TELECOM ARGENTINA Earnings Release March 2018 FY2017
This presentation may include statements that could constitute forward-looking statements, including, but not limited to, the Company s and it s management expectations for the Company s 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 and other similar expressions, but they are not the only way the Company identifies forwardlooking statements. Forward-looking statements involve risks and uncertainties that could significantly affect the Company s expected results. 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 or as a result of new information or otherwise. 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. DISCLAIMER 1
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 2
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 3
MACRO: HIGH RESERVES ACCUMULATION, AMIDST INCREASES OF FX RATES EXTERNAL FRONT CENTRAL BANK RESERVES (Billion U$S) 50.5 50.2 48.0 39.3 31.4 25.6 2014 2015 2016 1Q17 2Q17 3Q17 4Q17 FX RATE Official FX (BCRA) 55.1 A central element of the Central Bank s policy during 2017 was the accumulation of international reserves. In this regard, international reserves experienced an increase of almost U$S 15.8Bn during the year, being this accumulation of reserves the greatest in recent periods, while the stock is currently in historical records. This increase is mainly explained by strong capital inflows coming mostly from international debt issuances performed by the National Government. Floating Exchange Rate Regime during 4Q17 After experiencing relative stability during the quarter, the FX rate moved upwards during the last days of December, principally due to renewed demand of foreign currency and increased volatility. During most of the 4Q17 the nominal Peso/Dollar exchange parity registered little variation in average, however on the final days of December it experienced a sharp rise due to a combination of seasonal factors, dollarization of portfolios and lower interest rates expectations. Central Bank abstained from exercising direct intervention, allowing the market to freely determine the FX rate. Trade balance accumulated a deficit of U$S 8.5Bn during 2017, increasing notoriously predominantly due to greater imports of capital goods, its accessories and passenger vehicles, combined with a stable evolution of exports. 4
MACRO: INCREASES IN ACTIVITY CONSOLIDATE, BUT INFLATION MAY TAKE LONGER TO DECLINE FURTHER DOMESTIC ACTIVITY & INFLATION HOUSEHOLD CONSUMPTION Revised official figures as of 4Q17-4.4% 3.5% -1.4% 0.9% 4.0% 4.2% 4.0% Overall household consumption continues to show a strong recovery from past year levels. Nonetheless, when analyzing consumer confidence index figures, it is worth to note that consumers are still maintaining a cautious stance ahead of 2018 economic expectations. CPI (YoY) Construction Retail & Wholesale commerce Agriculture Financial interm. Real Estate Transport & Communications Manufacturer Industry Public Admin & Defense Social services & Healthcare Electricity, gas & water Minery 2014 2015 2016 1Q17 2Q17 3Q17 4Q17e CPI measured by the Buenos Aires City showed a 26.1% YoY, variation for Dec-17, showing that inflation is reducing its pace of decline. In fact, the Central Bank announced during December a recalibration of the inflation targets, essentially pushing the whole series of targets a year ahead, thus setting expectations of price increases to slightly higher levels for coming years. ECONOMIC ACTIVITY PER SECTOR Total 38.0% CPI (Buenos Aires City) 26.9% 41.0% 35.0% 23.4% Inflation has slowed its pace of decline 26.2% 26.1% 2014 2015 2016 1Q17 2Q17 3Q17 4Q17 Economic growth has consolidated during 4Q17, as activity continuestoimproveand toleavebehindthefallfrom2016.the pull has been mainly exercised through Construction, but the majority of the sectors turned out positive. Industrial output ended 2017 with a partial recovery, registering an increase of 1.8% vs 2016, mostly pushed by Non Metallic Minerals and Steel and by capital and intermediate goods production. 5
