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

Good morning, and welcome to Cablevisión Holding's conference call. Today, the team will discuss fourth quarter and full year 2024 results as per the earnings release distributed last Thursday, February 27, 2025. My name is Nick, and I will be your conference operator for today. 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. Comments made by the company may contain forward-looking statements about Cablevisión Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevisión Holding's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the new impact of new or ongoing industry and economic regulations, possible changes in demand for Cablevisión Holding's 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. 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) 4309-3417. CVH has also posted the webcast presentation that can be found at www.cablevisionholdings.com/investors. [Operator Instructions] I will now introduce our speakers. Mrs. Samantha Olivieri, Head of Investor Relations; and Julian Brescia, Senior Analyst. For the Q&A session, they will be joined by Mr. Ignacio Driollet, CVH's Executive Director and Chairman. It is now my pleasure to turn the call over to Mrs.Samantha Olivieri. Please go ahead.

Thank you, Nick. 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. After 13 months in office, the government has achieved better-than-expected results despite the inevitable short-term costs associated with drastic macroeconomic reordering. This reordering was based on a stabilization program with three key anchors: a fiscal anchor and exchange rate anchor and a monetary anchor. For the first time in over a decade, a fiscal surplus was achieved. The reversal of the recurrent fiscal imbalance is basically explained by the unprecedented cut in public spending made during the year of close to 30% and equivalent to almost 4 points of GDP. As a result, the monetary issuance derived from the Central Bank assistance to the Treasury was eliminated. On the exchange rate front, within the framework of currency controls, the government stabilized the currency through a growing-back policy, initially settle at around a 2% month adjustment. As inflation declined and the program gained more credibility, the [ growth ] impact was recently reduced to 1% per month. The government also advanced in adjusting relative prices, particularly for regulated services. Regarding inflation, there was a significant progress in slowing down the speed of price increases. The CPI Index closed 2024 with variations of 2.7% monthly and 118% on a year basis, well below the 25% and 211% of 2023. This inflation dynamic allowed monetary policy rates to be lower from [ 133% ] to 29% nominal annual rate, while the interest rates remain above the pace of devaluation to mitigate exchange rate and inflationary pressures. On its part, the Central Bank has focused on improving the balance sheet by eliminating [ remuneration ] liabilities and [indiscernible] gross reserves. The tax program led to nearly 53 million in private [indiscernible] deposits, a 77% year-over-year increase. The strong agriculture and energy exports and corporate bonds, which were particularly driven by the [remunerated ] liabilities and gradually releasing gross reserves. The tax program led to nearly [ $33 billion ] in private USD deposits, a 77% year-over-year increase. The strong agriculture and energy exports and corporate bonds, which were particularly driven by the [ rigid ] tax incentive for large investors, boosted gross reserves from $21 billion to close $28.5 billion. In addition, market confidence in economic program has shown signs of improvement. Since the beginning of the new administration, the country's risk index has dropped to levels of around 700 to 800 basis points, the lowest in the last 5 years. This is an encouraging indicator, given the need to reaccess international debt markets in order to strengthen the Central Bank's fragile reserve position. The stabilization program had a negative impact on activity and consumption. The GDP of 2024 averaged a decline of around 1.8% below expectations. The decline concentrated in the early months of 2024, after which a floor was reached and signs of improvement began to emerge. The monthly economic activity indicator has shown consecutive increases, surpassing preordering program levels. The best performing sectors in 2024 were agriculture and energy, while the lagging sectors were industry, construction and retail. Regarding perspective, it is worth mentioning that even despite the advancement achieved in the macro situation, it has yet to prove itself sustainable in time. The reordering incentive in the fiscal balance has generated positive stabilization signals in the economy. However, the challenges to be faced are several. Amounts which are the degree of the adaptation to the new exchange policy of the different economic sectors, the dynamic of the external front and in particular, the need to accumulate Central Bank reserves and the final exchange and monetary regime to be adopted once the still-in-place currency controls are lifted. Consolidating the fiscal balance in an election year in order to keep advancing in the deflationary process and setting the basis of a sustainable growth path will be this administration's main challenge for its second year in office. This concludes our macroeconomic analysis. I will now pass the call back to Samantha. Thank you.

