conference call presentation - telecom +21 % +25% post paid 1 ... expand broadband 4g thru lte...
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Telecom ArgentinaTelecom Argentina
3Q13 Earnings Release3Q13 Earnings Release3Q13 Earnings Release3Q13 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
DisclaimerDisclaimer
1
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.
AgendaAgenda
Market Overview
Business Highlights
Financials
2
Financials
Q&A Session
11.4 10.012.4 11.2 10.7 9.4
1,7% 0,3%-0,2% -0,2% -0,2% -0,2%
211 249 267 270 276 277368 442 467 471 481 482
26.3% 29.4% 24.5% 24.5% 25.4% 24.8%
9.2% 8.9%1.9% 3.0% 7.1% 4.5%
Market Overview: Navigating in a challenging contextMarket Overview: Navigating in a challenging context
Billion USD, at current prices – Last 12 months
∆ YoY - constant prices
Trade Balance (Billion USD) Last 12 months
Fiscal Balance as % of GDP Last 12 months*National Wages - ∆ % YoY
Billion USD, at current prices – Last 12 months
Real GDP* Consumption & Wages Trade & Fiscal Balance
2010 2011 2012 1Q13 2Q13 3Q13e2010 2011 2012 1Q13 2Q13 3Q13e2010 2011 2012 1Q13 2Q13 3Q13e
3
Source: MECON, INDEC and Company Estimates
•Official GDP YoY variation, constant prices.
•Fiscal Balance represents primarily fiscal surplus
� 3Q13 activity continued to grow but at slower
pace vs. 2Q13, lead by an upturn in the
agricultural production and construction
� Industrial production was impacted by a
reduction in carmaker exports while non
metallic mineral products helped to sustain
the growth trend in 3Q13
� Commodity prices show some adjustments
(soya, corn, oil); but industry and public
construction stimulated the commercial
activity
� Despite decrease in real wages, private
consumption remained stable in 3Q13 thanks
to the personal income tax reduction, the
expansion in public social expenditures (social
plans and pensions) and the increase in
consumer lending
� A more positive consumer confidence was
perceived in 3Q13 vs. 3Q12 after consecutive
declines since the beginning of 2012
� Regardless increases in agricultural exports,
rising energy imports continued to affect the
trade balance
� Official FX rate accelerated its depreciation
pace slightly improving external
competitiveness
� Although tax collection pushes revenues up,
public expenditures continue to grow above
public revenues, deteriorating the fiscal
balance. The assistance from the Central Bank
(to service debt) and from the public pension
funds system continued
AgendaAgenda
Market Overview
Business Highlights
Financials
4
Financials
Q&A Session
Business HighlightsBusiness Highlights
� Leading revenue share and growth while optimizing commercial costs
� Focus in service quality improvement strengthening 3G/Data access capacity
� 3G customer base reached 41% in 3Q13, with strong share in smartphonesellout that achieved 65%
MOBILE
� Continuous FTTx deployment to enrich value proposition
FIXED
� Strict cost control to mitigate increase higher labor costs and taxes associated torevenues
� Share buy back program adds value to Shareholders
5
FINANCIALS
� Continuous FTTx deployment to enrich value proposition
� Fixed broadband ARPU rose +19% YoY in 3Q13
� Strengthening positive trend in fixed lines and BB net adds thru significantincrease in service provisioning activities
32.2 35.4 35.3 39.5 43.2
26.0 27.9 26.8 26.0 27.2
4.9 5.1 5.55.8 6.3
3Q12 4Q12 1Q13 2Q13 3Q13
12.7 12.8 12.8 13.0 13.4
6.2 6.2 6.3 6.3 6.4
Mobile: Mobile: Value proposition fostered growth in post and prepaid Value proposition fostered growth in post and prepaid segments; ARPU uplift driven by nonsegments; ARPU uplift driven by non--voice revenuesvoice revenues
Million of lines
Postpaid 1
Prepaid
+4%
19.1
+5%
19.018.9+5%
YoY var
19.3
Mobile CustomerEvolution
19.9
Voice
Non Voice
58.2 63.3 62.1 65.5 70.4+21%v
+5%
+34%
YoY var
ARPU & Mob. InternetUnique User
In Million
AR$/Month/million of customers
Mobile Unique
Internet User
+28%v
3Q12 4Q12 1Q13 2Q13 3Q13
6Note: Argentinean operation only. Figures might not sum up due to rounding1 Includes “Cuentas Claras” 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
Market
share
+1 MM subs.
