Fourth Quarter & Fiscal Year 2012 Earnings Results Conference Call Presentation
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
Agenda Market Overview Business Highlights Financials Guidance for 2013 Q&A Session 2
Market Overview: Rebound expected after 2012 slowdown Real GDP* Billion USD, at current prices Last 12 months YoY - constant prices 0,9% 307 9,2% 8,9% 368 1,9% 442 465 Consumption & Wages Billion USD, at current prices Last 12 months National Wages - % YoY 29,4% 26,3% 24,5% 16,7% 249 266 211 179 Trade & Fiscal Balance Trade Balance (Billion USD) Last 12 months Fiscal Balance as % of GDP Last 12 months* 1,5% 1,7% 16,9 0,3% 11,4 10,0-0,2% 12,7 2009 2010 2011 2012e 2009 2010 2011 2012e 2009 2010 2011 2012e After a hard landing in 2012, an improved economic scenario for 2013 is expected. The agricultural production will probably recover strength and the Brazilian economy may help industrial exports. Weak economic conditions reduced growth to 1,9% in 2012 down from 8,9%. Sectors like agriculture and construction suffered the most, while banking and some other services outperformed the rest of the economy. Source: MECON, INDEC and Company Estimates Official GDP YoY variation, constant prices. Fiscal Balance represents primarily fiscal surplus Private consumption was the main driver of growth in 2012, as deteriorated investment levels suffered from tighter FX and imports conditions. The continued increases in nominal wages and the low real interest rates encouraged consumption over savings. Inflation remained at high levels, although in general, wages negotiation concluded at lower levels from last year. International commerce declined in 2012, due to a reduction in exports and imports of 3% and 7% respectively, reaching a trade surplus of 12,7 billion dollars. Weak performance in the fiscal accounts increased flows from the Central Bank and National Pension Funds. Improved agricultural production and Brazilian economy picking-up, could help to ease external constraints and to sustain a more favorable context for 2013. 3
Agenda Market Overview Business Highlights Financials Guidance for 2013 Q&A Session 4
Business Highlights MOBILE #1 in Revenue Share; Service Revenues up +21% YoY in 4Q12 Postpaid leadership confirmed by high quality of port-ins & net adds Investing in mobile access to sustain VAS growth FIXED Wireline BB and Data services sustain revenue expansion Wireline Broadband ARPU rose +22% YoY in 4Q12 Increasing ICT orders backlog FINANCIALS Strong cash flow generation in 4Q12 ARS1.406 MM in 2012 Margins expanded QoQ; controlled SAC/SRC and cost efficiency Revenues and OIBDA double digit growth Target Reached 5
TEO Group: 2012 Targets IFRS, Billion of ARS Guidance FY12 2012 Results +Positive Double Digit YoY trend Revenues +20% vs 2011 +20% vs. FY11 2011 2012 +Positive Double Digit YoY trend OIBDA +10% vs. FY11 +11% vs. FY11* *Excluding non-recurring cost Capex 2011 2012 Capex as % of 17% Revenues 18% 3,2 4,0 2011 2012 +2% vs. FY11 ARS 3,3 Billion Delays in logistics for equipment imports affected target 6
Mobile: Consolidated revenue share leadership Subscriber Share Evolution Million of lines Mobile KPI 47,4 +7% 50,9 +4% +7% 54,5 56,6 ARPU (ARS/Month) 51,4 +12% 57,7 56,0 +13% 63,3 Others* TEO Market share Revenue Share 32,9 +5% 34,6 +5% 36,3 +4% 37,6 14,5 16,3 18,2 +4% +13% +11% 19,0 2009 2010 2011 2012 30,6% 32,1% 33,4% +0,8 MM subs. 33,5% 29,9% 31,1% 33,5% 34,3% TOU (SMS/Month) MOU (Mins/Month) -4% -2% 322 309 329 322 0% +1% 99 99 102 103 2011 2012 4Q11 4Q12 Sustained #1 in Revenue Share Outperformance in postpaid segment; represents more than half of 2012 net adds Leading the Smartphone segment Despite single price adjustment in postpaid in 2012, 4Q12 ARPU rose +13% YoY Note: Argentinean operation only - Does not include trunking subscribers. Source: Market estimates of the top 3 providers in the industry. 7
