Telecom Argentina S.A.
Q4 2017 Earnings Call Transcript

Published: 8 Mar 2018

[Operator:]

Good day everyone and welcome to the Telecom Argentina TEO Fourth Quarter 2017 Earnings Conference Call. Today's call is being recorded. Participating on the call, we have Mr. Gabriel Blasi, Chief Financial Officer; and Mrs. Solange Barthe Dennin, Investor Relations Manager. I will now turn the call over to Solange. Solange, please go ahead.

[Solange Barthe Dennin:]

Thank you, Debbie. Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. As stated by the moderator, the purpose of this call is to share with you the results of the fiscal year 2017 and fourth quarter of 2017 ended December 31, 2017. We would like to remind all of those that had not received our press release or presentation that they can call our Investor Relation 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 the 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 events. 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 effect of more general factors such as changes in general market or economic conditions in legislation or in regulations. Our press release dated March 7, 2018 a copy of which has been included in a 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 of the presentation. The agenda for today's conference call as seen in Slide 2 is first to go over general market and industry overview, then moving onto our vision and 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 chapter where we include the discussion about the merger followed by a Q&A session as its customary in our quarterly calls, with the financial community. Having gone through procedural matters I will now go over brief characterization of the macroeconomic context in which we operate. During 2017, the economic activity began to define a clear path of growth towards the second quarter acquiring a greater rate of expansion during the last two quarters of the year. In general, the performance of most of the economic sectors was positive, recording advantage of different intensity in the level of activity. On average during the year, general slowdown inflation was up when compared with 2016 although during the last quarter inflation show that was lower in face of decline. In this context, consumers have shown a positive reaction to improvements in real income that all the models allow private consumption to recover in 2017 from a fall in 2016. Please refer to Slide 4 where we included summary of the current external front situation and FX rate evolution in Argentina. Exchange rate experienced a depreciation of about 17% during 2017 which was below inflation ratings during the year therefore generating a real appreciation of the peso. During months of the fourth quarter of 2017, the nominal peso-dollar exchange parity registered a little variation on average [Audio Gap] and lower interest rate expectations. This trend continued to be observed within the first months of 2018. In general terms, the Central Bank abstained from exercising direct intervention, allowing the market to fully determine the FX rate. As for interest rates, the monitory authority exercise ahead of policy reference rates during the last quarter of the year with the intention of dampening the market inflation figures that was slightly relaxed afterwards of the announcement of a recap of the inflation targets for 2018, 2020. Meanwhile, a key element of Central Banks policy during 2017 was the accumulation of international research. In this regard, they experienced an increase of almost 15.8 billion during the year, being this accumulation of reserves the greatest in recent periods, while the stock is currently in historical record. Finally, trade balance accumulated a deficit of $8.5 billion during the past year, mostly due to the growth in imports of capital growth its accessories and passenger vehicles combined with a stable evolution of exports. Turning to Slide 5 following an overview of the domestic macroeconomic situation and inflation. During the fourth quarter of 2017, the CPI measured by the Buenos Aires City experienced a little decrease from the third quarter reading, when looking at year-over-year figures, reaching 26.1% in December 2017. This suggests that when looking ahead, inflation may take longer to decline further. In fact, the Central Bank announced during December with collaboration of the inflation targets, mainly pushing the whole series of declining targets that those were set for 2019 a year ahead to 2020. That’s back in expectations of price increases to slightly higher level for coming years. Finally, the target for 2018 was set in 15%. As for the economic activity, output continued to grow during the first quarter at a steady rate. Certain expectation of overall activity increased around 2.8%, 2.9% for 2017. Specifically construction activity has become the most relevant sector for growth during 2017 while agriculture production lowered its advance due to climate factors. And for industrial production, we ended the year 2017 with a partial recovery registering an increase of 1.8% versus 2016, mainly pushed by non-metallic minerals and steel any by capital intermediate goods production. As for the fiscal front, there was an overachievement of the fiscal target set at 4.2% for 2017, as the primary fiscal deficit was in fact 2.9% relative to the CUP. This was explained by a lower level of expenditure growth compared to the one already served by public revenues. Finally, aggregate household consumption evidenced of recovery in 2017 associated with inflation with deceleration experienced in the past year when compared to 2016, which had an impact on the purchasing power, allowing a partial real weight recovery as consumers credit continued to growth while at the same time a gradual recovery in the consumption of durable goods was observed. In this macroeconomic context that we illustrated, Telecom Argentina has managed to outperform the market in terms of revenue growth and profitability increase when compared to past year season. Having gone through this introduction of the market environment let me pass the call to Gabriel Blasi, who will go over the vision and strategy and business highlights sections.

