Telecom(TEO) - 2024 Q2 - Quarterly Report

FORM 6-K Filing Information This section details Telecom Argentina S.A.'s Form 6-K filing for July 2024, noting its annual reports are filed under Form 20-F Filing Details This document is a Form 6-K report filed by Telecom Argentina S.A. with the SEC for the month of July 2024 - Telecom Argentina S.A. filed a Form 6-K report for July 2024[1] - The company files annual reports under Form 20-F[1] Unaudited Condensed Consolidated Financial Statements This section presents Telecom Argentina's unaudited condensed consolidated financial statements as of March 31, 2024, prepared under IAS 34 and restated for hyperinflation Glossary of Terms This section defines key financial, regulatory, and company-specific terms used in the unaudited condensed consolidated financial statements for clarity - The glossary defines terms such as ADS, ADR, BYMA, CAPEX, CNV, DFI, DNU, Fintech, IFRS Accounting Standards, INDEC, LAD, LGS, NYSE, OPH, PEN, PP&E, RECPAM, RT, Telecom, USA, UVA, and VLG[7][8][9][10][11][12][13][14][15][16][17] Consolidated Statements of Financial Position As of March 31, 2024, total assets and liabilities slightly decreased, while total equity increased, driven by investments despite lower cash Consolidated Statements of Financial Position (March 31, 2024 vs. December 31, 2023) | Indicator | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | 8,143,553 | 8,305,246 | | Current Assets | 770,327 | 731,089 | | Cash and cash equivalents | 150,604 | 242,252 | | Investments | 315,094 | 187,964 | | Non-Current Assets | 7,373,226 | 7,574,157 | | Total Liabilities | 4,167,697 | 4,900,683 | | Current Liabilities | 1,533,735 | 1,678,027 | | Non-Current Liabilities | 2,633,962 | 3,222,656 | | Total Equity | 3,975,856 | 3,404,563 | Consolidated Income Statements Net income significantly increased in 3M24 due to a substantial rise in financial costs, despite decreased revenues and an operating loss Consolidated Income Statement (Three-month period ended March 31, 2024 vs. 2023) | Indicator | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Revenues | 683,916 | 833,213 | | Operating loss | (26,147) | (11,985) | | Financial costs | 797,844 | 34,582 | | Other financial results, net | 115,520 | 40,567 | | Income before income tax | 885,858 | 64,812 | | Income tax benefit (expense) | (210,826) | 45,665 | | Net income for the period | 675,032 | 110,477 | | Earnings per share (Basic and diluted) | 312.14 | 49.99 | - Net income for the period increased significantly from ARS 110,477 million in 3M23 to ARS 675,032 million in 3M24[20] - Financial costs surged from ARS 34,582 million in 3M23 to ARS 797,844 million in 3M24, contributing heavily to the income before tax[20] Consolidated Statements of Comprehensive Income Total comprehensive income for 3M24 significantly increased, despite a substantial other comprehensive loss from currency translation adjustments Consolidated Statements of Comprehensive Income (Three-month period ended March 31, 2024 vs. 2023) | Indicator | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net income for the period | 675,032 | 110,477 | | Other comprehensive loss, net of tax | (103,739) | (3,483) | | Total comprehensive income for the period | 571,293 | 106,994 | | Attributable to Controlling Company | 598,958 | 104,663 | | Attributable to Non-controlling interest | (27,665) | 2,331 | - Currency translation adjustments resulted in a significant loss of ARS 104,170 million in 3M24, compared to ARS 2,987 million in 3M23[22] Consolidated Statements of Changes in Equity Total equity increased in 3M24, primarily driven by net income, partially offset by other comprehensive losses Consolidated Statements of Changes in Equity (March 31, 2024 vs. January 1, 2024) | Indicator | March 31, 2024 (millions ARS) | January 1, 2024 (millions ARS) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Total Equity | 3,975,856 | 3,404,563 | | Equity attributable to Controlling Company | 3,885,937 | 3,286,979 | | Equity attributable to non-controlling interest | 89,919 | 117,584 | | Net income for the period (Controlling Company) | 672,260 | - | | Other comprehensive loss (Controlling Company) | (73,302) | - | - Retained earnings for the controlling company shifted from a deficit of ARS (390,775) million at January 1, 2024, to a positive balance of ARS 281,485 million by March 31, 2024[23] Consolidated Statements of Cash Flows Operating cash flows decreased, investing cash outflows decreased, and financing cash inflows increased, leading to a net decrease in cash Consolidated Statements of Cash Flows (Three-month period ended March 31, 2024 vs. 2023) | Indicator | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Cash flows from operating activities | 171,229 | 206,118 | | Cash flows used in investing activities | (224,218) | (237,682) | | Cash flows from financing activities | 27,656 | 9,735 | | Net decrease in cash and cash equivalents | (25,333) | (21,829) | | Cash and cash equivalents at end of period | 150,604 | 161,330 | - Net income for the period was ARS 675,032 million in 3M24, a substantial increase from ARS 110,477 million in 3M23[27] - Financial results and others had a significant