Conference Call Presentation

Transcription

1 Telecom Argentina 1Q14 EarningsRelease Conference Call Presentation

2 Disclaimer 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

3 Agenda Market Overview Business Highlights Financials Q&A 2

4 Market Overview: In a challenging context, new macro policies were implemented Real GDP* CCI & Wages Trade Balance & Central Bank Reserves YoY - constant prices Consumer Confidence Index of Durable Goods National Wages - % YoY Trade Balance (Billion U$S) Last 12 months Central Bank Reserves (Billion U$S) 8,9% 29.4% 24.5% 25.9% 29.1% ,9% 3,0% 0,5% ,0 12,2 8,0 6, Q14e Q14e Q14e Economic activity showed a strong deceleration in 1Q14 mainly due to lower consumption, a less dynamic industry, higher taxing pressure and tighter monetary policies Industrial production continued to be impacted in1q14 by a reduction in car exports and internal demand An improved 2Q14 is expected due to the harvest period and better local and international conditions A strong decline in consumer confidence was perceived in 1Q14 vs. 1Q13 To damper inflation expectation, a new set of price controls were implemented ( Precios Cuidados ) The new CPI Index published by the government reached 10.0% in 1Q14 The government initially set a 25% guideline for wage negotiations. Despite this, first collective bargaining agreements were settled intherangeof29%~32% After the depreciation of the Peso in January 2014, tight monetary measures were taken: increase in Badlar rate and sterilization via Central Bank bills and notes AsofMarch31,CentralBankReservesshowed a decrease of 33% YoY, but started to stabilize since April 2014 The government has announced a reduction in subsidies to reduce the fiscal gap after expansive policies applied in recent years Source: MECON, INDEC and Company Estimates Official GDP YoY variation, constant prices. 3

5 Agenda Market Overview Business Highlights Financials Q&A 4

6 Business Highlights 3G subs/ 3G Customers Q13 2Q13 3Q13 4Q13 1Q14 Customer base 32% 35% 41% 44% 46% Handset Revenues - Costs % of NFP in AR$ FY12 FY13 1Q13 1Q14 Net Financial Position Cash (in billion AR$) 4.0 1Q13 78% 5.1 1Q14 45% Revenuesup+23%drivenby: - Mobile internet(+56%) - Strong increase in Data (+50%) and Broadband (26%) in the Fixed Business Non regulated fixed revenues grew +29% Strong improvement in OIBDA pre capitalization of SAC (+22%) due to positive margin in handset business 3Gsubsreached46%ofthecustomerbasein1Q14 Nucleo: +8% in postpaid growth yoy; steady improvement in customer mix FTTx deployment allows higher Broadband speed thus compelling commercial offers BroadbandARPUrose+20%YoYin1Q14 Proposed dividend payment: AR$1.2bn/ 37% payout ratio Solid financial structure and proactive hedging strategy to mitigate the effects of a challenging macro context 5

7 Mobile: Continuous improvement in value proposition Mobile Customer Evolution & Mob. Internet Unique User Million of lines / Month/million of customers ARPU AR$/Month Mobile Unique Internet User Postpaid 1 Prepaid Market share Q13 2Q13 3Q13 4Q13 1Q MM subs. 33.2% 32.9% 32.6% % 33.1% YoY var Mobile Unique Internet user increased by25% YoY due to higher penetration in Data consumption (Pack Verano) Billing per second resolution: mitigated impact due to all inclusive plans and packs strategy Positive evolution of Postpaid ARPU amid a limited nominal price increase, including 24% increase in Non-Voice items Prepaid segment strongly affected by the slowdown in economic activity +4% +2% +5% Voice Non Voice Voice Postpaid ARPU Non Voice % Focus on Postpaid % +3% % 40.6 FY12 FY13 1Q13 1Q Q13 +17% +10% +24% Q14 Note: Argentinean operation only. Figures might not sum up due to rounding 1 Includes CuentasClaras subscribers Source: Market estimates of the top 3 providers in the industry Exclude trunking services Monthly Unique Internet Users: Number of subs. that use internet at least once a month 6

