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

Good morning, and welcome to Cable Vision Holdings Conference Call. My name is Anthony, and I will be your conference operator today. [Operator Instructions] Today, we will discuss Cable Vision Holdings full year and last quarter 2022 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. I will now introduce our speakers. Mrs. Samantha Olivieri, Head of Investor Relations and [Julian Bayas], Senior Analyst. Additionally, Mr. Ignacio Driollet, 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 Friday, March 10. If you have not received the report or need any assistance during today's call, please contact FIG Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at (5411) 43-093417. CVH has also posted the webcast presentation that can be found at www.cablevisionholding.com/investors. Comments made by management may contain forward-looking statements about Cablevision Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevisión Holdings' actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact and duration of Eastern Europe conflict, new or ongoing industry and economic regulations, possible changes in demand for Cablevisión Holdings products and services and the effects of more general factors such as changes in general market, economic or in regulatory conditions. Please 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. Before we begin our presentation, I'd like to take a moment to welcome Ignacio Driollet. Ignacio took office as Chairman of CVH and member of Telecoms Board and Executive Committee. Following Sebastian Bardengo's resignation last year for personal reasons. Ignacio has a long trajectory with Grupo Clarin has been a member of the Board of Cablevision S.A. and before joining CVH was Corporate Director of Strategy at Grupo Clarin. He will certainly be a valuable addition to the company. We also wish Sebastian Bardengo success in his new endeavor. Today's call will begin with a brief macro overview and continue with a review of 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 year of 2022 on Slide 4. During 2022, we collected dividends in-kind from our subsidiaries for an equivalent of ARS 12.4 billion. We applied the bonds collected to pay dividends in-kind to our shareholders, resulting in a gross dividend equivalent to approximately ARS 64.23 per share and a gross dividend of USD 0.2116 per GDR. We maintained a healthy cash position with most of the liquidity at CVH level in U.S. dollar accounts. As a result of an impairment of goodwill asset generated by the merger of Telecom and Cablevision, we ended the year with a negative net income. Consolidated net income attributable to equity shareholders amounted to a negative ARS 100.7 billion. Having gone with the overview for 2022, I will now pass the call to Julian for the macro overview.

Thank you, Samantha. Please move to Slide 5. Argentina's economic performance during 2022 was once again constrained by a significant uncertainty generated by the fiscal imbalance, growing indebtness of the public sector, weak reserves and an acceleration of inflation rates and the gap between the official and financial exchange rates. This uncertainty was worsened by the Russian invasion of Ukraine at the end of February. The disruptions in the supply chain had a strong impact on the international prices, mainly in the food and energy industries, which resulted in a noticeable increase in the inflation rate [closely]. When we analyze 2022 at a local level, there are 2 main things to consider: the extended fund facility agreement with the IMF, International Monetary Fund, for 30 months and $44 billion and the significant decline in the trade surplus position on the external front. Although we have shifted agreed upon with the IMF of lower fiscal deficits at a primary level, lower direct assistance to the treasury by the Central Bank and the accumulation of net reserves were accomplished. The high inflation at a global level triggered doubts about the ability to comply with the program, which also revealed itself as very sensitive to external shocks. This accelerated the loss of reserves, which is difficult to reach in the goals set by the agreement and generated a disruption in the treasury access to financing vessels. In addition, a double succession of authorities in the economic cabinet in July with Silvina Batakis taking the place of Martin Guzman and led -- later being replaced by Sergio Massa, who up until then have been the President of the Chamber of Deputies, meant a change towards more restrictive policies. In 2022, the inflation index rose to close to 3 digits, twice the 2021 index to which there was no similar record since 1991. This acceleration took place with no correlation to the official exchange rate parity and with lagged relative prices such as utility tariffs, monetary base and wages and pensions adjusting below the price index. Despite the price acceleration, the GDP closed the year with an increase of around 5.5% to 6% recording 2 years of recovery. This registered impacted by a significant statistical drag clearly