negative adjustment of ARS (950,299) million in 3M24, compared to ARS (108,452) million in 3M23, impacting operating cash flows[27] Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations for the unaudited financial statements, covering accounting policies, asset/liability categories, and recent developments - The financial statements are prepared in accordance with IAS 34 Interim Financial Reporting and must be read jointly with the annual financial statements as of December 31, 2023[31][32] - The financial information is expressed in millions of Argentine pesos, on an accrual basis, based on historical cost, and prepared in current currency as of March 31, 2024, due to Argentina being a hyperinflationary economy[37] Note 1 – Basis of Preparation and Accounting Policies This note outlines the preparation of interim financial statements under IAS 34, consolidation of subsidiaries, segment reporting, and IAS 29 application for hyperinflation - The financial statements consolidate entities like Núcleo (Paraguay), Personal Smarthome (Argentina), Opalker (Uruguay), and Telecom USA, among others[33][34][35] - Telecom operates as a single business unit for ICT Services in Argentina, with other international and fintech activities grouped under 'Other segments' due to non-significance[40][41][42] Key Inflation and Exchange Rate Data | Indicator | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------ | :------------- | :---------------- | :------------- | | National CPI (Dec 2016=100) | 5,357.09 | 3,533.19 | 1,381.16 | | Annual Variation in prices | 287.9% | 211.4% | 104.3% | | Accumulated 3 months Variation in prices | 51.6% | n/a | 21.7% | | Banco Nación US$/$ exchange rate | 858 | 808.45 | 209.01 | | Annual Variation in the exchange rate | 310.5% | 356.3% | 88.3% | | Accumulated 3 months Variation in the exchange rate | 6.1% | n/a | 18.0% | Note 2 – Cash and Cash Equivalents and Investments Cash and cash equivalents decreased, while current investments significantly increased, with details on financing activities and non-cash transactions Cash and Cash Equivalents & Investments (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | 150,604 | 242,252 | | Current Investments | 315,094 | 187,964 | | Non-Current Investments | 32,937 | 36,097 | | Total Investments | 348,031 | 224,061 | - Main financing activities in 3M24 included ARS 191,171 million from borrowings proceeds and ARS (73,487) million in payments of borrowings[63] - Non-cash operating transactions included ARS 48,710 million for PP&E and intangible asset acquisitions financed with accounts payable, and ARS 40,804 million for right-of-use asset acquisitions through leases in 3M24[64] Note 3 – Trade Receivables Net trade receivables increased, while the allowance for doubtful accounts decreased due to uses and RECPAM adjustments Trade Receivables (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total trade receivables, net | 209,002 | 201,839 | | Allowance for doubtful accounts | (49,099) | (53,254) | - Movements in the allowance for doubtful accounts included increases of ARS (17,020) million and uses of ARS 1,907 million in 3M24[70] Note 4 – Other Receivables Net other receivables decreased, primarily in non-current receivables, due to reductions in income tax credits and guarantee deposits Other Receivables (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total other receivables, net | 73,125 | 81,374 | | Current Other Receivables | 51,774 | 51,611 | | Non-Current Other Receivables | 21,351 | 29,763 | - Non-current other receivables decreased by ARS 8,412 million, mainly due to decreases in income tax credits and guarantee deposits[71] Note 5 – Inventories Total inventories decreased, accompanied by an increase in the allowance for obsolescence Inventories (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total inventories | 44,208 | 47,805 | | Mobile handsets and others | 47,147 | 49,878 | | Allowance for obsolescence | (2,939) | (2,073) | - The allowance for obsolescence of inventories increased by ARS 866 million in 3M24[74] Note 6 – Goodwill Total goodwill slightly decreased, primarily due to currency translation adjustments Goodwill (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total goodwill | 2,337,135 | 2,340,988 | | Argentina | 2,328,158 | 2,328,158 | | Abroad | 8,977 | 12,830 | - Currency translation adjustments resulted in a decrease of ARS (3,853) million in goodwill during 3M24[75] Note 7 – PP&E (Properties, Plant & Equipment) Total PP&E decreased, influenced by depreciation and currency translation adjustments, despite new CAPEX PP&E (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | PP&E | 3,283,930 | 3,444,604 | | PP&E (gross) | 3,321,601 | 3,481,709 | | Allowance for obsolescence and impairment | (37,671) | (37,105) | - CAPEX for 3M24 amounted to ARS 98,191 million, while depreciation for the period was ARS (177,941) million[76] - Currency translation adjustments led to a decrease of ARS (80,204) million in PP&E during 3M24[76] Note 8 – Intangible Assets Total intangible assets decreased, primarily due to amortization and currency translation adjustments Intangible Assets (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Intangible