[Gabriel Blasi:]

Thank you, Solange, and hello everyone. First of all, we deem important to remark our investment community and due to the fact that since [indiscernible] January 1, 2018, the merger by absorption between Telecom Argentina and Cablevision has become effective. In this presentation, we'll be discussing the results of both Telecom and Cablevision for the fiscal years 2017 and 2016. Consequently, this maybe the last quarter that the companies maybe reporting their earnings separately. [Indiscernible] and leaders in that what will be the new era [ph] of the telecommunications industry in our country. The objective of the new telecom is to deliver to our clients a high speed connectivity flow that is also permanent on mobile, independent of devices and the place where the client is. Toughing this goal and being able to deliver a value added proposal, Telecom is focused on three main pillars. Coverage and network capacity, convergent systems and services, and client experience. Through the development of the pillars, the Company will be able to complete a transformation process that it is undertaking. That is in addressing the digital revolution through an innovative offer of products and services and capitalization investment that has been done in our networks. Let's move on to our business highlights, please refer to Slide 9 where we highlight some Telecom and Cablevision key achievements in the full fiscal year 2017 and last quarter. For the full year 2017, Telecom revenues totaled ARS65.2 billion while EBITDA rose 74% year-over-year, supported by an improvement in operating cost. In addition fixed voice ARPU and broadband ARPU were up 56% and 33% year-over-year to more than ARS152 and almost ARS360 respectively. Moreover and in relation with our subscribers, mobile subs amounted to 19 million and 9.7 million where 4G clients, fixed voice subs registered 3.3 million and global subs 1.7 million. Moving on to Cablevision highlights revenues reaching ARS41 million in 2017, which represent an increase of 34% compared to the previous year. In the same line, EBITDA totaled ARS15.2 billion to increase 39% year over year. Furthermore cable TV and broadband ARPU improved 41% in 2017 to more than ARS796. Additionally, in terms of clients cable TV subs amounted to 3.5 million, broadband subs to 2.3 million, and mobile subs to 0.7 million, meanwhile unique subs reaching 3.9 million. Turning to Slide 10, we can observe the different drivers to growth of Telecom revenue which explained by the higher internet consumption evidenced over the last year, both in fixed and mobile segments. We can highlight that the current revenue mix remained mostly unchanged compared with 2017 with a participation of mobile revenues which is still over 50% and fixed voice plus internet accounts for a quarter of total revenues, while revenues coming from devices continue to increase in participation but at a lower price. Mobile service revenue in Argentina achieved a growth of 22% year-over-year, mostly explained by an important expansion of mobile internet in Argentina that grew 67% versus full year 2016. Moreover, fixed services reaching ARS19.8 billion, a 33% increase compared to the previous year. In particular fixed voice plus internet increased by 35% mainly due to the migration to the Arnet + Voz bundle packs that include broadband and voice services. We will go into some detail on the following slides. Slide 11 resulted evolution of the Company’s mobile business in Argentina where the efforts were focused on capturing value. As intensively data usage continued to increase, postpaid users amounted to 6.6 million subscribers representing 25% of a total customer base versus 32% a year before. In connection to this, data penetration grew by 14% achieving 9.7 million monthly unique users. Heavy users are gaining participation, boosting the consumption of mobile data which as of 2017 has reaching an average of more than 1.8 gigabyte per user per month, which is 75% higher than in 2016. In addition, the significant growth in data usage has been continued to increase the browsing revenues and its participation in the mobile revenue mix, which now represents 50% of our total mobile service mix, up from 39% verified a year ago. As far as browsing ARPU is concerned, it has risen by [Technical Difficulty] per month. Turning to Slide 12, we include a review of our 4G rollout evolution. Personal 4G network deployment carries on swiftly as coverage continue to expand. 