exhibit symptoms of deceleration in the last months of the year. The printing of pesos turned out to be more -- turned out to be significant despite the cap agreed of Treasury -- Treasury financing monetary. The monetary authorities emitted an interest from its remunerated liabilities, direct and indirect financing of the Treasury and purchase of foreign currency from the private sector, a sum close to the equivalent of $8 million. The sterilization of such a high number of pesos for which demand is continuously declining from the stock of remunerated liabilities of the Central Bank, mainly the LELIQs to end the year close to $10 billion, approximately 12% of the GDP, which represents more than twice the monetary base, more than doubled the figures of the end of 2021 and exceeds by 8.5x the amount at the beginning of the presidential mandate, end of 2019. Finally, the external front presented a significant decline in surplus positions despite registering the best terms of trade in Argentina's history. It is worth mentioning that the group commercial surplus will end the year close to $7 million, which is 53% below the $15 million of 2021. This compression is explained in part by a significant leap of energy imports, 120% more than in 2021 and paradoxically explained even with the new record that the goods exports are expected to reach close to $89 million, 13% higher than 2021. Argentina enters 2023 with no tailwind. Brazil is expected to decelerate while given the weak estimates for the harvest. China expected growth won't be taken advantage of the unprecedented drought closed economy and tends to enhance the macro imbalances in turn, questioning the strict adherence to the goals with the IMF and is the site of the negative intelligence that the coming government will face. To the traveling beginning of the year must be added the political and economic uncertainties of a year in which residential relations will take place. Product projections for 2023 are again less optimistic than official projections and are currently being revised downwards, a noticeable deceleration of activity to note or even negative in the worst case scenario is expected and explained inflationary dynamics similar to the one registered in 2022 or higher fueled in part by a growing adjustment to certain relative prices, such as utility and transfer of tariff is also expected. In this complex said -- in this context setting the continuity of current policies since guided fundamentally to the compliance of the goals with the IMF and managing the economic imbalances. Among them, the new inflationary regime close to surpass the 100% year-over-year measurement. Now I will pass the call back to Samantha.

Thank you, Julian. We will now continue with CVH key financials. Slide 7 shows the highlights for 2022. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Commission Nationale de Valores, CNV, which establishes the reexpression 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 2022 includes the effects of the adoption of inflationary accounting in accordance with International Accounting Standard 29. For comparative purposes, the results restated by inflation corresponding to December 2021 contain the effect of year-over-year inflation as of December 2022, which amounted to 94.8%. In this presentation, we included some figures in historical values for the sake of clarity. CVH owns 39.08% stake in Telecom and its controlling shareholder of Telecom Argentina, it consolidates 100% of its operations. In constant currency, revenues for 2022 dropped 12% from ARS 828.8 billion to ARS 729.2 billion, mainly driven by lower service revenues. Increasingly higher inflation is hard to fully pass through to prices for our services. EBITDA reached approximately ARS 199.8 billion in constant currency, a 22.6% decrease compared to 2021 driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 31.1% to 27.4%. EBITDA nominal pesos amounted to ARS 148.3 billion, 30% higher than nominal EBITDA for 2021 while inflation for the same period was approximately 94.8%. Net income totaled negative ARS 168.757 million from ARS 19.970 million reported during 2021. The decrease in net income is mainly the result of an impairment loss of the goodwill asset of ARS [204.744] million following a revision of the recover of value estimation of the goodwill generated by the merger between Telecom and Cablevisión in 2018, given the current macroeconomic market's environment and lower EBITDA, partially offset by lower income tax and higher net financial results. The FX lag prevented the impact of losses and results due to the revaluation of the debt in dollars as has been occurring in previous quarters. The equity shareholders' net loss for the period amounted to ARS 100.704 million and is mainly the result of CVH stake in Telecom and adjustments of the goodwill generated by the merger at CVH level. Now let's continue on Slide 8 for a discussion of the operating results for the fourth quarter. Revenues in fourth quarter '22 increased by 11.5%, albeit price increases for our services Keeping up with the high level of