assets | 1,355,603 | 1,374,340 | | Intangible assets (gross) | 1,407,030 | 1,425,767 | | Impairment allowance | (51,427) | (51,427) | - Amortization of intangible assets for 3M24 was ARS (20,873) million, and CAPEX for intangible assets was ARS 6,477 million[80] Note 9 – Right of Use Assets Total right-of-use assets slightly decreased, with new additions partially offset by amortization and currency adjustments Right of Use Assets (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Leases rights of use | 325,633 | 327,036 | | Sites | 205,424 | 208,734 | | Asset retirement obligations | 54,664 | 57,145 | - Additions to right-of-use assets amounted to ARS 40,804 million in 3M24, while amortization was ARS (34,386) million[81] Note 10 – Trade Payables Total trade payables decreased, mainly driven by a reduction in current suppliers' payables Trade Payables (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total trade payables | 426,632 | 542,455 | | Current Suppliers | 407,528 | 532,484 | | Non-current Suppliers | 11,192 | 1,386 | - Current trade payables decreased by ARS 125,629 million, while non-current trade payables increased by ARS 9,806 million[82] Note 11 – Borrowings Total borrowings decreased, primarily due to significant exchange differences and currency translation adjustments Borrowings (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total borrowings | 2,446,036 | 3,226,619 | | Current Borrowings | 854,148 | 854,356 | | Non-Current Borrowings | 1,591,888 | 2,372,263 | - Net cash flows from borrowings were ARS 41,275 million, but exchange differences and currency translation adjustments resulted in a decrease of ARS (878,396) million[86] - The Company complied with the EBITDA/Net Interest ratio and Net Debt/EBITDA ratio established in the waivers obtained in March 2024[87] Note 12 – Salaries and Social Security Payables Total salaries and social security payables decreased Salaries and Social Security Payables (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total payables | 133,612 | 143,842 | | Current | 127,776 | 138,188 | | Non-current | 5,836 | 5,654 | Note 13 – Income Tax and Deferred Tax Net deferred tax liability increased, and the company holds significant tax loss carryforwards Deferred Income Tax Assets and Liabilities (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total deferred tax liability, net | 890,171 | 678,245 | | Net deferred tax assets | (16,282) | (20,947) | | Net deferred tax liabilities | 906,453 | 699,192 | - Telecom and subsidiaries have cumulative tax loss carryforwards of ARS 479,244 million as of March 31, 2024, with most expiring in 2028[93] - Income tax expense for 3M24 was ARS (210,826) million, a significant shift from a benefit of ARS 45,665 million in 3M23[93] Note 14 – Other Taxes Payables Total other taxes payables slightly increased, primarily due to current national taxes Other Taxes Payables (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total other taxes payables | 61,307 | 59,374 | | Current | 61,300 | 59,357 | | Non-current | 7 | 17 | Note 15 – Leases Liabilities Total leases liabilities decreased, influenced by payments and RECPAM/currency adjustments Leases Liabilities (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total leases liabilities | 113,529 | 134,405 | | Current | 40,178 | 43,570 | | Non-current | 73,351 | 90,835 | - Payments of leases liabilities amounted to ARS (13,619) million in 3M24[96] Note 16 – Other Liabilities Total other liabilities decreased, with reductions in both current and non-current categories Other Liabilities (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total other liabilities | 36,949 | 44,732 | | Current | 26,736 | 31,022 | | Non-current | 10,213 | 13,710 | - Deferred revenues on prepaid credit decreased from ARS 12,063 million to ARS 9,912 million[98] Note 17 – Provisions Total provisions decreased, mainly due to RECPAM and currency translation adjustments Provisions (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total provisions | 40,250 | 47,696 | | Current | 5,228 | 8,097 | | Non-Current | 35,022 | 39,599 | - RECPAM and currency translation adjustments reduced total provisions by ARS (13,083) million in 3M24[99] Note 18 – Financial Assets and Liabilities The company reported net financial liabilities in foreign currencies, with instruments classified across fair value hierarchy levels Financial Assets and Liabilities in Foreign Currencies (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Assets | 189,971 | 271,373 | | Liabilities | (2,341,538) | (3,414,888) | | Net Liabilities | (2,151,567) | (3,143,515) | - As of March 31, 2024, total financial assets recognized at fair value were ARS 324,110 million, with ARS 321,998 million in Level 1 (Mutual Funds, Government bonds) and ARS 2,112 million in Level 2 (DFI, Indemnification assets)[108] - The fair value of borrowings was ARS 2,375,472 million, compared to a carrying value of ARS 2,446,036 million, with Notes classified as Level 1 or 2 and other borrowings as Level 3[110][111] Note 19 – Purchase Commitments The company has outstanding purchase commitments, including for fixed assets, some with 'take or pay' clauses - Total purchase commitments amounted to approximately ARS 555,780 million as of March 31, 2024[113] - Fixed Assets commitments represent ARS 166,041 million of the total[113] - Some commitments include 'take or pay' clauses[113] Note 20 – Equity Telecom Argentina's capital stock remained stable, represented by common shares across four classes, subject to legal reserve requirements Capital Stock (March 31, 2024) | Class of Shares | Total (shares) | | :---------------- | :------------- | | Class "A" | 683,856,600 | | Class "B" | 628,058,019 | | Class "C" | 106,734 | | Class "D" | 841,666,658 | | Total | 2,153,688,011 | - All shares are authorized by the CNV for public offering, and Class B Shares are traded on BYMA and NYSE (as ADSs)[115] - A minimum of 5% of net income must be appropriated to a legal reserve until it reaches 20% of outstanding capital plus inflation adjustment[116] Note 21 – Revenues Total revenues decreased in 3M24, with Mobile Services remaining the largest contributor, impacted by the inability to raise prices with inflation Revenues by Service (Three-month period ended March 31, 2024 vs. 2023) | Service Category | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :----------------------- | :----------------------------- | :----------------------------- | | Mobile Services | 278,328 | 339,812 | | Internet Services | 168,535 | 182,364 | | Cable Television Services | 101,424 | 154,795 | | Fixed and Data Services | 95,749 | 95,032 | | Other services revenues | 7,836 | 6,769 | | Subtotal Services revenues | 651,872 | 778,772 | | Equipment revenues | 32,044 | 54,441 | | Total Revenues | 683,916 | 833,213 | - Services revenues decreased by 16.3%, while equipment revenues decreased by 41.1% year-over-year[117] Note 22 – Operating Expenses Total operating expenses decreased in 3M24, with reductions across most categories including employee benefits, taxes, commissions, and depreciation Operating Expenses by Nature (Three-month period ended March 31, 2024 vs. 2023) | Expense Category | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Employee benefit expenses and severance payments | (157,824) | (200,408) | | Fees for services, maintenance, materials and supplies | (100,037) | (97,685) | | Taxes and fees with the Regulatory Authority | (52,700) | (64,161) | | Commissions and advertising | (35,507) | (48,550) | | Cost of equipment | (23,857) | (38,663) | | Programming and content costs | (37,456) | (47,770) | | Bad debt expenses | (17,020) | (25,208) | | Other operating expenses | (27,293) | (33,620) | | Depreciation, amortization and impairment of Fixed Assets | (233,281) | (264,278) | | Total Operating Expenses | (710,063) | (845,198) | - Employee benefit expenses decreased by 21.2% due to headcount reduction, partially offset by salary increases[118][174] - Depreciation, amortization, and impairment of Fixed Assets decreased by 11.7%, mainly due to assets reaching the end of their useful life[121][192] Note 23 – Financial Results Net financial results significantly increased in 3M24, primarily driven by foreign currency exchange gains on borrowings Financial Results (Three-month period ended March 31, 2024 vs. 2023) | Financial Result Category | March 31, 2024 (millions ARS) | March 31, 2023 (millions ARS) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Interests on borrowings | (26,368) | (26,833) | | Remeasurement in borrowings | (29,511) | 10,981 | | Foreign currency exchange gains on borrowings | 853,723 | 51,644 | | Total financial cost | 797,844 | 34,582 | | Fair value gains/(losses) on financial assets | (23,767) | (11,047) | | Other foreign currency exchange gains (losses) | 97,655 | (3,157) | | RECPAM | 52,700 | 62,129 | | Total other financial results, net | 115,520 | 40,567 | | Total financial results, net | 913,364 | 75,149 | - Foreign currency exchange gains on borrowings increased dramatically from ARS 51,644 million in 3M23 to ARS 853,723 million in 3M24[122] - Remeasurement in borrowings shifted from a gain of ARS 10,981 million in 3M23 to a loss of ARS (29,511) million in 3M24[122] Note 24 – Related Party Transactions This note details financial balances and transactions with associates, joint ventures, and other related parties, with CVH as the controlling company - CVH is the controlling company of Telecom Argentina, holding 28.16% of the capital stock, with additional shares in a Voting Trust[124] Current Assets with Associates and Joint Ventures (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Trade receivables | 38 | 56 | | Other receivables | 319 | 321 | Current Liabilities with Associates and Joint Ventures (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 (millions ARS) | December 31, 2023 (millions ARS) | | :-------------------------- | :----------------------------- | :----------------------------- | | Trade payables | 1,002 | 1,631 | | Other liabilities | 2,559 | 3,575 | Note 25 – Recent Developments (3M24) The precautionary measure suspending Decree No. 690/20 was extended, then the decree was derogated, impacting ICT Services regulation - Precautionary measure suspending Decree No. 690/20 was extended until August 20, 2024[132] - Decree No. 690/20, which declared