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Edited Transcript of TECO24.BA earnings conference call or presentation 11-Mar-20 3:00pm GMT

Q4 2019 Telecom Argentina SA Earnings Call

Buenos Aires Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Telecom Argentina SA earnings conference call or presentation Wednesday, March 11, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gabriel Pablo Blasi

Telecom Argentina S.A. - CFO

* Roberto Daniel Nóbile

Telecom Argentina S.A. - CEO

* Solange Barthe Dennin

Telecom Argentina S.A. - IR Manager

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Conference Call Participants

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* Alejandra Lucia Aranda

Itaú Corretora de Valores S.A., Research Division - Research Analyst

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Presentation

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [1]

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Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. First of all, we would like to apologize for the delay, but we had a problem with the service of Volis at our international labs.

The participants of today's conference call are Roberto Nóbile, Chief Executive Officer; Gabriel Blasi, Chief Financial Officer; and myself, Solange Barthe Dennin, Manager of Investor Relations.

The purpose of this call is to share with you the results of the fiscal year ended December 31, 2019. We would like to remind all those that have not received our press release or presentation that they can call our Investor Relation office to request the documents or download them from the Investor Relations section of our website located at www.telecom.com.ar.

Additionally, this conference call and slide presentation is being broadcasted through the webcast feature available in such section and can also be replayed through the same channel.

Before we continue with the conference call, I would like to go over same safe harbor information and other details of the call as we usually do in this type of event. We would like to clarify that during the conference call and Q&A session, we may produce certain forward-looking statements about Telecom's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effect of ongoing industry and economic regulation, possible changes in the demand for Telecom's products and services and the effect of more general factors such as changes in general market or economic conditions, in legislation or in regulation.

Our press release dated March 9, 2020, a copy of which was included in our Form 6-K report furnished to the SEC describes certain factors that may affect any forward-looking statements that we may produce during this session.

As far as the figures included in the financial statements, the company has accounted for the effects of inflation adjustment adopted by Resolution 777/2018 of the Comisión Nacional de Valores, which established that the re-expression will be applied to the annual financial statements for intermediate and special periods ended as of December 31, 2018, inclusive. Accordingly, the reported figures correspond to fiscal year 2019, include the effect of the adoption of inflationary accounting in accordance with IAS 29. Moreover, over the presentation, we will discuss figures in historical values in order to ease the understanding and analysis of the earnings evolution by the user in a similar way as analyzed by the management of the company with the aim of reaching a better comprehension of this figure in nominal terms.

Additionally, and with the aim to reach a better understanding of the figures presented in our press release, we encourage our national community to consider such release in conjunction with this earnings presentation. We know analysts and investors are aware of the difficulties concerning the impact of the inflation on accounting standards, but we are confident that at the end of the day, it is not a driver of value other than a derivative effect, like, for example, some distortionary taxes. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in Slide 1 and 2 of the presentation.

The agenda for today's conference call, as seen in Slide 3, is first to go over a general commentary of the macro environment, which will be followed by a discussion of our business highlights and immediately after, we will go into the evolution of our financial figures. Afterwards, we will end the call with a Q&A session, as is customary in our quarterly calls, with the financial community.

Now having gone through this introduction, let me pass the call to Gabriel Blasi who will go over a brief characterization of the macroeconomic context in which we operate.

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [2]

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Yes. Thank you, Solange. Hello, everyone, and welcome to the call. Please refer to Slide 5 where we included a summary of the evolution of some macro variables in Argentina regarding FX, inflation, interest rates and private consumption.

During the fourth quarter of 2019, the economic context still remained volatile even after the imposition of some initial capital controls and highly influenced by the presidential elections event, which was held in October. At that point, an important demand for foreign currency and the realization of peso portfolios were registered prior to elections, which was partially channeled in alternative markets other than the Mercado Único y Libre de Cambios, thus widening the gap between the blue-chip swap and the official FX. After the elections were held, demand for foreign currency stabilized in the foreign exchange market only with an increased tightening imposed by the Central Bank and also due to renewed offer from agricultural products exporter during November, so balancing a year-to-year devaluation of 59%.

During 2019, the inflation rate stood at almost 54%, achieving the highest level since 1991. Inflation accelerated during September as it was impacted by the FX rate increase in August. Readings for the fourth quarter were about 3%, mainly pulled by core inflation as utility tariffs remained unchanged during the period. The new administration further extended the tariff freeze imposed by the preceding government at least until June 2020, while stabilizing the FX through the imposition of taxes to currency purchases and extension of capital controls; therefore, generating a temporary anchor for inflation as shown in the general inflation figures.

