TELECOM ARGENTINA S.A. | 1 | English translation of the Unaudited Condensed Consolidated Financial Statements as of September 30, 2022 |
TELECOM ARGENTINA S.A.
Unaudited Condensed Consolidated Financial Statements as of September 30, 2022
General Hornos 690
(127) Ciudad Autónoma de Buenos Aires
Argentina
$: Argentine peso
US$: US dollar
$147.32 = US$1 as of September 30, 2022
TELECOM ARGENTINA S.A.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2022 AND 2021
INDEX
| Unaudited consolidated financial statements | |
| Unaudited consolidated statements of financial position | F-1 |
| Unaudited consolidated income statements | F-2 |
| Unaudited consolidated statements of comprehensive income | F-3 |
| Unaudited consolidated statements of changes in equity | F-4 |
| Unaudited consolidated statements of cash flows | F-5 |
| Notes to the unaudited consolidated financial statements | F-6 |
| Operating and Financial Review and Prospects | I |
| Corporate information |
TELECOM ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In millions of Argentine pesos in current currency - Note 1.d)
| September 30, | December 31, | ||
| ASSETS | Note | 2022 | 2021 |
| Current Assets | |||
| Cash and cash equivalents | 2 | 32,932 | 32,964 |
| Investments | 2 | 6,260 | 17,912 |
| Trade receivables | 3 | 29,779 | 37,456 |
| Other receivables | 4 | 13,178 | 14,690 |
| Inventories | 5 | 5,058 | 5,174 |
| Assets classified as held for sale | 27.3 | 791 | - |
| Total current assets | 87,998 | 108,196 | |
| Non-Current Assets | |||
| Trade receivables | 3 | 101 | 121 |
| Other receivables | 4 | 2,292 | 3,463 |
| Deferred income tax assets | 13 | 1,619 | 1,093 |
| Investments | 2 | 5,139 | 5,357 |
| Goodwill | 6 | 422,217 | 629,582 |
| Property, plant and equipment | 7 | 684,718 | 749,280 |
| Intangible assets | 8 | 222,387 | 239,336 |
| Right of use assets | 9 | 51,666 | 55,494 |
| Total non-current assets | 1,390,139 | 1,683,726 | |
| TOTAL ASSETS | 1,478,137 | 1,791,922 | |
| LIABILITIES | |||
| Current Liabilities | |||
| Trade payables | 10 | 61,965 | 81,760 |
| Financial debt | 11 | 100,664 | 107,730 |
| Salaries and social security payables | 12 | 31,240 | 36,974 |
| Income tax payables | 13 | 32,250 | 23,129 |
| Other taxes payables | 14 | 7,772 | 6,580 |
| Leases liabilities | 15 | 8,068 | 10,180 |
| Other liabilities | 16 | 4,730 | 5,074 |
| Provisions | 17 | 2,316 | 3,564 |
| Total current liabilities | 249,005 | 274,991 | |
| Non-Current Liabilities | |||
| Trade payables | 10 | 551 | 1,821 |
| Financial debt | 11 | 299,286 | 335,554 |
| Salaries and social security payables | 12 | 2,676 | 2,567 |
| Deferred income tax liabilities | 13 | 194,740 | 224,584 |
| Other taxes payables | 14 | 58 | - |
| Leases liabilities | 15 | 15,926 | 21,235 |
| Other liabilities | 16 | 2,434 | 2,078 |
| Provisions | 17 | 9,538 | 15,900 |
| Total non-current liabilities | 525,209 | 603,739 | |
| TOTAL LIABILITIES | 774,214 | 878,730 | |
| EQUITY | |||
| Equity attributable to Controlling Company | 690,897 | 898,957 | |
| Equity attributable to non-controlling interest | 13,026 | 14,235 | |
| TOTAL EQUITY(See Consolidated Statements of Changes in Equity) | 703,923 | 913,192 | |
| TOTAL LIABILITIES AND EQUITY | 1,478,137 | 1,791,922 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-1
TELECOM ARGENTINA S.A.
CONSOLIDATED INCOME STATEMENTS
(In millions of Argentine pesos in current currency, except per share data in Argentine pesos in current currency - Note 1.d)
| Three-month period ended September 30, | Nine-month period ended September 30, | |||||
| Note | 2022 | 2021 | 2022 | 2021 | ||
| Revenues | 21 | 148,238 | 176,175 | 470,960 | 536,247 | |
| Employee benefit expenses and severance payments | 22 | (41,651) | (40,040) | (115,470) | (110,453) | |
| Interconnection and transmission costs | (4,672) | (6,251) | (14,574) | (19,544) | ||
| Fees for services, maintenance, materials and supplies | 22 | (19,043) | (20,205) | (56,503) | (61,220) | |
| Taxes and fees with the Regulatory Authority | 22 | (11,425) | (13,491) | (36,272) | (41,368) | |
| Commissions and advertising | (9,721) | (10,153) | (27,731) | (30,255) | ||
| Cost of equipment and handsets | 22 | (6,552) | (8,557) | (21,745) | (27,001) | |
| Programming and content costs | (9,167) | (11,564) | (29,560) | (36,663) | ||
| Bad debt expenses | 3 | (3,909) | (3,587) | (11,781) | (9,814) | |
| Other operating expenses | 22 | (5,573) | (10,238) | (22,186) | (25,322) | |
| Depreciation, amortization and impairment of fixed assets | 22 | (260,782) | (60,528) | (369,806) | (172,438) | |
| Operating income (loss) | (224,257) | (8,439) | (234,668) | 2,169 | ||
| Earnings from associates | 2.a | 166 | 153 | 342 | 384 | |
| Debt financial results | 23 | 10,455 | 14,544 | 40,936 | 38,837 | |
| Other financial results, net | 23 | 17,477 | 4,260 | 34,190 | 17,152 | |
| Income (loss) before income tax expense | (196,159) | 10,518 | (159,200) | 58,542 | ||
| Income tax | 13 | (6,224) | (5,297) | (4,298) | (56,666) | |
| Net income (loss) for the period | (202,383) | 5,221 | (163,498) | 1,876 | ||
| Attributable to: | ||||||
| Controlling Company | (203,003) | 4,666 | (164,873) | 655 | ||
| Non-controlling interest | 620 | 555 | 1,375 | 1,221 | ||
| (202,383) | 5,221 | (163,498) | 1,876 | |||
| Earnings (losses) per share attributable to Controlling Company - Basic and diluted | 1.c | (94.26) | 2.17 | (76.55) | 0.30 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
See Note 22 for additional information on operating expenses per function.