ICT Services as essential public services and limited price setting, was derogated by Decree No. 302/24 on April 9, 2024[133] Note 26 – Subsequent Events Shareholders approved absorbing accumulated deficit from a voluntary reserve, reclassifying a portion, and delegating power for potential dividend distribution - Shareholders approved absorbing ARS 257,730 million (ARS 390,775 million in current currency as of March 31, 2024) of accumulated deficit from the 'Voluntary reserve to maintain the Company's level of capital expenditures and its current solvency level'[134] - ARS 84,257 million (ARS 127,752 million in current currency as of March 31, 2024) was reclassified from the voluntary reserve to 'Contributed Surplus'[134] - The Board of Directors was delegated power to reverse the voluntary reserve between October 1, 2024, and December 31, 2024, for dividend distribution up to US$100 million[134] Corporate Information This section provides market quotation data for Telecom Argentina's shares and ADSs, along with contact information for auditors and investor relations Market Quotations and Investor Relations This section provides market quotation data for Telecom Argentina's shares on BYMA and its ADSs on NYSE, along with contact information BYMA Market Quotation ($/share) | Quarter | High ($) | Low ($) | Volume of shares traded (in millions) | | :------ | :------- | :------ | :------------------------------------ | | 1Q23 | 499.50 | 332.25 | 8.4 | | 2Q23 | 687.45 | 390.73 | 7.0 | | 3Q23 | 959.80 | 621.60 | 11.9 | | 4Q23 | 1,752.45 | 773.30 | 10.6 | | 1Q24 | 2,073.15 | 1,333.80| 8.5 | NYSE Market Quotation (US$/ADR) | Quarter | High (US$/ADR) | Low (US$/ADR) | Volume of ADRs traded (in millions) | | :------ | :------------- | :------------ | :---------------------------------- | | 1Q23 | 6.70 | 4.24 | 8.2 | | 2Q23 | 6.72 | 4.71 | 6.5 | | 3Q23 | 6.43 | 4.79 | 8.0 | | 4Q23 | 8.64 | 4.60 | 11.0 | | 1Q24 | 7.97 | 6.53 | 8.7 | - Independent Auditors are Price Waterhouse & Co S.R.L. (PricewaterhouseCoopers)[136] Operating and Financial Review and Prospects This section provides an overview of Telecom Argentina's operating and financial performance, liquidity, capital resources, and future outlook as of March 31, 2024 1. General Considerations This section highlights that the operating and financial review is presented with comparative balances restated to current currency due to Argentina's hyperinflation - Financial information is restated to current currency as of March 31, 2024, due to Argentina's hyperinflationary economy (IAS 29)[139] - The National Consumer Price Index (CPI) increased by 287.9% for the twelve-month period ended March 31, 2024[140] 2. Telecom's Activities (3M24 vs. 3M23) Net income significantly increased in 3M24 due to financial results, despite decreased revenues and operating loss, while Adjusted EBITDA declined Key Financial Highlights (3M24 vs. 3M23) | Indicator | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | Variation (%) | | :------------------------------------------ | :--------------- | :--------------- | :-------------------- | :------------ | | Revenues | 683,916 | 833,213 | (149,297) | (17.9) | | Operating loss | (26,147) | (11,985) | (14,162) | 118.2 | | Financial costs | 797,844 | 34,582 | 763,262 | n/a | | Other financial results, net | 115,520 | 40,567 | 74,953 | 184.8 | | Net income for the period | 675,032 | 110,477 | 564,555 | n/a | | Adjusted EBITDA | 207,134 | 252,293 | (45,159) | (17.9) | - Net income increased to ARS 675,032 million in 3M24 (98.7% of revenues) from ARS 110,477 million in 3M23 (13.3% of revenues), mainly due to financial results[142] - Adjusted EBITDA decreased by 17.9% to ARS 207,134 million, maintaining 30.3% of revenues, as revenue decline outpaced operating cost reductions[143] Revenues Total revenues decreased by 17.9% in 3M24, primarily because the company could not increase prices at the same rate as Argentina's high annual inflation Revenues by Service (3M24 vs. 3M23) | Service Category | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | Variation (%) | | :----------------------- | :--------------- | :--------------- | :-------------------- | :------------ | | Mobile Services | 278,328 | 339,812 | (61,484) | (18.1) | | Internet Services | 168,535 | 182,364 | (13,829) | (7.6) | | Cable Television Services | 101,424 | 154,795 | (53,371) | (34.5) | | Fixed and Data Services | 95,749 | 95,032 | 717 | 0.8 | | Other services revenues | 7,836 | 6,769 | 1,067 | 15.8 | | Equipment revenues | 32,044 | 54,441 | (22,397) | (41.1) | - The inability to raise prices in line with 287.9% annual inflation was the main driver for the revenue decrease[145] Mobile Services Mobile services revenues decreased by 18.1% in 3M24, primarily due to a decrease in ARPU despite an increase in the customer base - Mobile services revenues in Argentina decreased by 21% to ARS 248,513 million[148] - ARPU in Argentina decreased by 23.6% to ARS 3,872.0, mainly due to inflation and increased discounts[149] - Mobile customers in Argentina increased to 21.2 million, with prepaid customers growing by 8.7% and postpaid decreasing by 4.2%[150] Internet Services Internet services revenues decreased