Telecom Argentina S.A. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021; filed March 22, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and restated into constant Argentine pesos as of December 31, 2021 under IAS 29.
Business context
Telecom provides mobile and fixed telephony, broadband Internet, cable television, data, IT and related digital services, primarily in Argentina, with operations in Paraguay, Uruguay and the United States. At year-end, it reported approximately 20.1 million Argentine mobile subscribers, 2.4 million Paraguayan mobile subscribers, 4.25 million Internet accesses, 3.56 million cable television subscribers and 2.42 million fixed lines.
Key brands and initiatives included Personal for connectivity, Flow for entertainment and Telecom for corporate and government solutions. The company expanded 4G/4G+, FTTH and 5G capabilities, launched Personal Pay and continued its digital transformation and brand simplification.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | P$425,493 million | P$455,234 million | Down 6.5% |
| Adjusted EBITDA | P$132,767 million | P$155,301 million | Down 14.5% |
| Adjusted EBITDA margin | 31.2% | 34.1% | Down 2.9 percentage points |
| Operating income/(loss) | Loss of P$2,787 million | Income of P$30,632 million | Material deterioration |
| Net income/(loss) | Income of P$9,940 million | Loss of P$7,704 million | Improved by P$17,644 million |
| Net income attributable to Telecom | P$8,665 million | Loss of P$8,626 million | Improved by P$17,291 million |
| Operating cash flow | P$130,035 million | P$150,869 million | Down 13.8% |
| Capital expenditures in PP&E and intangibles | P$85,550 million | P$84,124 million | Up 1.7% |
| Total debt | P$266,921 million | P$302,185 million | Down P$35,264 million |
| Cash and cash equivalents | P$19,849 million | P$27,965 million | Down P$8,116 million |
Revenue declines were concentrated in mobile services, Internet, cable television and fixed/data services, partly offset by higher equipment revenue. Services revenue fell 7.7% to P$395,697 million, while equipment revenue rose 12.1% to P$29,796 million.
Operating costs excluding depreciation, amortization and impairment declined 2.4% to P$292,726 million. Bad debt expense fell 51.1% to P$7,983 million, but employee costs rose 4.0% and equipment and handset costs rose 24.7%. Depreciation, amortization and impairment increased 8.7% to P$135,554 million, reflecting the investment program and resulting in an operating loss.
The return to net income was driven primarily by net financial income of P$45,649 million, including foreign-exchange gains and inflation-restatement effects, rather than by improved operating profitability. Income tax expense increased to P$33,317 million, including the effect of Argentine tax-rate changes and the income-tax inflation adjustment.
Cash used in investing activities was P$115,118 million, including P$76,126 million for PP&E and intangible acquisitions and P$39,383 million for investments not classified as cash equivalents. Financing cash flow was negative P$20,296 million. The filing reports a P$5,379 million decrease in cash before foreign-exchange and RECPAM effects; after those effects, reported cash and cash equivalents declined by P$8,116 million.
At year-end, current financial debt was P$64,869 million and non-current financial debt was P$202,052 million. Negative operating working capital was P$68,114 million, and negative working capital including financial items was P$100,433 million. The company reported no defaults on outstanding indebtedness.
Material changes versus the prior comparable period
- Revenue declined 6.5% in constant pesos despite subscriber growth and increased demand for connectivity, as regulated pricing and inflation prevented full pass-through of cost increases.
- Adjusted EBITDA margin contracted from 34.1% to 31.2%, while operating margin moved from positive 6.7% to negative 0.7%.
- Argentine mobile subscribers increased 9.2% to 20.1 million, while monthly churn improved to 1.1% from 2.2%; Argentine mobile ARPU declined 6.3% to P$617.
- Internet accesses increased to 4.25 million, but Internet ARPU declined 10.0% to P$1,727.1. Cable television ARPU declined 9.7% to P$1,883.2, and fixed-service ARBU declined to P$777.2 from P$866.9.
- Operating cash flow declined by P$20,834 million, while capital expenditures remained broadly stable in pesos and increased as a percentage of revenue to approximately 20%.
- Total debt declined, reflecting debt repayments, new local-market issuances and refinancing of IFC and IDB Invest maturities. Most principal maturities originally scheduled for 2022 and 2023 were extended into later years.
- Argentina experienced 50.9% inflation and a 22.1% official peso depreciation in 2021. Approximately P$233,985 million of liabilities were denominated in foreign currencies.
Guidance, outlook, risks and unusual items
- 2022 capital expenditure outlook: Management estimated approximately US$589.5 million, versus approximately US$752 million in 2021, to be funded through operating cash flow, cash on hand and third-party financing.
- Regulation: Decree No. 690/20 classified ICT services as essential and strategically competitive public services and authorized ENACOM to regulate prices. Telecom obtained a preliminary injunction suspending the decree’s application to the company through April 21, 2022; Supreme Court proceedings remained pending at the filing date.
- Pricing and inflation: Service prices did not fully reflect inflation, creating pressure on real revenue, margins and cash generation. Further regulatory restrictions could worsen the effect.
- Foreign exchange and refinancing: Exchange controls may restrict access to dollars for debt service, dividends and capital expenditures. The company remained exposed to approximately US$1,994 million of unhedged net foreign-currency liabilities. Debt indexed to LIBOR totaled approximately P$90,828 million and may require refinancing or replacement-rate negotiations.
- Legal contingencies: Material matters include regulatory disputes involving Decree No. 690/20 and Resolution No. 50/10, labor and consumer claims, spectrum-fee assessments and other tax and regulatory proceedings. Provisions totaled P$11,720 million at year-end; management stated that provisions covered contingencies considered probable.
- Goodwill concentration: Goodwill totaled P$379,220 million, including P$378,863 million allocated to the Argentine cash-generating unit. The recoverable amount exceeded carrying value by approximately 2.2%, making the impairment assessment sensitive to market capitalization, debt values and the control premium.
- Dividends: Telecom distributed non-cash dividends valued at approximately P$40,020 million in current currency, consisting of Argentine government bonds with nominal amounts of approximately US$370.4 million and US$186.6 million.
- Subsequent events: In March 2022, the company issued approximately US$27.7 million of notes and P$2,347.5 million of notes and entered into a P$3,500 million Santander Río loan. It also obtained an undrawn US$23.4 million EDC-backed equipment credit line in January 2022.
- COVID-19: Telecom reported no significant financial-statement impact from the pandemic in 2021 and continued operating as an essential service, while acknowledging risks from future outbreaks, network demand, collections and repairs.
Most important facts for investors to verify
- Whether the company can restore revenue and EBITDA growth while Argentine inflation remains high and regulated price increases lag operating costs.
- The ultimate outcome and financial exposure from the Decree No. 690/20 and Resolution No. 50/10 litigation.
- The maturity profile, currency composition, variable-rate exposure and refinancing needs of the P$266,921 million debt balance.
- The sensitivity of the P$378,863 million Argentine goodwill balance, given only approximately 2.2% headroom in the impairment test.
- Whether 2022 capital expenditures of approximately US$589.5 million can be funded while maintaining liquidity and debt-service capacity.
- The effect of additional peso devaluation, foreign-exchange controls and the transition away from LIBOR on debt service and investment spending.
- The quality and collectability of overdue receivables, including P$12,578 million of overdue balances not covered by the allowance for doubtful accounts.
- The company’s ability to sustain dividends given negative working capital, regulatory restrictions, foreign-exchange controls and ongoing investment requirements.