In turn, interest rates experienced an increase as the withdrawal of deposits from the financial system diminished. And while the Central Bank relaxed during the last month of 2019, that they controlled over the monetary base, that it has been maintaining. The new administration in a context of ring fence FX market through capital controls continued to reduce further interest rates aiming to generate better financing conditions and encourage credit.

Finally, on observing the trend of declining economic activity during 2019, it can be note that household consumption has decreased very rapidly, in particular, that has been the case of consumption of durable goods which has been materially impacted not only because of the reduction in the purchasing power but also because of the higher difficulties to access consumer financing. Although consumption has been strongly affected during the past year, the general rental decrease is decelerating during the last quarter. Full recoveries is still uncertain at this point, conditional to the evolution of the real income and general stabilization of the economic variables. Notwithstanding the challenging macroeconomic context just described, Telecom Argentina has managed to reduce the gap of its top line with inflation during the last 2 quarters, while maintaining a solid operating profitability. Having gone through this introduction of the macro environment, let me pass the call to Roberto, who will go over the business highlights section.

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [3]

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Thank you, Gabriel, and good morning to everyone. We can see in Slide 7, an outlook of the company numbers. During '19 -- 2019, Telecom's revenue totaled ARS 237 billion in constant currency, that's about $4 billion in revenues with an EBITDA of ARS 77 billion, around $1.3 billion for the year, getting a 32.5% margin of revenues in constant currency. This is achieved or has been achieved in a challenging and a highly volatile economic context as Gabriel was mentioning before. 19.1 million mobile subs by the end of the year with 3.5 million subs in pay TV. Broadband and B2B clients remain relatively stable, reaching 4.1 million broadband subs. In turn, fixed voice subscribers amount 2.3 -- 3.2 million, being reduced slightly throughout the year. It must be highlighted that, thanks to our successful commercial strategy focused on the bundling and upselling the -- of products launched during 2019, we experienced a churn reduction and a higher client loyalty, reflected in 1.4 million convergent unique customers by the end of the year, which is the fact that 40% of them, of our broadband customers, currently have a mobile bundle. This is very important achievement for the company. As we all know, reaching a higher client base and increasing the share of value customers that are going to be the driver for revenue growth and ARPU maximization in the coming months.

On Slide 8, we are going back to 2 main things. One is the purpose of the company and our vision. We have a purpose, which is empowering your world and that's about customers and also about our employees. And we also have a vision, and we would like to summarize our strategical vision for the near future. As we mentioned in previous calls, one of the main things is consolidate ourselves as leaders in NPS, revenue share and market share, and we will take a look later on that we are achieving these targets. Provide solutions beyond connectivity, not only on the B2C but also on the B2B. We need to go beyond connectivity and increase value for our customers. Transform ourselves in a marketplace. We have already created a marketplace for entertainment and Flow, which is our brand for IP TV services, is actually a marketplace for music content, video and gaming. And we will start incorporating new things to the platform. We need to become agile, efficient and digital, and this is a must for the company in the near future to move forward. We also want to be the best place to develop and work. As we mentioned before, not only our purpose is for our customers but also for our employees, and it's a way of conducting the company in the next steps. And obviously, and most importantly, we believe in continuous growth, and this is something we are taking seriously.

On slide -- on the next slide, we are able to deliver on what we committed. Based on our vision, we were able to manage to increase our services NPS not only on the mobile but also on the broadband side as well as the market share of our mobile services leveraged on the significant investment deployment that took place during the last 2 years. Furthermore, we were able to accelerate the convergence process, speed up, speed convergence, that was the main focus for this year. And obviously, therefore, carrying out a progressive price adjustment that allowed us to mitigate the effects of the inflationary context that we described previously. Dynamically adjusting prices, we were able to increase prices more than 3x throughout the year, and we keep on with that pace to catch up inflation as quickly as possible.

Additionally, we established Flow as an IP platform, which we gave the opportunity to expand the service to the northern region of the country and to our international operations abroad. Paraguay and Uruguay are already serving Flow as their IP TV platform. And we keep on creating our future group network, working with Bell Labs jointly to make sure that all the investments that we will keep on doing on our network will be done on the new network rather than on the legacy one. And we expect that all these actions that we have taken will allow us to keep leading the local telecommunication market as we have done throughout the whole year.

