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

Good morning, and welcome to the Cablevisión Holdings Conference Call. My name is Dave, and I will be your conference operator. [Operator Instructions] Today, we will discuss Cablevisión Holdings First Quarter 2023 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 a question, please contact the FIG Corporation Communications following the call. I would now like to introduce our speakers: Mrs. Samantha Olivieri, Head of Investor Relations; and [ Julian Pais ], 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 Wednesday, May 10. If you have not received the report or need any assistance during today's call, please contact FIG Corporation 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.cablevisonholding.com/investors. Comments made by management may contain forward-looking statements about Cablevisión Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties that can 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, Dave. Good morning, everyone, and thank you for joining us. 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. Having gone through the agenda for today's webcast, I will now pass the call to [ Julian ] for the macro overview.

Thank you, Samantha. Please move to Slide 4. Argentina's economic performance during the first quarter of 2023 followed the trend of the previous year with the acceleration of the inflation rates and the gap between the official and financial exchange rates continuing to increase now close to 100%. In the first 3 years of the year -- 3 months of the year, the inflation index surpassed the 3 digit mark, reaching 104.3% year-over-year, while the number for the year-over-year inflation of March 2022 was 55%. This acceleration, the distortion of relative prices and the gap in the official and financial exchange rates are symptoms of the economic imbalance, while the root cause of the problem lays with the worsening of the Central Bank's financials, which present almost new net reserves. The Central Bank's reserve position is being challenged by the effects of the severe drought affecting agricultural exports. The unprecedented drought, along with the difficulties to continue increasing imports, commercial debt at the late import payments, currently amounted to $12.6 billion and the farmers' reluctancy to sell their production as a consequence of a dedicated economic context affected the Central Bank's capacity of generating net reserves and managed to get in the negative terrain, further difficulty in the compliance of the goals set by the IMF. Regarding the extended fund facility agreement with the IMF, there is a revision ongoing with the objective of potentially advancing the disbursements to be made on the second half of 2023 into the first half of 2023 of $10.7 billion to temporarily ease the pressures on the net reserves, which will help reduce the risk of a financial accident before the primary elections. However, as long as the trade surplus remains small or even in negative terrain, the transition into the next administration after October's election will prove challenging. Finally, projections for 2023 are again being revised downwards, a noticeable deceleration of activity to negative values around 4% instead of no as the projections showed at the start of the year and an inflation regime close to 130% for the entire year. Now I will pass the call back to Samantha.

