U.S. Markets closed

Edited Transcript of SONDA.SN earnings conference call or presentation 28-Jan-20 2:00pm GMT

Q4 2019 Sonda SA Earnings Call

Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Sonda SA earnings conference call or presentation Tuesday, January 28, 2020 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Rafael Osorio Peña

Sonda S.A. - CFO

================================================================================

Conference Call Participants

================================================================================

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. And welcome to the 2019 Sonda's Final Quarter Report Conference. I am Sylvia, and I'll be chairing this meeting. (Operator Instructions) Please note that this presentation is being recorded.

Today with us, we have Mr. Rafael Osorio, Sonda's Chief Financial Officer. Mr. Osorio, the floor is yours.

--------------------------------------------------------------------------------

Rafael Osorio Peña, Sonda S.A. - CFO [2]

--------------------------------------------------------------------------------

Good morning. Thank you all for participating in this presentation and this analysis of results for the final quarter for Sonda in 2019. And as usual, you can access this presentation that I'm going to be going through in our web page in the corresponding area.

So first of all, we're going to get started with a few overview on what happened on 2019. And I'm going to tell you about the perspectives that we have or what the future looks like for 2020. And after that, we're going to have a short summary on what has happened in Brazil with the new Sonda's President in Brazil. And as of now, I'm going to tell you about my experience for the entire region and regarding the vision of our mission with Sonda.

So to start with, I'd like to say what we have in 2019. It was the first time, as you know, some of the operations that were carried out. We improved our offer. We empowered our offer, the offer that we had for last year, and that enabled us to accomplish our objective, and we were able to transform our business. Based on that, we made a strong emphasis on the offer we had, especially on what has to do with transformation that has to do with the cloud, the analytics transformation and some others.

From the point of view of -- and also, as we've said before, we had 4 of those focus for retail, for instance, and especially in Brazil. And a part of that, we also moved forward regarding the leadership and the organizational structure of a series of actions that generated some very interesting changes through the region. Of course, we had some interesting cases, but there was a lot of interest in transport and in the cloud.

From the point of view of the national level, we had -- we can say that we moved forward, I would say, a lot because this is something that we had in plan for 2019 and something that is key to mention at this point, is that these results of what we did during 2019, it is something that is going to be projected towards 2020 and the coming years.

On the other hand, regarding the operational point of view, on -- in 2019 in regards to the 2018, we improved. However, I would like to highlight in a very special way what we saw during 2018 and in regards to 2019 and has to do with the operation in Brazil. There was a trend -- a positive tendency or a positive trend in terms of the results regarding your revenues and regarding the marketing that we had in this area. This is, I would say, the most valuable thing for 2019 in terms of results.

In terms of -- as we are going to see later on, we need to go back to the operation, especially in Mexico, because we did some very interesting advances there, especially for the second quarter. But this is not going to be materialized in terms of results, but we are going to start talking about the different operations that we have performed in Mexico.

So I would say that in general terms, we have the basis, we set the foundations for a very good work to be developed in this area. I am very optimistic regarding what we're -- to what we're going to do this year and next year, 2021, and what the trend is going to be, which I hope is going to be positive, for this year and the next year. And I think this is very important. And first of all, I would like to say that the operation in Mexico is -- was properly founded in order to have better results for this year.

Now in terms of figures, we can say that the financial statement was consolidated. We have more or less $125 million and another $31 billion (sic) $31 million and the revenues increased 5.8%. And as we said before, this increase in Brazil or this growth in Brazil was important and also in OPLA, and this is also very important in Chile, as we can see on this side, and we can also see some increase or some growth in Mexico. Our revenues also grew in the fourth quarter. You can see in the report, those numbers, you can see how these numbers are reflected in the [Brazil Venaria], and this is what we should highlight the most.

During the fourth quarter, we also kept the same tendency, the same trend that we had throughout the year, especially in Brazil. In 21% -- reflected in 21%. Regarding the margins, we kept at the same levels to what we had in 2018, with some aspects to highlight.

Brazil has some marginal distance a little bit broader. However, this margin regarding the previous year was affected by the Mexico situation and also because of this consolidation issue regarding the transactions, especially in the -- for the final quarter.

On the other hand, we almost got to $31 million, which has to do with the society that we had established. And this is something to highlight. This is something that is projected to the long term, as it could be short for the growth, and it can be established for the revenues that we had, and this is going to potentialize our growth for our relationship for the next year.

It is also important to highlight our business scenario, and in Brazil, which has actually been operated under the currency of the real currencies from this country.

The business opportunities that we have here and we are working on right now was actually increased in 66%. And Mexico was very important here in more than $360 million, which allowed us to be optimistic. Whenever we're talking about the business that we have here in Brazil, we also have the pipeline also on 39%.