F-2
TELECOM ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of Argentine pesos in current currency - Note 1.d)
| Three-month period ended September 30, | Nine-month period ended September 30, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Net income (loss) for the period | (202,383) | 5,221 | (163,498) | 1,876 | |
| Other comprehensive income - Will be reclassified subsequently to profit or loss | |||||
| Currency translation adjustments (no effect on Income Tax) | (2,924) | (3,071) | (6,328) | (7,563) | |
| DFI effects classified as hedges | 297 | 135 | 418 | 419 | |
| Income Tax effects on DFI classified as hedges and others | (156) | (37) | (191) | (135) | |
| Other comprehensive loss, net of tax | (2,783) | (2,973) | (6,101) | (7,279) | |
| Total comprehensive income (loss) for the period | (205,166) | 2,248 | (169,599) | (5,403) | |
| Attributable to: | |||||
| Controlling Company | (204,985) | 2,425 | (169,474) | (4,904) | |
| Non-controlling interest | (181) | (177) | (125) | (499) | |
| (205,166) | 2,248 | (169,599) | (5,403) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
TELECOM ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions of Argentine pesos in current currency - Note 1.d)
| Owners contribution | Reserves | ||||||||||
| Outstanding shares |
Inflation adjustment | Contributed Surplus | Legal | Special reserve for IFRS implementation | Facultative (2) | Other comprehensive results | Retained earnings | Equity attributable to controlling company | Equity attributable to non-controlling interest | Total Equity | |
|
Capital nominal value (1) | |||||||||||
| Balances as of January 1, 2021 | 2,154 | 233,255 | 634,079 | 13,289 | 5,121 | 101,220 | (15,953) | (14,447) | 958,718 | 16,041 | 974,759 |
| Resolutions of the General Ordinary and Extraordinary Shareholders' Meeting held on April 28, 2021: | |||||||||||
| - Absorption of negative Retained earnings | - | - | - | - | - | (14,326) | - | 14,326 | - | - | - |
| - Reserves reallocation | - | - | (29,374) | - | - | 29,374 | - | - | - | - | - |
| Dividends to non-controlling shareholders (3) | - | - | - | - | - | - | - | - | - | (1,387) | (1,387) |
| Resolutions of the General Ordinary and Extraordinary Shareholders' Meeting held on August 11, 2021: | |||||||||||
| - Dividends (4) | - | - | - | - | - | (66,462) | - | - | (66,462) | - | (66,462) |
| Irrevocable Call and Put Option on the shares of AVC Continente Audiovisual value adjustment | - | - | - | - | - | - | 60 | - | 60 | - | 60 |
| Comprehensive income: | |||||||||||
| Net income for the period | - | - | - | - | - | - | - | 655 | 655 | 1,221 | 1,876 |
| Other comprehensive loss | - | - | - | - | - | - | (5,559) | - | (5,559) | (1,720) | (7,279) |
| Total Comprehensive Income (loss) | - | - | - | - | - | - | (5,559) | 655 | (4,904) | (499) | (5,403) |
| Balances as of September 30, 2021 | 2,154 | 233,255 | 604,705 | 13,289 | 5,121 | 49,806 | (21,452) | 534 | 887,412 | 14,155 | 901,567 |
| Balances as of January 1, 2022 | 2,154 | 233,255 | 604,705 | 13,289 | 5,121 | 49,806 | (23,647) | 14,274 | 898,957 | 14,235 | 913,192 |
| Resolutions of the General Ordinary and Extraordinary Shareholders' Meeting held on April 27, 2022: | |||||||||||
| - Reserves constitution (1) | - | - | - | 678 | - | 13,712 | (14,390) | - | - | - | |
| - Reserves reallocation (1) | - | - | (25,389) | - | - | 25,389 | - | - | - | ||
| Dividends (4) | - | - | - | - | - | (38,586) | (38,586) | - | (38,586) | ||
| Dividends to non-controlling shareholders (3) | - | - | - | - | - | - | (116) | 116 | - | (1,084) | (1,084) |
| Comprehensive income: | |||||||||||
| Net income (loss) for the period | - | - | - | - | - | - | - | (164,873) | (164,873) | 1,375 | (163,498) |
| Other comprehensive loss | - | - | - | - | - | - | (4,601) | - | (4,601) | (1,500) | (6,101) |
| Total Comprehensive loss | - | - | - | - | - | - | (4,601) | (164,873) | (169,474) | (125) | (169,599) |
| Balances as of September 30, 2022 | 2,154 | 233,255 | 579,316 | 13,967 | 5,121 | 50,321 | (28,364) | (164,873) | 690,897 | 13,026 | 703,923 |
(1) See Note 20 to these unaudited consolidated financial statements.
(2) Correspond to the Facultative Reserves to maintain the capital investments level and the current level of solvency.