inflation of the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal pesos increased 70% for the quarter, while inflation for the same period was approximately 94.8%. The main source of our revenue is our fixed infrastructure. For broadband, pay TV and fixed telephony and data services amounted to 50.5% of the total, while mobile services participation stood at 41.7%. EBITDA increased by 50% year-on-year in nominal terms, representing an EBITDA margin of 24.4%, while EBITDA margin in real terms decreased to 23.6%. The net loss for the period attributable to equity shareholders was ARS 5,637 million, mainly as a result of CVH participation in Telecom's net income. Now let's move on to Slide 9. Mobile revenues represented approximately 41.7% of our revenue and decreased 6.1% in real terms when comparing fourth quarter '22 versus fourth quarter '21. Personal, Argentina clients increased 0.6% to 20.2 million with an increase in proportion of postpaid clients, which amounted to 43% of total mobile clients. Mobile Internet usage increased, reaching an average of 5.1 gigabytes per user per month in 2022. Thanks to the CapEx deployment, Telecom has been able to increase the number of its 4G subscribers. This rapid growth in subscribers that use the 4G network has been the main driver of data traffic increase. In Argentina, ARPU restated in constant currency decreased by 8.3% to ARS 1,102.6 in 2022 and monthly churn increased to 2.3% from 1.1% in 2021. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile Internet. Up to date, 52% of telecom's broadband customers have a mobile bundle. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net addition in Argentina and has been increasing the number of itself over the last 4.5 years. Telecom's CapEx deployment has also allowed it to obtain the award for the fastest 4G network in Argentina from Ookla at the 2023 Mobile World Congress in Barcelona. Please turn to Slide 10. Revenues for fixed services, including broadband, cable TV and fixed telephony and data services decreased by 17.1% in real terms mainly driven by the challenging inflationary dynamics. Broadband subscribers decreased 3.1% to 4.1 million, while monthly churn increased to 1.6% in 2022 from 1.5% in 2021. Nonetheless, there is growth in the HFC and fiber-to-the-home segment, resulting in an increase of average speed. 84% of our customers have access with speeds of 50 megabytes or higher versus 70% in 2021. ARPU in real terms decreased to approximately ARS 3,052.4. Prices increases in September 21, January, April and July 2022 and higher Internet speeds sold to our customer base were not enough to offset inflation. It should also be noted that due to our cross-selling strategy, fixed products have been offered with some discounts to encourage the positive mobile portability. Moving to cable TV subscribers. The customer base remains stable at 3.5 million, showing a slight decrease year-over-year. Furthermore, flow unit customers achieved 1.3 million, a 14.7% increase from figures observed over a year ago. During the past month, flow for its low app version has continued to expand its penetration in areas where Personal has a great presence, mainly the northern region of Argentina. This has allowed an increase in the capture of cable TV subscribers in regions in which the company reaches through its XDSL and fiber-to-the-home network. For its content proposal is a content aggregator, flow includes not only in linear TV, but series, on-demand movies, documentaries and coproductions and also music, gaming and exclusive events. In addition, as a step forward into the technological evolution of its platform, Telecom began activating its ISDBT digitalization service solutions to its analogical customers, which allows clients to connect with digital service from the traditional cable connection with the decoder -- without a decoder, I'm sorry. Furthermore, during this quarter, Telecom launched Flow Flex, a prepaid flexible pay TV service that enables clients to hire the service for a few days period on a prepaid basis. ARPU in real terms, decreased by 18% to ARS 3,006.9 during 2022 and monthly churn increased to 1.3%. Please turn to Slide 11. In August 2020, the Argentine government issued Decree 690/2020, 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. Its legality has been challenged in court by the industry in general. In 2021, Telecom was granted a preliminary injunction suspending the effect of several sections of the decree, which has been extended last time in October 2022. Although we see a final ruling regarding the underlying issue is imperative to guarantee the health of the industry, as a consequence of such injunction, Telecom can manage the pricing policy of its services as before the decree 690/2020. The company has been trying to offset the inflation impact on revenues and costs, but the price increases were suspended in 2020 and increasingly high inflation, recovering terrain is a challenge. Year-over-year inflation as of December 31, 2022, amounted to 94.8%. During 2022, given the increase in inflation, our subsidiary Telecom