So that’s something that is, that’s the engine that keeps us moving forward. In terms of promotions, and the news is that we increased our promotion prices, promotional prices, especially for Internet, broadband, fixed access, and the combo, the bundle. And successfully we have been followed by some of our competitors except one that has not moved their promotional price, which is, I mean, they are giving away their broadband for $3. But we believe that we can make a better industry if we can increase the promotional prices a little bit. And we are the leaders, we move first. Other competitors are following us and we believe that finally this aggressive competitor will move also because it has nothing to lose. So we are seeking a better outcome for this semester, as well as we are also looking at the reduction of inflation that will help us recover prices beyond that.
So we are at the prospect inflation for — prospective inflation for March and April will go below 20% and that’s a good story to count despite that there’s a recession in the middle, but it’s a good story at the end. So finally, we believe that we will be handling inflation rates at the lower level and that will increase our capacity of trespassing and passing the inflation through prices. In terms of CapEx, our budget is around $500 million. That’s the basic maintenance CapEx that we need to keep this engine running at full speed. But we have been very cautious and we launched only $350 million. That’s something that we will monitor as long as we see that the numbers are there, that we have the cash and the inflation is lowering and the For exchange is stable.
So this is the forecast that we’re seeing and we are taking care of the use of the proceeds, cash proceeds.
Luis Rial Ubago: Hi, we have now a question coming from Marcelo Santo from JPMorgan. Marcelo, we will unmute you, so you can proceed with your question. Thank you very much.
Marcelo Santo: Hi, good morning. Thank you very much for taking my questions. I have two. The first question is regarding margin improvements. So you did a very strong job there in improving margins despite revenues declining in real terms. I understand that’s coming on cost cutting. Is there more room to improve margins that way or further improvements will probably come as inflation goes down and you’re able to have a recomposition of prices. That’s the first question. And the second question is just a clarification on CapEx. So you said that you will do 250 — I didn’t understand the difference between $250 million and the $500 million. You said $500 million is the basic maintenance, but actually you’re planning to do a bit less and see how it goes. I just wanted to understand a bit better the difference between the numbers. Thank you.
Gabriel Blasi: Thank you, Marcelo, for the question. I will start with the CapEx thing. $350 million is a maintenance CapEx. It’s the minimum that the company can do. That means being able, part of the CapEx are licenses, agreements, things that are currently paid. So there’s no way we can reduce CapEx beyond that. The difference between $350 and $500 million has to do with, for example, 7,000 blocks of FTTH that we have the equipment, but we need to invest in labor to put it in production. For example, that’s one thing. The deployment of 5G, we have already 100 sites using 3.5 gigahertz band, C-band, but we are thinking of postponing the implementation of more sites depending on our feasibility of doing so. So the $150 million in between means that it is CapEx that is needed, but we can postpone it.
For 5G, we remember, we can make you remember that we only have 8% of our customer base with 5G ready devices. So that’s not something that we really need to move so fast. If we don’t start, we will never have it when our customers have their devices ready. So we need to start, but we can postpone the timing of starting with this full deployment. This is just to let you know the type of things that we are trying to at least postpone in terms of trying to match cache flow and CapEx implementations. The first one?
Luis Rial Ubago: Was related about the possibility of greater cost cutting.
Gabriel Blasi: We — I mean, you can take a look into our cost base. If you take a look into licenses, licenses agreements, we have been very, very aggressive renegotiating all that stuff because that goes, those are contracts in US dollars. Therefore, they were fully impacted by the valuation and we have been able to renegotiate them. I don’t see on the dollar contracts any other space. In pesos, our structure in pesos, we’re always challenging that. I mean, we’ve been very successful reducing all our OpEx in pesos significantly and trying to match and keeping the margins up. Our main concern, not main concern, but main challenge is on the labor cost side. Labor cost usually runs at inflation rate. And we have been very successful with one of the successful with one of the unions on the labor cost.
And yesterday night, we finally closed the deal with one of the hardest unions that was making strikes. We’ve been very tough trying to make sure that labor is growing with inflation, but growing with inflation with at least with a month lag. So we are trying to push labor costs at a speed that we can support. Unions are trying to go beyond that, and we’ve been able to challenge that negotiation. And yesterday night, we closed the deal with this union, special union. But it is something that we are challenging on an everyday basis and this is — we can manage sustaining the margin. The upside of the margin will come from sales, from revenues.
Luis Rial Ubago: So we have another question coming from Andres Coello from Scotiabank. Andres, we will unmute you so you can proceed with your question. Thank you very much. Hi, you are muted, Andres. Go ahead, please.
Andres Coello: Okay, thank you. Yeah, I’m wondering how long do you think it will take you to catch up with FX depreciation from an EBITDA standpoint because clearly in the fourth quarter, the very sharp FX depreciation was so quick and happening at the very last month of the year that this impacted your whole EBITDA figure. But I’m wondering how long are you expecting or how many months it will take you to go back to EBITDA of over $1 billion? Do you think that that’s going to take a long time or do you think that maybe in the middle of the year you can catch up with the prior EBITDA level? Thank you.
