third quarter 2012 earnings results conference call presentation · 2013-08-29 · third quarter...
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Third Quarter 2012Third Quarter 2012Earnings ResultsEarnings Results
Conference Call PresentationConference Call Presentation
Financial data prepared under IFRS
This presentation is based on audited financial statements and may include statements that could constitute forward-lookingstatements, including, but not limited to, the Company’s expectations for its future performance, revenues, income, earnings pershare, capital expenditures, dividends, liquidity and capital structure; the impact of the emergency laws enacted by the Argentinegovernment; and the impact of rate changes and competition on the Company’s future financial performance. Forward-lookingstatements 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 significantlyaffect the Company’s expected results. The risks and uncertainties include, but are not limited to, uncertainties concerning theimpact of the emergency laws enacted by the Argentine government which have resulted in the repeal of Argentina’s convertibilitylaw, the devaluation of the peso, restrictions on the ability to exchange pesos into foreign currencies, the adoption of a restrictivecurrency transfer policy, the “pesification” of tariffs charged for public services, the elimination of indexes to adjust rates charged forpublic services and the executive branch announcement to renegotiate the terms of the concessions granted to public service
DisclaimerDisclaimer
1
public services and the executive branch announcement to renegotiate the terms of the concessions granted to public serviceproviders, including Telecom. Due to extensive and rapid changes in laws and economic and business conditions in Argentina, it isdifficult to predict the impact of these changes on the Company’s financial condition. Other factors may include, but are not limitedto, the evolution of the economy in Argentina, growing inflationary pressure and reduction in consumer spending and the outcome ofcertain legal proceedings. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only asthe date of this document. The Company undertakes no obligation to release publicly the results of any revisions to forward-lookingstatements 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 isunaudited and may not coincide with that included in the financial statements of the Company, due to rounding, reclassificationmatters, and other reasons. Readers are encouraged to consult the Company’s Annual Report and Form 20-F as well as periodicfilings made on Form 6-K, which are filed with or furnished to the United States Securities and Exchange Commission and theArgentine Comisión Nacional de Valores.
• Market Overview
• Business Highlights
AgendaAgenda
2
• Financials
• Q&A Session
368442 452 457 465
1,7%
9,2% 8,9%
5,2%
0,0%
Market Overview: Uncertain in economic trendsMarket Overview: Uncertain in economic trends
Billions USD, at current prices – Last 12 months∆ YoY - constant prices
Trade Balance (Billions USD) Last 12 monthsFiscal Balance as % of GDP Last 12 months*
Real GDP* Trade & Fiscal BalanceConsumption
211249 256 262 268
11,6 10,0 11,4 11,5 12,8
1,7%
0,3% 0,1% -0,1% -0,1%
∆ YoY - constant prices
9,0%10,7%
7,0%
4,2% 4,7%
Billions USD, at current prices – Last 12 months
2010 2011 1Q12 2Q12 3Q12
3
Source: MECON, INDEC and Company Estimates•Official GDP YoY variation, constant prices. •Fiscal Balance represents primarily fiscal surplus
• The slowdown in the economy affected fiscalrevenues, making financial assistance fromthe Central Bank and the National PensionFund increasingly needed.
• Efforts to achieve a higher commercialsurplus continue kicking-in.
• Expected higher agricultural exports and astronger growth coming from Brazil will helpto relieve the economy from externalconstrains and to sustain a more favorablecontext.
• Weak economic conditions in 1H12, recentmonths have shown some signs of recovery inthe economy, although September did notmaintain the same trend.
• The drought effects on the agricultural outputimpacted mainly in the 1H12, while the growth inservice sector continues giving support to theeconomy.
• In September, industrial production suffered adecline of 4,4% YoY, while in 9M12 thereduction was 1,3%.
• A slightly more positive consumerconfidence was perceived in 3Q12, wherethe increase on wages and low real interestrates added purchasing power toconsumers.
• Inflation remains stable at high levels andin general, wages negotiation concluded atlower levels than last year.
• Telecommunications is a defensive sector,although it is not excluded from theeconomy cycles.