Mobile: SAC & SRC under control in MNP success Internet Services Data (SMS) Retail & Wholesale Voice Service Revenue Breakdown Million ARS Argentine Market 6.830 173 2.150 +24% +126% +39% 8.483 391 2.997 +29% +98% +50% 10.983 774 4.482 +21% +61% +29% +10% 13.312 1.248 5.765 +12% 5.095 5.727 6.299 4.507 +13% as % of Argentine Service Revenues - Before capitalization of SAC & SRC SAC & SRC Agent Commissions Handset subsidies Advertising 19,7% 8,6% 5,8% SAC & SRC 16,4% 9,0% 17,3% 9,0% 3,8% 5,2% 16,2% 9,4% 14,2% 8,9% 3,9% 2,0% 5,3% 3,6% 3,1% 2,9% 3,3% VAS as % of Service Revenues 2009 2010 2011 2012 34% 40% 48% 53% 4Q11 1Q12 2Q12 3Q12 4Q12 Consolidated leadership in high-end market appealed by VAS & customer experience Successful mobile internet adoption in prepaid segment thanks to innovative daily flat offer ( internet por $1 ) Continued rationalization of SAC & SRC after successful MNP implementation Promoting handsets upgrade to 3G & smartphones to encourage data usage and improve spectrum efficiency 8
Paraguayan Market: Sustained value generation Subscribers Thousand of lines (includes 3G modems) IFRS Million of ARS Financials +4% +14% +7% REVENUES +53% 714 +21% 867 1.806 1.878 2.149 2.301 OIBDA 385 +21% +20% 466 132 158 +67% 264 +25% 331 2009 2010 2011 2012 2009 2010 2011 2012 Margin 34% 34% 37% 38% LTE launch positioned our Brand as leader in innovation in the mobile internet business Great postpaid momentum; customers 1 rose +21% YoY Leadership in mobile internet boosted internet service revenues Revenues in ARS rose +21% YoY in 4Q12 Sustained value generation and contribution to the Telecom Argentina Group 1 Postpaid includes 3G modems but excludes WIMAX 9
Mobile Revenues: Sustained growth thanks to VAS Evolution of revenues 2011 2012 IFRS, Million of ARS, Percentage +2.925 (+22%) 13.169 460 112 1.283 474 443 153 16.094 YoY Variation +61% +30% +11% +6 % +29% +21% 2011 Revenues Retail Voice Wholesale* Voice Data Internet Equipment Nucleo* (Paraguay) 2012 Revenues % of total Mobile Revenues 28% 11% 36% 8% 12% 5% Note: Wholesale voice shows Interconnection revenues (CPP, TRLD, Roaming and others) Núcleo revenues expressed in ARS and includes equipment. 10
Broadband: Sustaining growth thru adding value Evolution of Accesses Thousand of broadband accesses +5% +12% +14% Upselling of bandwidth upgrades and video streaming sustain growth Deploying FTTC to increase bandwidth up to 100 mbps Wireline BB revenues up 29% YoY in 4Q12 1.214 1.380 1.550 1.629 ARPU rose 22% YoY in 4Q12 Broadband penetration reached 39% of LIS TEO 2009 2010 2011 2012 ARPU & Churn Evolution +22% Market share 1 36% 35% 35% 34% 91,1 95,6 96,5 105,1 111,5 Monthly Churn 1,1% 1,3% 1,1% 1,5% 1,5% ARPU (ARS) 1 Source: Market estimates of the top 3 providers in the industry. 4Q11 1Q12 2Q12 3Q12 4Q12 11
Fixed Voice: Bundling services help ARPU & churn Evolution of Lines in Service Thousand of lines in service +1,2% +0,8% -0,3% Retail voice revenues increased 5% YoY due to packs of services and flat pricing TEO 4.060 4.107 4.141 4.128 Bundled services helped to maintain churn under control Increasing ICT orders backlog in government and corporate segment 2009 2010 2011 2012 ARBU evolution (excluding broadband and data) ARS +6% Market share 1 47% 47% 47% 46% 46,9 46,9 47,4 48,8 49,9 Monthly Churn 0,5% 0,5% 0,5% 0,5% 0,5% ARPU (ARS) 1 Source: Company reports of the main providers in the industry. ARBU: Includes only concepts billed to clients 4Q11 1Q12 2Q12 3Q12 4Q12 12
Fixed Services: Wireline BB + ICT services key drivers Evolution of revenues 2011 2012 IFRS, Million of ARS, Percentage 5.329 118-8 +694 (+13%) 152 440-8 6.023 36% Regulated Regulated 41% YoY Variation +5% -1% +26% +28% -9% Non Regulated 59% 64% Non Regulated Revenues 2011 % of total Fixed Revenues Retail Voice Wholesale Voice 42% 12% Data Internet Equipment Revenues 2012 12% 33% 1% Note: Does not include intercompany revenues. Graph not in scale 13