8 Positive results on smartphone strategy: Higher penetration of VAS with improved sellout return Revenue Breakdown Handsets Internet Services Data (SMS & Content) Retail & Wholesale Voice Million AR$ Argentine Market 15,227 1,915 1,248 5,765 19, % +63% +67% +25% +6% 3,126 2,088 7,212 6,299 6, % 5,143 4, % % 1,597 1, % 1, % 1,833 FY12 FY13 1Q13 1Q14 VAS as % of Service Revenues 55% 57% Smartphone Sellout 53% 56% 65% 73% 73% 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 SAC/ARPU & Handset Subsidy SAC/ARPU Handset Revenues - Costs Handset Revenues Costs in million of AR$ FY12 FY13 1Q13 1Q14 53% 58% High increase in smartphones sellout and focus on Smartphone participation in total handset sales increasing value proposition to our customers Internet Services and Data up by +56% and 12% respectively YoY VAS increased by 21% YoY, reaching 57% participation of Service Revenues SAC/SRC continued decreasing due to a sustainable reduction in handset subsidies 7

9 Mobile Revenues: Browsing and non-p2p SMS VAS contribute to revenue growth Evolution of revenues 1Q13 1Q14 IFRS, Million of ARS, Percentage +1,053; +24% 4, ,501 YoY Variation +11% +9% +12% +56% +70% +37% 1Q13 Revenues Retail Voice Wholesale Voice Data Internet Handsets Paraguay* 1Q14 Revenues %oftotalmobile Revenues 24% 9% 32% 12% 16% 7% Note: Wholesale voice shows Interconnection revenues (CPP, TRLD, Roaming and others) *Paraguayan (Nucleo S.A.)revenues expressed in ARS and includes handsets. Figures might not sum up due to rounding 8

10 Fixed Broadband: Improved speed/value proposition to recapture flow share Evolution of BB Accesses Thousand of broadband accesses, thousand of net adds ARPU & Churn Evolution AR$/Month +88k; +5% +20% ,626 1,634 1,669 1,707 1, % 1.5% 1.4% 1.3% 1.3% 1Q13 2Q13 3Q13 4Q13 1Q14 1Q13 2Q13 3Q13 4Q13 1Q14 BB Speed 1,626 BB Accesess 1Q13-2% ~7x 1,714 <10Mb 10Mb BB Accesess 1Q14 Broadband net adds continue to grow with 88k new accesses YoY ARPU rose by 20% YoY in 1Q14 with slight reduction in churn YoY ~7x YoY increase in plans with +10Mb speed thanks to network rollout 9

11 Fixed Voice & Data: ICT+Data are drivers of growth Data Revenues IFRS Million of ARS Basic Services ARBU evolution (excluding broadband and data) +10% +31% % FY12 FY13 1Q13 1Q Evolution of Lines in Services % 0.6% 0.5% 0.5% 0.5% 1Q13 2Q13 3Q13 4Q13 1Q14 Thousand of lines in service CorporateData +50%due to the consolidationasan ICT provider with innovative solutions for the Corporate segment Datacenter services fostered by improved Hosting/Housing and Cloud Services capabilities ARBUreachedP$55permonth,+10%YoY 4,109 4,114 4,124 4,124 4,108 1Q13 2Q13 3Q13 4Q13 1Q14 Market share 1 46% 46% 46% 46% 46% 1 Source: Company reports of the main providers in the industry. ARBU: Includes only concepts billed to clients 10

12 Fixed Services: BB + Data services continue to be key drivers Evolution of revenues 1Q13 1Q14 IFRS, Million of ARS, Percentage +349; +22% 1, ,965 30% YoY var Regulated +7% Regulated 34% Non Regulated 66% YoY Variation +8% +22% +50% +26% -7% 70% Non Regulated +29% Revenues 1Q13 Retail Voice Wholesale Voice Data Services Internet Equipment Revenues 1Q14 % of total Fixed Revenues 35% 11% 16% 37% 1% Note: Does not include intercompany revenues. Graph not in scale 11

13 Capex: Outstanding performance in PP&E capexexecution execution with focus in Quality Upgrade Capex Evolution Million of ARS +49% 4, FTTC Rollout +4x Intangible Assets PP&E 3, ,415 +5% +64% +43% 3, % +70% 1, FY12 FY13 1Q13 1Q14 % Revenues 15% 18% 12% 14% 1Q13 2Q13 3Q13 4Q13 1Q14 PP&E Capex breakdown IT 13% Others 2% 34% Mobile Access StrongincreaseinPP&ECapex(70%vs.1Q13) Mobile Access Network rollout focus in quality upgrade Continuous FTTx deployment to increase fixed access bandwidth, despitedelayinpermitsinthecityofbuenosaires Lower handsets subsidies impacted evolution of intangible assets 29% Core & Infraest. 1 22% Fixed Access Note: 1 Core & infrastructure refers to network related capex, including quality and innovation capex. 12