(3) Correspond to Nucleo's Shareholders
(4) See Note 2.b) to these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
TELECOM ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of Argentine pesos in current currency - Note 1.d)
| Nine-month period ended September 30, | |||
| Note | 2022 | 2021 | |
| CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES | |||
| Net income (loss) for the period | (163,498) | 1,876 | |
| Adjustments to reconcile net income to net cash flows provided by operating activities | |||
| Allowances deducted from assets | 16,793 | 13,206 | |
| Depreciation of property, plant and equipment | 7 | 128,455 | 138,576 |
| Amortization of intangible assets | 8 | 18,034 | 19,277 |
| Amortization of rights of use assets | 9 | 13,410 | 12,560 |
| Impairment of Goodwill | 26 | 207,940 | - |
| Disposals of fixed assets and consumption of materials | 3,939 | 2,822 | |
| Earnings from associates | 2.a | (342) | (384) |
| Financial results and others | (77,477) | (60,236) | |
| Income tax | 13 | 4,298 | 56,666 |
| Income tax paid (*) | (6,475) | (2,797) | |
| Net increase in assets | 2.b | (29,904) | (23,953) |
| Net increase in liabilities | 2.b | 15,489 | 7,988 |
| Total cash flows provided by operating activities | 130,662 | 165,601 | |
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | |||
| Property, plant and equipment acquisitions | (72,735) | (89,487) | |
| Intangible asset acquisitions | (3,559) | (3,278) | |
| Payment for acquisition of subsidiary | 27.4 | (347) | - |
| Proceeds from dividends | 2.b | 211 | 386 |
| Proceeds from the sale of property, plant and equipment and intangible assets | 305 | 146 | |
| Investments not considered as cash and cash equivalents | (37,836) | (62,638) | |
| Total cash flows used in investing activities | (113,961) | (154,871) | |
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES | |||
| Proceeds from financial debt | 2.b | 75,146 | 79,283 |
| Payment of financial debt | 2.b | (51,453) | (56,104) |
| Payment of interests and related expenses | 2.b | (31,671) | (36,738) |
| Payments of leases liabilities | 15 | (4,740) | (7,618) |
| Payments of cash dividends | 2.b | (1,047) | (659) |
| Total cash flows used in financing activities | (13,765) | (21,836) | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,936 | (11,106) | |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 32,964 | 46,442 | |
| NET FOREIGN EXCHANGE DIFFERENCES AND RECPAM ON CASH AND CASH EQUIVALENTS | (2,968) | (4,089) | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 32,932 | 31,247 |
| (*) | Nine-month period ended September | |
| 2022 | 2021 | |
| Corresponding to Controlling Company | (5,805) | (2,315) |
| Corresponding to subsidiaries | (670) | (482) |
| (6,475) | (2,797) |
See Note 2.b for additional information on the consolidated statements of cash flows.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-5
TELECOM ARGENTINA S.A.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2022 AND 2021 (*)
(In millions of Argentine pesos, except as otherwise indicated)
INDEX
| Page | |
| Glossary of terms | F-7 |
| Note 1 - Basis of preparation of the unaudited consolidated financial statements and significant accounting policies | F-8 |
| Note 2 - Cash and cash equivalents and Investments. Additional information on the consolidated statements of cash flows | F-11 |
| Note 3 - Trade receivables | F-13 |
| Note 4 - Other receivables | F-14 |
| Note 5 - Inventories | F-14 |
| Note 6 - Goodwill | F-14 |
| Note 7 - Property, plant and equipment | F-14 |
| Note 8 - Intangible assets | F-15 |
| Note 9 - Right of use assets | F-15 |
| Note 10 - Trade payables | F-16 |
| Note 11 - Financial debt | F-16 |
| Note 12 - Salaries and social security payables | F-19 |
| Note 13 - Income tax payable and Deferred income tax assets/liabilities | F-19 |
| Note 14 - Other taxes payables | F-21 |
| Note 15 - Leases liabilities | F-21 |
| Note 16 - Other liabilities | F-21 |
| Note 17 - Provisions | F-22 |
| Note 18 - Additional information of financial assets and liabilities | F-22 |
| Note 19 - Purchase Commitments | F-24 |
| Note 20 - Equity | F-24 |
| Note 21 - Revenues | F-25 |
| Note 22 - Operating expenses | F-25 |
| Note 23 - Financial results, net | F-26 |
| Note 24 - Balances and transactions with Companies under Section 33 - Law No. 19,550 and Related Parties | F-26 |
| Note 25 - Restrictions on distribution of profits | F-27 |
| Note 26 - Macroeconomic environment and analysis of Goodwill recoverability | F-28 |
| Note 27 - Recent developments corresponding to the nine-month period ended September 30, 2022 | F-29 |
| Note 28 - Subsequent events to September 30, 2022 | F-33 |
(*) By convention the definitions used in the notes are in the Glossary of Terms.
F-6
TELECOM ARGENTINA S.A.
Glossary of terms
The following explanations are not technical definitions, but to assist the general reader to understand certain terms as used in these unaudited consolidated financial statements.
The Company/Telecom Argentina/Telecom: Telecom Argentina S.A.
Micro Sistemas/Pem/Cable Imagen/AVC Continente Audiovisual/Inter Radios/Personal Smarthome/Personal Security/NYSSA: Names corresponding to limited companies or limited responsibility companies that are directly or indirectly controlled according to the definition of the General Corporations Law, or were controlled by the Company, directly or indirectly: Micro Sistemas S.A.U., Pem S.A.U., Cable Imagen S.R.L., AVC Continente Audiovisual S.A., Inter Radios S.A.U., Personal Smarthome S.A., Personal Smart Security S.A.U., Negocios y Servicios S.A.
Telecom USA/Núcleo/Personal Envíos/Tuves Paraguay/Televisión Dirigida/Adesol/Opalker: Names corresponding to foreign companies Telecom Argentina USA, Inc., Núcleo S.A.E, Personal Envíos S.A., Tuves Paraguay S.A., Televisión Dirigida S.A., Adesol S.A. and Opalker S.A., respectively, companies that are directly or indirectly controlled according to the definition of the General Corporations Law.
La Capital Cable/Ver TV/TSMA: Names corresponding to limited companies La Capital Cable S.A., Ver T.V. S.A. and Teledifusora San Miguel Arcángel S.A., respectively, companies that are directly or indirectly associates according to the definition of the General Corporations Law.
ADR: American Depositary Receipt
AFIP (Administración Nacional de Ingresos Públicos): National Public Revenue Administration
BYMA (Bolsas y Mercados Argentinos): Buenos Aires Stock Exchange.
Cablevisión: Company absorbed by Telecom since January 1, 2018, whose activities are continued by Telecom.
CAPEX: Capital expenditures.
CNDC (Comisión Nacional de Defensa de la Competencia): National Commission for the Defense of Competition.
CNV (Comisión Nacional de Valores): The Argentine National Securities Commission.
CPCECABA (Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires): The Professional Council of Economic Sciences of the City of Buenos Aires.
CVH: Cablevisión Holding S.A., controlling company of Telecom since January 1, 2018.
DFI: Derivate Financial Instruments.
D&A: Depreciation and amortization.
DNU (Decreto de Necesidad y Urgencia): Decree of Urgency issued by the Argentine Government.