On Slide 10, we summarize the competitive advantages just of our products, services and platforms that allowed us to attain the higher usage of our services during the year. Telecom's leadership in the Argentine telecommunications market is leveraged on the quality of its strategic assets, and we have 3 strategic assets here: Broadband, Flow as our IP TV service and Mobile as our third big asset. In this sense, our broadband network is currently the fastest and with the best coverage of the country achieving average speeds of 50 megabytes per second in the case of our Fibertel, while 12 megabytes per second for the ADSL product, reaching a 65% participation of homes passed over total homes in Argentina. We need to remind you that 50% of our network is HFC, and HFC is already fully implemented with DOCSIS 3.1. 1 gigabyte per second is available throughout the whole HFC network today, and we'll keep on deploying FTTH to upgrade our corporate network into a good one.

Additional, Flow is our IP video platform with the best experience. As we already said, the usage of Flow is 3x higher than any other comparison to the legacy video platform. We also registered a lower churn in these customers. Churn has been reduced by 50%. Moreover, Flow is evolving the super content aggregator, as I have mentioned before, relevant to our customers, allowing access to video and music while gaming and other features will be incorporated in the near future. In this sense, we have also an agreement with Live Nations where we are streaming online music shows through our platform.

And finally, our brand for mobile is Personal. Personal is the fastest 4G mobile network in the country and with the best 4G quality in terms of availability, video experience and download and upload speeds. This is not said by the company, but third parties certifying this. These advantages have allowed us to achieve an important networkability of new mobile accesses and to substantially increase and sustain our NPS.

As you all know, we are starting on -- moving to Slide 11, we need to remember that we are coming from 2 different companies, big companies with different systems, different IT solutions, different networks, different processes and different back-end. So throughout these last 2 years, we were committed to make these 2 companies become 1. And now the FAN, what we call FAN, which is the -- our BSS transformation is coming through. FAN is a Salesforce project that has started just 1 year ago. And by June 2020, we will complete the mobile migration. Today, we have more than 250 customers already on the platform, on the new Salesforce platform, and we are checking this month to make sure that everything is okay, and we will keep on migrating customers and ending the migration of all our customers by June '20. On the other hand, as far as our back-end transformation project, what we call 4UP, we're working with SAP S/4 HANA standards and the digital administration of travel expenses and so on. We are planning to finish and go live with the new ERP by June '20, and that will allow thus, to finally get a very agile and very robust processes that will allow the company to move easy. We talked about our IT transformation, that is one of the pillars of the company transformation. The second transformation program or pillar is the network and in slide -- on the following slide, Slide 12, you will see our transformation program for our network. We are working with Bell Labs -- Nokia Bell Labs, defining and designing the new network, what we call future-proof. That's the network that will allow new services in the near future and reducing, obviously, TCO, which is total cost of operations, and CapEx in the next years. We have already -- you can see here that we have already accomplished the implementation of the data inner core, international gateway. We have 1 network since August 2018. The network is 1 and it's logic unification, and we are still working on the outer core in AMBA and other regions of the country. We are progressing on this way, and we will keep on moving forward with the new network.

And finally, on Slide 13, you will see the third pillar of the transformation of the company, which is the culture. Culture is the way we do things, is the way we have our processes in place. And we need to remember here that 75% of our workforce is unionized. They belong to different unions, and we have worked very close to the unions to make this happen. As unions are supporting the transformation of processes, automation and convergence of networks and customer services, and we have been working to reach a convergent agreement with all of them. For the most part, we have the agreements in place. We're still working on the call center's representatives that we still have different agreements or different services, but we believe that in the short run we will resolve that. On the other hand, as you see in our vision, we want to be a digital company, data driven, agile. And therefore, we have a huge challenge here facing the digital transformation for this 12% with the aim of becoming digital, we have been doing a great effort to optimize the recruitment and retention initiatives for digital profiles that will lead the great change.

Okay. Having gone through this brief description on the evolution of some of the projects, we should move to the performance of our business. And on Slide 14, we can observe the evolution of the ARPUs for each of the -- of our products. And we can see that ARPUs has moved, favorably growing in the case of mobile, 64% in nominal terms at the fourth quarter 2019 compared to the fourth quarter 2018. Meanwhile, postpaid participation has increased. Postpaid and prepaid accesses have increased 8% and 2% during 2018, respectively. This is one of the biggest drivers of growth for the company.

On the second layer, you will see Fibertel. Fibertel ARPU grew 46%, with steady performance of customer base. You see a very small reduction of 0.4% year-over-year. But if we take a deeper look here, we will see that we are growing significantly on the HFC and FTTH broadband customer base and losing some of that on the ADSL network.

Pay TV ARPU represented through our brand Cablevisión, has also grown 46%, where we have been able to counter some poor cutting that we observed into the first quarters of the year through our offering of Flow over the FTTH and xDSL network in the northern part of Argentina.

