Cablevisión Holding S.A. (CVH) Earnings Call Transcript & Summary

Good morning, and welcome to Cablevision Holdings conference call. My name is Anthony, I'll be your conference operator today. [Operator Instructions] Today, we will discuss Cablevision Holdings' full year and last quarter 2021 results. This call is for investors and analysts only, therefore, questions from the media will not be taken at this time. However, if you are a member of the media and have questions, please contact Fig Corporate Communications following the call. We are having technical issues with the presentation. So to follow along, please go to the CVH Investor Relations site while listening to the speech from the current website. I will now introduce our speakers, Mrs. Samantha Olivieri, Investor Relations Officer; and Ms. Valentina Lopez, Senior Analyst. Additionally, Mr. Sebastian Bardengo, Executive Director and Chairman, will also be available for today's Q&A session. The team will be discussing the results as per the earnings release distributed last Thursday, March 10. If you have not received the report or need any assistance on today's call, please contact Fig Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at (5411) 4309-3417. CVH has also posted a webcast presentation that can be found at www.cablevisionholding.com/investors. Comments made by the management may contain forward-looking statements about Cablevision Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevision Holdings' actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact and duration of the COVID-19 pandemic, new or ongoing industry and economic regulations, possible changes in demand for Cablevision Holdings products and services and the effects of more general factors such as changes in the general market, economy or in regulatory conditions. We ask that you refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Anthony. Good morning, everyone, and thank you for joining us. We're sorry for the technical issues. You may download the presentation from our IR website and also from the webcast website. We have also sent the presentation through our mailing list. Today's call will begin with a discussion of recent events, then move forward to a brief macro overview into the company's income statements and operating results, followed by a review of the financial position. Before discussing our results for the quarter, let me share with you some highlights for the period on Slide 4. We ended the year with a positive net income. Net income attributable to equity shareholders amounted to ARS 3.7 billion. We collected dividends in-kind from our subsidiaries for an equivalent of approximately $78 million. We applied the bonds collected to pay dividends in-kind to our shareholders, resulting in a gross dividend equivalent to approximately ARS 83 per share and a gross dividend of $0.466 per GDR. We maintained a healthy cash position with most of our liquidity in U.S. dollar accounts. Finally, the Supreme Court rejected CNV's direct appeal confirming that CVH's obligation to conduct a tender offer as a result of the change of control in Telecom terminated. Please move to Slide 5. On February 17, the Argentine Supreme Court dismissed the direct appeal filed by the CNV against the resolution rendered by the Chamber [ V ] of the Federal Court of Appeals on administrative litigation matters, which confirmed that the company is not reached by the obligation to conduct the mandatory tender -- public tender offer of shares of Telecom Argentina pursuant to the terms set forth in Article 32, Paragraph K of the CNV Resolution 779/'18, ordered the CNV to deem the proceedings that were timely initiated, concluded and informed the company that it must cease to continue the proceedings initiated with respect to the mandatory public tender offer. Pursuant to said resolution, CVH will adopt all measures inked as complying with the judgment in due course. Now, we will continue with an update of the regulatory framework, then we will move on to a brief macro overview and to the company's operating results, followed by a review of the financial position. Let's move to Page 6 where you will see a summary of the latest regulatory decisions by the Argentine government. The Argentine government issued the Decree 690/2020, which was later confirmed by Congress, declaring Mobile, Fixed Voice, Broadband and Pay TV as public essential services and freezing their prices until the end of 2020, while instating ENACOM as the regulatory agency in charge of enforcing the decree and regulating the industry prices. In May 2021, the second chamber of the Federal Court of Appeals on Administrative Litigation Matters granted Telecom a preliminary injunction, suspending the effects of sections 1 through 6 of Decree 690/20 and of ENACOM Resolutions number 1466/2020 and 1467/2020 and 204/21. On June 18, 2021, the second chamber of Federal Court of Appeals and Administrative Litigation Matters results by majority to reject the extraordinary appeals filed by the National Government and ENACOM against the injunction granted in favor of Telecom. In October 2021, the same court extended the injunction granted in favor of Telecom for an additional period of 6 months. As a consequence of such injunction, Telecom may manage the pricing policy of its services as before the Decree 690/2020. Having gone through the discussion of the regulatory framework, let me pass the call to Valentina.