ENACOM (Ente Nacional de Telecomunicaciones): The Telecommunications Regulatory Authority of Argentina.
FACPCE (Federación Argentina de Consejos Profesionales en Ciencias Económicas): Argentine Federation of Professional Councils of Economic Sciences.
Fintech: Fintech Telecom LCC, a Telecom shareholder.
Fixed assets: Includes PP&E, Intangible assets, Goodwill and Rights of use assets.
LAD (Ley Argentina Digital): Argentine Digital Law No. 27,078.
IAS: International Accounting Standards.
IASB: International Accounting Standards Board.
ICT Services (Information and Communication Technology services): Services to transport and distribute signals or data, such as voice, text, video and images, provided or requested by third-party users, through telecommunications networks.
IFRS: International Financial Reporting Standards, as issued by the International Accounting Standards Board.
INDEC (Instituto Nacional de estadísticas y censos): The National Institute of statistics and cense.
LGS (Ley de General de Sociedades): Argentine Corporations Law No. 19,550 as amended. Since the enforcement of the new Civil and Commercial Code its name was changed to "General Corporations Law".
NYSE: New York Stock Exchange.
PEN (Poder Ejecutivo Nacional): The executive branch of the Argentine government.
PP&E: Properties, plant and equipment.
RECPAM (Resultado por exposición a los cambios en el poder adquisitivo de la moneda): Inflation Adjustment Gain (Loss).
Roaming: charges from the use of networks of other national and international operators.
RT: Technical resolutions issued by the FACPCE.
RT 26: Technical resolution No, 26 issued by the FACPCE, amended by RT29 and RT43.
RMB: Official currency of Popular Republic of China.
SCMA (Servicio de Comunicaciones Móviles Avanzadas): Mobile Advanced Communications Service.
SOF. Secured Overnight Financing
VAT: Value-Added Tax.
VLG: VLG S.A.U. (formerly VLG Argentina LLC), a company that is a shareholder of the Company and controlled by CVH.
In these unaudited consolidated financial statements, unless otherwise stated, Argentine peso amounts are stated in millions.
F-7
TELECOM ARGENTINA S.A.
NOTE 1 - BASIS OF PREPARATION OF THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
| a) | Basis of preparation and significant accounting policies |
As required by the CNV, the unaudited consolidated financial statements of the Company have been prepared in accordance with RT 26 of FACPCE (and its amendments), which adopted IFRS as issued by the IASB, standards also adopted by the CPCECABA.
For the preparation of these unaudited consolidated financial statements, the Company has elected to make use of the option provided by IAS 34 and has prepared them in its condensed form. Therefore, these financial statements do not include all the information required in an annual financial statement and, consequently, they must be read jointly with the annual financial statements as of December 31, 2021, which can be consulted at the Company's website (https://institucional.telecom.com.ar/inversores/informacionfinanciera.html). Therefore, these unaudited consolidated financial statements were prepared following the same accounting policies as in the most recent annual financial statements, except for what is mentioned in Note 27.3.
These unaudited consolidated financial statements were prepared including in the consolidation process the following companies:
Company | Main Activity | Country | Telecom Argentina's direct / indirect interest in capital stock and votes |
| Núcleo | Mobile telecommunications Services | Paraguay | 67.50% |
| Personal Envíos | Mobile financial services | Paraguay | 67.50% |
| Tuves Paraguay | Distribution of television and audio signals direct to home services | Paraguay | 67.50% |
| Micro Sistemas | Services related to the use of electronic payment media | Argentina | 100.00% |
| Pem | Investment | Argentina | 100.00% |
| Cable Imagen | Closed-circuit television | Argentina | 100.00% |
| Televisión Dirigida | Cable television services | Paraguay | 100.00% |
| Adesol (a) | Holding | Uruguay | 100.00% |
| AVC Continente Audiovisual | Broadcasting services | Argentina | 100.00% |
| Inter Radios | Broadcasting services | Argentina | 100.00% |
| Telecom USA | Telecommunication services | USA | 100.00% |
| Personal Smarthome S.A. (b) | Security solutions and services and/or related services | Argentina | 100.00% |
| Personal Smart Security S.A.U (c) | Security services and/or related services | Argentina | 100.00% |
| Opalker S.A. | Cybersecurity and related services | Uruguay | 100.00% |
| NYSSA (d) | Internet Services | Argentina | 100.00% |
| (a) | Includes the 100% interest in Telemas S.A., which holds interests in the following special-purpose entities: Audomar S.A., Bersabel S.A., Dolfycor S.A., Reiford S.A., Space Energy S.A., Tracel S.A. and Visión Satelital S.A. |
| (b) | As of September 30, 2022 is a dormant entity. |
| (c) | Company indirectly acquired on April 5, 2022 for a total consideration of $0.1 million through subsidiary Personal Smarthome S.A. As of September 30, 2022 is a dormant entity. |
| (d) | NYSSA is a company acquired on June 1, 2022. For further information, see Note 27.4 to these unaudited consolidated financial statements. Data as of September 30, 2022 about the issuer arises from extra-accounting information. |
The preparation of these unaudited consolidated financial statements in accordance with IFRS requires that the Company's Management make estimates that affect the figures disclosed in the financial statements or its complementary information. Actual results may differ from these estimates.
These unaudited consolidated financial statements were prepared in current currency as of September 30, 2022 (see item d) on an accrual basis of accounting (except for the statement of cash flows). Under this basis, the effects of transactions are recognized when they occur. Therefore, income and expenses are recognized at fair value on an accrual basis regardless of when they are received or paid. When significant, the differences between the fair value and the nominal amount of income and expenses are recognized as finance income or expense using the effective interest method.
The figures as of December 31, 2021 and for the three and nine-month periods ended on September 30, 2021, which are disclosed in these unaudited consolidated financial statements for comparative purposes, are a result of restating the financial statements as of such dates to values in constant currency as of September 30, 2022. This is as consequence of the restatement process of the financial information described in point d). When applicable, certain reclassifications were made for comparative purposes.
These unaudited consolidated financial statements as of September 30, 2022, were approved by resolution of the Board of Directors' meeting held on November 9, 2022.
F-8
TELECOM ARGENTINA S.A.
