Conference Call Presentation

Transcription

1 Telecom Argentina 3Q14 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 Conclusions Relevant Matters Q&A 2

4 3Q14: unsustainable trilemma (Economic Activity + Imports restriction + Reserves) Economic activity per sector Wages Central Bank Reserves Electricity, gas & water Social services & Healthcare Agriculture Public Admin & Defense Minery Real Estate Construction Financial interm. Transport & Communications Manufacturer Industry Retail & Wholesale commerce YoY -constant prices Total 8.6% 0.9% 2.9% 0.3% 0.0% 0,2% National Wages - % YoY Central Bank Reserves (Billion US$) 29.4% 24.5% 25.9% 29.5% 33.5% 35.5% Real GDP* CCI Trade Balance Consumer Confidence Index of Durable Goods 51.9 Trade Balance (Billion US$) Last 12 months Q14 2Q14 3Q14e Q14 2Q14 3Q14e Q14 2Q14 3Q14e Industrial activity remained depressed, after suffering January devaluation, a tax hike on the automobile sector, and a lower demand from Brazil Agricultural exports were affected by a reduction in international prices Government continues to implement measures to foster economic activity but no recovery signals are still shown in the quarter CarSalesfellby42%vs.September2013 Real Estate activity fell by 2.8% vs. September 2013and52%vs.2011 Source: MECON, INDEC and Company Estimates *Official GDP YoY variation, constant prices After a strong decline in February, the consumer confidence index showed a stable performance in3q14butshowedaslowdowninseptember Strong decline in consumer indicators: - Retail sales decreased 6% YoY - Consumer loans contracted together with areductioninrealwages - VAT collection deteriorated in 9M14 The new CPI Index published by the government reached 19.8% YTD, stabilizing in a level of aprox. 1.4% per month during the quarter 3 The supply of foreign currency was affected not only by the decline in oilseed and grain export liquidation but also by devaluation expectations and holdouts situation As of September 2014, Central Bank Reserves showed adecreaseof20%yoy Government is actively monitoring the FX market aimed at dampering expectations of devaluation ofthepeso Trade balance showed some improvements in 3Q14. Nevertheless, this result was obtained thru higher reduction in imports instead of increases in exports

5 Agenda Market Overview Business Highlights Financials Conclusions Relevant Matters Q&A 4

6 Business Highlights Internet Mobile users and revenues keep growing (1.1 million new users YoY) Broadband wireline continues to gain strength(81k new subs YoY) Business Acceleratedrolloutof3Gandpreparationfor4G VDSL cabinet deployment(enabling up to 50 Mb connections) SpectrumauctionheldonOctober31 st :theequivalentofus$658million committed in the auction (including the highest offer for lot 8: 30 Mhz in AWSand20Mhzin700Mhz) Revenuesup+22%drivenby: Financials - Mobile internet (+56%) due to increase in unique users, ARPU and Data penetration - Data(+54%) and Broadband(28%) in the Fixed Business Constant efforts in costs efficiencies to mitigate the effects of the inflationary context 5

7 Consolidated revenue growth propped up by Data, Internet & Handsets Evolution of revenues 9M13 9M14 IFRS, Million of AR$, Percentage +4,356; +22% 19, Impactof billing per second SMS -AR144 MM; -4% , ,183 FIXED MOBILE IN ARGENTINA NUCLEO YoY +28% -10% +37% Variation +9% +54% +7% +7% +56% +67% 9M13 Revenues %oftotal Revenues Voice Data Internet Equipments Voice Data Internet Handsets Nucleo 9M14 Revenues 12% 4% 10% 0% 22% 23% 9% 15% 5% Note: *Paraguayan (Nucleo S.A.) revenues expressed in AR$ and includes handsets. Figures might not sum up due to rounding 6

