2Q14 Earnings Release - Telecom · 2Q14 Earnings Release ... 2011 2012 2013 1Q14 2Q14e 2011 2012...
Transcript of 2Q14 Earnings Release - Telecom · 2Q14 Earnings Release ... 2011 2012 2013 1Q14 2Q14e 2011 2012...
Telecom ArgentinaTelecom Argentina
2Q14 2Q14 EarningsEarnings ReleaseRelease2Q14 2Q14 EarningsEarnings ReleaseRelease
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
Manufacturer Industry
Transport & Communications
Retail & Wholesale commerce
Construction
Real Estate
Public Admin & Defense
Mines
Social services & Healthcare
Agriculture
Electricity, gas & water
Financial interm.
46.4 43.330.6 27.0 29.3
10.0 12.28.0 6.6 6.4
52 44 4627 26
8.9%
1.9% 2.9%-0.2% -1.1%
29.4% 24.5% 25.9% 29.5% 32.3%
∆ YoY - constant pricesTrade Balance (Billion U$S) Last 12 months
Central Bank Reserves (Billion U$S)National Wages - ∆ % YoY
Consumer Confidence Index of Durable Goods
Economic activity per sector Wages Central Bank Reserves
2Q14 confirms the slowdown trend in the economic activity 2Q14 confirms the slowdown trend in the economic activity
Real GDP* CCI Trade Balance
Total
� During 2Q14 a strong deceleration in
industrial production caused a spillover effect
in other sectors and consumption was affected
by the decrease in real wages and a raise in
interest rates for financing
� A good harvests season was shown in the
quarter, but the agricultural production was
not enough to offset the decline in the general
economic activity
� New economic measures were implemented
aimed to support car sales as this sector was
severely impacted by the decline in exports
(mainly to Brazil)
2011 2012 2013 1Q14 2Q14e2011 2012 2013 1Q14 2Q14e
-0.2%
2011 2012 2013 1Q14 2Q14e
3Source: MECON, INDEC and Company Estimates
*Official GDP YoY variation, constant prices
� After a strong decline in February, the
consumer confidence index showed a stable
performance
� Decline in supermarket sales reached -1.3% in
1H14, -4.3% in June
� The new CPI Index published by the
government reached 15% YTD, stabilizing in a
level of aprox. 1.5% per month during the
quarter
� In 1H14 collective bargaining agreements
between companies and unions were settled
with wages increases of 31% on average
� In 2Q14 the Central Bank took measures to
reduce the loan interest rates and to mitigate
the negative impact in economic activity
� As of June 2014, Central Bank Reserves
showed a decrease of 21% YoY, but increasing
since last April
� After the US Supreme Court rejected
Argentina´s holdouts case, the Government is
focused on reaching an agreement to solve
the situation
AgendaAgenda
Market Overview
Business Highlights
Financials
4
Financials
Q&A
� Revenues up +23% driven by:
- Mobile internet (+56%) due to increase in unique users
and ARPU
- Non regulated fixed revenues grew +28%, Data (+55%)
and Broadband (26%) in the Fixed Business
� Smartphone sellout reached 81% in 2Q14, while Smartphone
penetration represented 30% of the customer base in the
quarter supporting 3G-IP VAS Growth
� Nucleo: +10% in postpaid (excl. dongles and Wimax) growth
YoY; steady improvement in customer mix
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
56% 65%73% 73% 81%
23% 23% 27% 29% 30%
2Q13 3Q13 4Q13 1Q14 2Q14
Business HighlightsBusiness Highlights
Smartphone
penetration
Smartphone
sellout*
4.03.1 3.2 2.9 SAC/ARPU
Broadband
Net Adds
� Broadband net adds continue to increase with 92k new subs
YoY
� 3x growth in VDSL cabinet deployment helps to increase our
customer base with more than 10 Mb speed commercial offer
� Broadband ARPU rose +20% YoY in 2Q14
� TEO Dividend payment: AR$601 million paid in June (first
installment)
� Unleveraged financial structure while paying dividends in
tough macro context
5
Dividend Comparison
Evolution of DeclaredDividend
*Smartphone participation in total handset sales
-491
-55 -126
265
3.1 3.2 2.9
FY12 FY13 1H13 1H14
Handset
Revenues - Costs
SAC/ARPU
Handset Revenues – Costs in million of AR$
5.8 6.9
2Q13 2Q14Focus on
39.5 45.1
26.026.6
2Q13 2Q1413.0 13.4
6.3 6.3
2Q13 2Q14
Mobile Mobile -- continuous improvement in value proposition:continuous improvement in value proposition:focus on postpaid and future proof revenue mixfocus on postpaid and future proof revenue mix
Million of lines / Month/million of customers
Postpaid 1
Prepaid
+0%
19.8
+4%
+2%
YoY var
19.3
Mobile Customer Evolution & Mob. Internet Unique User
Voice
Non Voice
ARPUAR$/Month
71.6+9%65.5
+14%
+0.5 MM
subs.