Gabriel Blasi: Hi. Thank you for the question. Well, of course, it will depend on how successful the government plays the game with inflation. It seems up to now that inflation is decreasing. I will say it has begun with a medium 20s. Now we are speaking of in the range of 15s and going down. That will help a lot significantly, but it will take at least one year, one year and a half to fully outpace that inflation and translate that into prices. Also you must have in consideration that the ability to price inflation changes according to the size of the inflation. This is theoretical, but forgive me, but just to explain it easily, we have some behavior up to the high 20s or 30s percent, a different behavior from there to 100%, and then from 100% on, the behavior is pretty different.
My conclusion on that, I’m sorry if I am not more precise, is that if you look at how we have coped with that, the company has been pretty successful in terms of coping with the trend. Of course, there is a gap that we need to recover, but as you can see from the graph that we put in the presentation, when the inflation begins to come down, for us it’s easier to cope with that. And as I said, probably with the type of projections that we are seeing in presently, if the government is able to succeed with its program, it will take, in some extent, roughly something more than one year, 12 months to fully price that. But up to now, as you can see, the trend has been pretty favorable in terms of keeping up with these very high inflations.
Roberto Nobile: Andres, I can build on that. If you take a look into our broadband ARPU at December, it was between $6 and $9. $6 dollars I think it was. That was because the pricing pesos divided by the new foreign exchange rate totaled $6. If you take a look to the same product in March, in February, I would say, it’s around $15. You take the pesos and you divide it by the foreign exchange and the pesos have an inflation rate of 40% and you divide it by the foreign exchange that was almost fixed because the crawling peg was well behind the inflation rate and that creates something like you have increased your prices in dollars almost double, more than double, to $15. So this is the equation that we need to take a look. We need to make sure that the company is robust in pesos and making sure that we are able to translate inflation into prices.
Because if you take a longer term period, you will see that inflation and devaluation goes along. I mean, there’s no — there’s a match at the end of the story that keeps that two variables together. So this is going to be something that we will see probably in the first quarter that we will have a momentum of gaining dollars but actually you need to take a look into our pesos balance sheet because that’s what gives you the idea that we can, at the end, being able to be successful.
Gabriel Blasi: I will take advantage of this question. Although this is related to the period, the beginning of 2024, I would like to share with you some comments on our governance and financial ratio. As you may know, the part of the company related to multilateral agencies, which is mostly in the range of $1 billion. Here we have [creditors] (ph) like IFC, IIC, IDB, Finnvera from Finland government, EDC from Canada and CDB from China. As of December 31, that was roughly one third of our debt. These loans, among other provisions, have the obligation to comply with certain financial ratios which are calculated based on contractual definitions. The relevance are net debt to EBITDA and EBITDA over interest net. Those are calculated on a quarterly basis along with the presentation of the company financial statements.
Considering the complexity of Argentina’s economic situation which prevented the early and accurate estimation of the ratios, the company proactively requested and obtained from its lender a waiver to the enforceable rights regarding the compliance with the net debt to EBITDA ratio until March 15, 2024. This waiver was conditioned upon certain obligations during a certain period which have been met to date. Subsequently, the company continued negotiations with the creditors during 2024 at the beginning of the year with all the lenders and obtained a new waiver effective until March 31, 2025. This waiver allowed for an increase in the maintenance debt to EBITDA ratio above the originally established level, raising it to 3.75% for the calculation period between December 31, 2023 and December 31, 2024, also allowing a maximum consolidated net debt of $2.7 billion on each calculation date, among other matters.
On the other hand, during the terms of the waivers, the payment of dividends under certain conditions is permitted during the period from October 1, 2024 to December 31, 2024, while in compliance with the maintenance net debt to EBITDA ratio of less than 3% and for a maximum amount of $100 million. As of December 31, 2023, the company has complied with the aforementioned conditions. These waivers, which have already been granted, are specifically related to the extent that we have this situation, but because of the volatility of the FX, for exchange policy, the price adjustments and the FX adjustment not necessarily run at the same time. As the market normalization is getting there, but it should be, but as the closing of the year, if you take into consideration that Argentina went through the evaluation of [$140 million] (ph), 15 days prior to the closing of the period, there was not ability to price that immediately and that generates this type of situation.
So to avoid that, this waiver was granted by the creditors who have them, which are the ones that I have already described. Also, and although this is an audit, but just to give you some color between the relationship of the evaluation and this price adjustment, if we consider an audited calculation of the ratio of debt as of the end of January, it is below three. So this is a precautionary move that we deal with our creditors to allow us to move through all this situation until the market completely regularizes in good shape and with no bad surprises. But on the other hand, the company is working steadily to solve the situation as soon as possible. As part of these waivers, also we were granted the possibility of selling our Puerto Madero building, which is empty today.
As you may know, it has been empty since the pandemic and it’s a very important real estate asset and of course you those proceeds to [pre-cancel them] (ph). We will keep you on track of that all that it was released to the market yesterday. But in case you have any further consideration, we will be more than happy to provide additional information about this, that although it’s for the next period, it is very relevant information.
Luis Rial Ubago: So we have no further questions up to this moment. Thank you very much for participating in our quarterly conference call. Please do not hesitate to contact our Investor Relations department for any further inquiries you may have. Good morning to all and have a nice day.