33.2%33.3% 33.5% 32.9%32.9%
� ~550 k net adds in 3Q13 vs. +193 k in 2Q13
� Non voice ARPU up +34% in 3Q13 thanks to increasing VAS penetration and usage
� New Data, SMS and Voice bundle to increase usage/penetration while defending traditional service revenues
� Focus in smartphone offer over dongles to improve customer experience
4.6 5.2 6.0 6.88.1
3Q12 4Q12 1Q13 2Q13 3Q13
3G Customers
+77%
YoY var
32%24% 28% 41%35%3G subs/
Customer
base
3G Customer Evolution
In Million
3.9%0.5%
9.4%
9.3%
5,727 6,299 4,555 4,967
4,4825,765
4,128 5,390
774
1,248
890
1,405
Mobile: Sustaining #1 in revenue share while optimizing costsMobile: Sustaining #1 in revenue share while optimizing costs
Million ARS – Argentine Market
Internet Services
Data
(SMS & Content)
as % of Argentine Service Revenues - Before
capitalization of SAC & SRC
Handset subsidies
Agent Commissions
Retail &
Wholesale Voice
16.2%SAC & SRC
+61%
+29%
+10%
+21% +23%
+58%
+31%
+9%
11,762
9,573
13,312
10,983
Service Revenue Breakdown
SAC & SRC
12.5% -3.7%
-3.4%
YoY var
-0.1%
14.2% 14.5%
10.9%
2.9% 2.7%
0.5%
3Q12 4Q12 1Q13 2Q13 3Q13
5,727 4,555 4,967
2011 2012 9M12 9M13
7
VAS as % of Service
Revenues
� Internet Services and Data (SMS+Content) up by +58% and 31% respectively YoY standing as the main drivers of Service Revenue growth
� Outstanding revenue growth despite limited pricing actions
Advertising
58%52%53%48%
� 58% VAS participation is the highest in the region
� Lower SAC & SRC due to reduced subsidies notwithstanding significant improvement in handset mix
-0.2%
714
867
627
842
264331
236302
1,860 1,872 1,888 1,906 1,925
410 428 447 475 482
Paraguay:Paraguay: VAS pushes revenues upVAS pushes revenues up
Thousand of lines
OIBDA
REVENUES
IFRS Million of ARS
+34%
+28%
17%
4%
2,3352,3012,270 +6%
Pre
+21%
+25%
Post
paid 1
YoY var
2,381
Customers Financials
2,407
2011 2012 9M12 9M133Q12 4Q12 1Q13 2Q13 3Q13
8
1 Postpaid includes “Cuentas Claras”, 3G modems and WIMAX.
Figures might not sum up due to rounding.
Paraguayan local currency is the Guaraní.
� VAS revenues up 41% in 9M13, reaching 54% of Service Revenues
� Continuous network expansion to enhance coverage and capacity
OIBDA
Margin 38% 38% 36%37%
Pre
paid
� Expand broadband 4G thru LTE hotspot modems
� Improve customer mix due to significant postpaid growth
11,608 299 1131,262 515 701 215 14,713
IFRS, Million of ARS, Percentage
Mobile Revenues: Mobile Revenues: VAS gaining participation in Mobile RevenuesVAS gaining participation in Mobile RevenuesEvolution of revenues 9M12 – 9M13
+3,105; +27%
9M12
Revenues
Retail
Voice
Wholesale*
Voice
Data Internet Handsets Paraguay* 9M13
Revenues
9
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
37%10% 9%24% 14%% of total Mobile
Revenues6%
YoY
Variation+9% +9% +31% +58% +50% +34%
1,612 1,629 1,626 1,634 1,669
Fixed Broadband: Fixed Broadband: Confirming positive net adds trendConfirming positive net adds trend
� FTTx deployment focused on offering higher speedsto enrich value proposal
� ARPU rose by 19% YoY in 3Q13 with slight reductionin churn
� Broadband regains strength with ~35k net adds in3Q13
Thousand of broadband accesses Evolution of BBAccesses
+57k; +4%
1,612 1,626
3Q12 4Q12 1Q13 2Q13 3Q13
Market
share11,5% 1,5% 1,6% 1,5% 1,4%
105,1111,5 114,9
123,6 125,5
3Q12 4Q12 1Q13 2Q13 3Q13
Monthly
Churn
ARPU
(ARS)
