TEO

Business Context and Reporting Period

Company: Telecom Argentina S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2024 (9M24) and three months ended September 30, 2024 (3Q24).
Accounting Basis: Unaudited condensed consolidated financial statements prepared in accordance with IFRS, specifically applying IAS 29 for financial reporting in hyperinflationary economies. Figures are restated to current Argentine pesos as of September 30, 2024.

Key Financial Metrics (9M24)

Note: Net income is significantly driven by non-operating financial results, specifically foreign exchange gains and inflation adjustments (RECPAM), rather than core operating profitability.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated revenues decreased 10.4% year-over-year. Despite a 209.0% annual inflation rate in Argentina, the company could not raise prices sufficiently to match inflation, leading to a real-term revenue contraction.
  • Mobile Services: Down 10.6% due to a 14.3% drop in Average Revenue Per User (ARPU), partially offset by a 3.2% increase in the customer base.
  • Cable TV: Down 27.8% due to a 30.1% drop in ARPU.
  • Internet Services: Increased 6.0% driven by a 6.0% rise in ARPU.
• Operating Costs: Total operating costs (excluding depreciation) decreased 10.4%, aligning with revenue trends. Employee benefit expenses fell 9.4% due to a 6.1% reduction in headcount.
• Financial Results: Net income surged 261.7% primarily due to a massive increase in "Financial results from borrowings" (ARS 1,350,487 million vs. ARS 24,640 million in 9M23). This was driven by foreign currency exchange gains on borrowings (ARS 1,522,114 million) as the USD appreciated against the peso, and inflation adjustment gains (RECPAM).
• Debt Reduction: Total borrowings decreased by approximately 38% due to significant prepayments and refinancing activities, including the issuance of Series 21 Notes to repay IFC and IDB loans.

Guidance, Outlook, and Risks

• Outlook: Management anticipates a slowdown in inflation and exchange rate stability. The company remains committed to an operational efficiency plan and a balanced pricing policy to navigate the competitive market.
• Investment Plan: Continued focus on 4G/LTE expansion (97% urban coverage) and 5G deployment (planning 112 sites in 2024). Fiber optic expansion continues to improve broadband speeds.
• Regulatory Environment: Significant positive development with the repeal of Decree No. 690/20, which previously restricted price increases for ICT services. This reduces regulatory uncertainty.
• Risks:
  • Hyperinflation: Continued high inflation (209.0% annual) creates volatility in real-term revenues and costs.
  • Exchange Rate Volatility: While recent gains were positive, future fluctuations in the USD/ARS rate significantly impact financial results and debt servicing.
  • Working Capital: The company maintains a negative working capital position (ARS -1,073,750 million), relying on spontaneous financing from suppliers.

Investor Verification Checklist

• Real vs. Nominal Performance: Verify the distinction between nominal net income (driven by FX gains) and Adjusted EBITDA (core operational performance), which declined 10.5%.
• Debt Covenants: Confirm compliance with the Net Debt/EBITDA ratio waivers obtained in March 2024, which allow a ratio up to 3.75x.
• ARPU Trends: Monitor the trend of Average Revenue Per User (ARPU) across Mobile, Cable, and Internet segments to assess pricing power against inflation.
• Cash Flow Sustainability: Review the 49.3% decline in operating cash flow and its impact on the ability to fund CAPEX (down 18.2% in 9M24) and debt service without further refinancing.
• Regulatory Changes: Track the implementation of the repeal of Decree No. 690/20 and its tangible impact on future pricing flexibility.