4G high speed services are now available in almost 1,200 locations, including all capital cities and the Buenos Aires metropolitan area, reaching the coverage ratio of 81% of the population such cities and 85% of total population. More importantly, 4G customers total 9.7 million as of December 2017. This rapid growth and subscriber that use the network has been a driver of data traffics since 2015. Additionally, this 4G traffic represents 67% of the total data traffic with average 2.3 gigabytes consumption versus 1.4 gigabytes for the non 4G users. Please turn to Slide 15 where we include our review of our fixed service revenue. Related to the fixed services subscribers, lines in service and internet access has remained stable with 3.8 million users and 1 million accesses respectively as of December 2017, despite the price adjustment that we have introduced over the last year. It's worthy to highlight that the substantial growth in ultra-broadband subscriber during 2017 was up 106%. Moreover and related to the evolution of our convergent strategy, Arnet + Voz subs grew by 220% year-on-year. Price adjustment continued to the ARPU growth. In the sense during the fourth quarter of 2017, the ARPU increases by 54% year-on-year to more on ARS172 per month. In addition, global ARPU reached almost ARS398 in the fourth quarter of 2017, reaching 28% compared to the same period. Meanwhile fixed data and ICT revenues increased by 23% on the year mainly due to the combination of the effects variation that affected those contracts in the third adjusted by the peso to the dollar exchange rate and increased in a number of clients that used these services. There is a good evidence of the strong position as an integrated provider of telecom hatching the corporate and SME markets. Now let's turn to slide 14 where we can take a look over Cablevision's revenues in 2017 as the mainly supported by the higher income of the internet segment. As we can see PayTV services which includes cable TV and premium TV are still television's largest source of revenue accounting for more than half of the Company's revenues. However, the participation of internet has increased over the last year while mobile services decreased just about 2%. Cable TV services revenue achieved a growth of 31% year-over-year mainly due to the price adjustments made during 2017. Moreover internet services reached ARS12.9 billion is up 67% increase compared to the previous year. As we mentioned before the increase was supported by the important growth of subscribers in the internet segment. Please move to slide 15 where we show a review of television's fixed services. Unique subscribers remained stable compared with 2016; however, subscriber distribution has changed over the year, the participation of clients with value offers increased while the proportion of unique cable TV subscribers declined. It was noted that internal, that internet subscribers totaled 2.3 million, an increase of more than 150,000 clients versus 2016. Turning to Slide 16, we can evidence that despite a small reduction in cable TV subscribers, the total amount of flow users has experienced an important growth in 2017. Subscribers in flow boxes which more than 254,000 up from 4,000 as of December 2016, while the number of subscribers used the flow application totaled around 698,000, as a result of the aforementioned, total ARPU reached ARS897 in the fourth quarter of 2017, increasing 42% year-over-year. Additionally, the number of premium subscribers which include the line with a football pack grew by 44% year on year. On Slide 17, total [indiscernible] of deployment of improved capacity and quality of service. In 2017, Telecom has invested more than ARS11.1 billion in particular investments during fourth quarter amounting ARS4.5 billion, 22% higher than the same period now of last year. Furthermore, you can observe the evolution of the FTTH deployment showed a significant increase over the last year, as we have accelerated the pace and includes the number of source of the fixed access network with fiber as a way to improve significantly our connectivity speed offering and enhance the user experience. Meanwhile, Cablevision CapEx amounted to almost ARS11.7 million versus almost 9.1 a year ago. It is important to mention in the February 2018 Telecom announced that we will invest 5 billion between 2018 and 2020. This amount will be mainly used to increase the telephone and mobile internet radio bases to extend the NGN next generation networks and to expand and improve the connectivity of infrastructure in order to be able to provide multi-play services in the framework of convergence. Having gone through the business highlights, now I will pass to Solange who will go through our financial performance.

