Good day, everyone, and welcome to the Telecom Argentina TEO Fiscal Year 2018 Earnings Conference Call. Today's call is being recorded. Participating on today's call, we have Mr. Gabriel Blasi, Chief Financial Officer; and Ms. Solange Barthe Dennin, Investor Relations Manager. At this time, I'll turn the call over to Solange Barthe.

Thank you, Lauren. Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. As stated by Lauren, the purpose of this call is to share with you the results of the 12-month period ended December 31, 2018. We would like to remind all those that have not received our press release or presentation that they can call our Investor Relations office to request the documents or download them from the Investor Relations section of our website located at www.telecom.com.ar. Additionally, this conference call and slide presentation is being broadcasted through the webcast feature available in such section and can also be replayed through this same channel. Before we continue with the conference call, I would like to go over some safe harbor information and other details of the call, as we usually do in this type of event. 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 effect of ongoing industry and economic regulation, possible changes in the demand for Telecom's products and services and the effects of more general factors, such as changes in general market or economic conditions, in legislation or in regulation. Our press release dated March 7, 2019, a copy of which was included in the Form 6-K report 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 and 2 of the presentation. The agenda for today's conference call, as seen on Slide 3, is first go to over a general macro overview, then moving on to our strategy, which will be followed by the discussion of our business highlights and immediately after, we will go into the evolution of our financial figures. Finally, we will end the call with a Q&A session, as it is customary in our quarterly calls with the financial community. Having gone through these procedural matters, let me pass the call to Gabriel Blasi, who will go over a brief characterization of the macroeconomic context in which we operate.

Thank you, Solange. Good morning, everybody. Please refer to Slide 5, where we included the summary of the evolution of some macro variables in Argentina, regarding FX rate, inflation and monetary policy. During the first 4 months of the year, the peso depreciated at low rate of 10% approximately, in a movement that the market considered normal up to that stage. Monthly inflation was relatively stable, growing at a 2.3% compound rate, while interest rates were also hovering at levels of 22%, 23% annual. Nonetheless, some degree of concern was present due to the high accumulation of Central, Banco Central notes, NOBACs, registered and also due to the fact that in turn these instruments have lost some of their monetary regulation purpose becoming an external investment vehicle. And in context, a combination of external and local factors began to interact increasing the level of volatility in the exchange markets. Strong peso depreciation was registered from May to September, defining a currency event. In this context, the Central Bank exercised heavy intervention in an attempt to contain the foreign currency demand, while also committing to reduce the cumbersome stock of fixed NOBAC notes, which were reduced strongly in U.S. dollar terms. In addition, the Argentine government negotiated a standby agreement with IMF on June 20, 2018. Meanwhile, inflation was considerably affected by transport and utility tariff increases as well as rises in food and beverage prices, which were impacted by the FX evolution, registering a peak in month-over-month increase in September 2018. Finally, in October, was announced a reformulation of the monetary policy scheme, which included a strict control of monetary aggregates and introduction of a set of floating bands that define nonintervention zones of the monetary authority. These measures, along with the modification of the IMF agreement ultimately lead to…

Thank you, Gabriel. We will go over the impact that these positive business trends that described by Gabriel generated over our financials. Please turn to Slide 17, where we present a summary of the effects of the adoption of the inflationary accounting in accordance with IAS 29. IAS 29 established the conditions under which an entity shall restate its financial statements if it is located in an economy, economic environment considered hyperinflationary. This standard requires that the financial statements of an entity that reports in the currency of a highly inflationary economy shall be stated in terms of the measuring unit current at the closing date of the reporting year regardless of whether they are based on the historical cost approach or a current cost approach. To determine the existence of a highly environment, inflationary economy under the terms of IAS 29, the standard detailed a series of factors to consider, including a cumulative inflation rate over 3 years that is close to or exceeds 100%. It is important to highlight that the 3 years cumulative inflation rate as of December 31, 2018, reached 147.8%. As a consequence of the aforementioned, the financial statements as of December 31, 2018, of Telecom Argentina were restated in accordance with the provision of IAS 29. The company restate all the nonmonetary items in order to reflect the impact of the inflation adjustment reported in terms of the measuring unit current as of December 31, 2018. Consequently, the main items received were property, plants and equipment, which includes the considerable position that Telecom holds in real assets, such as commercial offices, data centers, chemical bases, cars, mobile sites and corporate buildings, intangible assets, including goodwill, inventories, certain investments in subsidiaries, and equity items. Each item has been restated in the day, the date of…

Thank you, Solange. Turning to Slide 21, we present some pro forma figures for the fiscal year of 2018 and '17 in constant measuring unit. Company's revenues achieved more than ARS168 billion for fiscal year 2018. Meanwhile, EBITDA amounted more than ARS56 billion or the same period. Moreover, EBITDA margin reached 33.5%. Regarding our gross debt, as of the end of 2018, it amounted more than ARS79.3 billion. But as the company holds an important cash and equivalents and investment, as investment position, net debt reached more than ARS65.6 billion. In fact, net debt-to-EBITDA ratio remains solid despite a significant devaluation of the currency that reached 102% in 2018, the acceleration of inflation and the reallocation of the minimum wage to the payment of services. Please move on to Slide 22, where we can analyze our maturity schedule. As we mentioned in our previous press release, in October 2018, the company refinanced $500 million from the syndicated loan due 2019 through a new term loan agreement due 2022. Additionally, $100 million of the original syndicated loan were prepaid using the cash position of the company, leaving a total amount of outstanding of $400 million. Moreover, in November 2018, the company was notified enter into a loan agreement with Deutsche Bank AG, London Branch, for an amount of up to $300 million. Furthermore, it is worth to mention that in February 2018, the company canceled the final amount outstanding of the original syndicated loan for US$100 million with its own funds. Also worth to remark that 2 days ago, we announced that on March 4, the company has entered into a loan agreement with International Finance Corporation, or IFC, for a total amount of up to $450 million to finance capital investment for 2019. As mentioned in previous calls, we deem…

[Operator Instructions] We'll take our first question from Rodrigo Villanueva with Merrill Lynch.

My first question is related to other operating expenses and bad debt. We saw a significant increase in the fourth quarter. We would like to know what is behind this strong increase? What would you expect going forward? And then the second question is related to the integration process with Cablevision. You already mentioned that in 2018, you made significant achievements regarding the implementation of the combined system for 2 companies. And I was wondering, if you could give us some details on what to expect in 2019?

Okay. Regarding, thank you, Rodrigo, for the questions. Regarding the mentioned the major and other operating expenses, there you have mainly the impact of the public services of other utilities, which are related to the very high increasing tariff that Argentina is moving on for the last 2 years. Just as an example, when you compare the weight of, although it's a different measure, but just to give one idea of what does it means, when you compare the impact in minimum wages of these increases, they have gone from 5% of the total disposable income to 30%. That reflected on the corporate side, reflects energy increasing cost, which affects, for instance, all the sites operation and also you have there impacts of other type of expenses related mainly to this. Regarding, you made some comment on the bad debt, if I didn't get you right. Yes, it is true that the company has suffered as all the Argentine environment an increase in the evolution of the bad debt. But I would like to mention that we have a situation which is better than the financial system. The bad debt ratios of the company compared to the bad debt ratios of the banks are better. As of November 2018, which is the last recorded public information on Banco Central regarding bad debt of prior sector, that is a percent of 3%. In our case, we are much, much better on that, at least 30% better. Finally, you gave me also, regarding the expectation of 2019. Well, first of all, I would like to stress again that the company is delivering what compromise is. We were able to keep a cost control during a very tough environment in terms of inflation. We were able to pass through inflation to our income.…

[Operator Instructions] Our next question comes from Andre Baggio with JP Morgan.

I'm interested in the prospects of free cash flow for the company. So if you could talk about CapEx for 2019? And then what do you think that the, going to be the route for a higher cash flow in the future?

Well, regarding our CapEx for this year, the $1.1 billion, we are not considering to increase our, the situation further more than the situation that we have today. So the company will comply with this CapEx with its own cash generation. Having said that, of course, that implies, I will say, a certain level of vis-à-vis moving together inflation pace and devaluation pace because we are not foreseeing for this year a significant movement in that direction that might change our CapEx plans. Also, it's important, Antonio, to recall that, Andre, sorry, for the mistake, that to recall that our CapEx is completely modular, in a way that we can adjust it very rapidly in any direction. This is a, we are not committed to a single operation of CapEx in a way that we are not redeploying $1 billion, that must be, if we feel in 5 years. But on the contrary, we are putting very small pieces of CapEx of $200,000, $500,000, which implies that the company in 60 days can move accelerating or decelerating the CapEx plan very easily, and that provides us with a lot of muscle in terms of managing the volatile. Regarding vendor financing, we are in the process of getting additional support of our vendors. You know that we have very strong relations with some of them, and I cannot yet make an additional disclosure on these, but we wait from, some probably good news about this situation in the near future according to conversation that Juan, the rest of the team is carrying out with many of them in very positive situation. That will allow us to even in a process where the market can continue to be close, which allows us to fully finance our CapEx. In terms of the market…

If I may follow on, I'm sorry, maybe a second question, unrelated. Can you talk a little bit about competition, especially in the broadband sector? Because like, say, one year ago, we hear that other competitors likely were trying to deploy some fiber to the home. And in the past, like say Telecom Argentina had probably a better position in terms of being the leader and so on. But isn't it this leadership being attacked? Do you have some meaningful challenges coming from the likes of America Movil or from Telefonica and others?

Well, yes, it's true that there are certain attempts of competitors to deploy fiber and in very, in very specific areas, small areas. That is being done by Telefonica, also America Movil and other small players like TeleCentro, but they are very focused in small areas. For the time being, there is no like, I will say, some type of big investment that may harm in a significant way our competitiveness there. Imagine that it took Cablevision at least 15 years to deploy the fiber network that is fast. And if we compare the network of the old telecom company, was very comparable, the fixed network to Telefonica itself. So to replicate the positioning and the quality of the network that Cablevision deployed in the last 15 years, it's not only a matter of resources that although our competitors may have, they are not deploying at the same pace that we are in Argentina today, but also to the time to do it. So yes, it is true. There are scattered attempts of increasing the fixed networks, but they are not yet a significant risk for us.

Our next question comes from Guilherme Haguiara with Bradesco.

We were just trying to understand better how margins could trend in 2019. And if I can divide it in 2 questions. In terms of revenues, how can we expect real revenue growth in 2019 considering the continued macro and political headwinds in the country? And on the second derivative, how can you keep costs and expenses under control seeing high inflation, as we saw in 2018, you did a very good job in terms of achieving real EBITDA growth despite the top line compression?

Thank you, Guilherme. Well, probably what you have mentioned is one of the biggest challenges that we have for the next year. In a way, I think I didn't clarify it completely. But as you mentioned, it will depend probably our ability to grow in terms of margin EBITDA will be very tied to what you have mentioned, in a way that if the market continues to deteriorate, which by the way, you have like a different behavior in Argentina here, one is industrials and other type of consumptions. Industrials is really going down, it has gone down very deeply. But on the rest of the consumptions, we are beginning to see some flattening in the processes. Also consumer confidence has shown a slight, also a slight change on the positive side. Having mentioned that, we will adapt in what way? If situations deteriorate for any reason, that might mean that the company might choose not to continue to grow in terms of EBITDA margin, but keeping the same margin and keeping our customers happy, which is the most important thing for us in the long run. If the situation requires a different behavior, we might change pretty easily and put more speed in price adjustment and grow our margins and invest less in terms of widening our customer base. Having said that, it is true that the cost will represent a very significant challenge this year. It is also expected, remember that last year, we have a very important part of our CapEx related to dollars. So that last year, and as we mentioned in the first question to Rodrigues, to Rodrigo, the implications of the devaluation have been very strong in many ways. This year, we think that we will have a more aligned situation between the peso and the dollar and that might help in some way to deal with the cost structure. But of course, the inflation impacts in terms of cost will be significant. Also, it's important to address that in general terms for all the economy, not specifically for Telecom, that in this high inflation environment, you all, the corporations tend to receive some additional saving in terms of salaries increases, although this year this might be more challenging because as you, because what you have mentioned regarding the political environment, being an election year.

[Operator Instructions] And we have no further phone questions. I'd like to turn the conference back to Solange Barthe for any additional or closing remarks.

Thank you very much for participating in our quarterly conference call. Please do not hesitate contacting our Investor Relations Department for any further inquiries you may have. And of course, we will be more than pleased to you participate in the Analyst Day that we will arrange. Good morning to all. Have a nice day, and we expect to meet again soon.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.