Finally, fixed voice ARPU has increased 6 -- 75% compared with the fourth quarter of 2008 (sic) [2018] with the reduction of accesses continued but at a slower pace. This 60 -- 75% year-over-year increase in what we call the fixed, it's also including B2B connections that are, for the most part, polarized.

Let's move to our drivers of growth on Page 15. Finally, during 2019, postpaid subs accounted for 40% of our total customer base. The company has registered a positive subscribers inflow in the last quarter, which reflects its effort to optimize the quality and capacity of our mobile network. In fact, this segment has been growing steadily over 2019 due to the good results. As we already mentioned, our convergent offer to cable TV and Internet subs that were not mobile customers of the company, leading the mobile Flow share in the market. As you can see, we have 257 customers coming from other networks, especially from -- well, part of -- from Movistar and part from Claro.

Furthermore, the intensity of mobile Internet usage continues to increase. By the end of the year, it has reached an average of more than 3.4 gigabytes per user per month. Additionally, the average prepaid recharging frequency has increased to 3.1x per month as of the fourth quarter of 2019. This is actually a result we have implemented real-time decision processes working with [Anna], a data scientist, trying to make sure that the customer is -- we are pushing the customer to consume more every time online.

Finally, we can see that broadband speeds. 62% of total subs with speeds between 20 megabytes and 300 megabytes compared to 38% by the end of last year. And this is the way we protect our core, our broadband stock-up customers, making sure that they can move to new ways of using broadband, higher speeds and obviously, with new equipment CVH.

Finally, Flow has delivered solid results. We have almost 1 million Flow boxes in the homes, and that's a huge and a significant advance towards the final digitalization of the network that we really need in the future.

Having gone through the business highlights, now I will pass the call to Gabriel who will go over our financial performance, and I will stay here for further questions at the end of the conference.

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [4]

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Thank you, Roberto. We will go over the impact that these business trends, just described by Roberto, generated over our financial figures.

Let's move to Slide 17, where we can analyze the consolidated revenues and EBITDA. For the fiscal year 2019, consolidated revenues on nominal terms grew by 42%, reaching almost ARS 194.2 billion. When analyzing the figures in constant measuring unit, revenues amounted to almost ARS 237 billion, showing a decrease of 8% in real terms, but further reducing the accumulated gap to inflation in approximately 200 basis points when compared with the first 9 months of the year. In this sense, the company has been increasing its effort on offsetting the high inflation effects over the top line and costs. In addition, it must be mentioned that adjusted figures contain the effect of year-over-year inflation as of December 31, 2019, which reaches 53.8%. It is important to highlight this impact when performing an analysis of the company's operational performance as inflation adjustment has a considerable impact in terms of the re-expression of 2018 figures. In turn, service revenue grew even more, reaching a 44% nominal increase. In this sense, during the fourth quarter of 2019, the company was able to match the growth in service revenues with the level of inflation, which grew 0.4% year-over-year when compared with the fourth quarter of 2018. It can also be noted that mobile revenues have accelerated notoriously, reaching a nominal growth of almost 62% when comparing historical quarterly figures from the fourth quarter 2019 and fourth quarter 2018. On the other hand, EBITDA experienced slower growth, growing by 39% year-on-year in current terms and EBITDA margin reaching 33.2%. Evolution of the EBITDA in real terms experienced a decrease of 11%, but improving almost 300 basis points compared with the first 9 months of the year, while EBITDA margin in real terms was 32.5%. The margin decrease in the year-over-year comparison in real terms reflects essentially different adjustment dynamics over time between cost and pricing services. In fact, operating costs before D&A decreased 7% in real terms against fiscal year 2018.

Please turn to Slide 18, where we can see in detail the evolution of our service revenues and which revenues have grown the most. We can highlight that the current revenue mix has a participation of mobile revenues of almost 35%, which have increased their participation, followed by broadband revenues that represented more than 22%. And after worldwide Pay TV revenues, we accounted almost 21% participation. In turn, fixed telephone and data represented almost 16% while equipment sales achieved more than 6% of the total revenue. Still strongly impacted by the falling consumption of durable goods due to the economic context and high interest rate, but is still in a positive margin contribution. In this regard, the sale of terminals was voluntarily reduced during third quarter and with the implementation of additional credit measures and restrictions were implemented successfully.