by 7.6% in 3M24, mainly due to a decrease in Broadband Internet access ARPU, while the customer base remained stable - Internet services revenues amounted to ARS 168,535 million in 3M24[154] - Broadband Internet access ARPU decreased by 9.8% to ARS 12,733.2, impacted by inflation[155][156] - The customer base remained stable at 4.1 million, with a churn rate of 1.5% per month[157] Cable Television Services Cable television service revenues decreased by 34.5% in 3M24, driven by a significant decrease in ARPU and a reduction in the customer base - Cable television service revenues amounted to ARS 101,424 million in 3M24[159] - ARPU decreased by 37.5% to ARS 9,041.0, primarily due to the inability to increase prices in line with inflation[160][161] - The customer base decreased by 1.5% to 3.1 million customers in Argentina[162] Fixed and Data Services Fixed and data services revenues slightly increased by 0.8% in 3M24, mainly due to dollar-denominated data service appreciation, despite ARPU and customer base reductions - Fixed and data services revenues amounted to ARS 95,749 million in 3M24[164] - ARPU of fixed telephony services decreased by 6.4% to ARS 5,875.6[165][166] - The customer base of fixed telephony services decreased by 4.5% to 2.8 million[167] Other Services Revenues Other services revenues increased by 15.8% in 3M24, primarily driven by significant growth in fintech services, particularly the 'Personal Pay' digital wallet - Other services revenues increased by ARS 1,067 million to ARS 7,836 million in 3M24[168] - Fintech services in Argentina increased by ARS 1,839 million, driven by the growth of 'Personal Pay' digital wallet users[170] - 'Personal Pay' digital wallet users grew from 1.0 million in 3M23 to 2.5 million in 3M24[170] Equipment Revenues Equipment revenues decreased by 41.1% in 3M24, mainly due to a substantial reduction in handsets sold - Equipment revenues amounted to ARS 32,044 million in 3M24, a decrease of ARS 22,397 million[171] - The decrease is primarily attributed to a 37% reduction in handsets sold[171] Operating Costs (Excluding D&A) Total operating costs (excluding D&A) decreased by 17.9% in 3M24, indicating some cost control efforts, though not fully offsetting inflation Operating Costs (Excluding D&A) (3M24 vs. 3M23) | Cost Category | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | Variation (%) | | :------------------------------------------ | :--------------- | :--------------- | :-------------------- | :------------ | | Employee benefit expenses and severance payments | (157,824) | (200,408) | 42,584 | (21.2) | | Interconnection and transmission costs | (25,088) | (24,855) | (233) | 0.9 | | Fees for services, maintenance, materials and supplies | (100,037) | (97,685) | (2,352) | 2.4 | | Taxes and fees with the Regulatory Authority | (52,700) | (64,161) | 11,461 | (17.9) | | Commissions and advertising | (35,507) | (48,550) | 13,043 | (26.9) | | Cost of equipment and handsets | (23,857) | (38,663) | 14,806 | (38.3) | | Programming and content costs | (37,456) | (47,770) | 10,314 | (21.6) | | Bad debt expenses | (17,020) | (25,208) | 8,188 | (32.5) | | Other operating expenses | (27,293) | (33,620) | 6,327 | (18.8) | | Total operating costs | (476,782) | (580,920) | 104,138 | (17.9) | - Operating costs did not increase at the same level as the 287.9% annual inflation, indicating some cost management[173][174] Employee Benefit Expenses and Severance Payments Employee benefit expenses and severance payments decreased by 21.2% in 3M24, primarily due to headcount reduction, partially offset by salary increases - Expenses decreased by ARS 42,584 million to ARS 157,824 million[174] - Headcount reduced from 21,681 to 21,079 employees[174] Interconnection and Transmission Costs Interconnection and transmission costs slightly increased by 0.9% in 3M24, mainly due to exchange rate increases for dollar-denominated services, partially offset by network optimization - Costs increased by ARS 233 million to ARS 25,088 million[176] - Increase driven by exchange rate for dollar-denominated services, offset by optimization of links and sites[176] Fees for Services, Maintenance, Materials and Supplies Fees for services, maintenance, materials and supplies increased by 2.4% in 3M24, primarily due to higher maintenance and dollar-denominated service costs - Expenses increased by ARS 2,352 million to ARS 100,037 million[178] - Maintenance and materials costs increased, while fees for services decreased[178] Taxes and Fees with the Regulatory Authority Taxes and fees with the Regulatory Authority decreased by 17.9% in 3M24, mainly due to the effect of decreased sales - Expenses decreased by ARS 11,461 million to ARS 52,700 million[180] - The decrease was mainly due to the effect of the decrease in sales[180] Commissions and Advertising Commissions and advertising expenses decreased by 26.9% in 3M24, primarily due to lower charges for agent and collection commissions - Expenses decreased by ARS 13,043 million to ARS 35,507 million[182] - Mainly due to lower charges for agent commissions and collection commissions[182] Cost of Equipment Cost of equipment decreased by 38.3% in 3M24, mainly due to a significant