10
1 Source: Market estimates of the top 3 providers in the industry.
34% 33% 33%34%
ARPU & Churn Evolution
+19%
34%
AR$/Month
4,140 4,128 4,109 4,114 4,124
Fixed Voice & Data: Fixed Voice & Data: Data contributes to growth in Fixed Data contributes to growth in Fixed
Revenues Revenues
(excluding broadband and data)Thousand of lines in service
0,5% 0,5% 0,6% 0,6% 0,5%
48,849,9 49,5
52,8 53,1
3Q12 4Q12 1Q13 2Q13 3Q13
Monthly
Churn
ARPU
(ARS)
Evolution of Lines in Services
ARBU evolution
+9%
3Q12 4Q12 1Q13 2Q13 3Q13*
583735
528 686
2011 2012 9M12 9M13
IFRS Million of ARS
� Positive LIS net adds in 3Q13 thanks to significantimprovement in service provisioning
� ARBU reached P$53 per month, +9% YoY thanks tosuccessful bundled offers
� New value proposition of ICT+Data Center servicesstarted to deliver revenue growth
11
1Source: Company reports of the main providers in the industry.
*3Q13 market share refers to 2Q13 figures. ARBU: Includes only concepts billed to clients
ARS
Market share1 46% 46% 46%48%
3Q12 4Q12 1Q13 2Q13 3Q13
Data Revenues
+26%+30%
46%
4.417 131 35158 385 -12 5.114
IFRS, Million of ARS, Percentage
Fixed Services: BB + Data services continue to be key driversFixed Services: BB + Data services continue to be key drivers
38%
33%
Regulated
Evolution of revenues 9M12 – 9M13
Regulated
+697; +16%
Revenues
9M12
Retail Voice Wholesale
Voice
Data
Services
Internet Equipment Revenues
9M13
12
YoY
Variation
Note: Does not include intercompany revenues.
Graph not in scale
13% 36%39% 11%% of total Fixed Revenues
67%62%
Non Regulated
1%
Non Regulated
+7% +6% +30% +27% -20%
3,192 3,257
655 813
842
1,342
Evolution of Evolution of CAPEX: Focus in Network quality CAPEX: Focus in Network quality upgrade (+55% upgrade (+55% vs. 9M12)*vs. 9M12)*
Million of ARS
+32%
2,187
+59%
2,896
+2%
PP&E Capex Breakdown
31%
18%
4%
18%
33%
21%
7%
Core &
Infraestructure
IT
Others
9M12 9M13
1
Capex Evolution
+24%2Q
3Q
690 741
655
2011 2012 9M12 9M13
13
Note: 1Core & infrastructure refers to network related capex,
including quality and innovation capex.
* Only considering capex assigned to network
% Revenues 15% 14% 15%
� Confirming positive trends in capex dedicated to network quality upgrade
� Accelerating FTTx rollout deployment to improve commercial offers and user experience
� Controlled level of handset subsidy stabilized intangible assets
� Capex execution affected by exogenous factors
17%
+7%
25%
22%
21%
18%
Mobile access
Fixed access1Q
New
Conventional
Sites 3G
New Non
Conventional
Sites
6 Sectors
Consistent Executing action plan in a consistent mannerConsistent Executing action plan in a consistent manner
>20%
>4x
>5x
Access Network
Migration to 6-sector cell sites to take advantage of existing infrastructure
Spectrum refarming from 2G to 3G to
Incremental coverage and capacity thru unconventional sites
Vs. 9M12
Sites 3G
Overlay
Swap +
Modernization
+ Upgrade HW
>10%
>3x
14
VDSL Cabinet
on air >2x
Speeding 3G device penetration to optimize spectrum usage
Spectrum refarming from 2G to 3G to increase data speed and capacity
Increasing pace of FTTx deployment to improve BB speed availability
AgendaAgenda
Market Overview
Business Highlights
Financials
15
Financials
Q&A Session
5,9936,570
1,5871,930
4,726
5,554
6,649
5,645
7,114
TEO Group: Consolidated Results TEO Group: Consolidated Results
IFRS, Million of ARS, Percentage IFRS, Million of ARS, Percentage
22,117
18,498
+20%
+10%+24%
19,827
16,025+18%
2Q
Revenues OIBDA*
3Q
+26%
+22%3Q
1,647 1,799
1,4921,825
2011 2012 9M12 9M13
5,126 6,064
5,2546,649
2011 2012 9M12 9M13
16
OIBDA
Margin32% 30% 29% 28%
Regulated
Revenues12% 10% 10% 9%
+18% +9%
*Operating Income Before Depreciation & Amortization.
