted 20,600,000, increasing more than 500,000 When compared to the first half of twenty twenty two, broadband and pay TV clients have totaled 4,100,000 and 3,400,000 respectively. Fixed voice subscribers for CR IP telephone lines amounted to 2,900,000 during the first half of twenty twenty three. Our commercial strategy has allowed us to increase our total convergent unit customers to 2,300,000 From 2,100,000 in the first half of twenty twenty two. Up to date, 48% of our product customers have a mobile bundle. Regarding our regional operations, we currently have 2,300,000 mobile subscribers in Paraguay and 123 results of Pay TV clients in Uruguay.

Speaker 1

Following slide shows our price adjustment during 2023. The accumulated inflation for the first half of fiscal year 'twenty three was 50.7%. Our year over year inflation in Argentina as of June 2023 has been 115.6%. Since March 2023, we have adjusted our pricing policy responding to a rising inflation scenario, Moving to monthly price increases. We have increased both the frequency and magnitude of our price increases to improve our path through of inflation In an 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 first half of twenty twenty three.

Speaker 1

Moving to Slide 6, it shows the evolution of our products. In our mobile segment, we have observed total increase of more than 5 70,000 subscribers, representing an increase of 2 0.9% year over year. This was mainly related with a good performance of our prepaid segment, while we registered a stronger customer recharge rate. While we have observed significant net adds in our postpaid segment during the previous year, mainly due to the greater Commercial activity coming from our digital channels, during 2023, we have observed certain disconnections and downselling to prepaid. Our postpaid clients make up 40% of our total mobile client base.

Speaker 1

Our broadband accesses Have decreased by 144,000, minus 3.4% year over year, explained mostly By a reduction in ex DSL accesses. In turn, we observed encouraging growth in FTTH during Q2 'twenty three. Increases in FTTH accesses contributed to stabilize our customer base and outgrew our technologies. In turn, our HFC segment remains steady. Our client base with Internet remains steady.

Speaker 1

Our client base with Internet speed of 100 megabytes or more increased by 97%. Despite the reduction of 160,000 pay TV subscribers, which represent a 4.6% decrease Year over year, our Flow platform continues to perform well. In the first half of twenty twenty three, Flow's unique customer reached 1,300,000, Increasing by 87,000 total clients or 7% when compared to the same period in 2022. Our Fixed Voice segment continued to register a reduction in accesses, mainly in our traditional fixed copper network, Which we are replacing partially with new IP telephone accesses over our HFC and FTTH networks. Slide 7 shows the breakdown of our revenues.

Speaker 1

Service revenues totaled ARS479 1,000,000,000, Decreasing 10% in real terms versus the first half of twenty twenty two, showing an 87% nominal rise, reflecting the price increases we mentioned before. Our revenue breakdown as of June 2023 showed an increase in the participation of mobile services and equipment sales When compared to June 2022, as this is a segment where we have been able to greatly improve the pass through of inflation to revenues. The breakdown is as follows: mobile revenues, 40.5 percent broadband revenues, 21.4 percent Pay TV revenues, 18.3 percent fixed telephone and data revenues, 11.6 percent Equipment sales revenue is 7.4%. Slide 8 describes the main trends in our mobile and broadband businesses. During the first half of twenty twenty three, personnel had a positive net inflow of over 8,000 or postpaid cap Mobile clients from our competitors.

Speaker 1

Mobile Internet usage has continued increasing, reaching an average of 5.5 gigabyte Per user per month during the first half of twenty twenty three and growing over 15% year over year. Additionally, We continue to increase our average broadband speeds. 83% of our total subs have speeds of at least 100 megabytes per second, Comparing with 41% during the first half of twenty twenty two. This means that our subscribers via speeds about 100 megabytes have multiplied by 2 Thanks to commercial actions, which doubled the connection speeds of all our clients in FTTH and HFC Technologies during the previous year. Additionally, we have observed growth in FTTH connections, which increased by 72% versus the first half of twenty twenty two, respectively.