2010 2011 1Q12 2Q12 3Q12e 2010 2011 1Q12 2Q12 3Q12e
• Market Overview
• Business Highlights
AgendaAgenda
4
• Financials
• Q&A Session
Business Business HighlightsHighlights
Consolidated MNP leadership, acquiring valuable customers
Optimizing frequency bandwidth usage
Rationalizing SAC & SRC
Data and fixed BB revenues rose +31% and +29% YoY in 3Q12
Fixed BB ARPU increased +9% QoQ and +19% YoY in 3Q12FIXED
MOBILE
5
Fixed BB ARPU increased +9% QoQ and +19% YoY in 3Q12
Bundling services (ADSL+ fixed lines + Video Streaming + Mobile internet) delivering value
FINANCIALS
FIXED
Capex freed due to cancelled spectrum auction, reassigned toadditional access network deployment.
Strong cash flow generation and solid financial position with nodebt instruments in foreign currency
34,6 36,3 35,4 37,4
Mobile: Value generation seen thru VAS revenuesMobile: Value generation seen thru VAS revenues
Subscriber Share EvolutionMillion of lines
Others*
54,550,9
+5%
+7%53,2
56,3
+5,7%
+5,9%
320 304 334 329
49,8
55,852,7
58,2
TOU (SMS/Month)
MOU (Mins/Month)
ARPU (ARS/Month)
+12%
-5%
0%
Mobile KPI
+11%
-1%
+1%
16,3 18,2 17,8 18,9
2010 2011 9M11 9M12e
6
Note: Argentinean operation only – does not include trunking subscribersSource: Market estimates of the top 3 providers in the industry.
• Postpaid account for ~90% of 3Q12 net adds
• Consolidated MNP leadership :
• 3 out of 4 port-ins are high-value customers
• ARPU up +12% YoY to ARS 55,8 in 9M12
Market share
TEO
+1,1 Msubs.
+10 pts
+11%
33,5% 33,6%32,1% 33,4%
+6,3%98 98 101 102
9M11 9M12 3Q11 3Q12
0% +1%
3,8% 5,2% 3,9%
9,0% 9,0% 9,4%
5.095 5.7274.175 4.555
2.997
4.482
3.1964.128
391
774
524890
Mobile: Postpaid & VAS a growing duetMobile: Postpaid & VAS a growing duet
Million ARS – Argentine Market
Internet Services
Data (SMS)
as % of Argentine Service Revenues -Before capitalization of SAC & SRC
Service Revenue Breakdown SAC & SRC
7.895+98%
+50%
+12% Handset subsidies
Agent Commission
+70%
+29%
9.573
+9%Retail & Wholesale Voice
8.483
10.983+29%
+21%
16,2%17,3%
16,4%SAC & SRC
3,6% 3,1% 2,9%
1Q12 2Q12 3Q122010 2011 9M11 9M12
7
VAS as % of Service Revenues
• Sustained growth in Mobile Internet revenues; +70% YoY in 9M12
• First mobile price adjustment effective as of October 2012.
Advertising
52%47%
Voice
48%40%
• Accelerating upgrades to all-inclusive plans (Minutes+SMS+Mobile Internet)
• Handset upgrades to promote data usage and improve spectrum efficiency
• Capitalizing MNP leadership to rationalize Subscribers Acquisition and Retention Costs
1.8782.149 2.078
2.270
Paraguayan Market: Growing and deliveringParaguayan Market: Growing and deliveringSubscribers
Thousand of lines (includes 3G modems)
+14%
+9%
466
714
516
627
158
264185
236OPBDA
REVENUES
+53%
+67%
Financials
+22%
+28%
IFRS Million of ARS
2010 2011 9M11 9M12
81 Postpaid includes 3G modems but excludes WIMAX
• Revenues in ARS rose +22% vs. 9M11
• FCF increased +53% YoY vs. 9M11
2010 2011 9M11 9M12
Margin 34% 37% 36% 38%
• Postpaid1 customer base rose +22%
• Leadership in mobile internet, twofoldgrowth internet service revenues
• Marketing synergies between Argentinaand Paraguay
9.450 342 38932 366
369 111 11.608
+2.158(+23%)
IFRS, Million of ARS, Percentage
Mobile Revenues: Value added services sustains growthMobile Revenues: Value added services sustains growthEvolution of revenues 9M11 – 9M12
9M11 Revenues
Retail Voice
Wholesale* Voice
Data Internet Equipment Nucleo* (Paraguay)
9M12 Revenues
9
+12% +3% +29% +22%+36%
Note: Wholesale voice shows Interconnection revenues (CPP, TRLD, Roaming and others)Núcleo revenues expressed in ARS and includes equipment.