Thank you, Samantha. I will continue with the macro overview. Let's move on Slide 7. As we discussed in our previous call, the Argentine economy is going through a deep crisis with no precedence, worsened by the COVID-19 pandemic which has caused, among other effects, the highest fiscal deficit in the last decade and a significant mandatory overtime that had [ floored ] for inflation in 2021 and 2022. In this complex environment, a second wave of COVID-19 took place in 2021, and though it is now overcome, new variant appeared by the end of the year. As a result, Argentina faced the largest surge in cases since the beginning of the pandemic, although the number of deaths and hospitalizations were under control. Thus, a low impact on the economic activity is expected. Moreover, the mid-term elections were held in November of 2021, and from a macroeconomic and financial perspective, its results have weakened the government's position moving forward. Since the current administration lost quorum in the semi, which means that it will depend on more agreements with the opposition to tackle the economic imbalances that the country faces. In addition, the cost associated with the required macroeconomic adjustment needed to address the prevailing imbalances will likely be greater, given the negotiations with the IMF. Regarding the economic activity, GDP is expected to close the fourth quarter of 2021 with an increase of 1.5% as compared to the previous quarter, and up 8.1% on an annual basis, registering a recovery after the plunge of 2020 and reaching pre-pandemic levels. For 2022, a normalization of the economic activity growth path is expected, increasing around 4%. It is worth noting that even though the government is tightening price controls and reinforcing its intervention on the FX market as the main way to anchor inflation, prices keep accelerating at a higher-than-expected rate, increasing, on average, more than salaries, regulated tariffs and official FX rate. At the end of December of 2021, inflation was 50.9% on an annual basis, one of the highest rates registered in the last 30 years, and no meaningful change is expected going forward. Regarding the current account balance as we can see in the last graph, Argentina has registered another period of the current account surplus and is expected to reach a surplus of 1% of GDP by the end of the year. On the fiscal front, primary fiscal accounts had a positive performance during the period mainly boosted by [ expert's view to ] revenues, wealth tax collection, and lower COVID-related expenditures, partially offset by an acceleration of the public spending in the second half of the year. 2021 is expected to close accounting a primary fiscal deficit of 3% in terms of GDP. For 2022, a lower fiscal deficit is expected on one hand, as part of the agreement with IMF, which requires a fiscal adjustment path, and on the other hand, due to lower COVID-related expenses. Lastly, it is important to mention that the central bank gross reserves remained weak, currently accounting around $39.6 billion. But as we can see in the last graph of the slide, the debt profile considered in the new agreement with the IMF could ease the burden of debt maturities for the coming years. Summing up, we expect the Argentine economy to continue showing high levels of difficulties worsened by the tensions in the geopolitical front, mainly due to the conflict between Russia and Ukraine. We still believe that the new agreement with IMF and a macroeconomic program could contribute to achieve a lower economic uncertainty. Now I will pass the call back to Samantha.

