Telecom Argentina Sa Class B · BCBA:TECO2
Telecom Argentina Sa Class B — Merger or Acquisition (April 2016)
57 slides from Telecom Argentina Sa Class B's merger presentation, Apr 5, 2016
Slide 1: Table of Contents - Valuation Report
VALUATION REPORT TABLE OF CONTENTS VALUATION REPORT I. VALUATION SUMMARY INTRODUCTION & BACKGROUND II. DISCOUNTED CASH FLOW VALUATION DISCOUNTED CASH FLOW (DCF) DETAIL OF ASSUMPTIONS USED IN THE DCF FORECASTS DISCOUNT RATE III. VALUATION BY COMPARABLE COMPANY ANALYSIS (CCA) COMPARABLE COMPANY ANALYS
Slide 2: I. Valuation Summary
VALUATION REPORT VALUATION SUMMARY I. VALUATION SUMMARY 3. Quantum F i n a n z a s
Slide 3: Valuation Summary
VALUATION REPORT VALUATION SUMMARY • On February 24, 2016 Telecom Argentina S.A. ( Telecom or the Company ) was notified of a Public Tender Offer for the Acquisition of Stock ( OPA , Spanish acronym) due to a change in control, promoted and filed by Fintech Telecom LLC ( Fintech ) on the total amoun
Slide 4: Valuation Summary
VALUATION REPORT VALUATION SUMMARY On November 14, 2013 Telecom Italia S.p.A and Telecom Italia Internacional N.V. (jointly the Sellers ) and Tierra Argéntea (a company controlled by the Sellers) announced the acceptance of an offer made by Fintech for the purchase of the 68% owned by the Sellers in
Slide 5: Valuation Summary
VALUATION REPORT VALUATION SUMMARY In particular, following those methodological guidelines, we estimated the value in the light of 4 different criteria: Discounted Cash Flow; Comparable company analysis (CCA) Average Market Value of Shares for 6 months; and Equity Value of the Shares. • After obtai
Slide 6: Valuation Summary
VALUATION REPORT VALUATION SUMMARY • Another method commonly used by specialists in valuations, as well as by financial analysts and investors, is the Comparable Company Analysis (CCA), explained in Chapter III. This method is frequently applied in the most developed stock markets (US & Europe), whe
Slide 7: Valuation Summary
VALUATION REPORT VALUATION SUMMARY o The method of the equity value of shares neither takes into account the income capacity, the expected capital appreciation nor the generation of future cash flow of a company in operation. Additionally, and even if it depends on the accounting regulations of each
Slide 8: Summary of Valuations (as at March 17, 2016)
VALUATION REPORT VALUATION SUMMARY Summary of Valuations (as at March 17, 2016) 30.0% 48.6. 54.2. Companies From this analysis it may be inferred that the Price of the Offer in the OPA is within the range stated as reasonable. In the following chapters the value estimates are detailed according to t
Slide 9: II. Discounted Cash Flow Valuation
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION II. DISCOUNTED CASH FLOW VALUATION 10. Quantum F i n a n z a s
Slide 10: Discounted Cash Flow (DCF)
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION DISCOUNTED CASH FLOW (DCF) • The objective of the DCF is to estimate the present value or price of an asset in operation, including all inherent factors that affect its estimate, such as the cash flows generated in the course of time, the liabilities a
Slide 11: by using the exchange rate as at the end of the term. Once the
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION by using the exchange rate as at the end of the term. Once the values in dollars are obtained, a discount rate in nominal dollars is used to calculate de present value of the Company flows. Finally, the value obtained in dollars is translated again int
Slide 12: Telecom is one of the main telecommunication companies in Argentina
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Telecom is one of the main telecommunication companies in Argentina. o It started operations in 1990 as a result of the privatization of the National Telecommunications Enterprise (ENTEL). At those times it had a license for rendering the telecommunica
Slide 13: Recent Evolution of main indicators
VALUATION REPORT Recent Evolution of main indicators: TP Mobile Equipment ('000 Lines) 19,836 19,410 19,539 18,483 Prepayment Postpayment 2012 2013 2014 2015 2012 2013 2014 2015 Source: Prepared by QF on the basis of Public Information 12. (426) 1,35 Income
Slide 14: ARPU Evolution
DISCOUNTED CASH FLOW VALUATION 2012 2013 2014 2015 ARPU Evolution (in ARS/user) ARPU T Mobile 207.4. 14. Quantum F i n a n z a s