In the next slide, in Slide #3, you can see a general overview of the final quarter. You can see that it goes further or more than $300 million. And it is important to mention here in terms of the revenues, Brazil in the fourth -- in the final quarter, it was up by 20%. And in terms of Visa, this growth was especially focused in Brazil with 35%, in terms of the fourth -- in regards to the fourth quarter of the year.

So the final quarter was -- indeed had to do with the consolidation of this partnership that we had planned during September. So during the final quarter, we couldn't consolidate that. As Chile -- given that Chile was very close for the previous year 2018, for the final quarter and Mexico had awards results in -- if we compare it to the previous year's final quarter, especially with the EBITDA for the fourth quarter in terms -- in regards, again, with the 2018 final quarter.

In the next slide, we can see the evolution of the quarterly results, we can see the revenues and how it can be compared to 2018. We can see how in the first quarter it grew -- I'm sorry, in the first quarter it grew 8%. In the second semester -- second quarter it grew. And then in final one, it had a very slight growth. And we can see that there was a slight diminishment in comparison to the previous quarter. However, you can see that in the fourth quarter, final quarter, you can see how these revenues increased a little bit. So I think it is very important to highlight how the revenues have been dealt with throughout the year regarding the EBITDA.

In the next slide, #5, as we have already said, we can see that the revenues increased in 5.8%. We get to -- so the numbers that you can see on the screen. And we got to $26 million.

In the next slide, we are going to analyze what happened per region in Chile. For instance, the revenues had a growth or they increased in 1.6%, getting to $6 million. In terms of EBITDA, regarding EBITDA, we got $6 million. And in the next one, we got $21 million, if we're having to mind these aspects of the -- of how much we grow.

Regarding this EBITDA, as you can see that there is a slight decreasement in 13.6% for the final quarter. If we don't take in mind the effect that is projected from this phenomena, we can see what the real growth has been. And the same happened for the accumulated terms that happened for the previous year 2018. So we got to $620 million in relationship or in regards to the previous year.

In Chile, we think that it has a very, very stable operation with a very -- as we have said before, getting to a medium level, and it is very interesting for some reason. And we think that it's important to have this scenario in mind for this year, for 2020, for our operation. And hopefully, we can work with our margins and we can work with a very particular market here. And hopefully, we will have a steady growth in this scenario as well in 2020.

Now I'm going to talk about the global terms, how we understand what's happening here. Now moving to Brazil. We are very pleased to what happened here because it has showed -- it has shown improvement ever since we started. And if it is true that we are still far from our expectations regarding our growth and our margins, we think that we have made very important progress regarding the way that we have steadily moved with our operations in this country. And we can see the growth -- that has a growth or that has increased a little bit more than 13%. In the last quarter, we had an increase of almost 10%. And the EBITDA, we had an increase of 34%, and business closed increasing 19%, getting to $2,025 million.

In Brazil, if we go to the next slide, to the Slide #8, you can see what the trends are for this country, starting from 2017 and how we have improved the operations in Brazil. After we had 2017, that was a very weak year. And we can see how the next year was a bit -- was way better. We can see all of the EBITDA margins. And in terms of, let's say, that it goes up almost 38%, where we have these margins that went up to -- for the final quarter, it went up to 9%, which I think it is a very good indicator. Something else that we need to mention here regarding Brazil is that it has had a very steady growth. But regarding the revenues, I think it is key to talk about the long-term plans and what the recurring plans are going to be for this country in order to improve this EBITDA margin regarding the work that we have done for the last 1.5 years.

The second topic to have in mind here is the relationship that we have established with this country, which is something that we have done, especially during the second quarter in 2018 and 2019. As of now, in the Slide #9, there is a very good news for us from the point of view of the closure of business. So our focus -- our interest, obviously, goes on raising the participation of these businesses that we have here. In 2019, it was 18%. In 2018, we have 40%. But in 2019, we got to 75%. So we got 75% of these operations that we have here, of those business close that we're -- of those businesses that were closed in 2019. And here we have margins, our net margin that was closed by 75%. So those are very good news in terms of the revenues that we have managed to achieve and that is going to help us to improve our margins.

In the next slide, we can see the Mexico operation. In Mexico, for 2019, it was an important year, as we have said before, it was a year in which we have set the foundation for us to work in the future here in order to have better business units in this country and to have better margins as well.

We have also done some important changes regarding the commercial point of view. And that has to do with a speed or with how quick we are to close businesses here, and that has to do with our operation, of course. And this is related or this has to do with the economical changes that the country went through because the country, obviously, had a very important economical activity. And that meant that many of the proposals that we were working on had or were postponed. And therefore, in 2019, regarding the internal operations that we had in this country, and regarding the different things that we're able to manage here has to do with the consolidation of things that have to do with the structure -- the commercial structure and international structure on how we can work it out of the federal district that we have in this country. And that makes us think that for the second quarter in 2020, we're going to have better results for this country.