Speaker 1

Slide 9 shows our business in Paraguay. Our operation in Paraguay continued to build a solid track record. Nuclear generated $102,000,000 $49,000,000 equivalent in revenues and EBITDA, respectively, During the first half of twenty twenty three, the EBITDA margin of NUKIO as of June 2023 was very strong and close to 50%. As of June 30, 2023, mobile's customers totaled 2,300,000. The mobile financial service that our subsidiary provides PGTERA personnel reached 280,000 subscribers.

Speaker 1

Fixed Internet services subscribers amounted to more than 250,000, Growing 14% against first half of twenty twenty two. The Pay TV segment continued to show a strong performance As local customers totaled 100,000, growing 11% year over year. The fixed network deployment in the main cities of Paraguay Growing 10% versus the fair half of twenty twenty two and reaching 696,000 homes passed. Moving to Slide 10, it shows some key performance indicators of our vintage, Personal Pay. As of June 2023, And we are also growing outside telecom client base as 19% of these clients belong to the local other telco operators.

Speaker 1

The total payment number has also been increasing accordingly. In June of 2023, it reached almost 2,200,000 operations, And it has multiplied by more than 8x when compared to June 2022. Total payment volume has increased by 92% Growth in comparison to March 2022.

Speaker 2

Growth

Speaker 1

in our digital wallet is leveraged on a strong value proposal for the company clients And for clients outside Telecom as well, we offer a range of strategic partnerships with various shops and businesses, providing our clients with Inclusive benefits. During the first half, Personal Pay continued to expand the differentials of its product, incorporating the A feature that is working very well. As of June, Personal Pay is the number one FinTech in customers' account balance remuneration. I will now pass the call to Julio Luagu, who will go over our financial performance.

Speaker 2

Thank you, Gabriel. So in Slide 11, we provide an overview of our main financial figures. Consolidated revenues grew by 88% Numeral terms during the first half of twenty twenty three, reaching more than ARS 436,000,000. When analyzing said figure adjusted by inflation, revenues amounted to more than ARS517 1,000,000, Showing a decrease of 9% in real terms versus the same period in 2022. This lag versus inflation is explained, among others, By the effect of certain discounts and promotions, we grant the price increases to retain our customers in a strong competitive environment.

Speaker 2

Additionally, the adjustments we have done in our price policy proved effective as the slide in versus inflation has observed I've done more trends since the Q3 of 2022. EBITDA increased by 75.5% year over year in nominal terms, Generating an EBITDA margin of 29% during the first half of twenty twenty three, EBITDA margin in real terms was 28.4%. Additionally, our operating costs before D and A have also grown below inflation, decreasing 6.5% in real terms as in the first half of twenty twenty two. We have continued to manage our cost structure in order to reduce the impact of rising costs explained by the inflationary environment. During the Q2 of 2023, we managed to maintain our margin constant when compared to the same period a year before.

Speaker 2

This is a good indicator that our pricing and cost management strategies are guiding us in the right direction. Slide 12 shows the evolution of EBITDA year over year and the impact of different components of revenues and costs. In the first half of twenty twenty three, the company was able to contain the pressure coming from inflation in the majority of its cost lines As most of them experienced an increase or remain in line, we're prepared to meet inflation. We observed good results in programming and content costs, The company's efforts have been successful as evidenced by these cost lines, EBITDA share Our revenues, constant versus a year ago. Most of the margin contraction year over year is explained by the evolution of our labor cost and fee for services, Maintenance and materials, which are also affected by the increase in salaries of contractors.

Speaker 2

These costs represented 36 This explains a big portion of the margin reduction, because that they have been evolving below inflation during this quarter, still shows the good shot that the company has been impairments totaled ARS370,500,000 in the first half of twenty twenty three, representing an increase of ARS 25,600,000 or minus ARS 6,500,000 compared to the first half of twenty twenty two. Slide 13 shows the evolution of the FX, inflation and our overall average salaries. Since 2021, the official FX Having increased has been increasing below inflation, thus generating an appreciation of the peso versus the U. S. Dollar in real terms.