These unaudited consolidated financial statements contain all disclosures required under IAS 34. Some additional disclosures required by the LGS and/or by the CNV have been also included.
| b) | Segment information |
An operating segment is defined as a component of an entity that engages in business activities from which it may earn revenues and incur expenses, and whose financial information is available, held separately, and evaluated regularly by the chief operating decision maker. In the case of the Company, the Executive Committee and the Chief Executive Officer ("CEO") are responsible for controlling recourses and for the economic and financial performance of Telecom.
The Executive Committee and the CEO have a strategic and operational vision of Telecom as a single business unit in Argentina, according to the current regulatory context of the converged ICT Services industry (adding to the same segment the activities related to the mobile services, internet services, cable television services and fixed telephony services, services governed by the same regulatory framework of ICT Services). To exercise its functions, both the Executive Committee and the CEO receive periodically the economic and financial information of Telecom Argentina and its subsidiaries (in currency of the date of each transaction), that is prepared as a single segment, and evaluate the evolution of business as a results generation unit, administrating the resources in a unique way to achieve the objectives. Regarding costs, they are not specifically appropriated to a type of service, considering that the Company has a single payroll and general operating expenses that affect all services in general (non-specific). On the other hand, decisions on CAPEX affect all the types of services provided by Telecom in Argentina and not specifically one of them. Based on what was previously described and under the accounting principles established in IFRS as issued by the IASB, it was defined that the Company has a single segment of operations in Argentina.
Telecom carries out activities abroad (Paraguay, United States of America and Uruguay). These operations are not analyzed as a separate segment by the Executive Committee and the CEO, who analyze the consolidated information of companies in Argentina and abroad (in currency of the date of each transaction), considering that the activities of foreign companies are not significant for Telecom. The operations that Telecom carries out abroad do not meet the aggregation criteria established by the standard to be grouped within the "Services rendered in Argentina" segment, and considering that they do not exceed any of the quantitative thresholds identified in the standard to qualify as reportable segments, they are grouped within the category "Other abroad segments".
The Executive Committee and the CEO evaluate the profitability for each reportable segment based on the measure of the Adjusted EBITDA. Adjusted EBITDA is defined as our net (loss) income less income taxes, financial results, Earnings (losses) from associates, depreciation, amortization and impairment of fixed assets.
Presented below is the Segment financial information as analyzed by the Executive Committee and the CEO for the nine-month periods ended September 30, 2022 and 2021:
| Consolidated Income Statement as of September 30, 2022 |
|
Services rendered in Argentina |
Services rendered in Argentina - Inflation restatement |
Services rendered in Argentina restated for inflation |
Other abroad segments |
Other abroad segments - Inflation restatement |
Other abroad segments restated for inflation | Eliminations | Total | |
| Revenues | 346,952 | 94,307 | 441,259 | 24,944 | 6,691 | 31,635 | (1,934) | 470,960 |
| Operating costs without depreciation, amortization and impairment of fixed assets | (249,748) | (69,401) | (319,149) | (14,651) | (3,956) | (18,607) | 1,934 | (335,822) |
| Adjusted EBITDA | 97,204 | 24,906 | 122,110 | 10,293 | 2,735 | 13,028 | - | 135,138 |
| Depreciation, amortization and impairment of fixed assets | (369,806) | |||||||
| Operating loss | (234,668) | |||||||
| Earnings from associates | 342 | |||||||
| Debt financial expenses | 40,936 | |||||||
| Other financial results, net | 34,190 | |||||||
| Loss before income tax expense | (159,200) | |||||||
| Income tax expense | (4,298) | |||||||
| Net loss | (163,498) | |||||||
| Attributable to: | ||||||||
| Controlling Company | (164,873) | |||||||
| Non-controlling interest | 1,375 | |||||||
| (163,498) |
F-9
TELECOM ARGENTINA S.A.
| Consolidated Income Statement as of September 30, 2021 |
|
Services rendered in Argentina |
Services rendered in Argentina - Inflation restatement |
Services rendered in Argentina restated for inflation |
Other abroad segments |
Other abroad segments - Inflation restatement |
Other abroad segments restated for inflation | Eliminations | Total | |
| Revenues | 241,078 | 257,992 | 499,070 | 17,859 | 21,873 | 39,732 | (2,555) | 536,247 |
| Operating costs without depreciation, amortization and impairment of fixed assets | (161,910) | (177,731) | (339,641) | (10,514) | (14,040) | (24,554) | 2,555 | (361,640) |
| Adjusted EBITDA | 79,168 | 80,261 | 159,429 | 7,345 | 7,833 | 15,178 | - | 174,607 |
| Depreciation, amortization and impairment of fixed assets | (172,438) | |||||||
| Operating income | 2,169 | |||||||
| Earnings from associates | 384 | |||||||
| Debt financial expenses | 38,837 | |||||||
| Other financial results, net | 17,152 | |||||||
| Income before income tax expense | 58,542 | |||||||
| Income tax expense | (56,666) | |||||||
| Net income | 1,876 | |||||||
| Attributable to: | ||||||||
| Controlling Company | 655 | |||||||
| Non-controlling interest | 1,221 | |||||||
| 1,876 |
Additional information per geographical area required under IFRS 8 (Operating Segments) is disclosed below:
| As of September 30, | As of December 31 | ||
| 2022 | 2021 | 2021 | |
| Sales revenues from customers located in Argentina | 439,668 | 497,291 | n/a |
| Sales revenues from foreign customers | 31,292 | 38,956 | n/a |
| CAPEX corresponding to the segment "Services rendered in Argentina" | 68,109 | 91,286 | n/a |
| CAPEX corresponding to the segment "Other abroad segments" | 6,776 | 7,367 | n/a |
| Fixed assets corresponding to the segment "Services rendered in Argentina" | 1,332,860 | n/a | 1,617,876 |
| Fixed assets corresponding to the segment "Other abroad segments" | 48,128 | n/a | 55,816 |
| Financial Debt corresponding to the segment "Services rendered in Argentina" | 389,660 | n/a | 430,799 |
| Financial Debt corresponding to the segment "Other abroad segments" | 10,290 | n/a | 12,485 |
| c) | Net earnings per share |
Basic earnings per share is calculated by dividing the net income attributable to owners of the Parent Company by the weighted average number of ordinary shares outstanding during the period. On the other hand, diluted earnings per share is computed by dividing the net income for the period by the weighted average number of common shares issued and to be potentially issued at the end of the period. Since the Company has no dilutive potential common stock outstanding, basic and dilutive earnings per share amounts do not differ.