increased prices of its services with greater frequency, 5x for mobile and 4x for fixed services, and continues with this policy during 2023. Moreover prices were increased by 18% for postpaid and 17% for prepaid services during January this year, and the second price increase of 13% and 7% for postpaid and prepaid, respectively, is being applied as of March 2023. Broadband's prices increased up to 19% in January and March. Prices for the ex-DSL services increased by 13% and prices for the HFC and fiber-to-the-home services increased by 12%. Pay TV services for basic TV and premium were increased by up to 19% in January and up to 13% in March. Prices for fixed voice basic services were increased by up to 19% in January and up to 13% in March. These price increases have resulted in higher ARPU in nominal terms across all services as shown in Exhibit 19 to 22. The nominal price increases during 2022 were not enough to offset the Internet -- the interannual inflation thus resulting in lower revenues when measured on constant basis. 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. Now let's move to the next slide for a discussion of the cost structure before we discuss quarter-over-quarter EBITDA performance. Amongst the most significant operating costs and expenses are salaries, fee-for-service, maintenance materials and supplies costs, taxes and fees for their regulatory authority and programming content costs. On Slide 13, 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 equipments and handsets decreased in real terms by 8%. Most of the company's cost components decreased in real terms, reflecting efficiencies. Severance payments amounted to ARS 7.8 billion from ARS 3.7 billion in fourth quarter '21. As a result, operating costs decreased 7.6% in real terms and driven by a reduction in revenues, EBITDA decreased by 22.3% in real terms when margin contracted to 23.6%. Margin before the effect of severance payments was 28% from 28.8% in fourth quarter '21. Next slide, please. In fourth quarter, CapEx as a percentage of revenues was 26.5% or 21.7% before rights of use from leases, lower than the same period for the previous year. 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 2022, 131 new mobile sites were deployed and more than 400 existing sites were upgraded. The company has been focused on expanding its fiber-to-the-home network performing an overlay with the fiber-to-the-home over the HFC network and increasing its upstream capacity. Telecom has also pioneered the 5G deployment in Argentina. During the fourth quarter, it deployed 16 additional 5G DSS sites with connection speeds of up to 15 gigabytes, reaching a total of 180 sites working with TSS technology by the end of the year. Argentina's government is working to auction 5G spectrum frequencies during 2023. 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 16. As of December 2022, we have reported a total financial debt ARS 469.2 billion and net debt of ARS 419 billion, equivalent to USD 2.4 billion. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 63.8% is dollar-denominated, 28.2% is in Argentine pesos, including dollar-linked local emissions and the rest is in guyanese and renminbi. Our U.S. dollar cost of debt is approximately 7.3%. From 2023 to 2026, debt maturities remain manageable within the range of $500 million to $600 million each year. And under current Central Bank regulations, Telecom has access to the foreign exchange market to attend its maturities. The company has been changing the composition of its debt, increasing the participation of local financing, reducing cross-border risk. It expects to continue accessing the local capital end market for any future potential financing needs. Net debt to adjusted EBITDA coverage ratio as of the end of December 2022 was 2.1x. Finally, we will review the corporate reorganization process approved by the Board as per Slide 17. On March 10, we informed the public that the Board of Directors has approved a corporate reorganization process whereby VLG SAU, a wholly-owned subsidiary of the company, will be absorbed and merged into the company effective as of January 1, 2023, and which -- as of which the date the company as the surviving company will continue with the operations of VLG, generating the corresponding operational accounting and tax effects and we'll acquire title to all assets and liabilities of VLG, including registered assets, rights and obligations of VLG. Since CVH is a sole owner of VLG shares and votes, no share exchange or issuance is required at CVH level. The merger will allow us to simplify our holding in Telecom Argentina and collect any dividend directly at CVH and reduce operational costs. That concludes our comments. We are now ready to take your questions. Operator?

[Operator Instructions] It appears that we have no questions at this time. I would like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, Anthony. I thank you all in your interest in CVH. Should you have any questions, do not hesitate to contact our IR team. Have a great day.

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