+19%
Mobile Unique
Internet User
28.937.7
2Q13 2Q14
+30%
Browsing ARPU
+2%
2Q13 2Q14
66.683.8
53.3
61.3
2Q13 2Q14
Focus on Postpaid2Q13 2Q14
6
Note: Argentinean operation only. Figures might not sum up due to rounding1 Includes “Cuentas Claras” subscribers
Source: Market estimates of the top 3 providers in the industry – Exclude trunking services
Monthly Unique Internet Users: Number of subs. that use internet at least once a month
Market
share33.1%32.9%
+15%
+26%
119.9145.1+21%
Voice
Non Voice
Postpaid
ARPU
59.974.0
55.2
60.8
1Q13 1Q14
+10%
+24%
115.1134.8+17%
Voice
Non Voice� Mobile Unique Internet user continued to grow, supported by 3G smartphone sellout
� Higher Browsing ARPU with incremental usage
� Positive evolution of Postpaid ARPU driven by a +26% increase in non-voice concepts
61% 66%
8% 12%31% 22%
Jun 13 Jun 14
6,299 6,7033,304 3,571
5,7657,212
3,364 3,677
1,248
2,088
9151,425
1,915
3,126
1,235
2,115
Growth supported by improved revenue mix but affected by Growth supported by improved revenue mix but affected by traditional prepaid servicestraditional prepaid services
Million AR$ – Argentine Market
Internet Services
Data
(SMS & Content)
Retail &
Wholesale Voice
19,129
15,227
Revenue Breakdown
+67%
+25%
+6%
+26%
8,818
10,788
+8%
+9%
+56%
+22%
Service Revenue particip. per subs
+71%Handsets
+63%
Traditional Prepaid Services
(Pay-per-use)
Browsing & Content Prepaid
(Pay-per-use)
Postpaid
+62%
+24%
-17%
Prepaid subs. Recharge <30 days
Dec 13 Jun 14
� Internet Services up by +56% YoY
� Total VAS increased by +19% YoY, reaching 59% participation of Service Revenues
� Substantial increase in handset revenues with positive margin
� Even partially mitigated Billing per Second resolution affect voice revenue growth
6,299 6,7033,304 3,571
FY12 FY13 1H13 1H14
7
VAS as % of Service
Revenues59%56%
Wholesale Voice
58%53%
+8%
� In June 2014 Postpaid revenues rose +24% representing 66%participation of Service Revenues
� Prepaid segment continues to be strongly affected by the slowdown in economic activity, increasing pressure from competition, and cannibalization of SMS
� ‘SuperChip’ offer is implemented to uplift credit recharges and regain positive trend in 30-days recharging customer base; prepaid MOU rose +18% during 2Q14 vs. 1Q14
� Innovative Pay-per-use VAS increasing by +62% in June
1.5% 1.4% 1.3% 1.3%1.4%
123.6 125.5 134.0 138.0 147.9
2Q13 3Q13 4Q13 1Q14 2Q141,634 1,669 1,707 1,714 1,726
Fixed: Growth in BB accesses thru improved service provisioning Fixed: Growth in BB accesses thru improved service provisioning
and competitive bundling offer, and expansion in ICT servicesand competitive bundling offer, and expansion in ICT services
Thousand of broadband accesses, thousand of net adds BB ARPU & Churn Evolution
Evolution of BBAccesses
+20%+92k; +6%
AR$/Month
IFRS Million of ARS
Data Revenues
1,6341,726
BB Accesess 1H13 <10Mb ≥10Mb BB Accesess 1H14
2Q13 3Q13 4Q13 1Q14 2Q14
8
BB Speed
-2% ~3x
735 963
213 319
228
364
FY12 FY13 1H13 1H14
+50%
+31%
1Q
2Q+60%
+55%683
441
12,713 166 242312 1 267 313
510880 181 15,585
IFRS, Million of ARS, Percentage
Consolidated revenue growth propped up by Data, Internet & Consolidated revenue growth propped up by Data, Internet &
HandsetsHandsetsEvolution of revenues 1H13 – 1H14
+2,872; +23%
MOBILE IN ARGENTINAFIXED NUCLEO
1H13
Revenues
Voice Data Internet Equipments Voice Data Internet Handsets Nucleo 1H14
Revenues
9
Note:
*Paraguayan (Nucleo S.A.) revenues expressed in ARS and includes handsets.