Slide 15: Macro-Economic Assumptions
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Macro-Economic Assumptions: The macro-economic assumptions used in the forecast for Argentina and Paraguay were obtained from Latin Focus Consensus Forecast, which summarizes the estimates made by the main economic consultants in each of the countries:
Slide 16: Business assumptions
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Business assumptions Nominal growth of 2016 ARBU above inflation as a result of the release of basic monthly charges which have not been restated over the last 12 years. Such increase has been in line with the CPI since 2017. 10% drop in the number of
Slide 17: Business assumptions: equipment sales
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION • Increased revenues from equipment sales in Argentina during 2016 in line with inflation without any changes in number. Sustained demand of high-technology equipment, partially affected by import restrictions. However, release of restrictions may be o
Slide 18: Cost assumptions
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Slight increase in sales-related direct costs mainly due to a decrease in the profit margin foreseen in the sold equipment segment for the abovementioned reasons. This increase is expected to be partially offset against a more efficient use of the netw
Slide 19: Capex, income tax and working capital assumptions
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Spectrum purchases tantamount to AR$ 287 million are expected in Paraguay. No further purchases are subsequently assumed. CAPEX/Sales Ratio (without considering purchases of licenses) would record an increase in 2016 while the Company continues to adju
Slide 20: Minority share in Núcleo Paraguay and other assumptions
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION particularly Mobile Networks. 2017. of some commercial costs and eventual renewals or purchases of low impact licenses. 20 Quantum F i n a n z a s Minority Share in Núcleo Paraguay In view of the fact that 32.5% of the capital of Núcleo is not owned by
Slide 21: Forecast Telecom Argentina - Cash Flow
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION FORECAST TeIecomArgentina-CASH FLOW 26 20 20 20 21 Quantum F i n a n z a s Millions of USD2015 2016P2017P2018P2019P2020P2021P2022P2023P2024P Net Revenues 4,374 Change % 6.4% COGS (1,305) % Revenues29.8% 3,5433,6514,0704,4904,8054,9315,1055,2885,479 -19
Slide 22: Sales of Services
VALUATION REPORT 2015 2016P 2017P 2018P 2019P Fuente: Elaboración QF Sales of Services (AR$M 2015 2016P 2017P 2018P 2019P Source: prepared by QF
Slide 23: Sales and EBITDA
DISCOUNTED CASH FLOW VALUATION Sales and EBITDA (USD M m EBITDA Margin 27,3% 4,070 3,543 2015 Source: Prepared by QF 2016P 2017P 2018P 2019P Sales of Equipment and Mg (AR$) 2015 558 2016P 428 2017P 557 2018P 697 2019P 893 EBITDA Equipment Source: Prepared by QF 22 Quantum F i n a n z a s 25,1% 889 3
Slide 24: Revenues from Voice Services and ARBU
VALUATION REPORT Revenues from Voice Services and ARBU AR$) Revenues in AR$ Million Fuente: Elaboración QF ARPU TP Mobile (AR$) 189.4 18.0% 160.5 “Cuentas Claras” Plan Postpayment 22.2% 131.3 Prepayment 20.3% 19.6%109 2 Series4 52,9 | 64,2 | 75,4 2015 2017P 2016P 2018P 2019P Source: Prepared by QF
Slide 25: Sales of Arnet and ARPU
DISCOUNTED CASH FLOW VALUATION Sales of Arnet and ARPU (AR$) Revenues in AR$ Millions ARPU in AR$ Customers (’000) |j. 2015 Source: Prepared by QF 2016P 2018P 2019P 2017P Mobile ARPU Núcleo (Gs) ■ "Cuentas Claras"Plan ■ Post-payment ■ Pre-payme ARPU Núcleo (Gs) 2015 2016P 2017P 2018P 2019P Source: P
Slide 26: CAPEX without Spectrum
VALUATION REPORT CAPEX without Spectrum (AR$ M) 14,3% 2015 2016P 2017P 2018P 2019P Source: Prepared by QF TP Mobile Equipmen t ( ’000 L ines) 19,539 19,751 19,964 20,181 20,399 Pre-payment Post-payment 2016P 2017P 2018P 2 019P 2015 Prepared by: QF 13,463 6,936 13,319 6,861 13,276 6,688 13,233 6,518
Slide 27: Total Costs
DISCOUNTED CASH FLOW VALUATION Total Costs (AR$ M) ■ Employees' costs 67,222 ■ Equipment cost ■ Industrial Costs 16,367 56,789 ■ Commercial Costs ■ COGS without equipment 47,546 13,766 TOTAL COSTS 11,806 11,620 39,200 9,963 8,061 2015 2016P 2017P 2018P 2019P Source: Prepared by QF 24 Quantum f i n a
Slide 28: Revenues Mix (%)