[Solange Barthe Dennin:]

Thank you, Gabriel. The positive business terms, as described by Gabriel have resulted in a very positive performance in almost all financial results. Please turn to Slide 19 where we can analyze a consolidated revenues and EBITDA from Telecom. For the fiscal year 2017, consolidated results amounted almost to ARS65.2 billion reaching the goal of 22% year-on-year. In turn, service revenue grew at a higher rate of 26%, thanks to the strong performance of fixed voice plus internet together with mobile service revenues and more specifically mobile internet. Furthermore, EBITDA show a strong evolution growing by 74% year-over-year as we have concentrated improvement our revenue quality and profitability. EBITDA margins increased substantially by 260 basis points to 31% for the fiscal year 2017, and looking at the quarterly performance, we can see that we have consolidated improvement plans in margin evidenced since the third quarter of 2016. The Company has taken actions to gain operational efficiencies and manage its cost structure and this action has positively impacted our profitability as OpEx have grown below inflation level and revenue growth. Let’s turn to Slide 20 where we can verify the Telecoms operating income total ARS12.1 billion with a 44% increase year-on-year. The EBIT growth was higher than that of EBITDA and can be explained a slowdown in the increase of the depreciation and amortization and disposal and impairment of PP&E, which stood at 10% year-on-year. This contributed to the expansion in operating margins to a 19% of consolidated revenues, 400 basis points when compared with the fiscal year 2016. Meanwhile net income attributable to Telecom Argentina reached more than ARS12.6 billion increasing by 92% in 2017. This improvement can be explained by in combination of the previously mentioned increase in operating income and in full financial results with increase of ARS1.8 billion in 2017 compared with the previous year. The strong increase in net income positively affected margins which includes 12% of consolidated revenue. Together -- regarding our financial position and cash flow, as you can see on Slide 21 net debt amounted almost to 3.3 -- sorry, to ARS3.3 billion of December 2017. Net debt decrease over the year was mainly associated with an increase in operating cash flow, but personally offset by payments. In particular, operating free cash flow generation was strongly influenced by the Company’s EBITDA increase and by a greater efficiency in working capital. Moreover, it is worth mentioning that the General Ordinary Shareholders' Meeting held on December 28, 2017 approved a medium terminal program up to maximum of amount as of the date of insurance of each class of $3 billion or its equivalent in other currencies. In addition to this [Audio Gap] we included a review of Cablevision's consolidated revenue and EBITDA. As we can see, consolidated revenue almost totaled ARS41 billion in 2017 including 34% year-on-year. In turn, EBITDA did almost ARS15.2 billion would imply an increase of 39% year on year. As a result, EBITDA margin stood at 37% including 100 basis points when compared to 2016. These improvements in margins were supported by the revenue growth that resulted higher than those of cost of sales and selling and administrative expenses growth. On Slide 23, we can observe that the Cablevision's operating income amounted almost to ARS11.2 billion including 34% year-on-year. The increase in EBIT was partially offset by higher depreciation and amortization. Notwithstanding, operating margin for the fourth quarter 2017 improved 200 basis points year-on-year to 25%. In addition, net income attributable to Cablevision growth 44% year-on-year which is ARS5.8 billion. The increase was supported by the aforementioned growth of operating income but partially offset by the higher income tax and higher financial loans. Moreover, the improvement in net income was higher margin which stood at 14%. Let’s turn to slide 24 where we analyze the financial position and cash flow. Overall, net debt total ARS6.4 billion in 2017 down from ARS6.9 billion as of December 2016. This decrease is in net debt during the year was mostly explained by a higher operating cash flow but actually compensated by earnings recent in expenses. Additionally, operating free cash flow generation was supported by the Company’s EBITDA increase and value efficiency in working capital. Furthermore, the investment denominated in foreign currency and MDS contracts starting in ’17 FX exposure is achieving around 35% coverage. Having described the financial results let me pass the floor to Gabriel again so he can continue with a review of the merger.