Thank you, Valentina. I was just informed that the technical issues with the presentation are solved, so you may refresh the webcast, and you should see the presentation there. We will now continue with the CVH key financials. Slide 9 shows the highlights for 2021. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Commission Nationale de Valores, CNV, which establishes the re-expression of figures must be applied to the annual financial statements for intermediate and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the 2021 year include the effects of the adoption of inflationary accounting in accordance with the International Accounting Standard 29. For comparative purposes, the results were stated by inflation corresponding to December 2020 contained the effect of the year-over-year inflation as of December 2021, which amounted to 50.9%. In this presentation, we included some figures and historical values for the sake of clarity. CVH owns 39.08% stake in Telecom and its controlling shareholder. It consolidated 100% of its operations. In constant currency, revenues for the 2021 period dropped 6.5% from ARS 455.2 million to ARS 425.5 billion, mainly driven by lower service revenues, partially offset by higher equipment sales revenues. EBITDA reached approximately ARS 132.5 billion in constant currency, an increase of -- 8.5% decrease compared to 2020, driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 34% to 31.1%. EBITDA in nominal pesos amounted to ARS 113.7 billion, 29% higher than nominal EBITDA for 2020, while inflation for the same period was approximately 50.9%. Net income totaled ARS 10,252 million from negative ARS 8,866 million reported during 2020. The increase in net income is mainly the result of positive financial results versus negative figures in 2020, driven by FX differences as per International Accounting Standard 29, partially offset by lower EBIT and higher income tax as a result of the increase of the tax rate passed by Congress in June from 25% to up to 35%. The FX lag prevented the impact of losses and results due to the revaluation of debt in dollars. The equity shareholders' net income for the period amounted to ARS 3,698 million and is mainly the result of CVH's stake in Telecom and positive financial results from holding a bond received as dividend at CVH level. Now, let's continue on Slide 10 for a discussion of the operating results for the fourth quarter of 2021. Revenues in the fourth quarter decreased by 2.6%, albeit price increases for our services keeping us with a high level of inflation the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal terms increased 47% while inflation for the same period was approximately 50.9%. The main source of our revenues is our fixed infrastructure, broadband, Pay TV and fixed telephony and data services amounted to 53.9% of the total, while mobile service participation stood at 37.9%. EBITDA increased by 41% year-on-year in nominal terms, representing an EBITDA margin of 27.6% while EBITDA margin in real terms decreased to 26.9%. The net income for the period attributable to the equity shareholders was ARS 3,137 million in constant pesos mainly as a result of CVH's participation in Telecom's net income. Now let's move on to Slide 11. Mobile revenues represented approximately 37.9% of our revenues and increased 4.7% in real terms when comparing fourth quarter '21 versus fourth quarter '20. The [indiscernible] Argentina clients increased 9.2% to 20.1 million and postpaid clients amounted to 41% of total mobile clients. Mobile internet users increased, reaching an average of more than 4.2 gigabytes per user per month in 2021. Thanks to the CapEx deployment, Telecom has been able to increase the number of its 4G subscribers, which has been the main driver of data traffic increase. In Argentina, ARPU restated in constant currency, decreased by 6.3% to ARS 617 in 2021, and monthly churn showed a significant improvement, decreasing to 1.1% from 2.2% in 2020. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile internet. Since the rollout of the strategic CapEx plan and convergent offer, the company has turned around its trend of negative portability net addition in Argentina, and has been increasing the number of subs over the last 4 years. Please turn to Slide 12. Revenues for fixed services, including broadband, cable TV and fixed telephony and data services decreased by 7.1% in real terms. The broadband business has been performed well despite the tough macroeconomic environment. The number of subscribers increased 2.4% to 4,247, 5,000 and monthly churn increased to 1.5%. ARPU in real terms decreased to approximately ARS 1,727.1 with prices frozen from May to December 2020. Price increases in January, June and September 2021, and higher internet speeds sold to our customer base were not enough to compensate the inflation. It should also be noted that due to our cross-selling strategy, fixed products have been offered with some discounts to encourage the profitable mobile portability. Total convergent unique customers increased to 2.1 million from 1.9 million year-over-year, and 49% of broadband customers have a mobile bundle. Around 70% of the 4.2 million broadband customers reached in fourth quarter '21 subscribe to services with speeds of 50 megabytes or higher, a marked improvement from 2020 with the correlation in ARPU