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 6
VISION & STRATEGY Leader in solutions and convergent connectivity services, with an agile structure and focused on our customers VALUED ADDED PROPOSAL COVERAGE & NETWORK CAPACITY CONVERGENT SYSTEMS & SERVICES CLIENT EXPERIENCE COMPANY TRANSFORMATION 7
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 8
Highlights 14 +22% YoY Revenues P$ 65.2 bn +P$ 11.9 bn P$ 41.0 bn +34% YoY +P$ 10.4 bn EBITDA P$ 19.4 bn +34% YoY +P$ 4.9 bn P$ 15.2 bn +39% YoY +P$ 4.2 bn ARPU Fixed Voice ARBU: $ 152.3 Broadband ARPU: $ 359.6 +56% YoY +33% YoY Cable TV and Broadband ARPU: $ 796.3 +41% YoY Mobile ARPU: $ 142.3 +27% YoY Subscribers Mobile Subs: 19.0 mm Fixed Voice Subs: 3.8 mm Broadband Subs: 1.7 mm 9.7mm Cable TV Subs: 3.5 mm Broadband Subs: 2.3 mm Mobile Subs: 0.7 mm Unique Subs: 3.9 mm 9
TELECOM REVENUES REVENUES BREAKDOWN +22% MOBILE SERVICES INTERNET +57% In P$ Million 5% 5% 12% 28,049 34,289 10,832 17,048 53% 25% FIXED SERVICES Mobile Fixed Voice + Internet +33% FIXED VOICE + INTERNET +35% Handsets & Equipments Data Paraguay 14,923 19,797 12,004 16,220 Figures may not sum up due to rounding 10
MOBILE IN ARGENTINA: CAPTURING VALUE In P$ Million MOBILE SUBSCRIBERS In Million 19.5 19.0 6,4 6.6 33% 35% DATA PENETRATION DATA USAGE Monthly unique users in million MBOU/ MONTH +14% +75% 9.7 8.6 1,813 1,038 Prepaid Postpaid SERVICE REVENUES BROWSING ARPU Browsing Voice + Data In P$ +39% 61% 50% 39% 50% 112.2 156.2 Figures may not sum up due to rounding Monthly Unique users and MBOU over Monthly unique users that consume more than 10Mb 11
MOBILE 4G EVOLUTION 12
FIXED SERVICES SUBS UBB SUBS evolution ARNET + VOICE evolution FIXED HOME CONVERGENCE STRATEGY PUSHES UBB OFFER Lines in Service: 3.8 mm Internet Access: 1.7 mm +106% YoY +220% HOME CONVERGENCE STRATEGY VOICE ARBU BROADBAND ARPU & CHURN FIXED DATA 112.3 +54% 172.4 302.9 2.2% +28% 387.7 1.4% In P$ Million 2,919 +23% 3,577 +25% 786 982 4Q16 4Q17 4Q16 Monthly Churn 4Q17 ARPU (P$) 4Q16 4Q17 17% 7% FX (P$/U$S) 13
REVENUES BREAKDOWN PAY TV SERVICES +31% CABLEVISIÓN REVENUES 6% 3% 18,750 24,589 4,099 n P$ Million 2,412 31% 50% 16,338 20,490 Cable TV Premium TV 10% Cable TV Premium TV Internet Mobile Other INTERNET +67% 12,865 7,697 14
UNIQUE SUBSCRIBERS SUBSCRIBERS DISTRIBUTION Number of subs in thousand FIXED SERVICES 3,918 10% 10% 46% 49% 3,912 44% 41% Cable TV Bundled Broadband INTERNET SUBSCRIBERS Number of subs in thousand 2,335 2,183 +7% YoY 15
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 1000 900 800 700 600 500 400 300 200 100 0 CABLE TV SUBSCRIBERS Number of subs in million CABLEVISIÓN FLOW SUBSCRIBERS Number of subs in thousand 687.8 FIXED SERVICES 3,528 3,503 254.5 4.5 1.4 Flow Box Flow App TOTAL ARPU & CHURN PREMIUM SUBSCRIBERS 887 +44% 625 ARPU +42% YoY 14.4 16.4% 16.3% 14.2% 4Q16 4Q17 Premium Football Pack Churn Cable TV Churn Internet ARPU 16
CAPEX EVOLUTION CAPEX: NETWORK DEPLOYMENT TO IMPROVE CAPACITY AND QUALITY Million of P$ 11,386-2% 11,143 FTTH DEPLOYMENT In available commercial zones 4Q 3,687 +22% 4,505 1Q17 2Q17 3Q17 4Q17 % REVENUES 21% 17% Million of P$ % REVENUES 30% 9,076 29% 11,681 Between 2018-2020 Telecom will invest U$S 5,000 million: To increase the telephone and mobile Internet radiobases, To extend the NGN (Next Generation Networks), and To expand and improve the connectivity infrastructure in order to be able to provide multi-play services, in the framework of convergence. 17