For the three and nine-month periods ended September 30, 2022 and 2021, the weighted average number of shares outstanding amounted to 2,153,688,011.
| d) | Financial reporting in hyperinflationary economies |
Since Argentina has been considered a high-inflation economy for accounting purposes in accordance with IAS 29 since July 1, 2018, the financial information expressed in Argentine pesos is restated in constant currency of 30 September 2022.
The table below shows the evolution of the indexes in the last two years and as of September 30, 2022 and 2021 according to official statistics (INDEC) in accordance with Resolution No. 539/18 and the devaluation of the Argentine peso vs. de US dollar for the same years / periods:
F-10
TELECOM ARGENTINA S.A.
As of December 31, 2020 | As of September 30, 2021 | As of December 31, 2021 | As of September 30, 2022 | |
| National Consumer Price Index (December 2016=100) | 385.88 | 528.50 | 582.46 | 967.31 |
| Variation in prices | ||||
| Annual | 36.1% | 52.5% | 50.9% | 83.0% |
| Accumulated 3 months since June 2021 / 2022 | n/a | 9.3% | n/a | 22.0% |
| Accumulated 9 months | n/a | 37.0% | n/a | 66.1% |
| Banco Nación US$/$ exchange rate | 84.15 | 98.74 | 102.72 | 147.32 |
| Variation in the exchange rate | ||||
| Annual | 40.5% | 29.6% | 22.1% | 49.2% |
| Accumulated 3 months since June 2021 / 2022 | n/a | 3.2% | n/a | 17.6% |
| Accumulated 9 months | n/a | 17.3% | n/a | 43.4% |
The Company followed the same restatement policies for items identified in the annual consolidated financial statements as of December 31, 2021.
NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENTS. ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS.
| a) | Cash and cash equivalents and Investments |
| September 30, | December 31, | |
| Cash and cash equivalents | 2022 | 2021 |
| Cash and Banks (1) | 21,889 | 21,857 |
| Time deposits | 8,734 | 5,949 |
| Mutual funds | 2,309 | 5,158 |
| Total cash and cash equivalents | 32,932 | 32,964 |
| (1) As of September 30, 2022, includes restricted funds for $279 million. | ||
| Investments | ||
| Current | ||
| Government bonds at fair value | 6,140 | 17,773 |
| Mutual funds | 120 | 139 |
| Total current investments | 6,260 | 17,912 |
| Non- current | ||
| Investments in associates (a) | 5,138 | 5,356 |
| 2003 Telecommunications Fund | 1 | 1 |
| Total non-current investments | 5,139 | 5,357 |
| (a) | Information on Investments in associates is detailed below: |
Financial position information:
| Companies | Main activity | Country | Percentage of
capital | Valuation as of 09.30.2022 | Valuation as of 12.31.2021 |
| Ver TV. (1) | Cable television station | Argentina | 49.00 | 3,383 | 3,338 |
| TSMA (1) (2) (3) | Cable television station | Argentina | 50.10 | 1,262 | 1,136 |
| La Capital Cable (1) (2) | Closed-circuit television | Argentina | 50.00 | 493 | 882 |
| Total | 5,138 | 5,356 |
| (1) | Data about the issuer arises from extra-accounting information. |
| (2) | Direct and indirect interest. |
| (3) | Despite owning a percentage higher than a 50% of interest, the Company does not have the control in accordance with the requirements of IFRS. |
Earnings information:
Three-months period ended September 30, | Nine-months period ended September 30, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Ver TV | 127 | 141 | 211 | 329 | |
| TSMA | 60 | 39 | 170 | 70 | |
| La Capital Cable | (21) | (27) | (39) | (15) | |
| Total | 166 | 153 | 342 | 384 |
F-11
TELECOM ARGENTINA S.A.
| b) | Additional information on the consolidated statements of cash flows |
Changes in assets/liabilities components:
| September 30, | ||
| Net (increase) decrease in assets | 2022 | 2021 |
| Trade receivables | (14,761) | (15,429) |
| Other receivables | (11,904) | (7,885) |
| Inventories | (3,239) | (639) |
| (29,904) | (23,953) | |
| Net increase (decrease) in liabilities | ||
| Trade payables | 17,685 | 7,715 |
| Salaries and social security payables | 10,000 | 7,257 |
| Other taxes payables | (7,351) | (3,084) |
| Other liabilities and provisions | (4,845) | (3,900) |
| 15,489 | 7,988 |
Main Financing activities components
The following table presents the main financing activities components:
| September 30, | ||
| 2022 | 2021 | |
| Bank overdrafts | 5,667 | 19,773 |
| Notes | 19,193 | 45,745 |
| Bank and other financial entities loans | 48,631 | 11,336 |
| Loans for purchase of equipment | 1,655 | 2,429 |
| Total financial debt proceeds | 75,146 | 79,283 |
| Notes | (84) | (29,415) |
| Bank and other financial entities loans | (47,015) | (22,219) |
| Loans for purchase of equipment | (4,354) | (4,470) |
| Total payment of debt | (51,453) | (56,104) |
| Bank overdrafts | (6,040) | (3,683) |
| Notes | (12,802) | (16,848) |
| Bank and other financial entities loans | (12,130) | (13,291) |
| By DFI, loans for purchase of equipment and others | (699) | (2,916) |
| Total payment of interest and related expenses | (31,671) | (36,738) |
Main non-cash operating transactions
Main non-cash operating transactions and that were eliminated from the consolidated statement of cash flows are the following:
| September 30, | ||
| 2022 | 2021 | |
| PP&E and intangible assets acquisition financed with accounts payable | 18,936 | 30,862 |
Dividends payment with investments not considered as cash and cash equivalents (See "Cash and non-cash assets dividends from the Company and its subsidiaries") | 38,586 | 66,462 |
| Initial debt for acquisition of NYSSA (Note 27.4) | 426 | - |
| Trade payables cancelled with financial debt | 7,661 | 7,731 |
| Dividends distribution from La Capital Cable uncollected (1) | 350 | - |
| Trade receivables cancelled with government bonds | 572 | 3,911 |
| Social security payables cancelled with government bonds | - | 2,185 |
(1) Corresponds to the cash dividends distribution made by La Capital Cable in August 2022 uncollected as of September 30, 2022.