reduction in handsets sold - Cost of equipment decreased by ARS 14,806 million to ARS 23,857 million[183] - This decrease is mainly due to a 37% decrease in handsets sold[183] Programming and Content Costs Programming and content costs decreased by 21.6% in 3M24, mainly due to commercial efficiency, despite price increases in cable television signals - Costs decreased by ARS 10,314 million to ARS 37,456 million[184] - Decrease attributed to commercial efficiency, despite price increases in cable TV signals[184] Bad Debt Expenses Bad debt expenses decreased by 32.5% in 3M24, representing 2.5% of revenues, mainly due to ongoing credit recovery actions - Expenses decreased by ARS 8,188 million to ARS 17,020 million[187] - Represented 2.5% of revenues in 3M24, down from 3.0% in 3M23[187] - Decrease mainly due to continuing credit recovery actions[187] Other Operating Expenses Other operating expenses decreased by 18.8% in 3M24, mainly due to lower charges in legal claims and contingent liabilities, and energy and other public services - Expenses decreased by ARS 6,327 million to ARS 27,293 million[188] - Mainly due to lower legal claims and energy/public services costs[188] Adjusted EBITDA Consolidated Adjusted EBITDA decreased by 17.9% in 3M24, maintaining 30.3% of total consolidated revenues, reflecting operating performance excluding capital structure and taxation Adjusted EBITDA Reconciliation (3M24 vs. 3M23) | Indicator | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | Variation (%) | | :------------------------------------------ | :--------------- | :--------------- | :-------------------- | :------------ | | Net income | 675,032 | 110,477 | 564,555 | n/a | | Income tax (benefit) expense | 210,826 | (45,665) | 256,491 | n/a | | Other financial results, net | (115,520) | (40,567) | (74,953) | 184.8 | | Financial cost | (797,844) | (34,582) | (763,262) | n/a | | (Earnings) Losses from associates and joint ventures | 1,359 | (1,648) | 3,007 | n/a | | Operating loss | (26,147) | (11,985) | (14,162) | 118.2 | | Depreciation, amortization and impairment of Fixed Assets | 233,281 | 264,278 | (30,997) | (11.7) | | Adjusted EBITDA | 207,134 | 252,293 | (45,159) | (17.9) | - Adjusted EBITDA decreased by ARS 45,159 million, or 17.9%, in 3M24[191] - Adjusted EBITDA represented 30.3% of total consolidated revenues in both 3M24 and 3M23[191] Depreciation, Amortization and Impairment of Fixed Assets Depreciation, amortization, and impairment of Fixed Assets decreased by 11.7% in 3M24, primarily due to assets reaching the end of their useful life - Expenses decreased by ARS 30,997 million to ARS 233,281 million[192] - Variation is due to assets ending their useful life, partially offset by amortization of subsequent CAPEX[193] Operating Loss Operating loss increased to ARS (26,147) million in 3M24, representing (3.8)% of revenues, compared to ARS (11,985) million in 3M23 - Operating loss increased by ARS 14,162 million[194] - Operating loss represented (3.8)% of revenues in 3M24, compared to (1.4)% in 3M23[194] Financial Results, Net Telecom recorded a significant net financial gain in 3M24, primarily driven by foreign exchange gains due to the U.S. dollar appreciating against the Argentine Peso - Net financial gain of ARS 913,364 million in 3M24, up from ARS 75,149 million in 3M23[195] - Foreign exchange gains measured in real terms amounted to ARS 951,378 million, driven by the U.S. dollar appreciating 6.1% against the Argentine Peso[195] - Partially offset by losses from remeasurement in borrowings of ARS 29,511 million and fair value losses on financial assets of ARS 23,767 million[195] Income Tax Benefit (Expense) Income tax shifted from a benefit in 3M23 to an expense in 3M24, including current tax expenses and a deferred tax expense - Income tax expense of ARS 210,826 million in 3M24, compared to a benefit of ARS 45,665 million in 3M23[197] - Includes current tax expenses of ARS 1,738 million and a deferred tax expense of ARS 209,088 million in 3M24[197] Net Income Net income significantly increased in 3M24, primarily due to the increase in income before income tax, partially offset by the income tax expense - Net income increased by ARS 564,555 million[198] - Net income attributable to controlling shareholders was ARS 672,260 million in 3M24[199] Liquidity and Capital Resources Telecom's liquidity relies on operating cash flows and third-party financing, maintaining negative working capital typical for capital-intensive firms, while complying with debt covenants - Main liquidity sources are cash flows from operations and third-party financing; uses include CAPEX, operating expenses, and debt payments[200] - Telecom has a negative working capital of ARS (763,408) million as of March 31, 2024, typical for a capital-intensive company[210] - The company has complied with the Net Debt/EBITDA ratio and other commitments under its debt waivers[212] Sources and Uses of Funds Telecom Argentina expects to fund operations and investments primarily through cash flows from operations and external financing, with key expenditures including CAPEX and debt servicing - Expected short-term liquidity sources are operating cash flows and