It is important to mention here that out of the investment that we have done here in this country, which is the biggest country that we have in this moment, we are working -- we're actually making a lot of efforts in this country for the kind of business that we want to have here.

And this is enabling us to have better operations to what is coming for 2020.

So the results that we have here -- obviously, the results that we have, it is not the ones that we were expecting. But I think that they are, as I said before, a very good foundation for what's coming for this coming year -- for this 2020. However, I think we have or we expect to have better operations for 2020, and we hope that this reality is going to change.

In the next slide, in Slide #11, we can see that we have a very good performance. We have an increase of 16% and $8 million throughout the year with an EBITDA of $25 million. In the comparable currency, we have an increasement of 20.4%. And with the reported currency, we have an increase of 14%. If we do it with their comparable currency, we can see that -- we -- it is -- it means that it's an increase of 20.4%. So you can see how we grew this amount, this 20.4% for the final quarter of 2019, getting to the $60 million.

So regarding the activities and the volume of activities and businesses that we have, I think that this is very important to have in mind. And now from the comparable currency, we grew -- getting to $25 million. And then with the comparable currency 15 million -- 15%. So we can tell that there's a very interesting activity in OPLA. Obviously, those of you who are interested in Panama or Argentina and Peru that we're doing very well as well. So these are some of the countries that are being leveraged in this business. Colombia as well has helped or has contributed for the final quarter. And this is what you can see at the bottom left side of your slide, you can see how we increase -- how we grew for the final quarter and throughout the year.

In the next slide, in terms of the business closed for 2019, we can see that we closed business for $1,387 million. And it is important here to note how this business closed in comparison to the revenues that we had for this year were raised or increased in regards the sales. So it has increased in 21 and 23x throughout the year.

Now if we move to the Slide #13, we need -- it is important to note here that from this $1,387 million, we can see that most of it, 38% goes to Brazil and 45% goes to Chile. It is important to highlight here that these businesses that are not -- there are some businesses or some agreements that are not included here. So we have still $57 million that are in the backlog of the contracts awarded.

So whenever we tell -- so this is not reduced yet because they are still missing some details, but they're in the backlog of the contract. As we said, it is important to note that we have closed some business in Chile. And in Mexico, it also grew with $50 million, and there is something important as well coming from Mexico. There are some awarded contracts -- of contracts that were awarded, but they are in the process of closure and they are part of the process. And then for $95 million, we had something in OPLA. So in terms of businesses, I think that the -- this is to be compared in regards of what happened in 2018. It is important as it closed -- as it has permanently closed. Now with the business closed, they have generated some net revenues that go up to 800 -- or 341 -- I'm sorry, $887 million. What we have done -- they have grown in $341 million, where the main business opportunity has to do with (inaudible).

In the next slide, Slide #15, we can see that we have a steady financial position, as we said before. The 2 locations that we have here in July and October, they were very welcome by the market. That went up to $120 million in real numbers. We have figures it went up to 10 years. And then our first results that we have -- that was released in October, went up to $50 million. And this -- let us know what the confidence level is for the -- on part of the investors. In this context, the indicators are within the margins that we have already established, and the debt level is equal to 1 and then it goes back to 9. The financial debt goes to $13 million. And then as you can see in the figures, you can see the different movements on what the financial position has been established as of December 31, 2019. And you can see that everything complies with our objectives that have been established by the beginning of the year.

Now before I give the floor to Christian, I would like to close my presentation by saying that what has happened in Mexico is important, and we keep on working on each one of the aspects that we know we have to work on, and we are committed to keep working on them, and this goes in line with the objective that we have for 2021. And with the 7 strategical assets that we have, and each one of us knows what we have to do and what we need to do in order to move forward. And obviously, what we are doing at the moment is somehow the result of what happened this year and what we are projecting for this year to happen.

And in the Slide #19, it is important to remember that here, we have 2 services lines the one that had to do with the metrological process and especially, the national focus of the local focus for the industry. As you can see on the screen -- as you can see, 2020, our process has improved, and now we can see that with this entailment, with these actions, with the shares that we have for 2019, at the moment, we think that we are going to have a growth, a meaningful growth for this year, with -- especially in Brazil, regarding the business to be closed.

And now we can see that in terms of the revenues we think that we are going to move forward within the revenues and the results that we have there with the margin that is going to be around -- that is going to be better, let's say, in terms of the ones that we have for 2019.

With a trend in terms of the quarter advance for each one of the quarters of the year, with our first quarter to be, let's say, a bit flatter; a second quarter to be -- to be in growth, for the second quarter. And then for the third quarter, we're going to have an increase and an improvement in regards of what happened last year.