Please refer to Slide 19 where we show the performance of EBITDA and the impact of the different components of revenues and costs. As remarked, operating costs reduced in real terms. In particular, it is noticeable that some of the components evolved positively despite the challenging economic context, indicating, in this cases, improvement or synergies. We can observe the positive evolution of handset costs we have positive margin contribution, which was mainly impacted by lower sellout due to an aggregated decrease in consumption durable goods and tougher financing conditions for consumer finance. While also cost management has delivered good results in commissions and advertising, the lower charges of origin commissions as a consequence of the sales channel reorganization, lower handset sales and a slight decrease in advertising costs. On the other hand, other costs registered an increase mainly as a reduction in operating leases and was implemented due to the application of IFRS 16. Nonetheless, these effects have been offset by an increase in labor costs as both recurring labor costs, reflecting essentially increases in salaries to unionized and nonunionized employees and nonrecurring labor costs have risen. In the case of bad debt expenses, a year-over-year increase was observed, but they show a better evolution when highlighting the second half of the year due to diverse actions taken in this sense. When analyzing fees for services, maintenance and materials, we can highlight more positive effects. Fees for services decreased as a result of synergies and process simplification within the company transformation program, partially offset with increases in the prices of services contracted to third parties, mainly to call centers, surveillance and cleaning suppliers. While maintenance and material cost increase offsetting its effect mainly due to increases in the prices of service contracted to suppliers related of the maintenance of our networks and systems and connections and disconnection of clients, among others and higher consumption of materials associated with that period. The final outcome was 100 bps reduction in EBITDA in real terms when compared with fiscal year 2018, mostly due to the impact of an adverse and volatile economic context during the last part of the year.

Let's move to Slide 20 where we can verify that the company's current operating income totaled almost ARS 15.8 billion. The EBIT decrease in constant measuring unit has resulted higher than of the EBITDA can be explained by the increase in D&A and disposals and impairment of fixed assets, which increased almost 14% in real terms year-on-year. In addition to higher depreciation and amortization due to the re-expression of nonmonetary assets, the application of IFRS 16 in 2019 has entailed an impact of more than ARS 3.3 billion while also expected impairment was registered for ARS 2.5 billion. Consequently, mainly due to the aforementioned increase in D&A in real terms, operating margin reached 7% of consolidated revenues. Moreover, the company registered an ordinary income before tax of almost ARS 10.3 billion in fiscal year '19, improving 147.8% versus the prior year, mostly reflecting lower losses from FX results mentioned in real terms from almost ARS 44.8 billion, partially offset by higher negative net interest and lower inflation adjustment gain or RECPAM or its acronym, RECPAM, a lower result of investment.

Meanwhile, the company registered a net loss of almost ARS 3.9 billion during the same period, essentially due to the recognition of the restatement by inflation of the calculation of income tax for the first time.

Please turn to Slide 21, where we can highlight the company continues in best effort to improve the network and quality of services. During fiscal year 2019, the Telecom has invested almost ARS 70.9 billion, including the right-of-use asset, which is referenced specifically to IFRS 16, which accounts for ARS 5.4 billion. In this amount, 8% higher in real terms at the same period of last year. The consolidated amount of impairment increased to almost 30% of total revenues from the 25% registered in the same period of last year. Taking into account the technical CapEx breakdown, an important amount of the technical CapEx was allocated to network and technology. With the access network, one of the most important components representing almost 45% of network and technology CapEx. The remaining of technical CapEx was mainly comprised of installation and customer premise equipment, or CPE, and of investment done on our international operations in Paraguay and Uruguay.

During fiscal year 2019, Telecom continued extending solid competitive position in terms of network infrastructure. In this sense, more than 440 new sites were deployed -- 540, sorry, new sites were deployed, enhancing the coverage of the mobile network. On the fixed network side, intensive work has been performed over the HFC network, adding 2,400 two-way 1 gigahertz HFC blocks while more than 500 are under construction. Additionally, 2,400 blocks of FTTH were enabled during the year. Remaining 1,300 to be finalized during the first quarter 2020.

Additionally, almost 1.7 million new modems and cablemodems were activated, thus allowing the upgrade to higher broadband connection speeds of 1 million -- sorry, 1 million new TV decoders were activated considering Flow, HD and IP.

Concluding, as remarked previously in other call conference sessions, one of the advantages of the company CapEx plan is that the investments are performed in a very modular way. They are not huge projects involving large lot of investment.

And in fact, it is expected that during 2020, the company's investment effort should be reduced to half of what has been observed during the course of 2019 in observance of the lower economic activity. This reduction should be supported on the superior competitive position of its network, which in turn has been increased during the past 2 years, and therefore, should not affect its operational performance of competitiveness in the short run.