Dividends proceeds
Brief information on dividends proceeds by the Company is provided below:
Nine-month period ended September 30, | Associate Company | Dividends collected | |
|
Currency of the transaction date |
Current currency as of September 30, 2022 | ||
| 2022 | Ver TV | 104 | 166 |
| TSMA | 28 | 45 | |
| 211 | |||
| 2021 | Ver TV | 110 | 254 |
| TSMA | 57 | 132 | |
| (*) 386 |
(*) Includes $24 corresponding to dividends distributed during 2020.
F-12
TELECOM ARGENTINA S.A.
Cash and non-cash assets dividends from the Company and its subsidiaries
Non-cash dividends
2022 Dividends
Based on the powers delegated by Telecom Argentina's Ordinary and Extraordinary Shareholders' Meeting held on April 27, 2022, on June 2, 2022 the Board resolved to distribute non-cash assets dividends of Global Bonds of the Argentine Republic amortizable in US dollars for a nominal value of US$515,000,000: i) Global Bonds of the Argentine Republic amortizable in US dollars maturing on July 9, 2030 (the "2030 Global Bonds") for a nominal value of US$411,145,986 and ii) Global Bonds of the Argentine Republic amortizable in US dollars maturing on July 9, 2035 (the "2035 Global Bonds") for a nominal value of US$103,854,014.
Consequently, considering the valuation of the aforementioned bonds at the date of distribution resolved by the Board of Directors, non- cash dividends amounted to $31,634 million Argentine pesos ($38,586 million in constant currency as of September 30, 2022), and partially withdraw the "Voluntary reserve to maintain the Company's level of investments in capital assets and the current level of solvency" for such amount.
2021 Dividends
Telecom Argentina's General Extraordinary Shareholders' Meeting held on August 11, 2021 resolved to distribute non- cash assets dividends as follows: i) Global Bonds of the Argentine Republic amortizable in US dollars maturing on July 9, 2030 (the "2030 Global Bonds"), for a nominal value of US$370,386,472, and ii) Global Bonds of the Argentine Republic amortizable in US dollars maturing on July 9, 2035 (the "2035 Global Bonds") for a nominal value of US$186,621,565.
Consequently, and considering that the valuation of the mentioned non-cash assets dividends was $35,068,340,043 Argentine pesos ($66,462 in current currency as of September 30, 2022), the "Voluntary Reserve to maintain the Company's level of investments in capital assets and the current level of solvency" was partially withdraw for that amount.
Cash dividends distributed
Brief information on cash dividends distributed and paid is provided below:
Nine-months period ended September 30, | Paying company | Distribution month | Distributed amount | Payment month | Dividends paid in current currency as of September 30, 2022 | |
Currency of the date |
Current currency
30, | |||||
| 2022 | Núcleo | April 2022 | 804 | 1,084 | May 2022/Aug 2022 | 1,047 |
| 1,084 | 1,047 | |||||
| 2021 | Núcleo | April 2021 | 650 | 1,387 | May 2021 | 659 |
| (a) 1,387 | 659 |
| (a) | The second installment was paid in October 2021. |
NOTE 3 - TRADE RECEIVABLES
| September 30, | December 31, | |
| Current Trade receivables | 2022 | 2021 |
| Ordinary receivables | 42,938 | 53,415 |
| Companies under section 33 - Law No. 19,550 and related parties (Note 24.c) | 201 | 301 |
| Contractual asset IFRS 15 | 26 | 7 |
| Allowance for doubtful accounts | (13,386) | (16,267) |
| 29,779 | 37,456 | |
| Non-current Trade receivables | ||
| Ordinary receivables | 93 | 111 |
| Contractual asset IFRS 15 | 8 | 10 |
| 101 | 121 | |
| Total trade receivables, net | 29,880 | 37,577 |
Movements in the allowance for current doubtful accounts are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the fiscal year | (16,267) | (25,293) |
| Increases- Bad debt expenses | (11,781) | (9,814) |
| Uses | 7,572 | 10,281 |
| RECPAM and currency translation adjustments | 7,090 | 6,875 |
| At the end of the period | (13,386) | (17,951) |
F-13
TELECOM ARGENTINA S.A.
NOTE 4 - OTHER RECEIVABLES
| September 30, | December 31, | |
| Current Other Receivables | 2022 | 2021 |
| Prepaid expenses | 6,253 | 8,478 |
| Guarantee of financial operations | 2,063 | 3,180 |
| Tax credits | 2,080 | 1,410 |
| Companies under section 33 - Law No. 19,550 and related parties (Note 24.c) | 662 | 379 |
| Receivables from sale of customer relationship | 21 | 32 |
| Other | 2,773 | 1,823 |
| Allowance for other receivables | (674) | (612) |
| 13,178 | 14,690 | |
| Non-Current Other Receivables | ||
| Prepaid expenses | 1,728 | 2,775 |
| Financial DFI (Note 18) | 227 | - |
| Receivables from sale of customer relationship | - | 35 |
| Tax credits | 6 | 4 |
| Other | 331 | 649 |
| 2,292 | 3,463 | |
| Total other receivables, net | 15,470 | 18,153 |
Movements in the allowance for current other receivables are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | (612) | (835) |
| Increases | (303) | - |
| RECPAM and currency translation adjustments | 241 | 157 |
| At the end of the period | (674) | (678) |
NOTE 5 - INVENTORIES
| September 30, | December 31, | |
| 2022 | 2021 | |
| Mobile handsets and others | 5,692 | 4,218 |
| Inventories for construction projects | - | 1,493 |
| Subtotal | 5,692 | 5,711 |
| Allowance for obsolescence of inventories | (634) | (537) |
| Total inventories | 5,058 | 5,174 |
Movements in the allowance for obsolescence of inventories are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | (537) | (637) |
| Increases | (157) | (2) |
| Decreases | 60 | 93 |
| At the end of the period | (634) | (546) |
NOTE 6 - GOODWILL
| September 30, | December 31, | |
| 2022 | 2021 | |
| Argentina (1) | 420,899 | 628,131 |
| Abroad (2) | 1,318 | 1,451 |
| Total goodwill | 422,217 | 629,582 |
| (1) | The variation in the amounts with respect to balance as of December 31, 2021 corresponds to the goodwill recognized with NYSSA acquisition for $708 (Note 27.4) and the impairment of Argentina CGU Goodwill for $(207,940) (Note 26). |
| (2) | The variation in the amounts with respect to balance as of December 31, 2021 corresponds to temporary currency translation adjustments. |
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
| September 30, | December 31, | |
| 2022 | 2021 | |
| PP&E | 693,607 | 759,816 |
| Allowance for obsolescence and impairment of materials | (8,053) | (7,846) |
| Impairment allowance of PP&E | (836) | (2,690) |
| Total property, plant and equipment | 684,718 | 749,280 |
F-14
TELECOM ARGENTINA S.A.
