Telecom Argentina SA Q2 FY2020 earnings call

• IP Transformation: In June, implemented SAP S/4 for HANA and AREVA for back office process unification. Over 6000 employees trained via 150 portals with over 50 internal courses. • BSS Transformation: Completed third and fourth migrations of mobile customers, adding 2.5 million prepaid and postpaid clients, with 2.8 million customers enjoying the new digital experience supported by 2.5 thousand commercial advisors. • COVID Impact: Served as a catalyst for digital transformation. Flow IP video platform saw 9.5 hours average user per customer, 30% growth in OTT users, 66% growth in VOD hours on app, and 31% growth in VOD hours on setup box. • Cost Controls: Operating costs before D&A decreased 7% in real terms versus H1 2019. Handset costs decreased 34% in real terms. Administration costs decreased 9% in real terms.

During the second quarter of 2020, Telecom Argentina's revenue totaled P$1.8 billion. The revenues measured in constant pesos decreased 3% year-to-year. EBITDA totaled P$679 million with a 35.5% EBITDA margin, growing 5.3% in constant pesos year-over-year. Service revenues totaled almost P$124.7 billion, decreasing 1.4% in real terms versus the same period in 2019. Revenue breakdown as of June 2020: Mobile revenue 38%, growth revenue 22%, paid TV revenues 20%, fixed telephone and data 15%, equipment sales 5%.

• CapEx: Decided to restore original CapEx amount, with CapEx likely exceeding $550 million and very likely over $600 million. • Debt Structure: Completed exchange offer of notes, optimized capital structure, and started refinancing multilateral loans to reduce maturities in the next two years.

• Economic and Industry Regulation: Uncertainties in on-going industry and economic regulation. • COVID-19 Impact: Effect on general economy, demand for products/services, and company operations. • Foreign Exchange Controls: Argentine Central Bank's restrictions on accessing FX market, requiring companies to use liquid assets abroad to pay dollar debts first.

Q: Regarding debt denominated in dollars, are you using the official FX to convert it into Argentine pesos? Can you remind us how many dollars you can actually buy at official FX? Or what is the average FX at which you can buy dollars?

A: On the accounting for the company of all the dollarized assets are accounting using the official foreign exchange rate unless those specific assets might have market price. Regarding the amount of dollar that the company may get from the local FX market from their move as we call here, theoretically is a limited in terms as far as you comply with the regulations pertaining what type of payment are you willing to make, you go to the market and the market provides mostly with the authorization of Banco Central. The restrictions are based in what type of conditions the payment must meet to be able to be channeled through this market. For instance, all the financial payments required that the debt should be register prior with Banco Central. All the commercial payments have to meet certain technical relationship between the goods [ph]. For instance, just to explain this in brief. We can go with this more detail in a separate call if you wish. All the goods have been -- you cannot anticipate a significant amount of input. But as far as you comply with the obligations, there is no problem in accessing the foreign exchange market.

Q: On incremental CapEx, the company had canceled in May. Does the company plan to restore the extra CapEx? How that's unfolding?

A: Yes. Well, definitely the conditions that made us took that decisions that were related to the general situation. Really it was very difficult to precise in much this year would be -- what was going to be for the company, the outcome of the pandemia plus all the uncertainty that was derived from the Argentinean negotiation of the day. With a much clearer situation regarding both seizures [ph], Argentina has already reached an agreement on the sovereign debt. And on the other hand, we have a clear picture of how the evolution of the company is behaving with the quarantine process. We decided to retake the original amount of CapEx. And also we are considering some additional amounts regarding some aspects that are related to the new normality, let's call it that way, that might require a different type of attention. At the end, we're seeing that our CapEx will be over $550 million for sure. And very likely over $600 million. All these of course, calculated, as I mentioned, to the foreign exchange rate, which is the one that we effectively account and effectively pay.