8 Mobile Business in Argentina Focusing on High value customers and services FOCUS ON +7% DATA Gross Adds (in MM) Monthly Churn % 3.0% ARPU AR$/Month Voice Non Voice % % Smartphone Penetration 23% 30% Customer Base (in MM) Q13 3Q14 Browsing ARPU (+41% in 3Q14 YoY) Voice/SMS ARPU (-8% in 3Q14 YoY) FOCUS ON POSTPAID 3Q13 3Q14 Smartphone Sellout 65% 88% Monthly Unique Internet Users (in MM) Postpaid Q13 4Q13 1Q14 2Q14 3Q14 Market share % 33.0% Prepaid Q13 3Q14 Lower Churn (50% vs. Prepaid) Prepaid Arpu Pospaid Arpu Note: Argentinean operation only. Figures might not sum up due to rounding 1 Includes Cuentas Claras subscribers 2 Market estimates of the top 3 providers in the industry Exclude trunkingservices Monthly Unique Internet Users: Number of subs. that use internet at least once a month 7

9 Mobile Business in Argentina -Prepaid offering to revert challenging environment and stimulate usage Customers Prepaid recharges <30 days MOU 295 TOU Q13 4Q13 1Q14 2Q14 3Q14 PREPAID AR$/Month +50% 24.7 Results of Super Chip Customer Base Stabilizing CB and expanding frequent users (recovering 30-day rechargers) Q13 4Q13 1Q14 2Q14 3Q14 Traditional Usage Data Usage Stimulate voice usage (MoUrose 14% in two quarters) Increase Data Usage (Browsing ARPU rose 50% in 3Q14 YoY) 8

10 Mobile Business in Argentina -Postpaid segment Innovative Offers that result in encouraging trends Total Postpaid Subscribers (in MM) Billingper second effect TOU MOU 3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 4Q13 1Q14 2Q14 3Q14 AR$/Month +40% POSTPAID BLACK ILIMITADO Goals: Retain High End Customers Proposal: Unlimited calls and SMS, and Data included in the plan DIA FULL (for Hybrid accounts) Goals: 3Q13 3Q14 Increase Postpaid Cb while fostering ARPU Proposal: Unlimited on-net calls and SMS at AR$4.9 per day 9

11 Fixed: Leadership in flow share in BB accesses thru improved service provisioning and competitive bundling offer Thousand of broadband accesses, thousand of net adds AR$/Month +81k; +5% +26% Monthly Churn 1,669 1,707 1,714 1,726 1, % 1.3% 1.3% 1.4% 1.3% ARPU (AR$) 3Q13 4Q13 1Q14 2Q14 3Q14 FIXED 3Q13 4Q13 1Q14 2Q14 3Q14 IFRS Million of AR$ +31% 1, % 3Q 33% 48% 39% 27% 41% % +60% +50% Q 1Q 3Q13 4Q13 1Q14 2Q14 3Q14e 3Q14e: Market estimates of the top 3 providers in the industry FY12 FY13 9M13 9M14 10

12 Capex: Focus in Capacity and Coverage to ensure continuous service quality improvement Capex Evolution Others Mobile IT 12% 2% Access 33% FTTx Rollout +3x 31% Core& Infraest. 1 Million of AR$ 22% Intangible Assets Fixed Access 3, % +5% 4, % 2, % 647 3, Q13 4Q13 1Q14 2Q14 3Q13 3G Cells +62% PP&E 2, % 3,964 2, % 3,035 FY12 FY13 9M13 9M14 % Revenues 15% 18% 15% 16% 3Q13 4Q13 1Q14 2Q14 3Q13 StrongincreaseinPP&ECapex(+35%vs.9M13) Note: 1 Core & infrastructure refers to network related capex, including quality and innovation capex. Continuous broadband fixed and mobile access deployment despite delays in permits 11

