Business context and reporting period
Telecom Argentina S.A. filed its annual Form 20-F on March 20, 2023, covering the fiscal year ended December 31, 2022. The company provides mobile and fixed telecommunications, internet, data, cable television, entertainment, cybersecurity, cloud, IoT and fintech services in Argentina, with operations in Paraguay, Uruguay and the United States. The financial statements are consolidated, audited under IFRS as issued by the IASB, and restated into constant Argentine pesos as of December 31, 2022 under IAS 29. The filing is annual rather than a standalone fourth-quarter report.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | P$729,182 million | P$828,831 million | Down 12.0% |
| Adjusted EBITDA | P$200,380 million | P$258,621 million | Down 22.5% |
| Adjusted EBITDA margin | 27.5% | 31.2% | Down 3.7 percentage points |
| Operating income/(loss) | (P$294,941 million) | (P$5,429 million) | Material deterioration |
| Net income/(loss) | (P$205,640 million) | P$19,362 million | Declined by P$225,002 million |
| Net loss attributable to Telecom Argentina | (P$207,833 million) | P$16,878 million | Material deterioration |
| Operating cash flow | P$214,024 million | P$253,300 million | Down 15.5% |
| Capital expenditures paid for PP&E and intangibles | P$122,475 million | P$148,289 million | Down 17.4% |
| Cash and cash equivalents | P$40,052 million | P$38,665 million | Up P$1,387 million |
| Total financial debt | P$469,189 million | P$519,943 million | Down P$50,754 million |
| Total assets | P$1,728,973 million | P$2,101,802 million | Down 17.7% |
| Total equity | P$812,552 million | P$1,071,114 million | Down 24.1% |
All peso amounts above are in millions of current Argentine pesos unless otherwise stated. The company reported financial income, net, of P$61,978 million, including foreign-exchange and inflation-related gains, and an income-tax benefit of P$26,504 million.
Revenue and operating indicators
| Revenue category | 2022 | Year-over-year change |
|---|---|---|
| Mobile services | P$293,112 million | Down 6.6% |
| Internet services | P$161,740 million | Down 8.5% |
| Cable television services | P$130,904 million | Down 18.6% |
| Fixed and data services | P$89,023 million | Down 22.4% |
| Equipment | P$48,621 million | Down 16.2% |
- Argentina mobile subscribers were approximately 20.2 million, up from 20.1 million.
- Internet accesses were approximately 4.1 million, broadly stable year over year.
- Cable television subscribers were approximately 3.5 million, down from 3.6 million.
- Fixed telephone lines in service were approximately 1.9 million, down from 2.4 million.
- Mobile, internet, cable and fixed-service ARPU all declined in reported constant pesos, while mobile data usage increased.
Material changes versus the prior comparable period
- Revenue declined despite continued service demand because the company did not pass the full 94.8% 2022 inflation rate through to customer prices.
- Operating costs excluding depreciation, amortization and impairment declined 7.3% to P$528,802 million, reflecting lower programming, maintenance, equipment, regulatory and interconnection costs. Employee costs and bad-debt expense increased.
- Depreciation, amortization and impairment increased 87.6% to P$495,321 million. The principal unusual item was a P$243,900 million goodwill impairment related to the Telecom Argentina cash-generating unit.
- The goodwill impairment drove the operating loss and was the principal reason for the change from 2021 net income to a substantial 2022 net loss.
- Argentina’s peso depreciated 72.5% against the U.S. dollar during 2022, compared with 22.1% in 2021. Approximately P$443,099 million of liabilities were denominated in foreign currencies at year-end.
- The company acquired 100% of NYSSA, an internet provider in Mendoza, for a base price of US$3.4 million, subject to contractual adjustments.
- The company distributed non-cash dividends consisting of Argentine government bonds with a current-currency value of P$45,258 million.
Cash flow, debt and liquidity
- Operating cash flow of P$214,024 million funded a substantial portion of P$165,866 million of investing cash outflows and P$45,799 million of financing cash outflows. Cash increased by P$1,387 million after foreign-exchange and inflation effects.
- Current financial debt was P$134,361 million and non-current financial debt was P$334,828 million. Negative working capital was P$175,331 million, and the reported liquidity ratio was approximately 0.39.
- In 2022, Telecom received a US$184.5 million IFC loan, prepaid a US$140 million term-loan principal balance, and issued or reopened local notes totaling approximately US$97.7 million equivalent, in addition to peso-denominated notes.
- Management expects to rely on operating cash flow, cash on hand, subsidiary dividends and third-party financing, including potential domestic and international refinancing. Management acknowledged that 2023 capital-market access remains uncertain.
Guidance, outlook, commentary and risks
- Management estimated 2023 capital expenditures of approximately US$538 million, compared with approximately US$714 million in 2022, and expects to fund investment through operations and external financing.
- Planned investment priorities include 4G expansion, fiber-to-the-home deployment, transport-network capacity, digital transformation, cloud, cybersecurity, fintech and 5G development.
- Management expects a potential Argentine 5G spectrum tender to support broader 5G deployment in 2023. The filing does not provide formal revenue or EBITDA guidance.
- A court injunction suspending the effects of Decree No. 690/20 and related ENACOM price regulations was extended through September 8, 2023. The ultimate outcome remains uncertain.
- Key risks include hyperinflation, further peso devaluation, exchange controls, restricted access to foreign currency, regulated pricing, competition, rising labor and supplier costs, regulatory and tax claims, refinancing risk, variable interest rates and the transition from LIBOR to a replacement rate.
- Approximately P$112,900 million of debt was indexed to LIBOR and scheduled to mature after June 30, 2023. The company began negotiations to replace LIBOR with SOFR and stated that the expected cash-flow impact was not significant, although the ultimate financing-cost effect remained uncertain.
- Cybersecurity remains a material risk. The company reported two security incidents in Argentina and one minor incident in Paraguay during 2022, stated that malicious activity had been mitigated, and reported no evidence that protected personal data or infrastructure had been compromised as of the filing date. Cyberattack losses were not covered by its insurance policy.
- Purchase commitments totaled approximately P$125,224 million at year-end, including P$35,963 million related to PP&E.
- The company recorded provisions of P$14,288 million for probable contingencies. It also disclosed material unprovided possible contingencies involving regulatory, consumer, labor, tax and pricing matters.
Most important facts an investor should verify
- Whether price increases permitted under the injunction can offset inflation and foreign-currency-linked network costs.
- The sensitivity of goodwill recoverability: at December 31, 2022, value in use exceeded carrying value by only approximately 3.4%; a 1% revenue decline, a WACC increase to 11.31% or a reduction in long-term growth to 1.89% would eliminate the indicated headroom.
- The maturity profile and refinancing plan for 2023 debt obligations, particularly the P$143,026 million of contractual financial-debt cash flows due during 2023.
- The effect of exchange controls and the company’s net unhedged foreign-currency liability of approximately US$2.151 billion; management estimated that a 20% increase in the U.S. dollar exchange rate would affect the consolidated financial position by approximately P$76,223 million.
- The final resolution and duration of the Decree No. 690/20 litigation, related pricing restrictions and other significant regulatory and consumer proceedings.
- Whether operating cash flow can sustain the planned US$538 million 2023 capital-expenditure program while servicing debt and maintaining liquidity.
- The company’s continued customer trends, including mobile churn, declining ARPU, cable subscriber retention and the economics of fiber and 5G deployment.