Let's move to Slide 22 where we can find comparative of the cash flow generation between fiscal year 2019 and prior year. During 2019, the operating free cash flow increased notoriously, mostly due to a positive evolution of working capital, mostly due to higher CapEx and better financing conditions obtained with our vendors during the second half of the year. The fiscal year 2019 operating free cash flow increased to more than $550 million, more than doubling when compared with the previous fiscal year.

Additionally, during fiscal year 2019, a lesser impact of income tax pay was observed allowing as well to expand the company's free cash flow generation with $425 million for fiscal year 2019.

Turning to Slide 23, we sum up some key figures of the fiscal year 2019 in constant measuring unit. Company revenues achieved more than ARS 237 billion. Meanwhile, EBITDA amounted for more than ARS 77 billion for the same fiscal year. EBITDA margin was 32.5%, which represent, as Roberto stated, more than $1.3 billion of EBITDA. Regarding our gross debt, as of the end of December 31, 2019, it amounted almost ARS 152 billion. But as the company holds an important cash and equivalent positions as investment, the net debt reached almost ARS 125 billion, up 23.6% in real terms when compared year-over-year. In fact, net debt-to-EBITDA ratio is currently leverage of 1.6x at this stage.

Lastly, on Slide 24, we can analyze the breakdown of the financial figures. The total debt outstanding of the company as of December 31, 2019, considering the unit operations and cancellations in the year amounting to almost $2.5 billion, remaining stable in dollar terms. It is important to highlight that during January of 2020, the company accomplished success provisions of peso denominated notes for an amount of almost ARS 4.4 billion. We currently see a potential market of opportunity in this sense, where the local market is showing their interest of peso denominated rate of entire companies.

Additionally, during February, the company received 2 new disbursements under the IDB financing agreement for a total of $125 million composed of $50 million maturing in 2023 and 4 -- $75 million maturing in 2022. Finally, a new disbursement for the Finnvera credit facility was received on March 5, 2020, for $10 million. As mentioned in prior calls, we deem important to emphasize the manageable debt profile of the company thus, all the impairments of the intentional policy for the term, retaining structure of the financial liability. Almost 60% of our debt book has been benefiting with a LIBOR decrease.

Having concluded the presentation, but before going to Q&A session, let me pass the call to Solange for a final remark.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [5]

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Thank you, Gabriel. With this, now we are most -- more than pleased to answer any questions you may have. However, before we start, we would like to remind you how you might address your questions in the Q&A session, which we will open immediately. (Operator Instructions)

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Questions and Answers

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [1]

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Rodrigo, please proceed. Thank you. Rodrigo Villanueva. Rodrigo, are you online? Before -- so the next question is from Babatunde Ojo. So Tunde, are you there? You are asking what's the CapEx guidance for 2020.

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [2]

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Ojo, as apparently, we are facing some problems with CiscoWorks platform today. We are receiving the questions in written and they're not here the questions by voice. Regarding this question, our guidance for the year at present is $500 million for a total CapEx of 2020. Having said that, it might depend on the general evolution of Argentina in terms of what happens with all the different variables of economy. This decision might be changed probably on the positive side.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [3]

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The following question will come from [Pedroff Hierro]. Pedroff, you can proceed with your questions.

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Unidentified Analyst, [4]

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Does the company consider appending its long-term CapEx levels as preparation for the future launch of 5G networks in Argentina?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [5]

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Let's see, if we are already considering 5G in the near future. We are -- the new design of the network that we're working with Bell Labs is already -- is ready for 5G. That's to say that it's working on latency, it's working on a design that allows to be very close to the customers and that's the basis. On the radio basis and on the core, everything that we have is already -- yes, it's very close to 5G. We need to add new licenses, and -- but remember that 5G will start on a nonstandalone way and that implies that we'll use the 4G core, and that 4G core is already in place and can probably do that. 5G, for the near future, we'll start with enhanced mobile broadband. That's one of the 3 features for 5G. The other 2 features will come with a 5G core standalone -- stand-alone core, that will come in 2 or 3 years, not before that.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [6]

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Okay. The following question. So we have now the question from Rodrigo Villanueva. So Rodrigo just sent the following question. Are there any OpEx saving goals that you can share with us related to your IT transformation initiatives? Regarding use of free cash flow generation, is there any indication of potential dividend distribution in 2020 with proceeds generated in 2019?