third-party financing (capital markets, financial institutions)[200] - Principal uses of cash flows are capital expenditures, operating expenses, dividend payments, and debt payments[200] Borrowings Developments during 3M24 No significant developments related to borrowings occurred during the first three months of 2024 - No significant developments related to borrowings occurred during 3M24[201] Cash Flow Cash and cash equivalents decreased in 3M24, with operating cash flows decreasing, investing cash outflows decreasing, and financing cash inflows significantly increasing Consolidated Cash Flows (3M24 vs. 3M23) | Cash Flow Category | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | | :------------------------------------------ | :--------------- | :--------------- | :-------------------- | | Cash flows provided by operating activities | 171,229 | 206,118 | (34,889) | | Cash flows used in investing activities | (224,218) | (237,682) | 13,464 | | Cash flows provided by financing activities | 27,656 | 9,735 | 17,921 | | Net foreign exchange differences and RECPAM | (66,315) | (5,950) | (60,365) | | Cash and cash equivalents at end of period | 150,604 | 161,330 | (10,726) | - Operating cash flows decreased by ARS 34,889 million (16.9%) in 3M24, primarily due to an increase in net loss adjusted for non-cash items[205] - Financing activities provided ARS 27,656 million in 3M24, including ARS 191,171 million from borrowings proceeds[209] Liquidity Telecom maintains a negative working capital, typical for a capital-intensive company, relying on spontaneous financing from suppliers Working Capital Breakdown (March 31, 2024 vs. December 31, 2023) | Category | March 31, 2024 ($ million) | December 31, 2023 ($ million) | Variation ($ million) | | :------------------------------------------ | :------------------------- | :-------------------------- | :-------------------- | | Operating working capital - negative | (376,789) | (525,147) | 148,358 | | Negative working capital (current assets — current liabilities) | (763,408) | (946,938) | 183,530 | | Liquidity rate (current assets / current liabilities) | 0.5 | 0.5 | - | - Cash and cash equivalents were ARS 150,604 million as of March 31, 2024[211] Compliance with Covenants Telecom Argentina has complied with the Net Debt/EBITDA ratio and other commitments stipulated in the waivers obtained in March 2024 - The company obtained waivers to increase the Net Debt/EBITDA ratio to 3.75 for the period between December 31, 2023, and December 31, 2024[212] - Telecom has complied with the established Net Debt/EBITDA ratio and other commitments[212] Capital Expenditures (CAPEX) Total CAPEX and Right of Use asset additions increased in 3M24, focusing on expanding services, deploying 4G/5G networks, and improving mobile site connectivity CAPEX and Right of Use Asset Additions (3M24 vs. 3M23) | Category | 3M24 ($ million) | 3M23 ($ million) | Variation ($ million) | Variation (%) | | :-------------------------------- | :--------------- | :--------------- | :-------------------- | :------------ | | PP&E | 98,191 | 94,403 | 3,788 | 4.0 | | Intangibles assets | 6,477 | 4,014 | 2,463 | 61.4 | | Total CAPEX | 104,668 | 98,417 | 6,251 | 6.4 | | Rights of use assets | 40,804 | 35,506 | 5,298 | 14.9 | | Total CAPEX and Right of use asset additions | 145,472 | 133,923 | 11,549 | 8.6 | - Main CAPEX projects focus on expanding cable TV and Internet, deploying 4G/5G services, and improving mobile site connectivity[215][216] - 4G/LTE network coverage reached 97% of the urban population, and 5G network expansion aims for 200 sites in 2024[216] 3. Trend Information Telecom Argentina anticipates inflation deceleration and exchange rate stability, focusing on balancing price adjustments, investing in digital services, and expanding 5G technology - Expects inflation deceleration and exchange rate stability, along with regularization in technological equipment purchases[220] - Focuses on balancing price adjustments, commercial promotions, and sustained investment in systems and infrastructure for digital services[221][222] - The repeal of Decree No. 690/20 on April 10, 2024, is expected to reduce regulatory uncertainty and promote free competition in the ICT Services industry[227] - Continued deployment of 5G networks, with plans to reach 200 sites in 2024, is a key strategic initiative[216][225] Unaudited Selected Financial Data This section presents supplemental unaudited selected financial data, including statements of financial position, income, and cash flows, recast to current currency as of March 31, 2024 Financial Statements – Application of Accounting Standards Telecom Argentina's annual financial statements are prepared under IFRS, while interim statements are prepared under IAS 34, both in current currency - Annual Financial Statements (2023, 2022, 2021) are prepared in Pesos in current currency as of December 31, 2023, under IFRS[232] - Q1 2024 Unaudited Financial Statements are prepared in Pesos in current currency as of March 31, 2024, under IAS 34[233] [Financial Statements – Application of IAS 29](index=60&type=section&id=Financial%20Statements%20%E2%80%93%20Application%20of%20IAS%2029%20%22Financial%20Repor