Thank you, Julian. We will now continue with CVH key financials. Slide 6 shows some highlights for 2024. During this year, we collected dividends in kind from Telecom for an equivalent to approximately ARS 45.2 billion or USD 39.1 million. While some FX market restrictions were still in place, after a 90-day period hold, we successfully applied the bonds collected to pay dividends in kind to our shareholders during February 2025, resulting in a gross dividend equivalent to approximately ARS 246.49 per share or a gross dividend of USD 0.20602 per GDR. We maintained a healthy cash position with most of the liquidity at CVH level in U.S. dollar accounts. After a challenging beginning of the year, with soaring inflation after the devaluation of the Argentine peso in December 2023, revenues of our subsidiary, Telecom, decreased 7.7% in constant pesos year-over-year, an improvement from the last 2 years, while year-over-year revenue in constant pesos performance for the quarter -- fourth quarter, I'm sorry, was positive for the first time. Thanks to cost management efforts and the effective pricing policy carried out by Telecom, EBITDA margin remained stable. Slide 7 shows the key financials for 2024. The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Comisión Nacional 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 2024 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results were stated by inflation corresponding to December 2023, contain the effect of year-over-year inflation as of December 2024, which amounted to 117.8%. In this presentation, we included some figures and historical values for the sake of clarity. CVH owns 39.08% stake in [ TEO ]. And as controlling shareholder of Telecom Argentina, it consolidates 100% of its operation. Revenues in nominal terms increased [ 159% ]. In constant currency, revenues for 2024 dropped 7.7% from ARS 4,484 billion to ARS 4,137.6 billion, mainly driven by lower service revenues. Even in a challenging macro scenario, particularly during the first quarter of the year, an effective pricing policy and the decrease in inflation as the year progressed allows the company to close the gap to inflation versus previous years. EBITDA reached approximately ARS 1,155.5 billion in constant currency, an 8.1% decrease compared to 2023, driven by lower revenues, partially offset by lower operating costs. EBITDA margin reached 27.9% compared to 28.1% in 2023. It is worth mentioning that as part of its efforts to gain efficiency and thanks to the digitalization of processes, Telecom has accelerated the rightsizing of its structure, particularly in the second half of 2024. EBITDA margin for 2024, excluding the effect of severance payments, was 31.1% versus 29.4% for the same period of the previous year. EBITDA in nominal pesos amounted to ARS 1,005.3 billion, 207% higher than nominal EBITDA for 2023, while average inflation for the same period was approximately 219.9%. And end-of-period, year-over-year inflation amounted to 117.8%. Net income resulted in a profit of ARS 1,024.7 billion from a net loss of ARS 537.5 billion reported during 2023. This increase in net income is mainly explained by the financial net results as the variation of the parity between the official exchange rate and the U.S. dollar was lower than the inflation for the period, resulting in a positive foreign exchange results, partially offset by income tax. The equity shareholders' net income for the period amounted to ARS 387.1 billion and is mainly the result of CVH stake in Telecom. Now let's continue on Slide 8 for a discussion of the operating results for the fourth quarter of 2024. Revenues in the fourth quarter of 2024 increased by 1.3%. Price increases for our services and the lower inflation have had positive results in terms of revenues, even with commercial discounts granted according to customer retention policy for some of the services. Revenues in nominal pesos increased 159%, higher than the average inflation rate for the period, resulting in higher revenues when measured in constant basis. The main source of our revenues is our fixed infrastructure. Broadband, pay TV and fixed telephony and data services amounted to 51.2% of the total. Mobile service participation increased slightly, reaching 40.9% from 40.3% in 2023, driven by the decrease in share of pay TV revenues over total revenue. EBITDA increased by 145% year-on-year in nominal terms, representing an EBITDA margin of 26.4%; while EBITDA in real terms increased 0.3% and margin decreased to 25.5%, lower than the 25.7% margin for the fourth quarter of '23. As we mentioned, Telecom has accelerated the rightsizing of its structure, particularly in the last 2 quarters. EBITDA margin, excluding the effect of severance payments, was 29.2% in fourth quarter '24 versus 27.7% for the same period of the previous year. The net loss for the period attributable to equity shareholders was ARS 4,198 million in constant pesos, mainly as a result of the reflection in the fourth quarter of '24 of the change in criteria established by the fiscal authority regarding the basis for the calculation of the personal asset tax, which was reflected in CVH's financials this quarter, partially offset by positive financial results from the holding of bonds selected from Telecom's in-kind dividend payment. Now let's move on to Slide 9. Mobile revenues represented approximately 40.9% of our revenues and increased 5.2% in real terms when comparing fourth quarter '24 versus fourth quarter '23, mainly explained by higher ARPU in real terms in the quarter, thanks to the decrease in year-over-year inflation and an increase in costs. Personal Argentina clients increased 3% to 21.6 million, of which postpaid clients amounted to 38%. Mobile Internet usage increased, reaching an average of 6.4 gigabytes per user per month in 2024. In Argentina, in a highly competitive environment and influenced by an increase in prepaid clients which have lower ARPU, ARPU restated in constant currency decreased by 10.4% to ARS 5,960 in the full year 2024, although ARPU for the last quarter of the year increased in real terms versus 2023. Monthly churn decreased to 1.4% from 1.8% in 2023. 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 subs over the last 6 years, even in a highly competitive market. Telecom's CapEx deployment has also allowed it to obtain the award for the Fastest 4G Network in Argentina from Ookla at the 2024 Mobile World Congress in Barcelona for a fifth year in a row. Please turn to Slide 10. Revenues for fixed services, including broadband cable TV and fixed telephony and data services; increased by 0.4% in real terms, mainly driven by higher Internet service revenues, partially offset by cable TV and fixed telephony and data services revenue related to the challenging inflationary dynamic and change in consumer habits affecting pay TV and a reduction in fixed telephony clients. Legacy copper fixed voice service continues experiencing a reduction in accesses, partially offset by an increase in IP telephony lines. Data services offset the decrease in legacy telephony revenue. On the B2B services, Telecom's strategy is to position itself as an integrated service provider for large customers by offering convergent ICT solutions, including fixed and mobile data, Internet multimedia data center and application services through sales, consulting, management and specialized and targeted post-sale customer service. Internet services revenues increased 14.5% year-over-year in real term. Broadband subscribers decreased slightly 1.1% to 4 million, while monthly churn was 1.8%, stable as compared to the same figure of last year. Nonetheless, there is growth in the fiber-to-the-home segment, resulting in an increase in average speed. 89% of our customers have accesses with speeds of 100 megabytes or higher versus 85% in 2023. Thanks to the effective pricing policy implemented since 2023, price increases during 2023 and 2024 and higher Internet speeds sold to our customer base allows Telecom to increase broadband ARPU in real terms for the third quarter in a row. Moving to the cable TV subscribers, the customer base increased to 3.4 million, mainly explained by the success of Flow Flex, which is 100% digital with no decoder or installation needed. Flow unique customers achieved 1.5 million, a 3.8% increase from figures observed over a year ago. Through its proposal as a content integrator, Flow includes not only in linear TV series, on-demand movies, documentaries and co-productions, but also music, gaming and exclusive events. ARPU in real terms decreased by 26.3% to ARS 13,792.3 during 2024 mainly due to the challenge presented by the high installation and commercial discounts granted according to customer retention policy. Monthly churn increased to 2.1%. Please turn to Slide 11. The company has been trying to offset the impact of inflation and revenues and costs with the high inflation dynamics of the last 2 years and the stress price increases generated on the subscriber base, recovering terrain has been a challenge. Nonetheless, it is worth mentioning that the deceleration of inflation in 2024 and the effective pricing policy the company has implemented has allowed it to increase prices above inflation over the past months, resulting in higher revenues in real terms quarter-over-quarter. Year-over-year inflation as of December 31, 2024, amounted to 117.8%, while average inflation for the same period was 219.9%. During 2023, given the increasing inflation, our subsidiary, Telecom, increased prices of its services with greater frequency and has continued with this policy until September 2024, increasing prices monthly, which has allowed it to close the gap between inflation and [ ARPU ]. In parallel, it has undertaken retention actions, mainly granting discounts to its clients. As inflation stabilized during the last quarter, it increased prices in October and then again at the end of December, which impacts mostly January 2025. 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, coupled with certain discounts and promotions to retain customers following these prices in a strong competitive environment, were not enough to offset the inter -- annual inflation in mobile and pay TV, thus resulting in lower revenues when measured in constant pesos versus the year 2023, while ARPU for the broadband services increased internally for the third quarter in a row. It is also worth mentioning that in the fourth quarter 2024, mobile service revenues have increased above year-over-year inflation for the first time since the fourth quarter of 2021. 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 margins. Now let's move to Slide 12 for a review of cost structure before we discuss quarter-over-quarter EBITDA performance. Among the most significant operating cost and expenses are salaries, fees for services, maintenance, materials and supply costs and taxes and fees with the regulatory authorities. On Slide 13, we show the performance of EBITDA and the behavior of different components of revenues to cost. The company continues with its cost management efforts and have shown positive results despite the challenging economic context. Operating costs, excluding the cost of equipment enhancements, increased in real terms, 2.4%. As I mentioned before, Telecom is accelerating its rightsizing. As a consequence, severance payments increased significantly during the quarter and represented 3.7% of our revenues from 1.9% in fourth quarter '23, although the smaller headcount is reflected in lower labor cost even with the effect of severance payments. Salaries before the effect of severance payments decreased 14%. Commission and advertising includes higher advertising expenses relating to advertising campaigns for our products. Other operating expenses include the effect of the change in criteria established by the fiscal authority regarding the basis for the continuation of the [ personnel ] assets tax at CVH level, which was reflected in this quarter and partially explained year-over-year increase. In addition, it should be noted that the fourth quarter '23 included recovery of bad debt charges. Therefore, fourth quarter 2024 reflects a year-over-year increase. Although on a yearly basis, bad debt as a percentage of revenue was 2.1% below 2023 level. Total operating costs, including severance payments, increased 1.6% in real term, higher than the increase in revenues. Thus, although EBITDA increased by 0.3% in real term, margin reached 25.5%, slightly lower than the margin for the fourth quarter of '23. If we exclude the effect of severance payments, EBITDA margin was 29.2% in fourth quarter '24 versus 27.7% for the same period of the previous year. Next slide, please. It's worth mentioning that given the stabilization of the inflation, this is the first quarter with year-over-year revenue increase in real term and the fourth quarter with EBITDA margin before severance payments growth, reflecting the efficiencies achieved in terms of cost and the effective pricing policy executed to tackle inflation. Slide 15, please. In the fourth quarter '24, investments as a percentage of revenues was 21.3% or 15.9% before rights of use for leases, significantly lower than the same period of the previous year, which included the acquisition of 5G spectrum. Before considering spectrum, investments decreased 4.5% year-over-year. The CapEx plan is flexible, and the company has been investing above global average ratio of CapEx to revenues during previous years in order to achieve its goals in terms of network performance and coverage, which is currently strong. [ Segmental ] 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 last quarter, the company continued with the deployment and upgrading of existing sites and expansion of the fiber-to-the-home network, including overlay over the HFC network. Following this frequency auction in 2023, it has reached 200 5G sites by the end of the year. 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 17. As of December 2024, we have reported a total financial debt of ARS 2,878 billion and net debt of ARS 2,468.2 billion, equivalent to USD 2.4 billion. The year-over-year decrease of total debt measured in constant pesos is mainly explained by the effect of inflation being higher than the jump in the FX rate for the same period, resulting in lower debt when measured in constant pesos, partially offset by additional debt subscribed BOPREAL bonds in order to settle commercial debt generated by the restrictions to access the FX market with the past administration, net of maturities canceled during the same period. 100% of the debt is at operating levels in Telecom Argentina. Of the total debt, 50.2% is cross-border dollar denominated, 43.7% is in Argentine pesos, included dollar-linked local emissions; and the rest is in guaranis and renminbi. During the past year, Telecom has been accessing the local market for its financing needs, tackling the increase in interest rates and reducing cross-border risk. As per current Central Bank regulations, Telecom has access to the official FX market for all its financial debt maturities. In addition, during July and August, Telecom access to international markets conducting liability management transactions that have allowed it to significantly improve the maturity profile and average life of its debt, extending maturities over 2029, 2030 and 2031. Furthermore, in October, Telecom reopened its international 2031 bonds, raising an additional USD 200 million, which is applied to improve the profile of its debt. From 2025 to 2026, debt maturities remain manageable. Net debt-to-adjusted EBITDA coverage ratio as of the end of December 2024 was 2.1x, a significant improvement versus the December 2023 figure, a testament of the company's resilience to changing macroeconomic conditions. That concludes our comments. We are now ready to take your questions. Operator?

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

Thank you, Nick. Thank you all for your interest in CVH. Should you have any questions in the future, 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.