So I think we're in a very good position, especially for the fourth quarter, and I think that we have improved in terms of what we have seen and the progress that we have seen.

In terms of countries, I think that we're going to keep on growing, and in one digit, getting to the medium level. Regarding the general part of it, improving our margins. But this margin is going to be quite similar to the last margins that we had for the final quarter in 2019.

In case of Brazil, we can see that we have very important figures here. With enhancements or with improvement in the margins at the global level, get into the liquid net revenues with a tendency, with an increase in tendency or increase in trend, as we have already seen for the first trimester or the first quarter in Brazil is always a bit slower, but it is always on the growth. And we think that these margins for the second quarter and -- the third and fourth quarter are going to be quite positive. And the -- and these margins regarding what we're doing there are going to be very positive for the next year of 2021. So I think that this is going to be a very good year based on what we did during 2019 and based on the businesses that we had there, and based on those business opportunities that we can establish there.

In Mexico's case, we hope to have a very important growth and obviously, the foundations at the moment are quite low, but we hope to increase those numbers to put those numbers up in terms of what we had our (inaudible) in 2019 -- 2017, I'm sorry. And one of the things that makes us be confident regarding this country has to do with the business opportunities that we have there. And we think that what we did last year is going to help us in order to move forward this year in the operations in this country with the businesses that we have there.

It is also very important to have in mind what we did last year, especially with whatever that has to do with the taxes, as they have a 3 areas, 3 leadership areas. First of all, it has to do with the vertical industries, transport, hotels or accommodation services, and they are also worried or they're also concerned as this is going to be consolidated. And on the other hand, we also have different services lines. And I say here that it is a little bit different on how it used to be done because this budget was projected jointly, and we came to common agreements how to grow together. And I would say that this is very important for 2020 because this is going to help us to have a very good leverage for what's to come in such a way that it's a very collaborative way to grow. And this is very important based on what we did in 2019 in order to move forward, in order to improve our operations and in order to leverage our commercial capacity, our focused capacity.

So in the Mexico case, there is no doubt that we are going to start seeing different figures, different numbers here. We are going to see the results for the second quarter. For the first quarter, we know that it has a very slow movement, a very slow growth, but we hope to see very positive results for the second quarter.

In the OPLA case, O-P-L-A case, we hope to see better figures as well. And these are very relevant numbers. And we hope to see some improvements in the EBITDA margins, and obviously, it has to do with the revenues that are coming from Panama, Colombia, Peru and Argentina, and in terms of improvements for the results, especially from Colombia and Argentina.

In OPLA, we are also -- we also expect to have a very positive outcomes that are very interesting for us to get to 2021, with -- while we have previously exposed -- presented. So in brief, we hope -- or we know that 2019 set the foundations, as it was the first year in which we initiated with some operations. And the second term, regarding the commercial point of view, has to do with the probabilities that we have in order to have better business opportunities in these countries where we have operations with.

And in -- thirdly, we think that each one of the countries has very specific dynamics regarding the management and regarding the markets they have, that we hope and -- I'm sorry, they also have very interesting business operations, business units that are quite robust that will enable us to have a second year 2020 very interesting in terms of revenues. And we're going to have a very interesting third quarter that is going to help us to visualize ourselves on how we are going to conclude with our plan that is going to be concluded by 2020.

So next, I'm going to give the floor to the -- to our partner that is going to tell us what's happening and what are the expectations for 2020. [Hector], welcome.

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

Good morning to you all. Very briefly, I'm going to tell you that 2019, just as Rafael said in line with the pre-annual plan, is basically looking forward to consolidate the different operations that they offer that we have for the market that we have in these countries that we have preparations with, so we can transform the operations. And that was based upon the different activities that we have surrounding the offer and that are being led by these countries, especially by Brazil with a lot of capacities in terms of the consulting area and in analytics as well in order to analyze fraud, for example, and that has enabled us to get -- to move or to spread around the region, especially in Colombia, in parts on whatever -- that has to do with security. And something that I have said in previous meetings is that we have built a national and a global ecosystem that has enabled us to have better operations and to identify -- and this has also enabled us to identify different niche and that has been quite positive for our clients, for our different clients.

We have also done many different tender offers, as to have a ready-to-service, but also a ready-to-deliver -- ready-to-serve and ready-to-deliver in our markets -- in the markets that we have. As we have been working in the [Warner] and in everything that we have done has been quite positive.