[Gabriel Blasi:]

Thank you, Solange. We will take a quick view on the merger on Slide 26, where we can see a brief summary of the transaction and the new ownership structure as well. On January 1, 2018, the merger between Telecom and Cablevision became effective. In order to complete the transaction, Telecom issued 1,184.5 million new shares for Cablevision shareholders. All the resulting company share classes have equal economic and voting rights. Therefore, the ownership structure of the Company changed and CVH became the controlling shareholder. Fintech Telecom LLC owns as of to date 31.53% of the Company total capital through Class A shares while CVH owns 18.75% directly and also owns 20.06% indirectly through VLG Argentina LLC. In addition floating shares that is class B shares represent 29.65% of total capital and Class C shares account for 0.1% -- sorry, 0.1% of total company capital. In addition, Fintech Telecom owns 8.25% of the total capital through Class B shares. Turning to Slide 27 represents some key figures of the combined company. Regarding revenues, Telecom's revenues totaled 3.9 billion in 2017 while Cablevision's revenues reached almost $2.5 billion. Overall, the revenues for the combined company on a sum of the parts approach, totaled $6.4 billion. Meanwhile, EBITDA of the combined company amounted almost 2.1 billion in 2017 of which Telecoms EBITDA accounted for around 1.2 billion and EBITDA Cablevision's EBITDA accounted for 0.9 billion. Moreover EBITDA margin of the combined company reaching 32%. As of revenues from the mobile segment represented 38% of the total combined revenues, followed by pay TV with a participation of 33% and broadband services with a participation of 19%. In addition, the combined company has 19.7 million mobile subscribers, 4.1 million broadband and 3.5 million cable TV clients and 3.8 million fixed lines. Please turn to Slide 28 where we continue analyzing the figures for the combined company. As we have already mentioned, revenues and EBITDA for the combined company totaled 6.4 billion and 2.1 billion respectively. Gross debt reached 1.2 billion while net debt total 0.5 billion as of December 2017. As a result gross debt to EBITDA ratio for the combined company was 0.67 while net debt to EBITDA ratio stood at 0.28 for the fiscal year 2017. In addition the combined CapEx amounted almost 1.4 billion in 2017 resulting in the difference of 705 million between EBITDA and CapEx for the combined figures. These figures stand out the solid financial situation that the combined company currently has. Now let’s turn to Slide 29 where we discuss the steps the Company will follow associated with different tax. The opportunities offered by the merger are related to the customer centric vision strategy. In order to achieve the maximum potential of the revenue growth of profitability the Company is carrying out a series of enhancement of its processes and technical platforms. With respect to the back end in particular we can highlight SAP integration the development of new ERP platform and the integration of processes including central finance and front-end initiatives. For these initiatives, we have world recognized partners in the markets such as SAP, Accenture and Pricewaterhouse. Moreover, associated to the initiatives that have lagged effect in the customer at the front-end we are both feeding the new CRM implementation, big data application and customer-centric vision. In this case, our selected partners for this trend challenges processes are Velocity and Salesforce. We are sure that cross-selling opportunities will increase our revenues and deepen the level of integration. The Company will also be able to renew churn and increase the loyalty of its clients through regulation of the new combined platform and a new integrate solutions. In addition to this and together we know cable labs, we are currently working on the consolidation of our backbone network and carried out important network improvements such as defining a preferred network of device investments in order to improve our network coverage and the deployment of fiber optics, optic at new sites. Lastly and in relation to the synergies of the merger, we can remark that CapEx efficiency and OpEx savings have an important potential and are being implemented and also as you've already mentioned, the cross-selling opportunities and churn reduction. Having concluded with the presentation, we are more than pleased to answer any question that you may have. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] We'll go first to Rodrigo Villanueva with Merrill Lynch.