14 Agenda Market Overview Business Highlights Financials Q&A 13

15 TEO Group: Consolidated Results Revenues IFRS, Million of ARS, Percentage % of Revenues Personal - Mobile 69% OIBDA* +23% Fixed Business 16% +15% Broadband 10% IFRS, Million of ARS, Percentage YoYGrowthof OIBDA Pre-SAC 22.2% Capitalization 8.8% 7.9% Nucleo - Mobile 5% 1Q13 4Q13 1Q14 22,117 27,287 6,570 7, % +17% 6,064 7,466 1,799 2,112 Regulated Revenues FY12 FY13 1Q13 1Q14 10% 8% 9% 8% OIBDA Margin FY12 FY13 1Q13 1Q14 30% 28% 30% 28% *Operating Income Before Depreciation & Amortization. 14

16 TEO Group: Consolidated costs and OIBDA evolution Operating Income Before Depreciation and Amortization 1Q13 1Q14 IFRS, Million of ARS +313; +17% , YoY Variation 1,799 19% 66% 39% 6% 36% 25% 7% 36% 46% 16% 2,112 OIBDA 1Q13 Ss. Revenues & other incomes OIBDA Margin Handsets Sales Handsets Costs ITX Costs Labor Costs Taxes Other Marketing & Sales Fees for services, maint. and materials VAS Costs Others* OIBDA 1Q14 1Q % -1.2% + 1.1% -1.5% -0.2% +1.4% -1.0% -0.4% +0.4% 28.3% 1Q14 FY % -2.2% + 1.0% -0.5% -0.7% +1.3% -0.2% -1.1% +0.4% 27.7% FY13 Notwithstanding the change to positive margin in handset business, margin dilution is related to revenue mix (12%in1Q14vs.9%in1Q13) Higher dilution impact in margin related to direct and indirect labor costs, due to restructuring costs of AR$ 60 million(~100bps impact) AfterstrongincreasesinFY13,turnovertaxesrate continuedtoincreasein1q14butatalowerpace Continuous review of structural costs * Others includes bad debt expenses, maintenance, materials, supplies and others 15

17 TEO Group: Consolidated Results Operating Income +14% IFRS, Million of ARS, Percentage Net Income attributable to Telecom IFRS, Million of ARS, Percentage +19% 1Q13 1Q14 Net Interests $ 116 $ 190 FX results $ 13 -$ 280 Others $ 6 $ 58 Total $ 135 -$ 32 3,966 4, % 1,115 1,377 2,685 3, % 992* +11% * O. Income Margin FY12 FY13 1Q13 1Q14 FY12 FY13 1Q13 1Q14 Net Income Margin 18% 17% 18% 18% 12% 12% 13% 12% Fx results in 1Q14 affected by a non-cash pre-tax loss of AR$159 MM related to purchases of U$S Dollar Bonds following accounting valuation standards of fixed income securities Exluding that effect, Net Income would have been AR$ 992 million increasing +24% YoY *Deductstaxeffectequivalent toar$ 56 MM 16

18 TEO Group: FCF, Net Financial Position & Hedging Strategy IFRS, Million of ARS -Last 12 months Free Cash Flow 2,988 1, , Operating free Cash Flow 7,877 5, OIBDA Capex Δ WK & others 4,020 5,080 Net Financial Position Net Financial Position 1Q13 (Net Cash) Operating Free Cash Flow 2 Taxes Free Cash Flow = 1,339 Net Interest & Others FX Variations Dividend Payments 3 Share buy back Net Financial Position 1Q14 (Net Cash) Telecom Argentina 1,571 (1) Telecom Personal 3,745 Nucleo (Paraguay) (236) HEDGING STRATEGY In U$S million, March Argentinean operations Unleveraged Balance Sheet 388 Net Payables in Foreign Currency FX Cash U$S Dollar Bonds U$S Dollar Linked NDF -80 Exposure as of 1Q14 120% Hedge Limited Impact in P&L 100% Hedge in FY13 Note: (1) Includes Telecom USA (2) OFCF: Operating Free Cash Flow before Taxes (3) Includes $33 Million related to Nucleo dividends payments to third parties, net of income tax 17

19 Agenda Market Overview Business Highlights Financials Q&A 18