TEO

Business Context and Reporting Period

Company: Telecom Argentina S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited condensed consolidated financial statements for the three-month period ended March 31, 2024.
Filing Date: July 8, 2024
Accounting Basis: Prepared in accordance with IFRS Accounting Standards, specifically IAS 29 for financial reporting in hyperinflationary economies. All figures are restated to current Argentine pesos as of March 31, 2024.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 17.9% to ARS 683.9 billion. This decline is primarily attributed to the company's inability to raise prices at the same rate as Argentina's annual inflation (287.9%), despite stable or growing customer bases in some segments.
• Net Income Surge: Net income increased significantly to ARS 675.0 billion (up from ARS 110.5 billion). This is driven almost entirely by a massive financial gain of ARS 913.4 billion, largely due to foreign currency exchange gains on borrowings (ARS 853.7 billion) resulting from the peso's devaluation relative to inflation.
• Operating Performance: Operating loss widened to ARS 26.1 billion from ARS 12.0 billion. Adjusted EBITDA decreased 17.9% to ARS 207.1 billion, reflecting the revenue pressure.
• Segment Performance:
  • Mobile Services: Revenues fell 18.1% due to a 23.6% drop in Average Revenue Per User (ARPU), partially offset by a 3.3% increase in customers.
  • Cable TV: Revenues dropped 34.5% due to a 37.5% decline in ARPU and a 1.5% decrease in the customer base.
  • Internet Services: Revenues declined 7.6% due to a 9.8% drop in ARPU, though the customer base remained stable at 4.1 million.

Outlook, Risks, and Management Commentary

• Regulatory Environment: On April 9, 2024, the Argentine government repealed Decree No. 690/20, which had declared ICT services as essential public services and restricted price setting. Management views this as reducing uncertainty and generating positive expectations for the sector.
• Capital Expenditures (CAPEX): Total CAPEX and right-of-use asset additions increased 8.6% to ARS 145.5 billion. Investments focus on 4G/LTE expansion (97% urban coverage), 5G deployment (targeting 200 sites in 2024), and fiber optic infrastructure.
• Liquidity and Debt: The company maintains a negative working capital structure typical of capital-intensive industries. It has obtained waivers for its Net Debt/EBITDA ratio (raised to 3.75) and remains in compliance with debt covenants. Cash and cash equivalents decreased by ARS 91.6 billion during the quarter.
• Risks: Primary risks include the hyperinflationary environment in Argentina, the inability to pass on cost increases to customers, and the volatility of the exchange rate. The company relies on operating cash flows and third-party financing to fund operations and CAPEX.

Investor Verification Checklist

• Inflation Restatement Impact: Verify the magnitude of the "financial gain" (ARS 853.7 billion) derived from currency translation and inflation adjustments, as this distorts the true operational profitability.
• ARPU Trends: Monitor the continued decline in ARPU across Mobile, Cable, and Internet segments to assess pricing power against inflation.
• Debt Covenants: Confirm ongoing compliance with the waived Net Debt/EBITDA ratio and the ability to refinance debt in the current economic climate.
• Regulatory Changes: Track the implementation of the repeal of Decree No. 690/20 and any subsequent regulatory measures affecting price controls.
• 5G Deployment: Assess the progress of 5G site deployment and the associated capital requirements versus revenue generation from new services.