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 18
CONSOLIDATED RESULTS 33,341 REVENUES IFRS, Million of P$, Percentage OF REVENUES IN ARGENTINA: +23% IN PARAGUAY: +13% 53,240 40,496 14,422 +22% 65,186 4Q 17,923 +24% SERVICE REVENUE GROWTH OF SERVICE REVENUES IN ARGENTINA: +26% IN PARAGUAY: +21% 14,424 4,214 EBITDA IFRS, Million of P$, Percentage +34% 4Q +21% 19,356 5,110 8,702 10,866 FY14 FY15 FY14 FY15 EBITDA EVOLUTION % REVENUES 26% 27% 27% 30% 65,319 17,306 45,963 +22% +18% EBITDA MG TREND 65,319 45,963 4,983 +34% 27% 27% 29% 29% 19,356 Revenues and Others Operative Costs EBITDA 4Q14 4Q15 4Q16 4Q17 19
OPERATING INCOME IFRS, Million of P$, Percentage NET INCOME (Attributable to Telecom) IFRS, Million of P$, Percentage CONSOLIDATED RESULTS Period D & A 3G / 4G Spectrum Amortization Disposal and impairment of PP&E Total 5,860 338 383 6,581 6,603 325 316 7,244 +10% In million of P$ $ Operating Income $ 7,843 $ 12,112 $ 4,269 Financial Results -$ 2,244 -$ 486 $ 1,758 Income Tax -$ 1,594 -$ 3,902 -$ 2,308 Minority Interest -$ 30 -$ 94 -$ 64 Total $ 3,975 $ 7,630 $ 3,655 5,443 6,229 7,843 2,320 +54% 4Q 33% 12,112 3,094 3,673 3,403 3,975 +92% 4Q 32% 7,630 1,989 1,504 FY14 FY15 OPERATING INCOME MARGIN FY14 FY15 NET INCOME MARGIN 14% 15% 15% 19% 11% 8% 7% 12% 20
FCF FREE CASH FLOW, NET FINANCIAL POSITION IFRS, Million of P$. Last 12 months 5,892 Net Debt 9,376 Operating Free Cash Flow 1 2,400 Taxes 189 341 Net Interest & Others FX Variations 4,192 3,260 Dividend Payments 2 Net Debt OPERATING FREE CASH FLOW 19,356 11,143 1,163 EBITDA Capex WK & others FCF GENERATION Free Cash Flow = 6,976 vs. 7,682-700 1,458-1 -2,192 NOTE PROGRAM & FX COVERAGE The General Ordinary Shareholders Meeting held on December 28, 2017 approved a Medium Term Note Program up to a maximum outstanding amount as of the date of issuance of each class or series of u$s 3 billion or its equivalent in other currencies. Through investments denominated in foreign currency and NDF contracts the Company is hedging its FX exposure achieving ~44% coverage. (1) OFCF: Operating Free Cash Flow before Taxes (2) Includes $38 million related to Núcleo dividend payment to third parties and $3 million related to dividend payments on behalf of Sofora 21
REVENUES IFRS, Million of P$, Percentage IFRS, Million of P$, Percentage EBITDA CONSOLIDATED RESULTS +34% 4Q 30,571 +34% 8,334 40,952 11,174 10,931 2,753 +39% 4Q +41% 15,155 3,893 14,226 20,125 4,694 7, 295 FY14 FY15 FY14 FY15 EBITDA EVOLUTION % REVENUES 33% 36% 36% 37% +34% +31% EBITDA MG TREND 40,952 15,489 +32% 10,307 +39% 15,155 32% 30% 33% 35% Revenues Cost of Sales Selling & Adm. Expenses EBITDA 4Q14 4Q15 4Q16 4Q17 22
OPERATING INCOME NET INCOME IFRS, Million of P$, Percentage (Attributable to Cablevisión) IFRS, Million of P$, Percentage In million of P$ $ CONSOLIDATED RESULTS 3,462 5,729 +34% 8,343 4Q 1,878 +46% 11,169 2,746 Operating Income $ 8,343 $ 11,169 $ 2,826 Other Income $ 103 $ 29 -$ 74 Financial Results -$ 2,374 -$ 2,612 -$ 237 Equity in earnings from associates $ 131 $ 168 $ 36 Income Tax -$ 2,095 -$ 2,859 -$ 763 Minority Interest -$ 62 -$ 80 -$ 18 Total $ 4,045 $ 5,815 $ 1,770 FY14 FY15 +44% 5,815 1,312 OPERATING INCOME MARGIN 2,473 4,045 842 +56% 1,287 25% 24% 22% 23% FY14 FY15 NET INCOME MARGIN 4Q14 4Q15 4Q16 4Q17 9% 12% 13% 14% 23