Now thinking about the future, we think that we may have a lot of expectations, not only but -- for 2020, but this has to do -- due to different reasons. First of all, the focus, the main focus that we have for 2019 that had to do with pushing or with the leverage of the different countries that we have been dealing with -- there was a -- that went up to 49% that was completely different from the previous year. And we have the different practices that have been shared and everything that has to do with the use of migration of our clients, but also with what has to do with our clients with public part of it, as rush -- as the Amazon Web Services problems or issues that we had regarding the knowledge sharing, and finally, with whatever that has to do with analytics consulting and different areas like the automization or digital automatic processes and how this was very important, how this showed us very important outcomes for this year in 368% regarding the growth of this year. Especially, this was important for the biggest growth of the company, but also the growth that we are going to be reflected in 2020, which is also new in regards of 2019. As of today, we have already consolidated the work that we did last year and the investment. That is not going to be only reflected in the sales part of it, but it is going to be also reflected on the integration aspect and the ecosystem that we have, the partner of ecosystem that we have. These units -- these 5 business units are going to be very important for the practices that we are going to implement this year for the customer experience, for instance, and how we're going to connect to the users -- to our users and how we can implement mobility and the digital transformation that we are planning to have for the processes and also taking advantage of the pure process that we have started with that has a speed that is going to help us out to get to countries like Brazil, but also to expand to some other countries and to some other pioneers like Chile and Colombia. This is special -- this is going to be a special focus for the cities and to have the cities to be more sustainable in a context where we can include everybody. There is real social inclusion through collaboration and through cooperation. And as we said before, hopefully, we'll be able to move our clients to the cloud as Sonda is very important in this atmosphere and how we can work with global cloud.

And then 2 areas that are completely transversal to everything I've said that has to do with security. We had very important advances on this part, but also, we have still to work on many things and especially what we have to do coming from Colombia and especially having new services as it is the case of Carmen, our consulting areas where we need to work on the improvement areas, especially in the part of the security and all of the consultant transversal areas that have to do with the digital transformation of our clients.

As of today, we're working with a consortium of $50 million. That is across -- that is present on the vertical lines that are on the top and they have a potential to be dealt in the same way. On the other hand, our invitation for this year, as we are an integrator company, is to be able to have a revenue that is between the 5% and 8% that has to do with Sonda that enable us to have a 15% by the end of this 3-year plan that we had established.

Before we finish our slides, we have established what is going to be done with Chile, Mexico and Brazil with some digital transformations that are going to be carried out starting with the sales that we have already implemented in each one of these countries. And hopefully, it's going to be faster. And also, we want to work with the key aspects of these countries in order to work with the software that we have in these areas.

And finally, and just to conclude, we started to work with Warner and it is an area that we cannot stop working on at Sonda, and obviously, with the help of our partners. There are many new partners, many new people that are starting to work with us, and they are fundamental for our digital transformation in order to push our business to move forward, especially for those that we're working with at the moment. And in this ecosystem and, obviously, an area that we think it is a very good opportunity for us, as it is the (inaudible), which I think it is very important for us as a company because this has to do with the transformation regarding on the cloud automation and the cloud services. And we can see what the potential for this -- the growth potential it is for us in this area. And we can see how we can get to new continents so we can move forward to countries that are beyond our limits.

So that would be it for my presentation today. Now I'm going to move back to -- now I'm going to talk a bit Spanish and Portuguese. So hopefully, you're going to understand what I'm saying. So in general terms, I'm going to start talking about how the currency has been used in my country that has to be dealt with the real. We have used this for 2018, and in 2019, it will focus on the general aspect of business, and then it impacted the revenues or the -- and then in 2019, it continued. But in 2019, we focused strongly on the sales and so we were focused on selling and selling better products -- or better services, I'm sorry, on how it could be improved for 2019. So in the Brazil currency, the growth was up -- went up to 19% in regards to 2018 -- in comparison to 2018. And then we have an increase of 14% in comparison to 2018. So this -- for our sales business distribution for software, it was up to 35% before the business closed and the revenues that were generated here. And we can see -- we could see how this number doubled in regards of 2018, and we have very important advances. In 2018, it was less than 50% of our sales with a margin that went up to 20%, but we now have a better relationship to the results that we used to have. We -- in regards -- that goes up to 20%, 25%. And this year, we get to 3 quarters. So we consider that the marginal -- the EBITDA margin was better. And it is generating some very positive results, and it is generating a positive impact for our growth that is up to 34% as of now. It has to do with the big deals, and I could mention some of them that has to do with the public area. We have the biggest contract being awarded for the -- that was given in Brazil, that was given by Banco do Brasil or the Brazilian Bank. And it was a very important contract that we were awarded with Caixa -- together with Caixa and (inaudible) Brasil, and some other contracts that were quite big and quite important for us that were awarded by June or in the middle of the last year. Also, during last year, we had the acquisition of M2M. That -- it is a transport company and that is providing us with very interesting results as of now. And it is working on the automization -- digital automation. And here, we have a very important partner and it is pushing and it is helping us to move forward with the operations in Brazil and also in Latin America.

