Telecom Argentina S.A. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; filed March 25, 2021. The filing is an annual report, not a standalone fourth-quarter filing. Financial statements are consolidated, audited, prepared under IFRS as issued by the IASB, and restated into constant Argentine pesos as of December 31, 2020 under IAS 29.
Business context
Telecom provides mobile and fixed telephony, broadband Internet, cable television, data, wholesale, and related digital services, principally in Argentina, with operations in Paraguay, Uruguay and the United States. It reported approximately 18.4 million Argentine mobile subscribers, 4.1 million Internet accesses, 3.5 million cable subscribers and 2.8 million fixed lines at year-end.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | P$301,596 million | P$322,686 million | Down 6.5% |
| Adjusted EBITDA | P$102,888 million | P$104,942 million | Down 2.0% |
| Adjusted EBITDA margin | 34.1% | 32.5% | Up 1.6 percentage points |
| Operating income | P$20,294 million | P$21,503 million | Down 5.6% |
| Operating margin | 6.7% | 6.7% | Stable |
| Net loss | P$5,104 million | P$5,293 million | Loss narrowed P$189 million |
| Net loss attributable to Telecom Argentina | P$5,715 million | P$5,985 million | Loss narrowed P$270 million |
| Operating cash flow | P$101,325 million | P$111,542 million | Down 9.2% |
| Capital expenditures, including right-of-use assets | P$66,750 million | P$96,476 million | Down 30.8% |
| Cash and cash equivalents | P$18,527 million | P$34,827 million | Down P$16,300 million |
| Total financial debt | P$200,200 million | P$206,928 million | Down P$6,728 million |
| Total assets | P$752,054 million | P$787,097 million | Down 4.5% |
Financial results were a net loss of P$17,643 million, compared with a P$7,251 million loss in 2019. The 2020 loss included P$14,368 million of interest on financial debt, P$3,444 million of debt-renegotiation losses and P$1,949 million of real foreign-exchange losses. Income tax expense was P$8,251 million, including a P$14,842 million income-tax inflation adjustment.
Liquidity remained pressured. Negative operating working capital was P$52,787 million, and the liquidity ratio declined to 0.50 from 0.59. Contractual obligations totaled P$316,476 million, including P$240,358 million of debt obligations and P$61,944 million of purchase obligations.
Revenue and operating changes versus 2019
- Mobile services revenue increased 1.3% to P$113,348 million, supported by Argentine mobile revenue growth, higher data usage and a reduction in monthly churn to 2.2% from 2.9%.
- Internet revenue declined 10.4% to P$64,233 million despite a 0.6% increase in the subscriber base. Internet ARPU fell 11.8% to P$1,271, although the proportion of customers with speeds of at least 20 Mbps increased to 71.5% from 62.4%.
- Cable television revenue declined 11.4% to P$59,582 million. Cable ARPU fell 12.9% to P$1,382, partly reflecting the suspension of domestic soccer broadcasts from April through October 2020.
- Fixed and data services revenue declined 10.8% to P$45,597 million, while fixed-line ARBU decreased to P$574.3 from P$602.0.
- Operating costs excluding depreciation, amortization and impairment declined 8.7% to P$198,708 million. Employee costs, programming costs, equipment costs, commissions and regulatory fees decreased, while interconnection costs increased 9.9% and bad-debt expense increased 25.4% to P$10,805 million.
- Revenue declines reflected price controls and restrictions that prevented the Company from fully passing through 36.1% Argentine inflation, as well as weaker collections, reduced equipment sales and pandemic-related disruption.
Debt, refinancing and capital allocation
- In August 2020, Telecom issued US$388.9 million of Series 5 Notes due 2025 at a fixed 8.50% rate, exchanged most Series A Notes and fully repaid its Deutsche Bank loan.
- The Company refinanced portions of its IFC and IDB loans, deferring 85% of certain maturities and prepaying the remainder.
- Series 6 and Series 7 peso-denominated notes were issued in December 2020. In January 2021, the Company issued Series 8 UVA-linked notes equivalent to approximately P$8,709 million, due 2025 at a 4.00% fixed rate.
- Variable-rate debt totaled approximately P$100,366 million. NDFs hedged approximately P$18,513 million, leaving net unhedged variable-rate debt of approximately P$81,853 million.
- Foreign-currency liabilities were approximately P$206,279 million, with a net unhedged foreign-currency liability position of approximately US$2.088 billion. Management estimated that a 10% exchange-rate movement would affect the foreign-currency position by approximately P$17,571 million.
- Shareholders approved a non-cash dividend consisting of Argentine sovereign bonds valued at approximately P$25,713 million in current currency.
Guidance, outlook, commentary and risks
- Management estimated 2021 capital expenditures of approximately US$610 million, compared with approximately US$680 million in 2020, to support 4G, fiber, FTTH, transport networks and digital platforms. Funding is expected from operating cash flow, cash on hand and third-party financing.
- Management expects continued digital transformation, network investment, convergence of fixed and mobile services, and greater use of digital customer channels. Telecom launched an initial 5G network in Argentina in February 2021 using 10 antennas in Buenos Aires and Rosario.
- Argentina’s Decree No. 690/20 classified ICT services as essential public services subject to ENACOM price regulation, imposed a price freeze through December 31, 2020 and established compulsory universal basic service plans. Telecom challenged the decree and related resolutions; the litigation and competing preliminary injunctions remained unresolved at the filing date.
- COVID-19 increased network traffic and affected collections, repairs, installations and bad-debt expense. Management stated that the pandemic had not caused a significant overall impact on financial results as of year-end, but future effects remained uncertain.
- Principal risks include Argentine inflation, peso devaluation, foreign-exchange controls, restricted access to foreign currency, regulated tariffs, recession, competition, refinancing risk, variable interest rates and LIBOR transition, labor claims, regulatory and consumer litigation, cyberattacks, supplier concentration and technology-related capital requirements.
- The filing identifies a critical audit matter involving the P$251,908 million goodwill balance, principally the Argentina cash-generating unit. Recoverable value exceeded carrying value by approximately 4%, making the valuation sensitive to market capitalization and other assumptions.
- The Company reported no defaults on outstanding indebtedness and concluded that its disclosure controls and internal control over financial reporting were effective as of December 31, 2020.
Investor verification checklist
- Verify the sustainability of cash generation against P$101,325 million of operating cash flow, P$66,750 million of capital expenditures and P$200,200 million of financial debt.
- Assess refinancing capacity and maturity concentration, particularly the P$44,774 million of debt obligations due within one year and the Company’s dependence on domestic and international capital markets.
- Review sensitivity to peso devaluation, foreign-exchange controls and the approximately US$2.088 billion net unhedged foreign-currency liability position.
- Monitor the legal outcomes and economic effects of Decree No. 690/20, related tariff injunctions and the pending public tender-offer proceedings.
- Evaluate whether mobile revenue growth can offset declining Internet, cable, fixed-line and equipment revenue, particularly while regulated pricing limits inflation pass-through.
- Review the goodwill impairment assumptions and the approximately 4% headroom for the Argentine cash-generating unit.
- Confirm the treatment, timing and transferability of the non-cash sovereign-bond dividend and any restrictions on dividends or foreign-currency remittances.