FCF FREE CASH FLOW, NET FINANCIAL POSITION IFRS, Million of P$. Last 12 months 6,936 5,470 2,669 823 113 1,606 6,451 OPERATING FREE CASH FLOW 15,115 11,681 2,034 EBITDA Capex WK & others Net Debt Operating Free Cash Flow1 Taxes Net Interest & Others FX Variations Dividend Payments2 Net Debt Free Cash Flow = 2,801 vs. 4,724 1,323 110-432 103 FX COVERAGE Through investments denominated in foreign currency and NDF contracts the Company is hedging its FX exposure achieving ~35% coverage. (1) OFCF: Operating Free Cash Flow before Taxes (2) Includes $6 million of dividend payments to non-controlling shareholders 24
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 25
TRANSACTION SUMMARY TRANSACTION SUMMARY AND CAPITAL OWNERSHIP Telecom Argentina S.A. incorporated Cablevisión S.A. in an all stock transaction Telecom issued 1,184.5 mm new shares for Cablevisión S.A. shareholders All resulting company share classes have equal economic and voting rights Original Telecom shareholders kept 45% of the combined company shares Reference equity values of U$S5.0 bn for TEO and U$S6.1 bn for CV OWNERSHIP STRUCTURE 26
KEY FIGURES REVENUES U$Smm(1) +63% EBITDA U$Smm(1) +78% 3,933 2,471 6,404 1,168 914 2,082 + + EBITDA margin 30% 37% 33% COMBINED REVENUES BREAKDOWN ()) COMBINED CLIENTS B Y S E G M E N T I N A R G E N T I N A Pay TV 23% Devices 8% Fixed BB 19% Fixed Voice 8% 3.8mm subscribers 4.1mm subscribers Data & Others 4% 19.7mm subscribers 3.5mm subscribers Mobile 38% (1) Values in U$S calculated at a rate of P$16.57 = U$S1.00, using as a reference the U.S. dollar ask rate published by the Banco de la Nación Argentina for wire transfers (divisas) and calculated using the average of such FX rate of the full year 2017 27
COMBINED FIGURES AS OF DECEMBER 31, 2017 In U$Smm TEO (1) CVSA (2) Combined (3) Revenues EBITDA 3,933 1,168 2,471 914 6,404 2,082 Gross Debt 656 585 1,241 Net Debt 175 346 521 Capex 672 705 1,377 Ratios (4) Gross Debt / EBITDA 0.63x 0.72x 0.67x Net Debt / EBITDA 0.17x 0.43x 0.28x EBITDA - Capex 496 209 705 (1) Please refer to Telecom Argentina SA Financial Statements (http://www.telecom.com.ar/inversores/financiera.htm) and CNV filings available at http://www.cnv.gov.ar https://www.sec.gov/archives/edgar/data/932470/000090342317000496/tm6k_0810.htm (2) Please refer to Cablevision SA Financial Statements (https://institucional.cablevisionfibertel.com.ar) and CNV filings available at http://www.cnv.gov.ar. Gross and net debt include accrued Interest. (3) Combined figures are the result of the sum of each of the indicated figures for each of TEO and Cablevisión as appear in each of their respective financial statements as of December 31, 2017 and for the annual period ended December 31, 2017. (4) Gross Debt / EBITDA and Net Debt / EBITDA ratios calculated taking into consideration figures in Argentine Pesos in the full year 2017. Values in U$S calculated at a rate of P$16.57 = U$S1.00, using as a reference the U.S. dollar ask rate published by the Banco de la Nación Argentina for wire transfers (divisas) and calculated using the average of such FX rate of the full year 2017, except for Net Debt which has been converted at a rate of P$18.65 = U$S1.00, which was the exchange rate quoted by Banco Nación for wire transfers (divisas) on December 31, 2017. 28
NEXT STEPS MERGER BACK END FRONT END NETWORK F U N C T I O N S SAP integration, New ERP platform, Processes integrations CRM implementation, Big Data, Customer Centric Preferred Network, Capex Optimization, Deployment of new sites and fiber optic P A R T N E R S Significant cost synergies potential, with implementations in course CAPEX efficiency SYNERGIES Revenues cross-selling and churn reduction OPEX savings 29
AGENDA MACRO AND INDUSTRY OVERVIEW VISION & STRATEGY BUSINESS HIGHLIGHTS FINANCIALS THE MERGER Q&A 30
Investor Relations Contact Telephone: (5411) 4968 3628 E-mail: relinver@teco.com.ar