We focus a lot in Curacao. We have almost 700 customers there to do macro sale with the customers that we have. And now that we think about 2020, we need to think about the expectations that we have regarding Brazil in terms of what happened last year, and with the pension reform that we are going to have this year, which is not very favorable to us, but we'll see how this is going to be reflected in our businesses. And we'll see how this is going to be on the backlog. We have 20% more to what we had the previous year. And we have the implementation of the -- what's going to happen on retail and what Rafael has already said. We have a pipeline that goes up for the transportation area and it's an area that is very important for the country. So our objective -- our backlog is actually growing a lot, and we hope to have it up to 40%. And in 2019, we have it -- we had to see it. So for the first quarter in 2020, we hope to have an increase -- a very important increase for the -- that is going to be reflected for the second quarter. So actually, we hope to have important growth for the revenues that we are going to generate for this year.

And as Rafael said, we hope to have this growth to be reflected in the second quarter for each one of the business lines that we have here. So basically, that's what we have been doing. And we have evolved very interestingly with the goals that we have already set in comparison to the previous years.

Okay. Thank you very much to you all, and thank you, Patricio, and all of you.

--------------------------------------------------------------------------------

Unidentified Company Representative, [4]

--------------------------------------------------------------------------------

Thank you, Raúl. Thank you, Christian. So now we are open to -- we are going to open our Q&A session. We're open to answer your questions if you have any.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

We thank your attention. And now we're going to get started with the Q&A session. (Operator Instructions) The questions in English are going to be received through webcast only. Rodrigo coming from Bank of America has a question.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [2]

--------------------------------------------------------------------------------

My question has to do with the pipeline in Chile. We can see that there was a drop of 40% in Chile. So I would like to know why we have this drop and whether it is going to be improved for the next quarters.

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

Yes, the pipeline in Chile had a drop given the transport contract that we had in this country. However, during the -- throughout the year, you will see that this is going to increase. Once we have the proposal that is going to be in the contract -- and I think this is going to have a change for the third quarter -- third or fourth quarter of this year. And this is something that we are going to be working on. So this year is going to -- so you can see that this number for the pipeline is going to increase. And it has to do with the contract that has already been awarded, and it's going to be soon executed.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [4]

--------------------------------------------------------------------------------

Okay. And regarding the Mexico pipeline, that is quite steady. Are there any projects that you can mention that are relevant?

--------------------------------------------------------------------------------

Unidentified Company Representative, [5]

--------------------------------------------------------------------------------

Yes. There are some projects that we can mention that have to do with the (inaudible), and this is a specific project. And the integration, outsourcing integration projects, there are also some projects that have to do with better centers. There is a pipeline as well that is going to be working on infrastructure. And I think that what matters the most is that there have been a relaunching of the -- of our partnership with our main partners in Mexico. So we have established a better partnership with Lenovo, with some other partners that -- this is going to be very important for the market that we have, especially from the sales point of view.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [6]

--------------------------------------------------------------------------------

And finally, Rafael, I'd like to ask you if in 2020, is it possible to have additional expenditures that are related to the restructuration of the operations? Or is it going to be backed for 2019 only?

--------------------------------------------------------------------------------

Rafael Osorio Peña, Sonda S.A. - CFO [7]

--------------------------------------------------------------------------------

So we expect to have BRL 12 million for the year. I would say that Brazil is the last thing that we're doing, BRL 12 million, BRL 13 million.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Unidentified Company Representative, [9]

--------------------------------------------------------------------------------

I am going to take the time to read some questions that were done through the webcast. What is the impact that the products in Chile may or write-ups in Chile may have on the operations?

I would say that in Chile's case, we are planning to have our revenue increasing to be medium-digit level. This was -- this has to do with the transactional level because this is the most common scenario that we could be facing. It doesn't necessarily affect our practices and on those businesses line that have some added value. We don't see anything that has to do with the business to be closed and the digital transformation initiatives that we have in this country. While we can see there is going to be a slowdown is the incomes or the revenues that have to do with the infrastructure itself. And the rest of the region, we don't see any impact. We could say that in Colombia, there could be something like that. But actually, our businesses here are not going to be affected as well as in Peru. So this is going to be a very steady scenario for 2020.

The second question we've received here was if we could explain a little bit further the Mexico scenario.

So well, in Mexico, in 2018, we had a scenario of $24 million, and the revenues were perceived in 2018. So these kind of contracts were not closed in 2019. So this means that all of this growth for the revenues is related to the previous year. So this was a contract. It is due to a contract that was awarded the previous year like Odebrecht during the last quarter. However, this contract was not signed until January. So this has to do with the contract -- with a big contract that we had for 2018 for $24 million, and we couldn't manage to close it for 2019. So we need to make a new contract to compensate this contract I'm talking about.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Now we have [Mr. Ramirez] from Banchile.