36%11% 8%28% 12%% of total MobileRevenues
5%
+70%YoY Variation
1.3801.550 1.505 1.612
BroadbandBroadband: ARPU expansion delivered in 3Q12: ARPU expansion delivered in 3Q12
• Data services revenues up +31% YoY in 3Q12
• ARPU rose +19% YoY in 3Q12
• FTTC network upgrade to compete with CATV
• Adding value thru bundling services and video streaming services
Thousand of broadband accesses
Evolution of Accesses
+7%+12%
1.380
2010 2011 9M11 9M12e
Market share1
1,2% 1,1% 1,3% 1,1%1,5%
88,291,1
95,6 96,5105,1
3Q11 4Q11 1Q12 2Q12 3Q12
Monthly Churn
ARPU (ARS)
10
1 Source: Market estimates of the top 3 providers in the industry.
35%
TEO
+19%
35%
ARPU & Churn Evolution
34%35%
4.107 4.141 4.132 4.140
Fixed voice: ARPU continue growing despite frozen tariffsFixed voice: ARPU continue growing despite frozen tariffs
• Retail voice revenues increased 5% YoY due to packs of services
• Increasing ARPU thanks to supplementary services and flat pricing offers
+0,2%+0,8%
Thousand of lines in service
Evolution of Lines in Service
46,6 46,9 46,9 47,4
48,8
3Q11 4Q11 1Q12 2Q12 3Q12
2010 2011 9M11 9M12
11
1Source: Company reports of the main providers in the industry.ARBU: Includes only concepts billed to clients* Market share estimated.
ARS +5%(excluding broadband and data)
ARBU evolution
Market share1 47% 47% 47%*47%
TEO
3.909 90 -4112 315 -5 4.417
+508(+13%)
IFRS, Million of ARS, Percentage
FixedFixed Services: Internet Revenues accelerated in 3Q12Services: Internet Revenues accelerated in 3Q12
38%
Regulated
Evolution of revenues 9M11 – 9M12
Regulated
Revenues 9M11
Retail Voice Wholesale Voice
Data Internet Equipment Revenues 9M12
12
YoY Variation
-8%+5%
Note: Does not include intercompany revenues.Graph not in scale
-1%
12% 33%42% 12%% of total Fixed Line Revenues
62%
42%
58%
Regulated
Non Regulated
1%
+27%
Non Regulated
+28%
21%
18%
33%
21%
7%
OthersIT
Mobile access
Fixed
1.852
2.318
1.2621.545
Evolution of Evolution of CAPEXCAPEX
Million of ARS
PP&E Capex BreakdownCapex Evolution
+23%
+32%
2.424
3.192
+25%PP&E
+22%
1.7752.187
33% Fixed access
Core & Infraestructure1
572 874513 642
2010 2011 9M11 9M12
13
Note: 1Core & infrastructure refers to network related capex, including quality and innovation capex.
% Revenues 17% 13% 14%
• Spectrum auction cancellation will require to reschedule capex deployment
• IP Backhauling in more than half of 3G sites
• FTTC rollout approaching planned deployment speed
17%
+53%Intangible AssetsSAC/SRC
+25%
Exploiting network resources to keep growingExploiting network resources to keep growing
Optimizing• Migrating to 6-sector cell sites to maximize
coverage and capacity
• Gradual refarming spectrum allocated on2G to the more efficient 3G
• Investments to solve signaling complexityin an extensive-low weight data trafficdemand. ie: status updates, messagingapps, twits, etc
• Virtual dual carrier technology increasesspeed and capacity for 3G networks
14
Adapting
speed and capacity for 3G networks
• Increasing mobile access points thru nonconventional sites and small cells toaddress coverage and capacity needs
• Seeking alternative network solutions. WiFiand femtocells offloading.