Figures might not sum up due to rounding
0%10% 24%4% 9%% of total
Revenues13%
YoY
Variation +10% +55% +8% +9% +56% +71%+26% +3% +32%
12% 23% 5%
Intangible Assets
2Q13 3Q13 4Q13 1Q14 2Q14
2,415
3,964
1,1371,806
842
887
417
459
Capex: Focus in Capacity and Coverage to ensure continuous service Capex: Focus in Capacity and Coverage to ensure continuous service quality improvementquality improvement
Million of ARS
+46%
+49%
Capex Evolution FTTx Rollout
PP&ECapex breakdown
1,554
2,265
+10%
+59%PP&E
+3x
3,257
4,851
+5%
+64%
33%
24%
30%
12%1%
Mobile
Access
Fixed
Access
Core &
Infraest. 1
ITOthers
2,4151,137
1,806
FY12 FY13 1H13 1H14
Note: 1Core & infrastructure refers to network related capex,
including quality and innovation capex.
% Revenues 18% 12% 15%
� Strong increase in PP&E Capex (+59% vs. 1H13)
� Continuous effort to deploy mobile access network focus inquality upgrade
� Continuous FTTx deployment to increase fixed accessbandwidth, despite delay in permits in the city of Buenos Aires
15%
Capex breakdownPP&E
10
NORTHNORTHAMBA**AMBA** SOUTHSOUTH
3G/4G 3G/4G SpectrumSpectrum auctionauction: : Total Frequencies availableTotal Frequencies available
30 30 35 901,900 Mhz AWS*
3G: Cap 50 Mhz LTE / 4G: 60 Mhz
� AWS/700 Mhz price per- Mhz/Pop:U$S0.24/U$S0.25
� Personal ´s participation in both spectrumauctions would imply a minimum cost of U$S442 million
30 30 35
7.5 90
* Corresponds to bands of 1,700/2,100 Mhz
** Buenos Aires Metropolitan Area
850 Mhz 700 Mhz
11
1.0 4.4 0.6
6.0
Price per Mhz (in
million U$S)
Price per Mhz (in
million U$S)
9.44Price per Mhz (in
million U$S)
9.87Price per Mhz (in
million U$S)
2283G Auction:
Total base price(in million U$S)
1,7374G Auction:
Total base price(in million U$S)
Personal:frequency
already allocated
1,900 Mhz
850 Mhz
20 30 40
25 12.5 0
AgendaAgenda
Market Overview
Business Highlights
Financials
12
Financials
Q&A
6,5707,564
TEO Group: Consolidated Results TEO Group: Consolidated Results
IFRS, Million of ARS, Percentage IFRS, Million of ARS, Percentage
+23% +14%
Revenues OIBDA*
+23% +15%
Fixed Business 16%
Broadband 10%
Personal - Mobile 69%
% of Revenues
Nucleo - Mobile 5%
12,713
15,585
3,624
4,119
6,570
1,799 2,112
1,8252,007
FY12 FY13 1H13 1H14
22,11727,287
6,064 7,466
6,6498,119
FY12 FY13 1H13 1H14
13
OIBDA
Margin30% 28% 29% 26%
Regulated
Revenues10% 8% 9% 8%
+14%
*Operating Income Before Depreciation & Amortization.
1Q
2Q
1Q
2Q
12,713
+23%
+22%
+17%
+10%
3,624
3,624
2,009
880605
14 664316
149 385 105 156
4,11918%
68%
47%
1%
35%25%
11%
32% 35%
18%
YoY
Variation
TEO Group: Consolidated TEO Group: Consolidated costs costs and OIBDA evolutionand OIBDA evolution
IFRS, Million of ARS
Operating Income Before Depreciation and Amortization 1H13 – 1H14
+495; +14%
OIBDA 1H13 Ss. Revenues
& other
incomes
Handsets
Sales
Handsets
Costs
ITX Costs Labor Costs Taxes Other
Marketing &
Sales
Fees for
services,
maint. and
materials
VAS Costs Others* OIBDA 1H14
14* Others includes bad debt expenses, provisions, recovery (costs) restructuring and others
OIBDA Margin
-1.5%+1.4% -0.2% +0.9% -0.7% -0.2% 26.4%+0.2%28.5%
� Second quarter in a row with positive margin in handsets business, improving the mix revenues
� Higher dilution impact in margin related to direct and indirect labor costs, due to severance costs of AR$122 million
� After strong increases in FY13, turnover taxes rate continued to increase in 1H14 but at a slower pace
� Continuous review of structural costs, optimization in ITX costs
-2.0%
-0.5%+1.0% -0.7% +1.3% -0.2% -1.1% 27.7%+0.4%29.7% -2.2%
1H14
FY13
1H13
FY12
1,241
3,9664,518
3,202