--------------------------------------------------------------------------------

Unidentified Analyst, [11]

--------------------------------------------------------------------------------

And I have 2 questions. The first one for OPLA. So what should we wait for Argentina facing 2020? And what are you expecting from the OPLA margin for the effect that we can see for the crisis that we have seen in Argentina? And what should we expect for the future? And the second question, could you remind me the guidelines for 2020?

--------------------------------------------------------------------------------

Unidentified Company Representative, [12]

--------------------------------------------------------------------------------

Well, you're asking about OPLA. As we said before, we think that we're going to move in 2 digits, and we're going to have an important increase here -- an important growth here. We are going to improve our EBITDA margin for 2020, especially in Argentina, this year. Last year was a good year in terms of the business close -- that were closed, and many important businesses were achieved during last year, during 2019. For Argentina, I say, we need to improve and we are increasing our revenues in terms of -- in real terms, and we also hope to have the EBITDA margin to go up to a 2-digit number. So for -- in Argentina, as I said, last year was a good year with some setbacks. But hopefully, this 2020 is going to be better, and we can continue to grow in the Latin American market.

The guidelines now briefing you in, we can say that we are talking in general terms that we want to grow in 2 digits at the consolidated level. And we expect to have an EBITDA margin that goes higher. And regarding the yearly level, we want to have less than 100 points for the basis that is going to be -- this is going to be more relevant in the future. And if we compare this to the third and fourth quarter of 2019, let's say, we hope to have some growth here as well. And in Chile terms, we hope to have 1 digital -- 1 medium digit. In Peru, it's something similar we want to move in the second quarter. However, given the sale of this company we know about, this EBITDA margin could be affected in, let's say, 150 or 200, let's say, 150 basis points. And in Brazil, we want to grow 2 digits, especially in the EBITDA margin. This growth is to be important, and it is going to be improved in terms of EBITDA and we're going to get to 2 digits throughout the year. So we may have this growth that is going to be important for EBITDA for the third and fourth quarter. Now the comparison level is quite low with the EBITDA margin, and we want to have some improvements especially for the first quarter, where we usually have low or weak results that we want to recover from this for the second quarter. In terms of OPLA, we want to have a 2-digit growth, both for revenues and for the EBITDA margin. And we -- this is going to be leveraged by Panama, Colombia and Peru and also by Argentina as well. Also having some enhancements or some improvements for the fourth quarter, for -- in comparison to last year, 2019.

--------------------------------------------------------------------------------

Unidentified Analyst, [13]

--------------------------------------------------------------------------------

And now if you could tell us what's happening in Chile regarding the expansion of the data centers? And how -- what kind of added value services are they going to have? Could we think that -- could we say that in 2019, the main line of service was in that aspect?

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

No. Actually, in Chile, especially -- and we have 2 data centers that are at full capacity. The new data center that is going to be cared for that is almost to be finished is going to be operational by the end of the first quarter. And yes, there are some contracts that are going to be awarded here for this new data center. However, 2020 is not going to be definitive regarding these data centers. So 2020 is not going to depend upon this market. It is not going to be directly affected by the data center operations. This is just an investment. It is a relevant investment, so of course, that went to -- up to $200 million, but it is going to be -- effect especially the automation.

And we have another question where we are asked to evidence the losses for the last quarter, for the final quarter.

So for the final quarter, it was impacted by the expenditure, the functional expenditures regarding the provision of services that goes up to $4 million. So I would say that this is an important loss. The other one, I have said over the adjustment that is linked to the functionality in Argentina. Let me remind you that in Argentina, we had -- Argentina had a specific economy that has some important inflation levels. And this is affecting the currency exchange operations, especially for those that have to do with the rest of the continent, and we have to do an adjustment with the rest of our continent. So this affected the operations for the last quarter.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Now we have (inaudible)

--------------------------------------------------------------------------------

Unidentified Analyst, [16]

--------------------------------------------------------------------------------

Rafael, I have 2 questions. The first one, in Slide #9, where you are talking about business closed, you said that 75% of those business closed in Brazil were a bit higher than 20%. In the same presentation, for the previous quarter was -- went up to 40%. So I'd like to understand if this is a common or regular behavior? Or is it something extraordinary? And the second question that I have is that you're expecting some specific amount in the -- for the Brazil expenditure, so what was the amount that you expected for previous year?

--------------------------------------------------------------------------------

Rafael Osorio Peña, Sonda S.A. - CFO [17]

--------------------------------------------------------------------------------

Well, for the 75%, it was for the whole year -- for the entire year. And you have to consider the different contracts that we have. However, I think that it has to do with closing, let's say, important businesses. So that's why it is important that in general terms, given that our operations are not transactional business, in order to understand what the perspective should be understood like, we need to understand what the trends are. Now regarding the expenditure that we had for 2019, 16 -- went up to [16].

