Telecom Argentina SA (NYSE:TEO) Q2 2022 Earnings Conference Call August 10, 2022 8:00 AM ET
Company Participants
Luis F Rial Ubago – Investor Relations
Adrian Calaza – Chief Financial Officer
Conference Call Participants
Luis F Rial Ubago
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; Adrian Calaza, Chief Financial Officer, and myself, Luis F Rial Ubago. The purpose of this call is to share with you the results of their six-month period and second quarter of fiscal year 2022 ended in June 30, 2022. If you have not received our press release or presentation, you can call our Investor Relations office to request the documents or download them from the Investor Relations section of our website located at the inversores.telecom.com.ar.
I would like to go so safeguard our information to know the details of the company. We would like to clarify that during the conference call and Q&A session, we will mention certain forward-looking statements about Telecom’s future performance, plans, strategies and objectives. Such statements are subject to uncertainties that could cause Telecom’s actual results and operations to differ materially, such as entities include but not limited to the effects of annoying industry and economic regulations, possible changes in the demand for Telecom’s products and services, the effects of potential changes in general market and our economic conditions in legislation and the impact of the outbreak of COVID-19 on the global economy and specifically, the economies of the countries in which we operate as well as on our operations our financial performance. Our press release, they all was designed 2022, a copy of which was included in Form 10-K and sent to the SEC describes certain factors that may affect any forward-looking statements that could be mentioned during this call.
The company has reflected the effects the literal adjustment adopted by resolution 777/18 of the commission National Labor Law Resource EMB, which establishes that the real expression will be applied to the annual financial statement for intermediate and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the first half of 2020 to include the effects the adoption inflation inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures in historical values which are easier to understand. Our press release is complemented by earnings presentation. You audience should read the disclaimer contained in slide one, and slide two of the presentation. The agenda for today’s conference call includes or business or financial highlights, and we will end the call with a Q&A session.
Now, let me turn the call to Adrian Calaza, CFO who will start with the presentation.
Adrian Calaza
Thank you, Luis. Good morning, and welcome to everyone. Moving to a slide three summarizes our main highlights as of June 30, 2022. Our main operational financial achievements or our EBITDA margin during the first half of ‘22 were 30.6%. We continue to perform cost management to reduce the impact of rising labor costs. Our CapEx for first half of ‘22 posts approximately $300 million. Cash flow generation remains solid and stable. We move forward with price increases of our services in a challenging inflation scenario. Our mobile subscriber base continues to grow. We launch a new solution to migrate flows analytic services to digital. Our FinTech personal pay continues to grow reaching almost 235,000 onboarding clients. We have launched it we grow our cybersecurity company in Chile. We have acquired the company in the OCLC Servicios SA, which strengthens our operations our footprint in the province of Mendelssohn.
We have canceled the total amount of the principal remaining under the term loan for $140 million. We enter into a new loan agreement with IFC and on July 15, 2020, and do we receive the disbursement of $184.5 million. We have paid dividends in time on June the second 2022 for an equivalent of $150 million. We have closed the auction to buy 177,000 megawatts of renewable energy, which represents around 22% of the total megawatts was consumed by the company. This will allow us to reduce our carbon emissions in 20% coming from a total of 281,000 times.
Slide 4 shows the company figures for the first half of fiscal year 2022. Their incomes revenues totaled $2.1 billion. Revenues measuring constant basis decrease the percent year-to-year. EBITDA generation total was $0.6 billion. Our EBITDA margin for the first half of 2022 was close to 31%. Telecom’s mobile subscribers in Argentina amounted to 20.1 million. Increase in more than 800,000 total clients when compared to the first half of 2021.
Broadband and Pay TV clients remain almost constant totaling 4.2 million and 3.5 million, respectively. Fixed voice subscribers without considering IP telephony lines amounting to 2.2 million during the first half of 2022. Having IP lines, our fixed voice subscriber base amount for almost 3.1 million. Our commercial strategy has allowed us to increase our total conversion unit customers to 2.1 million from 2 million versus the second quarter of 2021. We’ve currently 50% of our broadband customers have a mobile partner. Finally, turning our regional operations. We have 2.3 million mobile subscribers in Hawaii, and 132,000 Pay TV clients in UAE.
Moving to Slide 5, it shows the evolution of local inflation. Year-over-year inflation in Argentina as of June 2022, has been of 64%. Inflation has accelerated during the second quarter. Here today, Inflation as of June 2022, was 36.2%. We envision that the local inflation will remain high during 2022. The impact of our industry inflation index is not meaningful, amounting only 2.8% of the index. In the last four quarters communications price increases were below the general CPI index. Moreover, communications register the lower year-over-year variation. In comparison, we are items of the CPI.