[Rodrigo Villanueva:]

My question is related to merger related expenses. I was wondering if you give some indication of what to expect in 2018 related to this? That will be my first question, thank you.

[Gabriel Blasi:]

Hi, Rodrigo. Well, we are in the process of refining a three-year plan and will be finalizing by the end of March, and there we will have a much clearer idea on the final figures. To give you a quick wrap up on the investment that we are planning, the $5 billion that we are spending in the near future are going to be deploying in a similar way on a yearly base for the next three years. Regarding the implementation of these two systems or the front end and the backend, this is still yet -- we're into to refine how to depart the amount of changes that we are going to commence. For instance in the case of the back office, we are not departing from the starting point where you have Cablevision or Telecom practicing one way or the other, but we're in the discovery process starting the Company from a single base. As I mentioned by the end of this month, we're going to have a much clearer picture about the total amount of investment to fulfill this.

[Rodrigo Villanueva:]

Understood. Thank you very much. And I was wondering if you could share with us, where you see that you see more opportunities for cross-selling?

[Gabriel Blasi:]

Well, there are several. The first we'll have is that there is not a very significant overlap between the customer base of fiber optic for instance and the mobile phone of personal. There we have a huge opportunity in terms of future growth as you probably know, Fibertel customers, i.e. is the most product the most upper scale product of its segment. And we had opportunity to go a very [Technical Difficulty] customer base there. To achieve that, we need to improve significantly our mobile services to cope with a level of service that they the cable customer is used. Other big opportunities that we have is that although our network as we have already shown is very important developed in terms of 4G capacity still we have in the northern area of the country where we have a very good and a strong customer base many of these customers still have 2G appliances or devices. So we have the opportunity to providing them the devices to improve the use there. Other important and very significant aspect that you can see is when you look at the map where you compared the network of Telecom with Cablevision and which stronger in each place. Cablevision network provides a much stronger base in the center area of the country especially in the province of Buenos Aires, the surroundings of Buenos Aires, and the northern part of the south part of Argentina where historically Telecom has a weaker position. Pooling those two networks together, we will give a huge hedge to that. Not only these, but when the final process of integration in terms of the timing in which way all the different networks are going to be interconnected which is probably be conducted by September this year, will give us an additional hedge in terms of future deployment of the way that we can provide better service to each customer in each region. Those are probably the most significant one but there I will say that there are upgrading on a daily base.

[Operator:]

[Operator Instructions] We will go next to Fernando Suarez with AR Partners.

[Fernando Suarez:]

I’d like to get some color about the potential revenues than the -- put in place and the impact of this?

[Gabriel Blasi:]

Just to clarify your question, when referring to remedies. If you can precise remedies to what, it might help. Thank you.

[Fernando Suarez:]

I'm referring that the antitrust agency have not ruled about the transaction -- different color on the potentially impact of this?

[Gabriel Blasi:]

Well, of course, we are waiting for that ruling. We do not expect that situation will take too long meaning that already has been happened prior to the first half of this year. And as from the conversations that we are guiding on, we are not expecting a significant development in -- from there.

[Fernando Suarez:]

My second question is related to [Audio Gap] spectrum increase during that month, if you could give us some kind of impact of that cost?

[Gabriel Blasi:]

Yes, thank you very much for the question. We are analyzing at this moment, how this -- really applies because it can be assume different ways with different implications and once that analysis is completed of course we’re going to disclose the final impact to the Company. But still I cannot provide you with single figure, there are several doubts regarding how it applies and definitely it applies over certain aspects business itself.

[Solange Barthe Dennin:]

And how could we compensate it going forward and it's something that applied to all the industry of course.

[Fernando Suarez:]

Okay. My last question was, when should we expect to [Audio Gap] and when we are saying that and what’s the plan on there?