especially during the second half of the year. Moving to the cable TV subscribers. The customer base remained stable at 3.6 million, showing a slight increase year-over-year. Furthermore, Flow unique customers achieved 1.1 million, a 13.8% increase from figures observed over a year ago. During the last 12 months, Flow, through its Flow App version, has continued to expand its penetration in areas where Personal has a great presence and to increase its entertainment offer through agreements with different platforms such as Disney and Star+. This has allowed an increase in the capture of cable TV subscribers in regions where the company reaches through its XDSL and fiber-to-the-home network. ARPU in real terms decreased by 9.7% to ARS 1,883.2 during 2021, and market churn increased to 1.1%. Please turn to Slide 13. The company has been trying to offset the impact of inflation on revenues and costs, but price increases were suspended in 2020 by a series of government decrease. Year-over-year inflation as December 31, 2021, amounted to 50.9%, as we mentioned before. As of September 2021, our subsidiary telecom has made the following adjustments to the prices of its services. Mobile prices were increased by 15% to 16%. Pay TV prices increased by 13%, Premium services increased by 15%. Broadband prices were increased 13%. Prices of fixed voice basic services were increased by 16%. These increases have resulted in higher ARPU and nominal terms across all services, as shown in Exhibit figures 19 to 22. The nominal price increases were close to inflation for 2021, but weren't enough to offset it completely, thus resulting in lower revenues when measured in constant pesos. The company will continue to monitor its cost structure, competitive environment and client behavior and household income in order to decide on future price increases to help compensate for inflation and maintain sustainability. Let's move to the next slide for a discussion of cost structure before we discuss quarter-over-quarter EBITDA performance. Amongst the most significant operating costs and expenses are salaries, fees for services, maintenance, materials and supply costs, tax and fees with the regulatory authority, and programming and content costs. On Slide 15, we show the performance of EBITDA and the behavior of the different components of revenues and costs. The company continues with its efforts to expand efficiencies and has shown some positive results despite a challenging economic context. Operating costs, excluding cost of equipment and handsets, decreased in real terms 0.3%, and bad debt expenses showed a significant reduction, representing 2% of total revenues in fourth quarter 2021 versus 2.9% in fourth quarter 2020, thanks to actions taken during the last year. And operating costs in general increased below inflation rate, resulting in cost reductions in real terms. In turn, salaries increased above inflation, reflecting agreements reached with the different unions. As a result, operating costs decreased 0.2% in real terms, and driven by the reduction in revenues, EBITDA decreased by 8.5% in real terms, while margin contracted to 26.9%. Next slide, please. In fourth quarter '21, CapEx as a percentage of revenues was 29.6%, lower than the same period of the previous years. Technical CapEx was mainly allocated to network and technology and customer premise equipment or CPE. The balance was allocated to our international operations in Paraguay and Uruguay. During the fourth quarter of '21, 92 new mobile sites were deployed and more than 700 existing sites were upgraded. Fiber-to-the-home network was expanded over 3,400 new blocks. The CapEx program will continue evolving according to Argentina's economic conditions, network performance and customers' requirements. Going to the debt financial position, as per Slide 18. As of December 2021, we have reported a total financial debt of ARS 266.9 billion and net debt of ARS 234.3 billion, equivalent to $2.3 billion. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 68.2% is dollar-denominated, 26.1% is in Argentine pesos, including dollar-linked local emissions, and the rest is in [indiscernible] and renminbi. Our U.S. dollar cost of debt is approximately 6.5%. Telecom has done viability management during 2021 as it had in 2020, and refinanced its loans with IDB and IFC in December 2021, extending the 2022 and 2023 maturities to new [indiscernible] ending 2024 and 2027. 2022 and 2023 debt maturities are very manageable, with almost 35% of the debt in those years being denominated in pesos. Due to international capital markets conditions, local market access is expected for any important financing need during the year. Net debt to adjusted EBITDA coverage ratio as of the end of December '21 was 1.8x. That concludes our comments. We are now ready to take your questions. Anthony?

[Operator Instructions]

This is Valentina's last webcast presentation with the company. On behalf of CVH, I'd like to express our gratitude for the professionalism with which she has fulfilled her role, and wish her the best in her new career path. I thank you all for your interest in CVH. Should you have any questions, do not hesitate to contact our IR team. I hope -- I look forward to meeting you again to discuss the results for the first quarter of 2022.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.