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [7]

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Yes. We have a goal of reduction of TCO on the network operations, but it's not going to be only 2020, it's a longer 5-year road map that it will achieve 30% TCO reduction in the total run. On the IT, CRM platform and back-office, we are working -- I mean, we are working very close to the automation of call centers. Those are processes that are on their way. And it's very hard to say a number because it also involves unions, and so we're working on that. We are trying to -- the company to be ready for automation and for reducing all the OpEx in call centers. There's a huge opportunity on third parties, and we will seek them. But we don't have, as of today, a very sharp number to say. Yes. We have already reduced more than 3,000 people. When we started the merge of the 2 companies by January 2018, we were more than 26,000 people. And today, we are less than 23,000. And that's a process that it's coming true, and we are working very thoroughly and continuously trying to set the structure and the organization we need to drive the company forward.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [8]

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Okay. The following question is from Alejandra Aranda. Alejandra? Alejandra, are you there?

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Alejandra Lucia Aranda, Itaú Corretora de Valores S.A., Research Division - Research Analyst [9]

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Can you hear me?

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [10]

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Yes, we can hear you. Yes. You have the microphone.

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Alejandra Lucia Aranda, Itaú Corretora de Valores S.A., Research Division - Research Analyst [11]

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(inaudible)

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [12]

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So you have a question? Alejandra, we cannot hear you.

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Alejandra Lucia Aranda, Itaú Corretora de Valores S.A., Research Division - Research Analyst [13]

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Sorry. Can you hear me direct now?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [14]

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No, we couldn't get the question, Alejandra.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [15]

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I can read what you previously wrote. So you said, can you talk about client dynamic that you expect going forward? Have you reached the limit of cross-sell into affluent clients of Cablevisión and can you continue with that strategy? And what's the limit to that strategy?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [16]

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No, we have not reached any limits yet. 40% of our broadband subs are already -- they have become customers of our Personal brand on the mobile service. At the certain point, you have the 100% of your customers that could be the limit in terms of -- we would like, and our vision is to have all our fixed customers in terms of broadband, video and phone become mobile customers too. And then you have to add the number of lines. That's something we are trying to make a KPI. We still -- I will remind you that we still have several CRMs and several databases so the customers are -- there is a mismatch between the CRM. The Mobile is on one CRM and the fixed customers on another CRM. And therefore, the new Quadplay that we are implemented on Salesforce will allow thus, to really understand who is who and what do they have. As of today, we are working in data lakes trying to match customers through their ID, through their addresses, but it's not accurate. We believe that the Quadplay solution will allow thus, to really enhance the information that we have and make it more effectively the way we are selling, but we want all of them to be Quadplay.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [17]

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Okay. Alejandra, your second question was related of what can we expect in terms of ARPUs for 2020 as discount and promotion of cross-selling phase out?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [18]

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Discount and promotions phase out? We are keeping -- I mean, at the beginning of the year, we were thinking -- or when we started doing the plan, we were thinking of an inflationary dynamic that was easier than 2019. We will keep track of inflation, and we have worked to make sure that we can keep that track, and we have shown that we have been able to do it in last year. Having said that, we believe that ARPUs should keep as inflation with their ups and downs and because of -- we cannot do it every month, we need to work ARPUs every 3 or 4 months. And we are working on promotions. Promotions are there and there's not going to be any change. The convergent package it will keep what it is today.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [19]

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Okay. So the following question is similar question that we missed on Rodrigo Villanueva. The one that says regarding use of free cash flow generation, is there any indication of potential dividend distribution in 2020 will proceed in (inaudible) 2019?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [20]

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Not for the moment. Up to now, there has not been no recommendation from the management regarding a dividend payment. We should wait till the assembly of the company to finally assess this.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [21]

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Okay. A new question we have from Tunde Ojo, that says, how should we think about real growth expectation in 2020 as well as margin evolution given the launch of Quadplay and ongoing transformation?

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [22]

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Margins will improve as long as our fixed exchange rate goes with inflation. If it goes higher, our margins will deteriorate a little bit because we have many costs and expenses that are driven by foreign exchange. Therefore, that's a variable that we can manage but we cannot control. So we believe that real growth will come this year. But nobody knows the macroeconomic context that we will have to deal with in the next -- we have some initiatives, like IoT, like new services for our customers, but those initiatives are in early stage, and we will be launching them throughout the year. As we mentioned before, in our vision, we are trying to go beyond connectivity and that beyond connectivity needs new services and new revenue streams, and we're working those. For example, we have launched a new partnership with Nokia. We have a middleware of Nokia called WING, and that middleware will allow thus, to move forward in the IoT business. For B2B and for B2C, there are a lot of new revenue stream stuff we need to incorporate.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [23]

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(Operator Instructions) We have [Austin Fagalde], are you there? Please let us know if you have any new questions.

