Telecom Argentina S.A. — FY2023 Form 20-F Summary
Business context and reporting period
Telecom Argentina provides mobile and fixed telecommunications, broadband Internet, cable television, data, cybersecurity, fintech and related digital services primarily in Argentina, with operations in Paraguay, Uruguay, the United States and Chile. The filing is an annual Form 20-F for the year ended December 31, 2023, filed March 21, 2024; it is not a standalone 2023 fourth-quarter filing. Financial statements are prepared under IFRS Accounting Standards and restated into constant Argentine pesos as of December 31, 2023 under IAS 29.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | P$2,059,101 million | P$2,270,728 million | Down 9.3% |
| Net income/(loss) | Loss of P$249,687 million | Loss of P$640,379 million | Loss narrowed P$390,692 million |
| Operating income/(loss) | Loss of P$125,065 million | Loss of P$918,469 million | Improved P$793,404 million |
| Adjusted EBITDA | P$579,396 million | P$623,998 million | Down 7.1% |
| Adjusted EBITDA margin | 28.1% | 27.5% | Up 0.6 percentage points |
| Operating cash flow | P$617,698 million | P$666,486 million | Down 7.3% |
| Cash and cash equivalents | P$159,774 million | P$124,725 million | Up P$35,049 million |
| Total borrowings | P$2,128,069 million | P$1,461,091 million | Up 45.6% |
| Total assets | P$5,477,603 million | P$5,384,152 million | Up 1.7% |
The 2023 net loss equaled 12.1% of revenue. The improvement from 2022 primarily reflected the absence of the P$759,523 million goodwill impairment recognized in 2022 and a larger income-tax benefit. These benefits were partly offset by a P$460,991 million net financial loss, including substantial foreign-exchange losses on borrowings.
Revenue, operations and margins
- Mobile services revenue was P$829,552 million, down 9.1%. Argentine mobile customers increased to 21.0 million from 20.2 million, while mobile ARPU declined 11.0% to P$3,056.1 per month. Average monthly churn improved to 1.8% from 2.3%.
- Internet revenue was P$449,904 million, down 10.7%. The customer base remained approximately 4.1 million, but ARPU fell 8.8% to P$8,671.6. Customers with speeds of at least 100 MB represented 85% of the base, compared with 79% in 2022.
- Cable television revenue was P$363,367 million, down 10.9%. Argentine customers declined 3.5% to approximately 3.1 million, while ARPU decreased 8.2% to P$8,591.2. Monthly churn increased to 1.8% from 1.3%.
- Fixed and data services revenue was P$244,009 million, down 12.0%. The fixed-service customer base declined and ARPU decreased 6.5% to P$4,205.1.
- Equipment revenue increased 1.2% to P$153,169 million, supported by a 13% increase in handsets sold.
- Operating costs excluding depreciation, amortization and impairment declined 10.1% to P$1,479,705 million, reflecting cost efficiencies, lower severance expense, reduced programming costs and lower maintenance and service costs.
Cash flow, liquidity, debt and capital expenditures
- Operating cash flow of P$617,698 million exceeded investing cash outflows of P$593,707 million. Financing activities used P$72,040 million, resulting in a reported P$35,049 million increase in cash after foreign-exchange and inflation effects.
- Cash investing outflows included P$463,508 million for PP&E and intangible assets and P$127,805 million for investments not treated as cash equivalents.
- Capital expenditures in PP&E, intangible assets and right-of-use assets totaled P$568,817 million, approximately US$940 million, or 23.8% of revenue. Management estimates 2024 capital expenditures of approximately US$481 million, primarily for broadband, 4G, 5G and service-quality initiatives.
- Total borrowings rose to P$2,128,069 million. Approximately 85.6% of debt was scheduled to mature within three years, including 26.5% in 2024. The company reported a net foreign-currency liability position of P$2,073,259 million.
- Current liabilities exceeded current assets by P$614,317 million, and the liquidity ratio was 0.44. Management expects operating cash flow, cash on hand, subsidiary dividends and third-party financing to support liquidity, but assumes continued access to domestic and international capital markets for refinancing.
- Loans from IFC, IIC, IDB, Finnvera, EDC and CDB totaled P$769,919 million and include Net Debt/EBITDA and EBITDA/Interest Net covenants. The company obtained waivers through March 31, 2025, including a temporary Net Debt/EBITDA limit of 3.75 and a US$2.7 billion net-debt threshold for specified calculation dates. Management stated that the company was in compliance with the waived covenant requirements as of the filing date.
