telecom argentina 2q16 earnings release€¦ · this presentation is based on audited financial...

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


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.


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




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.


Technical Capex breakdown Capex Evolution

+85%

(*)Spectrum

FOCUS ON

8,957 10,100

Agenda

Macro Overview


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%


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


Q&A

22

Financials

telecom argentina 2q16 earnings release€¦ · this presentation is based on audited financial...

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