13 Agenda Market Overview Business Highlights Financials Conclusions Relevant Matters Q&A 12

14 TEO Group: Consolidated Results Revenues IFRS, Million of AR$, Percentage +23% 27,287 22,117 Fixed Business 16% Broadband 10% Nucleo Mobile 5% 7,114 % of Revenues Personal Mobile 69% 24, % 19,827 6,649 OIBDA* IFRS, Million of AR$, Percentage Handsets Revenues Costs (in million of AR$) +15% -491 FY12 FY13 9M13 9M14 6, % 8,598 3Q +21% 5,554 3Q 1,930 +7% 2, % 8,119 2Q 7,564 6,570 1, % 2,007 2Q -55 Before capitalization of SAC & SRC , % 7,466 1Q 1, % 2,112 1Q FY12 FY13 9M13 9M14 Regulated Revenues 10% 8% 9% 7% OIBDA Margin FY12 FY13 9M13 9M14 30% 28% 28% 26% *Operating Income Before Depreciation & Amortization. 13

15 TEO Group: Consolidated costs and OIBDA evolution Operating Income Before Depreciation and Amortization 9M13 9M14 IFRS, Million of AR$ +632; +11% YoY Variation 5,554 2,968 17% 1,402 63% % 150 1,006 11% 34% % % 35% 12% 12% 6,186 9M13 OIBDA 9M13 Ss. Revenues & other incomes OIBDA Margin 28.0% Handsets Sales Handsets Costs ITX Costs Labor Costs Taxes Other Marketing & Sales -2.0% Fees for services, maint. and materials VAS Costs Others* OIBDA 9M % -1.4% -0.1% +0.9% -0.7% -0.2% +0.5% 25.6% 9M14 FY % -2.2% +1.0% -0.5% -0.7% +1.3% -0.2% -1.1% +0.4% 27.7% FY13 Fourth quarter in a row with positive margin in handsets business, improving the mix revenues AfterstrongincreasesinFY13,turnovertaxesrate continuedtoincreasein9m14butataslowerpace Continuous review of structural costs, optimization in ITX costs * Others includes bad debt expenses, provisions, recovery (costs) restructuring and others 14

16 TEO Group: Consolidated Results Operating Income IFRS, Million of AR$, Percentage Net Income attributable to Telecom IFRS, Million of AR$, Percentage 3, % 4,518 3,263 1, % +2% +31% 3,843 1,225 1,241 3Q 2Q 2, % 3,202 in million of AR$ 9M13 9M14 Net Interests $ 428 $ 231 Gains on Mutual Funds $ 46 $ 113 FX results -$ 131 -$ 205 Results on NDF $ 14 -$ 20 Others $ 20 $ 111 Total $ 377 $ % 2,644 2, % +40% Q 2Q 1, % 1,377 1Q +11% Q FY12 FY13 9M13 9M14 FY12 FY13 9M13 9M14 O. Income Margin Net Income Margin 18% 17% 16% 16% 12% 12% 12% 11% FX results in 9M14 affected by a non-cash pre-tax loss of AR$228 MM related to purchases of US$ Dollar Bonds, following accounting valuation standards of fixed income securities(valuation method: amortization cost) Net Incomein 9M13 includesar$172million chargerelated todisposalofpp&e.excludingthiseffect,net Incomein 9M14vs.9M13wouldhave increased +6% YoY 15

17 TEO Group: FCF, Net Financial Position & Hedging Strategy IFRS, Million of AR$ -Last 12 months Free Cash Flow 5,684 1,290 2, , ,526 Operating free Cash Flow 8,196 5,774 1,132 OIBDA Capex Δ WK & others Net Financial Position Net Financial Position 9M13 (Net Cash) Operating Free Cash Flow 2 Taxes Free Cash Flow = -875 Net Interest & Others FX Variations Dividend Payments 3 Share buy back Net Financial Position 9M14 (Net Cash) Telecom Argentina 1,235 (1) Telecom Personal 2,507 Nucleo (Paraguay) (216) NFP Breakdown 38% 15% 5% 150% Coverage in 9M14 48% 100% -6% Núcleo NFP FX Cash Abroad FX Cash in Argentina Dollar Linked AR$ NFP Note: (1) Includes Telecom USA (2) OFCF: Operating Free Cash Flow before Taxes (3) Includes $44 Million related to Nucleo dividends payments to third parties, net of income tax 16