Thank you, Julian. We will now continue with CVH key financials. Slide 6 shows the highlights for the first quarter of 2023. The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Argentine Securities Commission, 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 first quarter of 2023 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 March 2022 contain the effect of the year-over-year inflation as of March 2023, which amounted to 104.3%. In this presentation, we included some figures and historical values for the sake of clarity. CVH owns 39.08% stake in TA and as controlling shareholder of Telecom Argentina, it consolidates 100% of its operations. In constant currency, revenues for the first quarter '23 dropped 10.4% from ARS 239.8 billion to ARS 214.8 billion, mainly driven by lower service revenues. Our base Price increases for our services, keeping up with the high level of inflation in the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal terms increased 81%, while inflation for the same period was approximately 104.3%. The main source of our revenues is our fixed infrastructure. Broadband, pay TV and fixed telephony and data services amounted to 51.9% of the total. Mobile service participation increased, reaching 40.8% from 38.7% in first quarter '22. EBITDA increased by 55% year-on-year in nominal terms, representing an EBITDA margin of 30.7%, while EBITDA margin in real terms decreased to 30.2%. Net income totaled ARS 28,118 million from ARS 48,512 million reported during first quarter '22. The decrease in net income is mainly the result of lower positive net financial results and lower EBITDA, partially offset by lower depreciation and amortizations and higher positive income tax, including the effect of applying the deferred income tax method. Although FX still lagged vis-a-vis inflation in this quarter presenting the impact of losses in results due to the revaluation of the debt in dollars, as has been occurring in previous quarters, the variation of the FX rate came closer to the variation of the CPI index for the period, resulting in lower positive net financial results. The equity shareholders' net income for the period amounted to ARS 10,545 million and is mainly the result of CVH's stake in Telecom. Now let's move on to Slide 7. Mobile revenues represented approximately 40.8% of our revenues and decreased 5.5% in real terms when comparing first quarter '23 versus first quarter '22. Personal, Argentina clients increased 1.6% to 20.5 million, with an increase in the proportion of postpaid clients, which amounted to 44 -- 42% of total mobile clients. Mobile Internet usage increased, reaching an average of 5.6 gigabytes per user per month in the first quarter of 2023. 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 6.2% to ARS 1,307.4 in first quarter '23, and monthly churn decreased to 1.7% from 2.3% in first quarter '22. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile Internet. Currently, 49% 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 success over the last 5 years. Telecom's CapEx deployment has also allowed it to obtain the award of the fastest 4G network in Argentina from Ookla at the 2023 Mobile World Congress in Barcelona. Please turn to Slide 8. Revenues for fixed services, including broadband, cable TV and fixed telephony and data services, decreased by 13.5% in real terms, mainly driven by the challenging inflationary dynamics. Legacy copper fixed voice services continue to experience a reduction in accesses, partially offset by an increase in IP telephony lines. Broadband subscribers decreased 3.7% to 4.1 million, while monthly churn increased to 1.7% in first quarter '23 from 1.5% in first quarter '22. Nonetheless, there is a growth in the fiber-to-the-home segment resulting in an increase of average speeds. 81% of our customers have access with speeds of 100 megabytes or higher versus 37% in 2021. ARPU in real terms decreased to approximately ARS 3,641. Price increases during 2022 and January and March 2023 and higher internet speeds sold to our customer base were not enough to offset the interannual inflation. It should also be noted that due to our cross-selling strategy, 6 products have been offered with some discounts to encourage positive mobile affordability. Moving to the cable TV subscribers. The customer base decreased to 3.4 million, while flow unique customers achieved 1.3 million, a 9.7% increase from figures of the year before. Through its content proposal as a content aggregator, flow includes not only linear TV series, on-demand movies, documentary central productions, but also music, gaming and exclusive events. In addition, Telecom continued activating the ISDBT digitalization service solution to its analogical customers, which allows clients to connect to a digital service from the traditional cable connection without a decoder. ARPU in real terms decreased by 13.5% to ARS 3,728.30 during first quarter '23, a monthly churn increased to 8 -- 1.8%. Please turn to Slide 9. 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 a regulatory agency in charge of enforcing the degree 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 effects of several sections of the decree, which has been accepted several times, and it's currently in effect. Although we feel that 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 services as before the Decree 690/2020. The company has been trying to offset the inflation impact on revenues and costs. But with price increases suspended in 2020 and the increasingly high inflation dynamic of the past 2 years, recovering terrain is a challenge. Year-over-year inflation as of March 31, 2023 amounted, as we said before, to 104.3%, while inflation for the first quarter of 2023 amounted to 21.7%. During 2022, given the increasing 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, increasing prices twice during the first quarter of the year, which has allowed it to close the gap between inflation and ARPU during the quarter. For April and May 2023, the company has announced the following price increases. Broadband prices increased by 5% in May. Mobile prices were increased by 3% in April and up to 8% for postpaid and 5% for prepaid services in May. Pay TV prices for TV subscriptions were increased 5% in May, while additional services were increased up to 7%. Prices of fixed voice basic services were increased by 5% in May. These price increases have resulted in higher ARPU in nominal terms across all services as shown in Exhibits 19 to 22. The nominal price increases were not enough to offset the interannual inflation of 104.3% year-over-year, thus resulting in lower revenues when measured in constant pesos versus the first quarter '22 but remained at similar levels in real terms as the previous quarter, fourth quarter of '22. The company will continue to monitor its cost structure, competitive environment, 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. Among the most significant operating costs and expenses are salaries, fee for services, maintenance materials and supply costs, taxes and fees for the 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 equipment and handsets, decreased in real terms 3.2%. Most of the company's cost components, except for salaries decreased in real terms, reflecting efficiencies. Total operating cost decreased 4.4% in real terms and driven by the reduction in revenues. EBITDA decreased by 21.8% in real terms on margin contracted to 30.2%. Next slide, please. In first quarter '23, investments as a percentage of revenues resulted in 16.1% or 11.8% before rights-of-use from leases, a similar level as the same period of the previous year. Telecom's investment level was influenced by tighter import restrictions in first quarter '23. CapEx plan is flexible, and the company has been investing above the global average ratio of CapEx to revenues during the previous year in order to achieve its goals in terms of network performance and coverage, which is currently strong. Technical CapEx was mainly allocated to network and technology and customer premises equipment, or CPE. The balance was allocated to our international operations in Paraguay and Uruguay. During the first quarter of 2023, the company continued with the deployment and upgrade of existing sites and expansion of the fiber-to-the-home network, including the overlay over the HFC network. Telecom has also pioneered the 5 key deployment in Argentina. It currently has 194 5G sites, most under the DSS technology. Argentina's government is working to auction 5G spectrum frequencies during 2023. The CapEx program will continue evolving according to Argentina's economic condition, network performance and customers' requirements. Going to the debt financial position as per Slide 14. As of March 2023, we have reported a total financial debt of ARS 569.9 billion, a net debt of ARS 476.1 billion, equivalent to USD 2.3 billion 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 59% is dollar-denominated, 33% is in Argentine pesos, including dollar-linked local emissions, and the rest is in guyanese and renminbi. Our average U.S. dollar cost of debt is approximately 7%. From 2023 to 2026, debt maturities remain manageable within the range of $500 million and $600 million each year. And under current Central Bank regulations, Telecom has access to the FX market to attend its maturity. 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 markets for any future potential financing needs. Net debt to adjusted EBITDA coverage ratio as of the end of March 2023 was 2.1x. Now please move to the next slide, where we review the company's separate financial position and Telecom's dividend payment. As of March 2023, CVH had a cash and equivalent balance of ARS 2 billion, equivalent to USD 9.7 million, of which USD 9 million are in U.S. dollar-denominated accounts. On May 3, 2023, Telecom's Board, by powers delegated at the Annual Shareholders' Meeting, approved a dividend in kind for a total market value of ARS 47.7 billion or approximately $110 million at a ratio of 0.1909 2030 global bonds for each share of telecom. CVH, through its interest in Telecom, received 160.7 million 2030 global bonds with a market value of approximately ARS 18.6 billion or $43 million. In turn, CVH's Board, exercising the powers delegated at the Annual Shareholders' Meeting, approved a dividend in kind for the total received from Telecom, resulting in a market value of ARS 104.58 per share and a dividend yield of approximately 10%.CVH fully repaid its debt in 2019 and maintains a solid financial position, allowing us to fully pass through dividends collected from our subsidiary every year since. That concludes our comments. We are now ready to take your questions. Dave?

[Operator Instructions] And 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, Dave. Thank you all for your participation today. We look forward to meeting you for our second quarter 2023 results. If 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.