Speaker 2

In 2022, the Inflation Casa segment accelerated notoriously. Its real appreciation of the effect As we have been passing through most of the inflation to our ARPUs, we have been able to observe a recovery in USD terms During the last 2 years, mostly we have taken during 2022. When analyzing the evolution of our salaries versus Inflation during 2018 to 2020, in which we observed a milder inflation in Argentina, We know that in certain periods, salaries underperformed inflation. This has generated a gap during certain months, which contributed to the expansion of our EBITDA margin. Since 2021, inflation began to accelerate and move to higher levels.

Speaker 2

In this sense, salary adjustments become more frequent and begin to trend inflation more closely. The mechanics that generated the underperformance of salaries participation during certain months of the year were lost, Mainly explaining the compression of our EBITDA margin as we have analyzed in the last slides. Additionally, third is a Good opportunity for the recovery of our EBITDA margin with a normalization of the macroeconomic environment in the future and with a return of inflation to milder levels in Slide 14 shows the company net results and EBIT. The EBIT decrease in constant currency It's explained mainly by the decrease in EBITDA in real terms. This, combined with the inflation adjustment or MD and A, Resulted in an operating margin of minus 4.7 percent of consolidated revenues.

Speaker 2

In historical figures, the same margin was 20%. In the first half of twenty twenty three, the company had a net income of ARS 39,000,000,000 mainly due to positive net financial results of almost ARS22.4 billion mainly driven by inflation adjustment gains and positive FX results in real terms and to a positive income tax of almost MXN37.6 billion. Slide 15 shows a summary of the company's CapEx in PP and E On intangible assets, during the first half of twenty twenty three, which amounted to more than ARS 61,500,000 or an equivalent of $240,000,000 at the official tax rate. This amount is 26.2 lower when compared to the same last year period. Our consolidated amount of CapEx for the first half of twenty twenty three amounted to around 12% of our total revenues.

Speaker 2

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 half of twenty twenty three. As we commented in other opportunities, Our CapEx plan is flexible, and we have been investing way above the low average ratio of CapEx to revenues for the type of space in the coming years, and the performance of Onera Technical CapEx was mainly composed by investments in our access network and technology. Our investments are mainly geared to enhance our access network. During the first half of twenty twenty three, 51 new mobile sites were deployed, While other 702 existing sites were upgraded. Additionally, up to date, we come with 225 gs sites, also then working on the DSS technology.

Speaker 2

In our fixed access network, we increased the deployment of new FTTH over 6,400 New blocks, including the overlay of our HFC network. We also improved the upstream capacity of our HFC network by almost 11,000 blocks. The balance of our CapEx was allocated to installation and customer premise equipment, or CPE, We'll join installations and equipment in the phones of our clients and to our international operations. Slide 16 describes our cash flow generation during the first 2023 compared with the same period of 2022. Our cash flow generation was very robust.

Speaker 2

Despite experiencing a lower EBITDA in real terms, Free cash flow has increased due to a reduction in CapEx and working capital needs during this period. In the first half of twenty twenty three, Our free cash flow before dividends and interest payments amounted to approximately $308,000,000 which represents an improvement compared to the same period in 2020. Slide 17 shows our key figures for the first half of twenty twenty three in constant measuring unit converted to the effects of each year. Our gross debt amounted to $2,700,000,000 as of June 30, 2023. The company Our net debt to EBITDA ratio as of June 2023 It was 2.17x EBITDA.

Speaker 2

Slide 18 shows the breakdown of our financial debt. Total outstanding debt after June 2023 amounted to almost $2,700,000,000 We currently have a very clear maturity profile. As mentioned before, we have been working to increase the participation of peso denominated debt Issued in local capital markets. As of June 2023, our debt denominated in foreign currency was 67% of our total debt, but this share will decrease as the participation of our local debt is increasing. We have been very active in the local capital markets through a series of successful issue assets of notes, and currently, our cost As we have successfully canceled all of our financial debt commitments up to date, Including the 2nd installment of our classified amortizing notes, while the maturity of the 2019 IFC loan will be canceled today, We have significantly cleared our maturity profile for the remainder of the year.

Speaker 2

Almost 80% The remaining maturities for this year are denominated in pesos, which can be easily refinanced in the local markets and with local financing institutions,

Remove Ads
Powered by Quartr
Earnings Conference Call
Telecom Argentina Q2 2023
00:00 / 00:00
Remove Ads