TEO Group: Consolidated ResultsTEO Group: Consolidated Results
IFRS, Million of ARS, Percentage
+14%
+27%
IFRS, Million of ARS, Percentage
Net Income attributable to
Telecom
+19%
+24%2Q
Operating Income
2,060
2,618
1,4541,805
in million of AR$ 1H13 1H14
Net Interests $ 253 $ 238
FX results & results on NDF -$ 62 -$ 228
Others $ 23 $ 144
Total $ 214 $ 154
1,115 1,377
9451,241
FY12 FY13 1H13 1H14
802 889
2,685652
916
FY12 FY13 1H13 1H14
3,202
15
O. Income
Margin18% 17% 12% 12%16% 17% 11% 12%
+11%
Net Income
Margin
� Positive financial results in 2Q14 foster a strong Net Income growth in 1H14
� Fx results in 1H14 affected by a non-cash pre-tax loss of AR$202 MM related to purchases of U$S DollarBonds following accounting valuation standards of fixed income securities (Valuation method: amortizationcost)
1Q
2Q
+23%
+31%+40%
1,454
1Q
2Q
5,094
1,599
2,063858 342 1,645
378
3,807
IFRS, Million of ARS - Last 12 months
TEO Group: TEO Group: FCF, Net FCF, Net Financial Financial Position & Hedging StrategyPosition & Hedging Strategy
Telecom Argentina 1,650(1)
Telecom Personal 2,411
Operating free Cash Flow
Net Financial Position
Free Cash Flow
8,059 5,562 898
OIBDA Capex Δ WK & others
Net Financial
Position
1H13
(Net Cash)
Net Financial
Position
1H14
(Net Cash)
Net Interest
& Others
FX
Variations
Operating
Free Cash
Flow2Taxes
Dividend
Payments3
Share
buy back
16
Note:
(1) Includes Telecom USA
(2) OFCF: Operating Free Cash Flow before Taxes
(3) Includes $44 Million related to Nucleo dividends payments to third parties, net of income tax
Nucleo (Paraguay) (254) Free Cash Flow = -464
334 241 109
61 5 -82
In U$S million, June 2014. Argentinean operations
U$S Dollar Linked NDFFX Cash U$S Dollar BondsExposure as
of 1H14
>120%CoverageNet Payables in
Foreign
Currency
Unleveraged
Balance Sheet
Limited Impact
in P&L
100% Coverage
in FY13
(Net Cash) (Net Cash)
HEDGING STRATEGY
277 4 1 17
IFRS, Million of AR$
Net Net Financial Financial Position (financial instruments at fair value)Position (financial instruments at fair value)
Fair Value NFP
+291
Book Value
Government Bonds 876
Dollar Linked Bonds 54
Notes in AR$ 10
Dollar Linked Notes 98
1,038
Fair Value
Government Bonds 1,153
Dollar Linked Bonds 50
Notes in AR$ 11
Dollar Linked Notes 115
1,329
Investments in AR BondsInvestments in AR BondsInvestments in AR BondsInvestments in AR Bonds
-- NonNon--restructured Bondsrestructured Bonds
-- Under Argentine jurisdictionUnder Argentine jurisdiction
-- Booked in ArgentinaBooked in Argentina
3,807 4,098
17
Net Financial
Position 1H14
(including financial
instruments at
book value)
Net Financial
Position 1H14
(including financial
instruments at fair
value)
Notes in AR$ (∆
Fair Value - Book
Value)
Dollar linked
Notes (∆ Fair
Value - Book
Value)
Government Bonds
(∆ Fair Value - Book
Value)
Dollar linked Bonds
(∆ Fair Value -
Book Value)
Dividends: Paying dividends 5 years in a rowDividends: Paying dividends 5 years in a row
3.6% 3.8%
42% 37%
Dividend
Dividend Yield
TELECOM ARGENTINA
LATAM TELCOS
Dividend Comparison
Evolution of DeclaredDividend
2012 2013 2014
8071,000
1,202
In million of AR$
Pay out Ratio
18
� Total Dividend AR$ 1.24 per outstanding share in circulation or AR$ 6.2 per ADR
� Payable in two equal installments:
� 50% on June 10th, 2014
� 50% in September when the Board of Directors determines the specific date for such payment
� Equivalent to 37% pay-out ratio
� Dividend Yield 3.8% in U$S*
Dividend Payment
* Assuming Closing Price of March 14th , 2014 in Buenos Aires Stock Exchange and total Dividend
AgendaAgenda
Market Overview
Business Highlights
Financials
19
Financials
Q&A