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

We now have a question from Rodrigo Villanueva from Bank of America.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [19]

--------------------------------------------------------------------------------

Now talking about the CapEx. I remember that you were expecting $195 million for 2018 and $84 million for [2021], and in 2019, you had $95 million. So how much would you be expecting for 2020 and 2021?

--------------------------------------------------------------------------------

Rafael Osorio Peña, Sonda S.A. - CFO [20]

--------------------------------------------------------------------------------

Well, Rodrigo, here, it is something that we need to -- we'll let you know as the year moves on, because whenever we talk about this CapEx when we said $395 million CapEx for the national plan -- for the yearly plan, we included the whole thing as infrastructure as a service. And given the new regulations or given different regulations, this infrastructure as part of a service it is now being considered as a sale of a platform. So this service is understood differently. So we don't have the operational expenditure, but we have different things here. So that makes us have a change. When this flux of investment changes this infrastructure, it is going to be mobilized as -- and it is going to affect the financial part of it. And this is going to impact the box that is associated to either the link or how it is linked. But -- so amending that or correcting that, we know there was more or less $135 million in 2019 for the CapEx. We thought that the CapEx we had for 2019 that was projected for 2020, it is correct that those numbers are okay. However, this was mobilized or this was moved to what is going to happen in 2020. So for instance, we had initially thought that in Colombia, we're going to have a specific investment. But now with the environmental investments and some different issues, we're going to have a change for the 2020.

--------------------------------------------------------------------------------

Unidentified Analyst, [21]

--------------------------------------------------------------------------------

So therefore, if you -- if you put together 2019 and 2020 and then you delete $25 million or just subtract $25 million, that is going to be the CapEx for 2019. But shouldn't you have a kind of adjustment in order to have the same difference before CapEx for $95 million, $175 million?

--------------------------------------------------------------------------------

Unidentified Company Representative, [22]

--------------------------------------------------------------------------------

Yes. That is going to be what's going to happen in the next cut. We're going to have a note -- a side note in order to be able to compare and to do this conciliation on how these investments are going to be handled. As this is not only the CapEx for us on what has been mobilized but also the CapEx that is there for the salaries to be paid.

--------------------------------------------------------------------------------

Unidentified Analyst, [23]

--------------------------------------------------------------------------------

Well, if you think about it, it will be more or less $100 million to $175 million. So it could be comparable to what you are reporting. Is that correct? Would that be a correct number?

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

Actually, the CapEx that we have budgeted for this year goes around that.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Do you have any other questions? Any further questions?

--------------------------------------------------------------------------------

Rafael Osorio Peña, Sonda S.A. - CFO [26]

--------------------------------------------------------------------------------

All right. If you don't have any further questions, I would like to close this conference by saying that I think that 2019 have very important picks or very important moments to be read in a very challenging way. And I think that at the transactional level, we are quite pleased. And we had the -- we now have the foundation for us to work in the industry, and there are some added value line services that we are now going to be working with. And regarding the region itself, I think that it's to highlight the positive evolution that Brazil has had. And also -- and on the other hand, our main challenge is that Mexico goes back to what it used to be in terms of growth. I also think that there is something for us to have in mind. And this is something that Christian mentioned as well, is that we think that our business model, that the business model that Sonda has and the structure and the offer that we have in order to improve, and having more than 300,000 customers or clients, we have moved regarding the regional distribution, regarding some other aspects that had strengthened us as a company, and we are a sound company in terms of what we have managed to build the last years.

Our challenge is to go back and to grow -- to have a steady growth. But we think that the big leverage factor here is the processes that we have done. And I think that there is a lot of expectation on that in order to have positive results. So everything that we have done during the last year and in terms of the different challenges or that -- in terms of the ecosystem, and everything that we have done that didn't start from scratch. Actually, that was the result and that -- of what we had previously done. And that is right now leveraging what we are planning to do. And this is the capacity that we are going to have in order to leverage what we want to do in the region, and there is no doubt that this is going to be faster.

And finally, whenever we're talking about the business closing, we want to -- we are very optimistic about what the future holds for us. We are very optimistic. There are many challenges, but we think that the results are going to be there for us. As for 2020, it's going to be better than 2019. And there is no doubt that the second quarter for 2020 is going to give us very interesting results, and it is going to give us very interesting highlights as to see how we can move into 2021.

So again, thank you very much to all the participants that managed to come to this conference call. And of course, we're always open to answer your questions. Christian is always open as well for the digital transformation, and Affonso as a leader as well in Chile. And also myself, we are open, and we welcome all of your questions, of your comments in regards to how you saw 2019, and what are your expectations -- or what your expectations are for 2020. And for those of you who haven't had any holidays yet, happy holidays for you.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

So with this, we conclude this meeting. Thank you very much for your participation, you can now disconnect.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]