+27%+22%
1Q
2Q
1Q
2Q
3,812 172628
500810
314 292 268
138%
9M12 9M13
TEO Group: Consolidated Costs and OIBDA evolutionTEO Group: Consolidated Costs and OIBDA evolution
IFRS, Million of ARS
Operating Income Before Depreciation and Amortization 9M12 – 9M13
11,315+26% 14,299
+828; +18%OPEX1
4,726 5,55424%14%
27%34%
24% 20%25%
OIBDA
9M12
Revenues &
other
incomes
ITX Costs Labor Costs Taxes Marketing &
Sales
Fees for
services,
maintenance
and
materials
VAS Costs Others* OIBDA
9M13
17
YoY
Variation
1Consolidated cost excluding Depreciation & Amortizations and Results on disposal and writedown of PP%E* Others includes bad debt expenses, maintenance, materials, supplies and others
OIBDA
Margin-0.3%+0.5% -0.8% 0.0% +0.3% -1.2% 28.0%0.0%
% of
Revenues
29.5%
9,1% 9,9%1,3% 2,5%
21,3% 21,3%
7,6% 7,0%
Marketing &
Sales
ITX Costs
Taxes
72.1%70.6%
VAS costs
TEO Group: TEO Group: Actions to increase efficiencies to offset higher Actions to increase efficiencies to offset higher
consolidated costsconsolidated costs
21%
14%
22%
4%
Operating Costs19M13 vs. 9M12
Consolidated Costs1 as % of Revenues VAS Costs
Salary and
Social Security
Taxes
Others
16,5% 16,3%
14,8% 15,1%
9,1% 9,9%
9M12 9M13
Others2
Taxes
Labor costs
18
1. Excluding Depreciation & Amortizations and Results on disposal and writedown of
PP&E
2. Others includes: Fees for services, maintenance and materials; fees for Call Center
outsourcing; bad debt expenses,
10%29%
� Agreements with unions reached ~25% in two installments,
starting in July with a 15.5% increase
� Significant impact coming from provincial turnover tax rate
growth
� Increase in VAS costs related to growth in penetration and
usage of services with high marginal contribution
Interconnection
Costs
Selling expenses
9211,203
3,9663,857
2,8033,263
2,513
616870
2,685
TEO Group: Consolidated ResultsTEO Group: Consolidated Results
IFRS, Million of ARS, Percentage
+3%
IFRS, Million of ARS, Percentage
+7%
1,891
2,324
Operating IncomeNet Income
attributable to Telecom
+31%
+16%
3Q
+23%
+41%
Financia l Results 9M12 9M13
Net Interests $ 194 $ 428
FX resul ts -$ 29 -$ 131
Others -$ 6 $ 80
Total $ 159 $ 377
3Q
1.033 1.115
849 945
2011 2012 9M12 9M13
698 802
577652
616
2011 2012 9M12 9M13
19
O. Income
Margin21% 18% 14% 12%17% 16% 12% 12%
+13%
+8%
+11%
1Q
2Q
1Q
2Q
+15%
� Positive hedging actions to mitigate FX impact on
accounts payables
3,001
1,227
498 90 16 310
IFRS, Million of ARS - Last 9 months
TEO Group: FCF and Net Financial PositionTEO Group: FCF and Net Financial Position
5,554 2,896
343
OIBDA Capex Δ WK & others
Operating free Cash Flow
Net Financial Position
3,648
5,684
20
Note:
(1) Includes Telecom USA
(2) Includes Springville
(3) OFCF: Operating Free Cash Flow before Taxes
(4) $16 Millions represents Nucleo dividends payments to third parties
(5) Net of tax credits of ARS 8MM (Gross amount ARS 1,235 MM)
Net Financial
Position
FY12
(Net Cash)
Net Financial
Position
9M13
(Net Cash)
Net Interest
& Others
FX
Variations
Operating
Free Cash
Flow3
Taxes 5Dividend
Payments4
Telecom Argentina 1,093(1)
Telecom Personal 4,745(2)
Nucleo (Paraguay) (154)
Share buy
back
Free Cash Flow = 1,774
Net Financial Position
AgendaAgenda
Market Overview
Business Highlights
Financials
21
Financials
Q&A Session