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Revenues Mix (%)
Slide 29: Discount Rate
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE • The discounted cash flow method discounts all funds expected to be generated by an asset in the future at a rate which indicates the risk represented by that flow. Such rate is known as discount rate, cut-off rate or opportunity cost, a
Slide 30: Discount rates for own capital (equity)
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Discount rates for own capital (equity) • We have used the Capital Asset Pricing Model to determine equity. This method, known as CAPM (Capital Asset Pricing Model), is commonly used to determine the cost of capital or equity. Its main characteristic i
Slide 31: Risk-free rate and business-related risk
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION That is to say, the discount rate applicable to equity results in: Re: Rf + (Rm-Rf) x ßenterprise+ Rs where, a) Risk-free rate (Rf) o Represents the profitability rate of a risk-free investment, that is, an investment the actual return of which does no
Slide 32: Equity premium of shares
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION o The equity premium of shares is the difference between expected profitability of the shares and the profitability of an asset with no risk for which that of 30-year US Treasury Bonds is used for reference. o To estimate this value, the average histor
Slide 33: Leveraged Beta and Country Risk
b. 2) Leveraged Beta (β) Coefficient It measures the relative risk or volatility of a share or group of shares in relation to the market portfolio, to which a Beta coefficient of 1.0 is assigned. This coefficient represents the tendency of a share to move with the market portfolio. An average risk s
Slide 34: Country risk and discount rates for the debt
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION o It is usually measured as the return difference between long-term bonds issued by the country in question and those issued by the United States Government. In this case, we have used, as the measure for the Argentine risk, the return of the Bonar 202
Slide 35: Weighted Average Capital Cost (WACC)
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Kd Telecom Argentina Tax Rate 7,88% TIR 35% Kd Telecom Argentina 5,12% Weighted Average Capital Cost (WACC) • The WACC method presumes there is an optimal capital structure that minimizes the business opportunity cost. Since the debt has a collection p
Slide 36: WACC Telecom Argentina
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION WACC Telecom b emp Kg Telecom Argentina 12,38% Kd Telecom Argentina Tax rate 7,88% 35% Kd Telecom Argentina 5,12% Telecom Argentina Debt Debt/ (Debt + Equity) 376 21,8% Results of the Discounted Cash Flow Valuation Method Using the discount rates desig
Slide 37: Valuation Summary - DCF
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Value (USD 000) Valuation Summary Cash & equivalents Financial Debt Net Debt 176 (376) (199) | Equity Value 3.180 Núcleo interest adjustment (62) Final Equity Value 3.118 Total issued shares (000) 984.381 Exchange Rate 15,2 33 uilQuantum f i n a n z a
Slide 38: Sensitivity Analysis
VALUATION REPORT DISCOUNTED CASH FLOW VALUATION Sensitivity Analysis • Once the value was obtained based on the Discounted Cash Flows, we proceeded to make sensitivity tasks aimed at assessing the changes that the value would suffer upon any changes in certain relevant variables and at obtaining a v
Slide 39: III. Comparable Companies Analysis Valuation
COMPARABLE COMPANIES ANALYSIS VALUATION VALUATION REPORT III. COMPARABLE COMPANIES ANALYSIS VALUATION 35 uilQuantum f i n a n z a s
Slide 40: Valuation Multiples Applicable to Similar Companies
VALUATION REPORT COMPARABLE COMPANIES ANALYSIS VALUATION MULTIPLES APPLICABLE TO SIMILAR COMPANIES • Another commonly used method for the valuation of companies is the method of comparable companies based on the valuations made for similar companies with shares publicly listed in the Exchange Market
Slide 41: Comparable Companies Analysis Valuation
VALUATION REPORT COMPARABLE COMPANIES ANALYSIS VALUATION • Please consider that the included variables are affected in different ways by the recent devaluations observed in the various countries, especially in Brazil, and that they are calculated according to historical values, whereas those applied
