Telecom Argentina S.A. — FY2018 SEC Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018; filed March 26, 2019. The source does not provide a separate fourth-quarter filing. Results are consolidated, prepared under IFRS as issued by the IASB, and restated into constant Argentine pesos as of December 31, 2018 under IAS 29.
Business context
Telecom provides fixed and mobile telecommunications, broadband, cable television, data, Internet, and related services primarily in Argentina, with operations in Paraguay, Uruguay, and the United States. The January 1, 2018 merger with Cablevisión materially expanded the business and created a converged “quadruple-play” platform. Because the merger was accounted for as a reverse acquisition, prior-period comparatives principally reflect Cablevisión and are not directly comparable with 2018.
Key financial metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | P$168,046 million | P$66,649 million | +152% |
| Adjusted EBITDA | P$56,368 million | P$24,113 million | +134% |
| Adjusted EBITDA margin | 33.5% | 36.2% | Down 2.7 percentage points |
| Operating income | P$21,257 million | P$14,309 million | +49% |
| Operating margin | 12.6% | 21.5% | Down 8.9 percentage points |
| Net income | P$5,536 million | P$9,859 million | Down 44% |
| Net income attributable to Telecom | P$5,294 million | P$9,731 million | Down 46% |
| Cash flow from operations | P$42,426 million | P$22,808 million | +86% |
| Capital expenditures | P$42,480 million | P$19,923 million | +113% |
| Cash and cash equivalents | P$6,891 million | P$6,517 million | +6% |
| Financial debt | P$79,312 million | P$16,009 million | Substantially higher |
Profitability and financial effects: Operating costs before depreciation, amortization, and impairment rose 163% to P$111,678 million. Depreciation, amortization, and impairment increased to P$35,111 million, including a P$1,623 million impairment of the Arnet trademark, which Telecom planned to discontinue in 2019. Financial results shifted from a P$713 million gain in 2017 to an P$18,795 million net loss in 2018, primarily reflecting debt-related costs and the 102.2% peso depreciation. Inflation exposure generated a P$13,403 million monetary-position gain within other financial results.
Revenue mix: Mobile services generated P$57,776 million, Internet P$37,742 million, cable television P$36,067 million, fixed and data services P$23,149 million, and equipment P$12,834 million. At year-end, the company reported approximately 18.3 million Argentine mobile subscribers, 2.4 million Paraguayan mobile customers, 4.1 million broadband accesses, 3.5 million cable subscribers, and 3.5 million fixed lines.
Cash flow, debt, and liquidity
- Operating cash flow of P$42,426 million was more than offset by P$31,285 million of investing outflows and P$14,597 million of financing outflows, producing a P$3,456 million decrease in cash before foreign-exchange and inflation effects.
- Capital expenditures were 25.3% of revenue and focused on 4G, fiber, broadband access, transport capacity, and network modernization.
- Financial debt totaled P$79,312 million, including P$20,044 million current and P$59,268 million non-current. Approximately 63% of liabilities were denominated in foreign currencies.
- The company reported an operating working-capital deficit of approximately P$8,926 million, a net current financial liability of P$11,032 million, and a liquidity ratio of 0.63.
- Debt obligations and purchase commitments totaled P$134,697 million, including P$92,285 million of debt obligations, P$36,588 million of purchase obligations, P$4,519 million of operating leases, and P$1,305 million of other long-term liabilities.
- Management stated that operating cash flow, working capital, dividends from subsidiaries, and third-party financing were expected to satisfy near-term requirements. The filing also states that the company was not in default on outstanding indebtedness.
Material changes versus prior comparable periods
- The Cablevisión merger added mobile, fixed-line, broadband, and cable operations to the consolidated group, making 2018 revenue and cost comparisons with 2017 structurally difficult.
- Revenue and Adjusted EBITDA increased substantially because of the enlarged group, but margins declined as depreciation, personnel, network, regulatory, content, and handset costs expanded.
- Net income declined despite higher operating income because of foreign-exchange losses, increased debt, and substantially higher financial expenses.
- Cash generated from operations increased, but capital expenditures, dividends, and debt-related cash uses resulted in a year-end cash balance only modestly above 2017.
- Argentina became hyperinflationary for accounting purposes, requiring IAS 29 restatement. National CPI increased 47.6% in 2018 and three-year accumulated inflation reached 147.8%.
Guidance, outlook, commentary, and unusual items
- Management estimated 2019 capital expenditures of approximately US$1.09 billion and described a broader strategic investment plan of approximately US$5.0 billion beginning in 2018.
- On March 4, 2019, Telecom entered into an IFC facility of up to US$450 million to finance 2019 capital investments. The prior US$1.0 billion term loan was repaid in February 2019; the filing also reports a US$100 million partial prepayment of the syndicated loan on March 25, 2019.
- Management expected continued investment in 4G, fiber-to-the-home, higher broadband speeds, network integration, Flow content services, convergence products, and preparation for 5G and Internet-of-Things applications.
- The board proposed allocating P$6,300 million to cash dividends, P$6,300 million to a reserve for future dividends, and P$14,052 million to a reserve for capital investments and solvency. The proposal remained subject to shareholder approval.
- Key risks include Argentine inflation, peso devaluation, foreign-currency debt, high interest rates, restrictions on capital transfers, recession and reduced consumer purchasing power, intense competition, regulatory intervention, spectrum and network deployment obligations, merger integration, labor claims, cyberattacks, and technology investment requirements.
- Regulatory and antitrust matters remain material, including spectrum-cap compliance, behavioral commitments from the merger, fixed Internet pricing and infrastructure-access obligations, provisional interconnection charges, and new service-quality rules.
- Legal and regulatory provisions totaled P$4,212 million at December 31, 2018, while the filing separately reports aggregate provisions of P$3,716 million excluding asset-retirement obligations. The filing also disclosed P$155 million restricted for certain judicial proceedings; investors should reconcile these figures to the relevant notes.
- The company recorded a non-current tax receivable of P$818 million related to claims for Argentine income-tax inflation adjustments, subject to pending tax-authority resolutions.
Important facts for investors to verify
- Reconcile 2018 with 2017 using pro forma or segment information because the reverse-acquisition accounting and Cablevisión merger make reported comparatives non-comparable.
- Review the currency composition, maturities, covenants, and refinancing requirements of the P$79,312 million financial debt, particularly the foreign-currency and LIBOR-linked portions.
- Assess whether operating cash flow can fund the planned US$1.09 billion 2019 capital program while maintaining dividends and meeting debt service.
- Review the sensitivity of earnings, equity, and cash flow to further peso devaluation and inflation; management estimated that a P$1 exchange-rate movement could affect the unhedged foreign-currency position by approximately P$1,773 million.
- Track the pending CNV approval of the mandatory public tender offer at P$110.85 per Class B share and related change-of-control matters.
- Monitor merger-related spectrum-cap compliance, broadband access obligations, pricing restrictions, interconnection appeals, and implementation of new quality regulations.
- Evaluate the status and potential exposure from labor, consumer, tax, regulatory, content-provider, Resolution 50/10, and AFA Plus proceedings.
- Confirm shareholder approval and final terms of the proposed 2018 earnings allocation and dividends.