Slide 6 shows our price adjustment during 2022. Immortalize during December 2021 main impact in 2022, we have increased prices for postpaid and prepaid by 15% and 16%, respectively. In April, we have increased both postpaid and prepaid prices by 11%. In July, we have increased postpaid plans by 13% and prepaid plan by 7%. In broadband, the prices of our XDSL services have increased by 16% in January, 12% in April, and 13% in July 2022. Prices of our HFC and FTTH services increased by 13% in January, 9% in April, and 10% in July. The subscription prices of our Pay TV services have increased by 13% in January.
Additional services such as Football Pack and Premium channels have increased up to 15% in the same period, both in April, 2022, and July, 2022. Prices of our Pay TV services increased by 12%. Prices are fixed voice basic services have increased by 16% in January, 12% in April, and 30% in July. Slide 7 shows the evolution of our products. More or less segment. Postpaid subscribers have increased in more than 300,000 clients or 3.9%. Our postpaid share is currently 42%. Prepaid subscribers have increased in almost 500,000 clients or 4.4%. We have observed a strong growth in the prepaid segment given by our commercial initiatives. Broadband access has remained steady. We have experienced a reduction of access is in the XDSL segment. And we continue growing AF HFC and FTTH segments.
Pay TV subscriber base remain almost constant registering a slight decrease of 0.8%. Growth is mostly liberal on the performance of our flow platform. Additionally, we have launched our new ISBDT solution for Analog Pay TV customers, which allows the upgrade of their glassy cable connection to digital. In fixed voice the reduction of accessories has continued mainly in traditional fixed copper lines. On the other hand, our IP telephony accesses have increasing more than 350,000 lines.
Moving to Slide 8, which shows the evolution of our services revenues. Service revenues totaled almost ARS248 billion decrease in 10% in real terms, versus first half of ‘21. In a period where year-over-year inflation was 64%. Our revenue breakdown as of June 2022 show an increase the participation of mobile and broadband services and an increase in fixed telephony and data services when compared to June 2021. The breakdown was as follows: mobile revenues 39%, broadband revenues 22%, Pay TV revenues 19%, fixed telephone and data revenue 30%, equipment sales revenue 6%.
Slide 9 describe the maintenance in our mobile and broadband businesses. As of June 2022, Mobile postpaid subscribers amounting to 42% of our total customer base, the sharp to upper left shows the postpaid competitive landscape per month. During the first half of 2022 personnel have a positive net inflow of mobile clients. Mobile internet usage has continued to increase, reaching an average of more than 4.8 gigabytes per user per month during the first half of 2022.
Additionally, we continue to increase our average product space 77% of our total subs have a speeds between 50 megabytes and 1000 megabytes per second, comparing with a 63 megabytes during the first half of ‘21. This was mainly explained by the growth of in HFC and FTTH connections, which increased by 5% and 103%, versus the first half of ‘21, respectively. Our HFC and FTTH connections currently reduce their average speeds of approximately 90 megabytes per second.
Slide 10 shows our business is in Peril way. Nuclear generated $104 billion and $50 million in revenues and EBITDA, respectively during the first half of 2022. The EBITDA margin of nuclear as of June 2022, was very strong and close to 50%. Revenues break that was as follows: browsing services for 2%, voice 15%, data 6%, broadband 18%, TV services 8% and other services with approximately 12%. As of June 3, 2022 mobile customers totaled 2.3 million. The mobile financial services at our subsidiary provides main widget data personnel reaching almost 280,000 fixed internet services subscribers amounted to more than 220 results and growing 32% versus the first half of 2021. In the Pay TV segment, flow customers totaled 39,000 and personnel HD 51,000.
The fixed network deployment in the main cities of Palawan continue to increase growing 39% versus the first half of 2021 and reaching 633,000 homes fast. Slide 11 show some key performance indicators of our FinTech personal gain. As of June 2022, personnel-based onboarding clients amounting to 235,000, roughly three times versus the previous quarter. Almost 50% of these clients belong to other local telcos operators. The number of prepaid card accounts have multiplied by more than two times amounting to almost 113,000. Additionally, personal page, first advertising campaign in local media was launched in July.
I will now pass the call to Luis F Rial Ubago, who will go over our financial performance.
Luis F Rial Ubago
Thank you, Adrian Calaza. In slide 12, we provide an overview of our main financial figures. During the first half of 2022 consolidated revenues grew by 30% — 40% on nominal terms reaching to ARS231 million. When analyzing said figure adjusted by inflation revenues amounted to more than ARS264 million, showing a decrease 10% in real terms visit the same figure it goes up in ‘21. Service revenues show up 41 nominal increases. EBITDA increased by 45% — 24% year-over-year in nominal terms that’s generating an EBIDA margin of 31.2%. In turn, EBITDA margin in real terms was 30.6%. Operating cost before D&A decreased by 5.6% in real terms versus the first half of 2021 as the company continued to manage its cost structure to reduce the impact of rising labor costs.
Slide 13, shows the company’s EBITDA and the impact of the different components of revenues and costs. Operating costs were 5.6% lower in real terms. During the first half of 2022, the company has successfully contained the pressure coming from inflation in most of these costs nine, as almost all of them experienced a decrease or remain in line when compared with inflation. We have been observing good results in programming and content costs, interconnection costs and commissions and advertising. In turn, the main exceptions were labor cost and bad debt expenses, which have increased over inflation. Salaries increase, increases with our unionized and non-unionized employees up close the negotiation for 2021 and 2022, with increases of approximately 62%.
Bad debt expenses increase was mainly explained by the hardware economic situation in Argentina, which has a direct impact on our clients and incomes. As we stand in this situation, or present future bad debt related to total sales has decreased during the second quarter between 2.1% and our collections are performing normally.
Slide 14, we showed the evolution of our main business drivers during the first six months of 2022 compared to the evolution of inflation. It is important to remark that as inflation accelerates, we observe different adjustment dynamics over time between salaries and price increases. The adjustment speed of revenues versus inflation determined by the frequency and magnitude of price increases, currently is lower than the adjustment be the salaries. In the first half of 2022, point inflation accelerated your salary agreements for the 2022 and 2022 period were close increasing our labor costs and the country other third costs have been increasing not only below inflation, but also below service revenues.
Slide 15. The company’s net income totaled ARS31.9 billion while EBIT was negative in real terms. We have a decrease in constant measure even it is explained mainly with the by the decreasing EBITDA in real terms. This combined with the inflation adjustment of our D&A, resulting in an operating margin of negative 3% of consolidated revenues, and historical figures as a marketing was 90%. In the first half of 2022, the company’s net income of ARS31.8 billion, mainly due to positive net financial results of almost ARS38.7 billion and your positive income tax of almost ARS1.6 billion. The positive financial results were driven mainly by inflation adjustment gains and lower net interest charges.
Slide 16, shows a summary of the company’s Capex in PP&E and intangible assets during the first half of 2022, which amounted to more than ARS38 billion or an equivalent of $309 million at the official FX rate. This amount was 29.5% lower when compared to the same last year period. Our consolidated amount of CapEx amounted to almost 50% of our total revenues. Technical CapEx was 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 in faraway. During the first half of 2022, 30 new mobile sites were deployed when more than 40 were built and another 500 existing sites were ready to expand the FTTH network over more than 3000 new blocks.
Additionally, we perform an overlay with FTTH overall HFC network in 2,8000 blocks was increased the upstream capacity or HFC network in 12,000 blocks. Additionally, we announced a new regional investment mainly in the province of Enlasa [ph]. We will expand our FTTH network in that location to almost 100,000 homes and we are going to build 58 new more sites to increase our market coverage.
Slide 17 describes our cash flow generation during the first half of 2022 compared with the same period of 2021. For cash flow generation is currently very solid, remaining stable when compared with the previous year. In the first half of 2022, the operating free cash flow amounting to approximately $256 million secured the variation versus the first half of 2021 is explained by the decrease in our EBITDA in real terms, but the impact of free cash flow has been fortunately offset by a lower amount of CapEx during this year.
Slide 18, we see our key figures for the first half of 2022 investment measuring units. Our gross debt amounted to $2.7 billion after June 30, 2022, increasing 6.8% on December 2021. The company called cash and equivalents for almost $210 million of the dividend current payment of June 2022, or an equivalent of $150 million. In consequence, our net debt was almost $2.5 billion. Our net debt to EBITDA right ratio was 1.9 — 1.94 times.
Slide 19, shows a quarterly evolution of some key ratios. Our ratio of attempts or revenues positive evolution since 2020, or it reached levels of 4%, mainly due to COVID-19. Currently, this ratio was mainly affected by the economic situation in Argentina. We are following up on this issue closely monitoring elections in the first half of 2022 are part of a revenue ratio decrease to 2.4%. In the first half of 2022 for CapEx, our revenues was almost 50%. This percentage below the level of 2020 and 2021, mainly due to additional CapEx we didn’t answer in the previous year. Gross debt to EBITDA remained at 2.1 times. Our net debt to EBITDA was lower than two times, but ratios are very solid when compared without telcos.
Slide 20, shows the breakdown of a financial debt. For latest liability management transactions have emerged successful. During July we received from IFC disbursement for an amount of $184.5 million. Additionally, we have canceled the total amount of the principal remaining under term loan due to first half of ‘22 for $140 million. In 2022, and 2023, our debt maturities are very manageable and less than 50% of the maturity for those years and denominated in US dollars. Total outstanding debt as of June 2022 amounted to $2.7 billion on a performance basis. We expect it to continue accessing the local capital markets for protentional financing needs. In fact, about dissipation of debt in our local capital markets has increased versus per year, which approximately 30% of the tune to suffer the fund.
[Call Ended Abruptly]
Question-and-Answer Session
End of Q&A
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