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Unidentified Analyst, [24]

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Yes. Yes. Can you hear me?

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [25]

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Yes, perfect. Thank you.

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Unidentified Analyst, [26]

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Yes. Just one quick question about the liability management. I mean, you have almost 60% of our debt maturing in 2021 and 2022. And so where are your plans related to that?

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [27]

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Okay. Well, most of the dollar debt of the company during this year is debt that is maturing probably in the next 3 to 4 months. We are planning to repay that debt with debt we issued or take it into the local market, meaning that we have available in the range of $400 million of banking credit line totally, so that we can use whenever we want to. On top of that, we have availability about -- this is a calculation that the company makes, about $300 million to $400 million from the local capital market in local instruments without -- that's in pesos, without pressing the prices. So what you will see is that in probably the first half of the year, we are going to replace that debt locally. Regarding the -- and that entails most of the maturity of the year, about 70%. Regarding the maturity of this next year, remember that we have $400 million in cash. The amount very short from $400 million to $460 million depending -- at the moment, we have no further plans to use that money yet and that allows us to meet any special situation. As you may know, the company has gone to the market to different opportunities to offering several alternatives for the other half of the maturity of next year, the 2021 bond, but we have find out it's pretty difficult to generate a single deal that suits all investors and like several groups with very different interests. And on the other hand, nobody has been willing to get off those bonds. That's very easily appreciated, especially during this week where Argentina securities have come down around to 30% of -- on average value and the company bonds have degraded over 95%. So that has become, I would say, pretty difficult. If -- just to give you some guidance, we don't foresee the short run, meaning the short run meaning next quarter unless we have a very significant change in the market conditions for Argentina that we might establish a new transaction, we have the liability market through international capital market growth on the acquisition side, on the selling side will depend on what type of scenario we have out here. But we are working constantly on this direction, generating new sources of funding. As part of that, I can mention that we are in the process of requesting a credit line from China Development Bank in renminbi, of $200 million in Argentina. That's a project that we are currently developed with that financial third party. And as we have already done with IDB, IFC we are pretty close to get that additional financing. Still, we have pending from the IDB loan that just closed another disbursement of $35 million. And of course, we are always looking for additional alternatives. Of course, we understand that this might -- it must be perceived under the general situation, but the company in terms of cash generation, in terms of our reliability part and in terms of credit available has shown constant even in the last month that we have with the amount of options open and taking good care of that. As part of that, our cost of funds in fact has decreased instead of coming up because of half the debt of the company is a structure. At present is the whole -- the book of the company is here in less than 7%. We have reduced the cost of fund about 35 basis points.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [28]

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Okay. We will appreciate if you have 1 final question and if not, we will end this conference call. Okay. What we have received from -- a question from [Tije Eve Olangal] as it's connect upon a fixed line, it's sending by -- within their fiscal hire questions. So it says how to face the 2020, 2021 debt maturity? I believe that has just been answered by Gabriel. And related on price increases, are they currently below inflation?

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [29]

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Currently, they are not below inflation. We have -- in March or we much by...

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [30]

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Sorry, the question specifically was plans for price increases.

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Roberto Daniel Nóbile, Telecom Argentina S.A. - CEO [31]

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Well, plans for price increases are aligned with inflation, basically. We believe we can keep track of step-by-step, not on a monthly basis but on a regular basis. We believe we can move prices in nominal terms, trying to keep them real.

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [32]

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As a proof of what Roberto has stated when you look at the revenue gap of the company at the beginning of last year was 25% to the accumulated inflation of the 12 prior months, and that same figure by the end of this year of 2019 was below 10%. And there was also, as I have already explained, an acceleration of the reduction of that gap in the last quarter. In spite of all the, I will say, of the confusion or the difficulty we understand the evolution with the inflation accounting adjustment, the company has really shown that even in this type of environment with an inflation over 50%, we have the ability and the muscle to close the gap up.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [33]

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The following question is how much of the cash is in higher currency?

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Gabriel Pablo Blasi, Telecom Argentina S.A. - CFO [34]

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Well, from the total position of cash that the company has at the closing of the fiscal year 2019, there were $460 million. Of that, more than $400 were placed abroad and only about $30 million were kept in pesos locally. That it is related to operational side of the company. At present, all the dollar position of the company is held in Argentina and it moves over $420 million to $480 million.

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Solange Barthe Dennin, Telecom Argentina S.A. - IR Manager [35]

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So I believe that there are no further questions. So thank you very much for participating in our quarterly conference call. Please do not hesitate in contacting our Investor Relations department for any further inquiries you may have. Good morning to all, and have a nice day.