Evolution of CAPEX PP&E Intangible Assets SAC/SRC Million of ARS +28% 2.105 1.663 +18% +16% Capex Evolution 2.493 1.921 442 +29% 572 +21% +53% 3.192 +2% 2.318 2.415 +4% 3.257 874-4% 842 2009 2010 2011 2012 PP&E Capex Breakdown IT 23% 32% Core & Infraestructure 1 Others 7% 19% 19% Mobile access Fixed access % Revenues 17% 17% 17% 15% Focus in core network improvement, fault tolerance enhancement Extending own network reach to reduce roaming and avoid drop-calls Continued FTTC network rollout Initial delays in logistics and spectrum auction cancellation resulted in postponement of certain capex to 2013 Note: 1 Core & infrastructure refers to network related capex, including quality and innovation capex. 14
Agenda Market Overview Business Highlights Financials Guidance for 2013 Q&A Session 15
TEO Group: Consolidated Results Revenues IFRS, Million of ARS, Percentage +20% 22.117 IFRS, Million of ARS, OIBDA* 12.170 +20% 14.627 +26% 18.498 5.139 4.775 4.450 +19% +18% +18% 6.092 5.645 5.254 4Q 3Q 2Q 4.161 +17% 4.867 +23% 5.993 1.592 1.496 +10% +16% +6% 6.570 1.844 4Q 1.587 +1% 1.474 1.492 3Q 2Q 4.134 +24% 5.126 1Q +15% 1.431 1.647 1Q 2009 2010 2011 2012 2009 2010 2011 2012 Regulated Revenues 16% 14% 12% 10% OIBDA Margin 34% 33% 32% 30% *Operating Income Before Depreciation & Amortization. Before ARS90 MM one-time restructuring charge, OIBDA would have been ARS6.660, increasing +11% YoY 16
TEO Group: Consolidated Costs Consolidated Costs 1 as % of Revenues Operating Costs 1 2012 67,8% 8,1% 20,3% 8,6% ITX Costs Marketing & Sales Taxes 70,6% 7,7% 21,0% 9,1% 14,1% Labor costs 14,8% 16,7% Others 2 18,0% 2011 2012 1. Excluding Depreciation & Amortizations 2. Others includes: Fees for services, maintenance and materials; fees for Call Center outsourcing; bad debt expenses Others 2 21% 25% Marketing & Sales 30% 11% 13% Labor Costs Taxes ITX costs One-off impact in expenses related to corporate restructuring program Discontinued energy subsidies account for approximately 50 bps loss in margin Control in commercial costs through a more careful market approach: Reengineering of agent commissions Handset subsidies focused in contract upselling 17
TEO Group: Consolidated Results IFRS, Million of ARS, Percentage Operating Income D&A 2011 2012 % PP&E 1.538 1.792 17% SAC and Connection costs 602 797 32% Other intangible assets 18 23 28% Total 2.158 2.612 21% 2.616 +21% 3.162 +22% 3.857 +3% 3.966 994 1.163 Net Income attributable to Telecom IFRS, Million of ARS, Percentage +17% 4Q +7% 934 921-1% 3Q +38% 1.935 +30% 2.513 643 +23% 2.685 794 4Q -13% 971 849 2Q 1.405 609 616 +1% 3Q 627-8% 577 2Q +8% 958 1.033 1Q 634 +10% 698 1Q 2009 2010 2011 2012 2009 2010 2011 2012 O. Income Margin 21% 22% 21% 18% 12% 13% 14% 12% 18
TEO Group: FCF and Net Financial Position IFRS, Million of ARS - Last 12 months Operating Free Cash Flow 6.570 3.257 1.647 260 3.053 297 92 831 OIBDA Capex WK & others 2.684 3.648 Net Financial Position Telecom Argentina 1.454 (1) Telecom Personal 2.295 (2) Nucleo (Paraguay) (101) Net Financial Position 4Q11 (Cash) Operating Free Cash Flow 3 Taxes Free Cash Flow = 1.406 Net Interest FX Variations Dividend Payments 4 Net Financial Position 4Q12 (Cash) Note: (1) Includes Telecom USA (2) Includes Springville (3) OFCF: Operating Free Cash Flow before Taxes. (4) $807 TA, $24 Nucleo 19
Agenda Market Overview Business Highlights Financials Guidance for 2013 Q&A Session 20
TEO Group: 2013 Guidance Revenues OIBDA Capex +Positive Double Digit YoY trend +Positive Double Digit YoY trend Capex / Revenues growing trend 15% 17% 3,3 4,7 2012 2013 2012 2013 2012 2013 2015 Improve customer experience Promote mobile data Increase broadband wireline penetration Improve QoS and customer experience to control opex Leverage on mobile leadership to control SAC & SRC Streamline overhead expenses Focus on delivering network service quality Extend reach and capacity of mobile access Deploy FTTC 21
Agenda Market Overview Business Highlights Financials Guidance for 2013 Q&A Session 22