18 Dividends: Paying dividends 5 years in a row Dividend Comparison Evolution of Declared Dividend In million of AR$ LATAM TELCOS 42% 37% TELECOM ARGENTINA 3.6% 3.8% 807 1,000 1,202 Dividend Yield Pay out Ratio Dividend Payment Total Dividend AR$ 1.24 per outstanding share in circulation or AR$ 6.2 per ADR Payable in two equal installments: 50% onjune 10th, % onseptember22nd, 2014 Equivalent to 37% pay-out ratio Dividend Yield 3.8% in US$* * Assuming ClosingPrice of March14th, 2014 in Buenos Aires Stock Exchange and total Dividend 17

19 Agenda Market Overview Business Highlights Financials Conclusions Relevant Matters Q&A 18

20 Events on OIBDA YoY OIBDA growth Actions Items: Price increase in mobile will have full impact in 4Q14 (~14%) September 11% YoY Recent launch of appealing commercial offers ( Super Chip & Full Day packs) to enrich value proposition Positive KPI trends: YoY Growth 1Q14 2Q14 3Q % 10.0% 7.1% Rising mobile Data penetration Increase in prepaid recharges and MOU Browsing ARPU grows at high level Constant efforts in costs efficiencies to mitigate the effects of the inflationary context 19 19

21 Agenda Market Overview Business Highlights Financials Conclusions Relevant Matters Q&A 20

22 Capital Ownership and Corporate Structure Shareholder Structure as of October 29 th, 2014 Telecom Italia Group 51% Preferred B (Listed in NYSE) 21.62% Capital Own % Econ. Int. Floating shares (Class B Shares & ADRs) 45.23% Capital Own % Econ. Int. Werthein Group 32% (Ordinary shares) Sofora Telecomunicaciones S.A. Nortel Inversora (Class A: 51% -Class B 3.74%) 54.74% Capital Own % Econ. Int % Capital Own % Econ. Int. Telecom Argentina Fintech Group 17% Class C shares 0.03% Capital Own. 0.03% Econ. Int. Telecom Núcleo Personal (Paraguay) 99.99% 67.5% On October 29 th, 2014 TI sold to Fintech 17% of its Sofora shareholding shares. The sale of the 51% controlling interest of TI in Sofora is conditional upon obtaining regulatory approval by the Secretaría de Comunicaciones and will not occur until after such approval is obtained. This sale is expected to occur within the next two and one-half years The majority of Sofora s Board of Directors will continue to be appointed by Telecom Italia Group until receipt of Argentine regulatory approval and closing of the sale of Telecom Italia s 51% controlling interest in Sofora. No material change in the corporate governance of Sofora and its subsidiaries is foreseen Note: TI economic interest reaches 14.5% 21

23 Geographical Footprint Presence by Region Northern Region Population 17.2 MM Technological and MarketLeadership Mkt Share Sites Spectrum Buenos Aires Metro Area Population 15.2 MM Competitive Gap Mkt Share Sites Spectrum Mkt Share Sites Spectrum Southern Region Population 9.8 MM Low market share Telecom Argentina Competitors Source: INDEC. Projections based on Censo Nacional de Población, Hogares y Viviendas

24 3G/4G Spectrum auction Total Spectrum 3G 4G 850 Mhz 1,900 Mhz 700 Mhz 1,700 Mhz 4G NORTH Maintain Leadership Lot 1 AWS* 700 Mhz AMBA** SOUTH Pre Auction Post Auction Pre Auction Post Auction Pre Auction Post Auction Fill the Gap Room for Growth Lot 8 Lot 9 Lot 10 AWS* 700 Mhz AWS* 700 Mhz AWS* 700 Mhz Spectrum auction schedule SPECTRUM AUCTION October 31, 2014 FREQUENCIES ALLOCATION BY GOVT. In the period of 20 days after Spectrum Auction PAYMENT 10 days after frequencies allocation * Corresponds to bands of 1,700/2,100 Mhz ** Buenos Aires Metropolitan Area 23

25 Agenda Market Overview Business Highlights Financials Conclusions Relevant Matters Q&A 24