Slide 42: Results of the Comparable Companies Analysis Valuation
VALUATION REPORT COMPARABLE COMPANIES ANALYSIS VALUATION Results of the Comparable Companies Analysis Valuation Comparable companies analysis valuation (as of March 17, 2016 ) EV/ EBITDA (*) EV/ SALES (*) Market capitalization 1,7x Source: Bloomberg (03/17/2016) (*) EBITDA j Sales of last 12 months
Slide 43: IV. Average Market Value of Shares
VALUATION REPORT AVERAGE MARKET VALUE OF SHARES IV. AVERAGE MARKET VALUE OF SHARES 39 uilQuantum f i n a n z a s
Slide 44: Average Market Value of Shares
VALUATION REPORT AVERAGE MARKET VALUE OF SHARES AVERAGE MARKET VALUE OF SHARES • Another method suggested is the one arising from analyzing the share price during the 6 months preceding the launching of the OPA (from August 24th, 2015 to February 23rd, 2016). The CNV provides that the price arising
Slide 45: Evolution of Share Price
VALUATION REPORT AVERAGE MARKET VALUE OF SHARES 41 uilQuantum f i n a n z a s Evolution of Share Price DatePriceDatePriceDatePriceDatePrice 24/Aug/1540.6005/Oct/1541.5018/Nov/1555.5008/Jan/1647.50 25/Aug/1540.7006/Oct/1540.6019/Nov/1555.0011/Jan/1647.50 26/Aug/1544.4007/Oct/1540.5020/Nov/1556.9512/J
Slide 46: V. Equity Value of Shares
VALUATION REPORT EQUITY VALUE OF SHARES V. EQUITY VALUE OF SHARES 42 uilQuantum f i n a n z a s
Slide 47: Equity Value of Shares
VALUATION REPORT EQUITY VALUE OF SHARES EQUITY VALUE OF SHARES • This method assumes that an enterprise value is obtained from what is shown by the financial statements at a certain time. It results from dividing the net worth of a company by the number of shares issued. This method does not conside
Slide 48: VI. Value Summary
VALUATION REPORT VALUE SUMMARY VI. VALUE SUMMARY 44 uilQuantum f i n a n z a s
Slide 49: Share Value of Telecom
VALUATION REPORT VALUE SUMMARY SHARE VALUE OF TELECOM Valuation Summary (as of March 17th, 2016) From this analysis, we can state that the Price of the Offer at the OPA is within the range proposed as reasonable. 45 uilQuantum f i n a n z a s Valuation MethodWeightingMinimum Value RangeMaximum Value
Slide 50: VII. Exhibit A - Data Used to Prepare the Report
EXHIBIT A – DATA USED TO PREPARE THE REPORT VALUATION REPORT VII. EXHIBIT A – DATA USED TO PREPARE THE REPORT 46 uilQuantum f i n a n z a s
Slide 51: Information Used
VALUATION REPORT EXHIBIT A – DATA USED TO PREPARE THE REPORT INFORMATION USED • Annual Report and Financial Statements of Telecom Argentina SA. for the periods 2012, 2013, 2014 and 2015. • Information related to the management for the years 2012, 2013, 2014 and 2015. • Budget Plan Telecom Group - pe
Slide 52: VIII. Exhibit B - Glossary of Terms
VALUATION REPORT EXHIBIT B – GLOSSARY OF TERMS VIII. EXHIBIT B – GLOSSARY OF TERMS 48 uilQuantum f i n a n z a s
Slide 53: Terms Used
VALUATION REPORT EXHIBIT B – GLOSSARY OF TERMS TERMS USED cooper lines 49 uilQuantum f i n a n z a s ARBU Average Revenue Billed per User ARPU Average Revenue Per User ENACOM National Board of Communications, regulatory body dependent on the Ministry of Communications EBITDA Earnings before debt int
Slide 54: IX. Exhibit C - Important Notice
VALUATION REPORT EXHIBIT C – IMPORTANT NOTICE IX. EXHIBIT C – IMPORTANT NOTICE 50 uilQuantum f i n a n z a s
Slide 55: Exhibit C - Important Notice
VALUATION REPORT EXHIBIT C – IMPORTANT NOTICE This Report has been prepared by Quantum Finanzas S.A. based on the historical and forecasted information included in Exhibit A. The valuation task is performed considering the relevant variables available at the time and is thus effective at the issuanc
Slide 56: Exhibit C - Important Notice
VALUATION REPORT EXHIBIT C - IMPORTANT NOTICE Our work constitutes an independent valuation within the scope of the OPA, with the understanding that the shareholders being addressed will have the option to accept or reject the same and are not forced to make any decision whatsoever. The Report does
Slide 57: Operating Assumptions
OPERATING ASSUMPTIONS 2012 2013 2014 2015 2016 P 2017 P 2018 P 2019 P 2020 P REVENUES 2012 2013 2014 2015 2016 P 2017 P 2018 P 2019 P 2020 P COSTS 2012 2013 2014 2015 2016 P 2017 P 2018 P 2019 P 2020 P WORKING CAPITAL 2012 2013 2014 2015 2016 P 2017 P 2018 P 2019 P 2020 P 2014R 2015R 2016P 2017P 201
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