[Solange Barthe Dennin:]

There is some interruption in the line.

[Fernando Suarez:]

I was wondering if you could give us some details and on any OpEx savings that can -- when those will be delivered on, if we are adjusting the five year run rate that gives us some months ago?

[Gabriel Blasi:]

No, as I mentioned we are in the process of defining these three year plan in much more detail probably there would be finalize at the end of the this month. Then we will have a much, much better first idea on certain aspects of cost savings or certain synergies that the merchant may apply. Having said that I think already mentioned the analysis has been is currently is making over a whole network. Will provide a final result through September this year and so till then it was much difficult to have a very specific and clearer view. Of course we are going to provide the commercial as far we have acknowledge but the way the networks are going to work together is probably the more valuable aspect in terms of OpEx savings in the future.

[Operator:]

[Operator Instructions] We’ll go next to Santiago Petri with Templeton.

[Santiago Petri:]

Is it possible for you to explain us more or less the sensitivity of the Company to change this in the exchange rate? For example, how the structure of cost that you have, how much that of partition in U.S. dollars also the CapEx and the balance sheet?

[Gabriel Blasi:]

Well, roughly, we have like too many policies about the foreign exchange. In terms of CapEx, you must consider that at least 65 % of the CapEx is U.S. related in dollars and that will be in main companies. In the case of the second deal source that we have that as you probably know. We are in the process of changing our capital structure and increasing substantially our debt. That will be our probably our second largest source of foreign exchange risk. And at the OpEx level, it is matched. And the one we are approaching to this important issue, although we are in the process of defining as part of a three-year plan, our coverage policy; and as Solange mentioned, we are about 40% covered as of today. In the future [Audio Gap] unless on the economic prospect which is from the stocks of foreign exchange risk or the principal balances, the Company can be consider hedged as a huge, huge amount of real estate. And as you Santiago knows very well, the real estate in Argentina is both sold and quoted to U.S. dollars. Meaning that, there is not a significant foreign exchange risk on the long run on the economic side. The problem is more on the financial side, on the instantaneous impact of the evaluation, especially on flows. That is that very likely our cash -- our hedging procedure will be directed to hedge the flow more than the stocks of foreign exchange. Regarding that, we are going to release probably in the next month or so our hedging coverage. Our intention is to have at least double net flows of fund that are going to be paid during 12 month period. Of course that can be adjusted according to the risk profile. That is very important to towards risk also on the combined entity and it's not so noticed by the market is that at present because of the operation that the Company has in Paraguay and in Uruguay on a consolidate base. The Company generates almost 90 million of EBITDA outside Argentina and that covers at least half of the cost of the projected debt that the Company is going to have. So we understand that foreign exchange risk is always an issue in Argentina, but we are very confident that both for the short run but in the long run we will be very efficient in terms of coping with that.

[Santiago Petri:]

Can you repeat me the OpEx? What’s exposure of OpEx to U.S. dollars, I didn’t pick up the...

[Gabriel Blasi:]

In terms of OpEx it's matched. The foreign exchange risk is matched. In terms of CapEx 65% this is U.S. dollars. Other important aspect that we have mentioned that is also -- it has not been fully considered up to now is that company be doing this in very strong real estate asset has a very significant amount of towers. Meaning that together the combined entity with Nextel towers plus Telecom towers plus the construction sites that we are going to develop this year more than 900, we are going to have more than 6,000 near to 7,000 towers in total. If you consider the market evaluation for these towers on a LATAM base compared to peers, similar companies in the region, you will find out that the average value in U.S. dollars for each tower is about $200,000 each one and that gives you also another potential source of U.S. dollars to go with that situation.

[Operator:]

At this time, there are no other questions in queue. I'll turn it back to management for closing remarks.

[Solange Barthe Dennin:]

Thank you very much for participating in our quarterly conference call. Please do not hesitate in contact our investor relation department for any further inquiries you may have. Good morning to all, have a nice day and we expect to meet again soon.

[Operator:]

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect.