Telecom Argentina S.A. ( TEO)

Q2 2011 Earnings Call

August 2, 2011 11:00 am ET


Pedro Insussarry - Head, Finance

Franco Bertone - CEO

Adrián Calaza - CFO

Solange Barthe Dennin - Manager, IR


Ricardo Cavanagh - Itaú BBA

Miguel Garcia - Deutsche Bank

Michel Morin - Morgan Stanley

Alex Garcia - Citi



Good day, everyone, and welcome to the Telecom Argentina, TEO, second quarter 2011 earnings conference call. Participating on our call today, we have Mr. Franco Bertone, Chief Executive Officer of Telecom Argentina; Mr. Adrián Calaza, Chief Financial Officer; Mr. Pedro Insussarry, Head of Finance; and Mrs. Solange Barthe Dennin, Manager of Investor Relations.

At this time, I'll turn the call over to Mr. Pedro Insussarry.

Pedro Insussarry

Good morning to everybody. On behalf of Telecom Argentina I would like to thank you for participating in this conference call. As mentioned by John our moderator, the purpose of this call is to share with you the consolidated results of Telecom Argentina and correspond to the first half of the current fiscal year 2011 ended on June 30, 2011.

We would like to remind you that for all those that have not received our press release or presentation you can call our Investor Relations office or download them from the Investor Relation section of our website at Additionally, this conference call is being broadcasted through the website feature available in sub section and can also be replayed through this same feature.

Before we continue with the conference call, I would like to go over some Safe Harbor information and other details of the call. 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 effects of public emergency law and complementary regulation, the effects of ongoing industry and economic regulation, possible changes in demand for Telecom products and services, and the effects of marginal factors such as changes in general market or economic conditions, in legislation, or in regulation.

Our press release dated August 1st, 2011, a copy of which is being included in Form 6-K report to be furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during this session. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in Slide 1 of the presentation.

As usual in our quarterly conference calls, the agenda for today as seen in Slide 2 is, first to go over general market overview, then we'll go over some business highlights, and after that we'll go over some specifics of the evolution of our financial figures. And we'll end the call with a traditional Q&A session.

I'll go over a brief macro overview as an introduction to the general operating environment. In Slide 3, we include some snapshots of the Argentina macroeconomic environment. You can note that the macro conditions are giving support to the growth of our business. During the second quarter, the Argentina economy continued growing, based in booming private consumption, yielded by high commodity prices.

The industrial production performed very well, mainly in the segments of non-durable goods and the supply for construction. On the other side, the energy sector was the main ballast in a context of high demand and supply restrains. It is worth noting that in the second half of 2011, we will have a presidential election, where private consumption and investment tend to go down.

As already mentioned, consumption remained strong promoted by low interest rates and extensive installments plans for the purchase of durable goods. Moreover, despite high inflation, consumer confidence reaches a four-year record high level, although it was stable through the recent months. Probably one of the reasons for the booming consumption is that wages are growing in a similar way to inflation, and in some cases even faster, fostering consumption.

On the fiscal front, fiscal balance remains stable, fuelled by the economic recovery, although public spending continues at record high levels, and it could suffer further increases due to additional expenditures related to the upcoming presidential elections. The trade balance was affected by growing imports and somewhat slow export growth. Capital outflows have increased in the second quarter of 2011, and will probably remain high during the election period.

In this challenging macroeconomic context for Argentina, our company continues to deliver growth, both in terms of its business and operations. And we will highlight them during this conference call. And having gone through this introduction let me pass the call to Franco Bertone, who will go over with the business highlights. Franco?

Franco Bertone

Thank you, Pedro, and good morning to everyone. Second quarter 2011 posted a fairly solid performance in all lines of businesses. We led the mobile market with highest growth of net cash and subscribed lines, and we had a healthy growth in the fixed segments too.

As highlighted in Slide 5, please turn to Slide 5. We were leaders in the mobile net adds, while improving our mix of addition and recording record-fast revenues that currently are at high as 46% of service revenues. Our Paraguayan operation as well performed well in a consolidated environment.

Our position as an integrated ICT provider is getting stronger and new product launches boost the fixed broadband business. Consequently internet and data revenues rose 28% year-on-year and the overall fixed business revenue posted a consistent 16% year-on-year growth in the third semester of 2011. Because of strong operating performance, our free cash flow exceeded the equivalent of P$500 million in the last 12 months. And net income rose 41%, reaching at P$1.2 billion in the first half of this year.

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