telecom argentina 2q16 earnings release€¦ · this presentation is based on audited financial...
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Telecom Argentina
2Q16 Earnings Release
Conference Call Presentation
This presentation is based on audited financial statements and may include statements that could constitute forward-looking statements,
including, but not limited to, the Company’s expectations for its future performance, revenues, income, earnings per share, capital
expenditures, dividends, liquidity and capital structure; the impact of the emergency laws enacted by the Argentine government; and the
impact of rate changes and competition on the Company’s future financial performance. Forward-looking statements may be identified by
words such as “believes”, “expects”, “anticipates”, “projects”, “intends”, “should”, “seeks”, “estimates”, “future” or other similar expressions.
Forward-looking statements involve risks and uncertainties that could significantly affect the Company’s expected results. The risks and
uncertainties include, but are not limited to, uncertainties concerning the impact of the emergency laws enacted by the Argentine government
which have resulted in the repeal of Argentina’s convertibility law, the devaluation of the peso, restrictions on the ability to exchange pesos
into foreign currencies, the adoption of a restrictive currency transfer policy, the “pesification” of tariffs charged for public services, the
elimination of indexes to adjust rates charged for public services and the executive branch announcement to renegotiate the terms of the
concessions granted to public service providers, including Telecom. Due to extensive and rapid changes in laws and economic and business
conditions in Argentina, it is difficult to predict the impact of these changes on the Company’s financial condition. Other factors may include,
but are not limited to, the evolution of the economy in Argentina, growing inflationary pressure and reduction in consumer spending and the
outcome of certain legal proceedings. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as
the date of this document. The Company undertakes no obligation to release publicly the results of any revisions to forward-looking statements
which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in the
Company’s business or to reflect the occurrence of unanticipated events. Information included in this presentation is unaudited and may not
coincide with that included in the financial statements of the Company, due to rounding, reclassification matters, and other reasons. Readers
are encouraged to consult the Company’s Annual Report and Form 20-F as well as periodic filings made on Form 6-K, which are filed with or
furnished to the United States Securities and Exchange Commission and the Argentine Comisión Nacional de Valores.
1
Disclaimer
Agenda
Macro Overview
Business Highlights, Strategy & Performance
Financials
2
Q&A
3
International Reserves showed an increase of U$S 0,9Bn during 2Q16, mainly explained by a notorious debt issuance during Apr-16, capital inflows and net foreign currency purchases, partially offset by payments made to non-performing sovereign debt creditors and other regular maturities.
(Billion U$S)
Floating exchange rate regime continued: the Peso showed a general trend towards appreciation on 2Q16, nonetheless nominal FX rate shifted following Brexit events.
Trade balance achieved a surplus of almost U$S 0,5Bn during 1H16, responding mostly to a decrease on imports yoy.
Central Bank Reserves
Household consumption*
26.5%
40.6%
27.2% 32.8%
41.7%
2013 2014 2015 1Q16 2Q16
Consumer Price Index (FIEL)
16.5%
CPI (YoY)
Macro: Challenging context signaled by a needed macro adjustment
Economic activity per sector
Strong influence of monetary policy and interest rates. Direct intervention of CB in the exchange market picked up on 2Q16. FX Volatility increased after Brexit.
Strong influence of tariffs increases & relative price
adjustments after FX devaluation.
FX Rate
9.83
13.01
14.92
Official FX Rate Blue FX Rate
Pre - electionary period
Closing of the gap
Unification of Exchange Rates
13.01
14,92
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16
Mean - 1Q16 = 14.48Mean - 2Q16 = 14.23
30.6 31.4
25.6 29.6 30.5
2013 2014 2015 1Q16 2Q16
2Q16: Payments were made to holdouts & bondholders of non performing debt (after record issuance of U$S16.5Bn).
4.6%
-5.2%
5.0% 1.1%
-5.2%
2013 2014 2015 1Q16 2Q16e
Official FX (BCRA)
* Revised official figures as of 1Q16
Construction
Agriculture
Minery
Public Admin & Defense
Retail & Wholesale commerce
Transport & Communications
Manufacturer Industry
Real Estate
Social services & Healthcare
Financial interm.
Electricity, gas & water
Total
Overall household consumption shows a sharp declining trend that can be observed from early 2016, explained mostly by important increases in tariffs and prices in general.
CPI measured by private consultants rose to 41.7% YoY, as inflation accelerated because of important increases in public utilities and transport tariffs together with readjustments in relative prices in the economy.
In 1H16, collective bargaining agreements were settled with average wage increases of 34,2% for the next twelve months.
The economic activity registered a downfall as of Jun-
16; almost all sectors are decreasing their output
with construction and agriculture leading the decline.
Industrial production continues to show weak
performance in 1H16, registering a decline of 3.6% in
1H16.
External Front
Domestic Activity & Inflation
Managed Floating Exchange Rate Regime during 1H16
Macro: Private consumption impacted by economic context
4
Retail & Electronic Appliances Sales
2% 4%
-19%
Sales (Retail) - Index Sales (Electronic Appliances) - Index
Sales (Retail) - YoY Var Sales (Electronic Appliances) - YoY Var
dic
-14
ene-
15
feb
-15
mar
-15
abr-
15
may
-15
jun
-15
jul-
15
ago
-15
sep
-15
oct
-15
no
v-1
5
dic
-15
ene-
16
feb
-16
mar
-16
abr-
16
may
-16
jun
-16
CC Index (General) CC Index (Electronic Appliances)
Real Consumer Credit - YoY Var
Retail sales show weak performance during 1H16 but with a strong decline since Dec 15.
In particular, sales of electronic appliances have registered important downfalls from past year. Many purchases were made in advance in 4Q15, as consumers anticipated the price increases that followed the FX depreciation and relative price adjustment.
Consumer Confidence is weakening, and more sharply when related to acquisition of electronic goods.
Consumer credit has been declining from early 2016 as well.
Consumer Confidence
Electronic Appliances
1H15 Average Electronic Appliances 1H16 Average
Source: Universidad Torcuato Di Tella (UTDT) Source: Central Bank (BCRA)
Source: Medium Enterprise Confederation (CAME)
Consumer Finance
Agenda
Macro Overview
Business Highlights, Strategy & Performance
Financials
5
Q&A
6
Highlights
6
Fixed – Expanding position in key segments
Steady growth in UBB: ≥ 10Mb subs = 31% of CB vs.
22% in 2Q15 - ARPU +29% vs. 2Q15 Voice: Tariff adjustment in monthly fee in retail and
business segments
Mobile - Sustained growth driven by Data & Internet
Solid position in value segments: postpaid adds +337k subs in 2Q16, +5% YoY
Refocus of handset business; upsale in postpaid and profitability
Data Centric Evolution: Clients with new plans represent 67% of postpaid subs in 2Q16
Successful 4G rollout continues: -3 Million customers are enjoying 4G -Data Consumption boost (+156% higher
than non-4G clients in terms of average consumption)
Data Penetration grew by 13% achieving 8.7 million monthly unique users
Revenue growth in line with inflation rate Service Revenues growth of 31% in Argentina,
mainly driven by: -Mobile Internet (+74%) -Broadband & Fixed Data (+46%) EBITDA incrased by 32% reaching a 27% profitability
in a challenging scenario Relevant improvement in dividend payment with a
payout ratio of 59% and a P$ 2.06 DPS - A cash dividend distribution took place as
from May 13, 2016 for an amount of P$700 million - Next dividend payment of P$1,300 million
will take place during the month of August
BUSINESS FINANCIALS
CORPORATE GOVERNANCE
Change of control Pursuant to Argentine Law Nº. 26,831, a Public
Tender Offer was announced by Fintech Telecom, LLC (“Fintech”) as a result of a change of control
99.99% 67.5%
Capital Ownership
Preferred B (Listed in NYSE)
21.62% Capital Own. 48.96% Econ. Int.
(Ordinary shares) Sofora
Telecomunicaciones S.A.
78.38% Capital Own. 51.04% Econ. Int.
Floating shares (Class B Shares & ADRs)
Nortel Inversora
(Class A: 51% - Class B 3.74%) Class C shares
Telecom Argentina Telecom Personal
Núcleo (Paraguay)
68%
W de Argentina Inversiones S.A.
32%
Fintech Telecom LLC On March 8th, 2016 the Telecom Italia
Group completed the transfer of 51% of the shares of Sofora to Fintech Telecom, LLC The Board of Directors of the Company, in its meeting held on April 29, 2016, resolved to appoint Mr. Germán Horacio Vidal as Chief Executive Officer (CEO) of the Telecom Argentina Group, and Mr. Ignacio Cruz Morán as Chief Financial Officer (CFO), both effective as of May 12, 2016
In addition, new senior executives were appointed in COO; HR; Internal Audit; Government Relations, Communication & Media, Strategy & Innovation; Business Development and Procurement
45.23% Capital Own. 44.37% Econ. Int.
54.74% Capital Own. 55.60% Econ. Int.
0.03% Capital Own. 0.03% Econ. Int.
ANSES 24.99%
7
Shareholders´ Structure as of March 8th, 2016
For SMEs and Large Customers
Cloud Services
8
Strategy fundamentals for the future
• Value Alliances with OTT according to customers
preferences • Manage attention
Content Management
• Satisfy clients needs in every step of their life
Home Convergence • Digital Consumers connected
with multiple screens /devices • Total Connection
Convergence of Services
• Evolution of BSS/OSS and processes with a customer vision
• Customer Insight
Customer Centric Vision
Continuing with Strategic Plan
• Capex: P$40 Bn for the next 3 years • 100% Company orientation to the local
market • Strategy designed for the local market
06
02
03 04
05
01 01
Group Revenues: Accelerated pace as a result of incremental usage and price adjustments
Traditional fixed services % on Total Rev
7.0% 7.1%
Handsets Paraguay
Retail Mobile
1H16
Retail Fixed Voice
Wholesale
1H15
BB and Fixed Data
AR$, Million
4% 4%
13% 16%
8% 6%
52% 48%
16% 17%
8% 8%
1,533
2,092
1H15 1H16
9
2,914
4,240
1H15 1H16
9,561
12,250
1H15 1H16
2,689
4,670
1H15 1H16
Mobile Internet in Argentina
+36% +46%
+74%
+28%
Figures may not sum up due to rounding
Broadband & Fixed Data
Retail Mobile
GROUP REVENUE MIX Retail Fixed Voice
+37% +19% Revenues YoY
10
394 448 492 515 551
2Q15 3Q15 4Q15 1Q16 2Q16
1,786
1,798
1H15 1H16
1.4% 1.4% 1.4% 1.4% 1.7%
201.6 217.4 231.5 248.8 259.8
2Q15 3Q15 4Q15 1Q16 2Q16 Monthly Churn ARPU (AR$)
1,470 1,780
839
1,402
FY14 FY15 1H15 1H16
Fixed – Continuous growth in UBB connections
Thousand of broadband accesses, thousand of net adds
IFRS Million of AR$
+21%
≥10Mb % of CB
+36k; +7%
22% 25% 27% 28% 31%
+12k, +1%
40%
+29%
+67%
BB Accesses ≥10Mb subs.
BB ARPU & Churn Data / ICT Revenues
Avg AR$/U$S Var FY15: +14%
Avg AR$/U$S Var 1H16 vs 1H15: +65%
Data / ICT Revenues increased due to the FX
variation in contracts that are set in USD dollars
11
Fixed – ARBU growth thanks to price increases
4.1 4.1 4.0 4.0 4.0
2Q15 3Q15 4Q15 1Q16 2Q16
Thousand of lines AR$/Month
64.4 69.6
76.2 80.9
93.7
2Q15 3Q15 4Q15 1Q16 2Q16
(*) Information after adjustments on residential tariffs. Latam Avg: Simple Average of 7 countries, without including Argentina
Market Share remained stable ~47%
+45%
2.5
15.3
AR Latam Avg
USD w/o VAT(*)
~6.1x
ARBU
Latam Benchmark
Lines in Service
Business Segment Price adjustments
August 2015 February 2016
Residential Segment Price adjustment
May 2016
12
Mobile: Improved customer profile through growth in value customers and data centric plans
Customer Base (Mill)
13.5 13.2
6.5 6.2
1H16 1H15
Prepaid
Postpaid 1
19.4 20.0
13%
8.7 7.7
1H16 1H15
(1) Includes Dongles
67%
33%
Postpaid Subs
Data Centric Subs
Non Data Centric Subs
548 827
2Q15 2Q16
Data UsageTotal MBOU/month
+51%
26% 35%
34% 27%
40% 38%
Browsing SMS + Content Voice
Mobile services revenue mix
1H15 1H16
Market Share 33%
Data penetration Monthly unique users in million
MBOU for Data Centric users for
2Q16: 1128 Mb/User/Month
Data Centric Quota Resets grew by
74% over the 2Q16
2.8 times is the average amount of times that Data Centric Subs Resets Quota
in a month
DATA CENTRIC in numbers
13
Mobile – Data acceleration driven by 4G
CITIES WITH COVERAGE
PROVINCIAL CAPITALS + AMBA(*)
COVERAGE OF POPULATION IN CAPITAL CITIES
COVERAGE
MILLION
CUSTOMERS
Location
CONSUMPTION
Average Gb per user
Type of clients
Top Sites
DOWNLOAD SPEED
Source: Open Signal
(*) AMBA: Metropolitan Area of Buenos Aires
2 1
3
14
47%
15% 27%
11%
Mobile Access Fixed Access Core & Infrastructure*
IT
5,427 7,844
2,434
4,495 3,530(*)
2,256(*)
2,256(*)
FY14 FY15 1H15 1H16
Million of AR$
+13%
CUSTOMER EXPERIENCE
QUALITY IMPROVEMENT
INNOVATION
% Revenues (without Spectrum)
13% 16% 18% 19%
Capex: Network deployment to optimize data consumption
1H15 1H16
~1.7x
Total New Sites
1H15 1H16
New 4G Sites
~2.8x
1H15 1H16
Areas w/ UBB
~1.3x
*Core & infrastructure refers to network related capex, including quality and innovation capex.
Figures may not sum up due to rounding
Technical Capex breakdown Capex Evolution
+85%
(*)Spectrum
FOCUS ON
8,957 10,100
Agenda
Macro Overview
Business Highlights, Strategy & Performance
Q&A
15
Financials
16
8,702
10,866
2,634 3,394
2,501
3,361
FY14 FY15 1H15 1H16
+32%
EBITDA Mg
TEO Group: Consolidated Results
IFRS, Million of AR$, Percentage Revenues
EBITDA IFRS, Million of AR$, Percentage
21% 24% 24% 30% 31%
2Q15 3Q15 4Q15 1Q16 2Q16
Service Rev growth in Argentina (Yoy)
33,341 40,496
8,872 12,455
9,624
12,951
FY14 FY15 1H15 1H16
+21%
+37%
+25%
1Q16
2Q16
1Q16
2Q16
40%
35%
25,406
18,496
6,755
5,135
29%
34%
26% 27% 28% 27%
YoY
Variation IFRS, Million of AR$
EBITDA 1H15 – 1H16
TEO Group: Consolidated costs and EBITDA evolution