• Market Overview
• Business Highlights
AgendaAgenda
15
• Financials
• Q&A Session
4.775
5.645
TEO Group: Consolidated Results TEO Group: Consolidated Results
+23%
IFRS, Million of ARS, Percentage
Revenues OPBDA*IFRS, Million of ARS,
13.359
16.025
4.4014.726
+26%18.498
14.627
4.867
5.993+18% 3Q
+20%
+7%
4.134 5.126
4.4505.254
2010 2011 9M11 9M12
1.431 1.647
1.474 1.492
1.496 1.587
2010 2011 9M11 9M12
2Q
1Q
3Q
16
OPBDA Margin
33% 32% 33% 29%Regulated Revenues 14% 12%
+18%+6%
4.4014.867
12% 10%
+24%
+1%
+15%
2Q
1Q
*Operating Profit Before Depreciation & Amortization.
TEO Group: Consolidated TEO Group: Consolidated CostsCosts
Consolidated Costs 1 as % of Revenues Operating Costs 1 9M12
9,1%
19,7%21,3%
8,2%7,6%
Marketing & Selling
expenses
ITX
70,7%67,2%Labor Costs
Taxes
Marketing &
Others2
21%
13%
11%30%
25%
17
1. Excluding Depreciation & Amortizations.2. Others includes: Fees for services, fees for Call Center outsourcing,
maintenance, materials and supplies, bad debt expenses..
• Cost pressure in 3Q12 was partially compensated by reduced interconnection costs and lower mobile subsidies
• Strong impact of 2011 wage negotiations (+ 31,3%). 2012 collective bargain agreement ended with lower rates than previous year
• Discontinued energy subsidies account for 50 bps loss in margins
• After MNP efforts, a more conservative approach toward SAC & SRC will help to sustain margins in an inflationary context
16,7% 17,9%
14,0% 14,8%
8,6% 9,1%
9M11 9M12
Others2
Taxes
Labor Costs
ITX costsMarketing & Sales
1.8911.870
TEO Group: Consolidated ResultsTEO Group: Consolidated Results
IFRS, Million of ARS, Percentage
Operating Profit Net Income attributable to Telecom
2.863 2.803
3.857
3.162
+22%
+30%
+1%-2%
2.513
1.935
IFRS, Million of ARS, PercentageD&A 9M11 9M12 ∆%PP&E 1.111 1.325 19%
SAC and Connection costs
429 586 37%
Other intangible assets
13 16 23%
Total 1.553 1.927 24%
634 698
627 577
609 616
2010 2011 9M11 9M12
1.8911.870
958 1.033
971 849
934 921
2010 2011 9M11 9M12
18
O. Profit Margin 22% 21% 13% 14%21% 17% 14% 12%
-8%-13%
+10%+8%
2Q
1Q
2Q
1Q
-1% 3Q+1% 3Q
2.724
1.601
282 87 820
IFRS, Million of ARS - Last 12 months
TEO Group: FCF and Net Financial PositionTEO Group: FCF and Net Financial Position
6.318 3.604
10
OPBDA Capex ∆ WK & others
Operating Free Cash Flow
2.0252.697
19
Note:(1) Includes Telecom USA(2) Includes Springville(3) OFCF: Operating Free Cash Flow before Taxes.(4) $807 TA, $13 Nucleo
Net Financial Position
3Q11(Cash)
Net Financial Position
3Q12(Cash)
Net Interest
FX Variations
Operating Free Cash
Flow3
Taxes Dividend Payments4
Free Cash Flow = 1.123
Telecom Argentina 1.328(1)
Telecom Personal 1.471 (2)
Nucleo (Paraguay) (102)
Net Financial Position
• Market Overview
• Business Highlights
AgendaAgenda
20
• Financials
• Q&A Session