Material changes and unusual items
- Argentina’s CPI increased 211.4% in 2023, while the peso depreciated 356.3% against the U.S. dollar. The company could not increase prices sufficiently to offset inflation, reducing real revenue and ARPU across major service categories.
- Net financial results shifted from a P$193,004 million gain in 2022 to a P$460,991 million loss in 2023. Foreign-currency losses on borrowings were P$624,826 million, partly offset by a P$187,819 million inflation-adjustment gain and P$64,323 million of fair-value gains on financial assets.
- Telecom acquired a 100 MHz 3.5 GHz 5G spectrum block for US$350 million and capitalized approximately P$173,373 million as an intangible asset. It had 68 5G sites at year-end and expected to add approximately 200 sites in 2024.
- Telecom issued new US$-linked and UVA-linked notes and obtained new multilateral financing, including US$120 million of IDB tranches used to fund the 5G spectrum purchase.
- The company distributed non-cash dividends consisting of Argentine government bonds with a transaction-date value of P$47,701 million, restated to P$104,445 million at December 31, 2023.
- Telecom recorded no 2023 goodwill impairment; however, goodwill remained substantial at P$1,543,964 million. Management’s 2023 impairment test showed recoverable value exceeding the Telecom cash-generating unit’s carrying amount by approximately 27.9%, but the assessment relied on market capitalization, a 29% control premium and other valuation judgments.
- Telecom acquired a 50% interest in Open Pass Holding LLC, a software-development joint venture, for a stated transaction price of US$13.8 million.
Guidance, outlook, commentary and risks
Management expects continued pressure from inflation, currency devaluation, high interest rates, import restrictions and limited access to foreign currency. It intends to focus on cost control, customer retention, broadband and mobile-network investment, 5G deployment, Personal Pay, cybersecurity, fintech, IoT, entertainment and digital transformation. The company expects 2024 capital expenditures of approximately US$481 million, funded through operating cash flow, cash on hand and third-party financing.
- The injunction suspending Decree 690/20 tariff-regulation measures remained in force through August 20, 2024, while related appeals were pending. A first-instance court also ruled the decree and related ENACOM resolutions null, but the ultimate outcome remained uncertain.
- Foreign-exchange controls limited access to the official market and contributed to accumulated overdue commercial debt in foreign currency. Telecom participated in BOPREAL auctions in January and February 2024 to help settle commercial obligations with vendors.
- Key risks include further peso devaluation, accelerating inflation, inability to refinance debt, covenant pressure, variable interest rates, regulated pricing, competition, lower customer purchasing power, import and supplier constraints, litigation, labor claims, regulatory changes, cyberattacks and political uncertainty following Argentina’s change in government.
- The company reported purchase commitments of approximately P$586,790 million at year-end, including P$139,154 million related to fixed assets. It had provisions of P$31,457 million for legal claims and other contingencies and stated that provisions covered contingencies considered probable.
- No significant cybersecurity incident materially affected the company in 2023, 2022 or 2021, but cyberattack insurance did not cover such losses.
Important facts for investors to verify
- Whether 2024 tariff increases and pricing flexibility can offset inflation, currency-driven costs and competition.
- The maturity schedule and refinancing progress for the 26.5% of debt scheduled to mature in 2024, as well as compliance with amended lender covenants.
- The magnitude and settlement timing of overdue foreign-currency commercial debt and the effectiveness of BOPREAL-related vendor settlements.
- The sensitivity of earnings, liquidity and covenant ratios to further peso devaluation, inflation and interest-rate increases.
- The assumptions supporting the P$1.54 trillion goodwill balance, including the 29% control premium and market capitalization valuation.
- The outcome of litigation and regulatory matters involving Decree 690/20, tariff regulation, spectrum fees, pay-TV pricing, consumer claims, labor contributions and universal-service obligations.
- Whether planned 2024 capex of approximately US$481 million is sufficient to meet 4G, 5G, broadband and service-quality objectives without weakening liquidity.
- That Adjusted EBITDA is a non-IFRS measure and may not be comparable with similarly named measures reported by other telecommunications companies.
The consolidated financial statements received an unqualified audit opinion from Price Waterhouse & Co. S.R.L., and management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2023.