Others include bad debt expenses, provisions, VAS costs and others
As % of Revenues 10% 9% 5% 17% 9% 11% 12%
17
+1.620;+32%
+0.2% +0.8% +0.9% 26.6% -0.7% 27.8% +0.1% +0.2% -2.8%
Figures may not sum up due to rounding
18
3,673 3,403
1,028 925
928 800
FY14 FY15 1H15 1H16
5,443 6,229
1,680 1,997
1,468 1,724
FY14 FY15 1H15 1H16
18
O. Income Margin
TEO Group: Consolidated Results
16% 15% 11% 8% 17% 15% 11% 7%
IFRS, Million of AR$, Percentage
Net Income attributable to Telecom
Net Income Margin
Operating Income
IFRS, Million of AR$, Percentage
-7%
+18%
+14%
-12%
1Q16
2Q16
19%
17%
3,721 3,148
1Q16
2Q16
-10%
-14%
1,725 1,956
Period D & A
3G/4G
Spectrum
Amortization
Total
1H15 1,859 131 1,990
1H16 2,701 193 2,894
ene-
15
feb
-15
mar
-15
abr-
15
may
-15
jun
-15
jul-
15
ago
-15
sep
-15
oct
-15
no
v-1
5
dic
-15
ene-
16
feb
-16
mar
-16
abr-
16
may
-16
jun
-16
Official FX Interest Rate (BADLAR)
1H15 1H16
19
TEO Group: Net Income Evolution
* Total Net Income includes the part attributable to Telecom and the non-controlling interest
‘Quantity Effect’ on Financial Results
Spectrum payments (700Mhz Bands, Jun-15) Dividend payments (May-15 and May -16)
‘Price effect’ on Financial Results
in million of AR$ 1H15 1H16
Net Interests -$ 87 -$ 681
Gains on Mutual Funds &
other inv.$ 130 $ 232
FX results net of NDF
instruments-$ 142 -$ 558
Others -$ 20 -$ 39
Total -$ 119 -$ 1,046
1,078 5,422
1H15 1H16
NET DEBT
IFRS, Million of AR$
20
TEO Group: FCF, Net Financial Position
Notes: (1) OFCF: Operating Free Cash Flow before Taxes (2) Includes $25 Million related to Nucleo dividend payments to third parties, net of income tax
DIVIDENDS Considering a total dividend payment of P$ 2,000 million, the payout ratio will be equivalent to 59% and P$2.06 per share or P$10.3 per ADR. Steady retribution to shareholders throughout the years.
LATAM
TEO
6-Year Avg*
43%
36%
59%
25%
2016
*Considering Payment Year, over period 2010-2015
Payout Ratio
IFRS, Million of AR$ - Last 12 months
Financial strength: Robust cash flow generation, strong balance sheet and solid coverage ratios
21
Telecom Argentina has maintaned low levels of financial leverage when compared to regional benchmarks
Indebtness has increased since the 2nd stage of frecuency allocation corresponding to the 2014 Spectrum Auction
As of 1H16, Leverage Ratios remain at solid levels
7,564 8,702 10,866
12,486
-5,354
-745 2,277 5,422
-0.7 x
-0.1 x
0.2 x 0.4 x
2013 2014 2015 LTM 1H16
EBITDA Net Debt Net Debt / EBITDA
Net
De
bt/
EB
ITD
A
Inte
rest
Co
vera
ge
2014 2013
Re
gio
nal
Ave
rage
s
Leverage
2015 2014 2013 2015
1.4x 2.2x 2.3x 14.3x 10.0x 10.4x USA
Europe
LATAM
2.8x 3.5x 4.2x 5.9x 4.9x 3.6x
0.9x 1.2x 1.5x 18.9x 9.8x 9.0x
-0.7x -0.1x 0.2x 444.9x 290.1x TEO
Net Debt / EBITDA Interest Coverage
19.2x
7,564 8,702 10,866
12,486
17 30 566 1,184
444.9 x
290.1 x
19.2 x 10.5 x
2013 2014 2015 LTM 1H16
EBITDA Interest Expense Interest Coverage
Agenda
Macro Overview
Business Highlights, Strategy & Performance
Q&A
22
Financials