Movements in PP&E (without allowance for obsolescence and impairment of materials and impairment allowance of PP&E) are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | 759,816 | 812,884 |
| Incorporation by acquisition of NYSSA (Note 27.4) | 256 | - |
| CAPEX | 70,496 | 95,049 |
| Currency translation adjustments | (5,692) | (5,650) |
| Net carrying value of decreases and consumption of materials | (2,814) | (1,600) |
| Depreciation of the period | (128,455) | (138,576) |
| At the end of the period | 693,607 | 762,107 |
Movements in the allowance for obsolescence and impairment of materials are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | (7,846) | (6,527) |
| Increases | (231) | (1,468) |
| Currency translation adjustments | 24 | 35 |
| At the end of the period | (8,053) | (7,960) |
Movements in the impairment allowance of PP&E are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | (2,690) | (2,035) |
| Increases | (1,967) | (2,096) |
| Uses | 3,821 | - |
| At the end of the period | (836) | (4,131) |
NOTE 8 - INTANGIBLE ASSETS
| September 30, | December 31, | |
| 2022 | 2021 | |
| Intangible assets | 231,652 | 255,321 |
| Impairment allowance | (9,265) | (15,985) |
| Total intangible assets | 222,387 | 239,336 |
Movements in Intangible assets (without considering the impairment allowance) are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | 255,321 | 276,399 |
| CAPEX | 4,389 | 3,604 |
| Currency translation adjustments | (524) | (502) |
| Net carrying value of decreases (*) | (9,500) | (7) |
| Amortization of the period | (18,034) | (19,277) |
| At the end of the period | 231,652 | 260,217 |
(*) Includes $(9,007) corresponding to the return of spectrum mentioned in Note 27.1.b).
Movements in Impairment allowance of intangible assets are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | (15,985) | (15,633) |
| Increases (Note 27.1.b) | (2,287) | - |
| Uses (Note 27.1.b) | 9,007 | 236 |
| At the end of the period | (9,265) | (15,397) |
NOTE 9 - RIGHT OF USE ASSETS
| September 30, | December 31, | |
| 2022 | 2021 | |
| Leases rights of use | ||
| Sites | 34,034 | 36,458 |
| Real estate and others | 6,191 | 7,214 |
| Poles | 3,145 | 3,128 |
| Indefeasible right of use | 1,541 | 1,760 |
| Asset retirement obligations | 6,755 | 6,934 |
| Total rights of use assets | 51,666 | 55,494 |
F-15
TELECOM ARGENTINA S.A.
Movements in right of use assets are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the year | 55,494 | 44,551 |
| Increase | 10,779 | 23,097 |
| Net carrying value of decreases | (617) | (1,215) |
| Currency translation adjustments | (580) | (487) |
| Amortization of the period | (13,410) | (12,560) |
| At the end of the period | 51,666 | 53,386 |
NOTE 10 - TRADE PAYABLES
| September 30, | December 31, | |
| Current | 2022 | 2021 |
| Suppliers | 60,202 | 79,749 |
| Companies under Sect. 33-Law No. 19,550 and Related Parties (Note 24.c) | 1,763 | 2,011 |
| 61,965 | 81,760 | |
| Non-current | ||
| Suppliers | 551 | 1,821 |
| 551 | 1,821 | |
| Total trade payables | 62,516 | 83,581 |
NOTE 11 - FINANCIAL DEBT
| September 30, | December 31, | |
| Current | 2022 | 2021 |
| Bank overdrafts - principal | 14,901 | 20,235 |
| Bank and other financial entities loans - principal | 31,961 | 54,101 |
| Notes - principal | 20,434 | - |
| DFI | 81 | 307 |
| Loans for purchase of equipment | 4,813 | 5,970 |
| Interest and related expenses | 28,474 | 27,117 |
| 100,664 | 107,730 | |
| Non-current | ||
| Notes - principal | 167,705 | 184,946 |
| Bank and other financial entities loans - principal | 87,849 | 95,898 |
| Loans for purchase of equipment | 4,421 | 6,504 |
| Interest and related expenses | 39,311 | 48,206 |
| 299,286 | 335,554 | |
| Total financial debt | 399,950 | 443,284 |
Movements in Financial debt are as follows:
| Balances at the beginning of the year | Cash | Accrued | Exchange differences, currency translation adjustments and others | Balances as of September 30, 2022 | |
| Bank overdrafts | 20,235 | 5,667 | - | (11,001) | 14,901 |
| Bank and other financial entities loans - principal | 149,999 | 1,616 | - | (31,805) | 119,810 |
| Notes - principal | 184,946 | 19,109 | - | (15,916) | 188,139 |
| DFI | 307 | (2,971) | - | 2,745 | 81 |
| Loans for purchase of equipment | 12,474 | (2,699) | - | (541) | 9,234 |
| Interests and related expenses | 75,323 | (31,375) | 3,871 | 19,966 | 67,785 |
| Total as of September 30, 2022 | 443,284 | (10,653) | 3,871 | (*) (36,552) | 399,950 |
| Total as of September 30, 2021 | 501,851 | (13,982) | 19,410 | (**) (52,071) | 455,208 |
(*) Includes $7,661 of loans that do not represent cash movement.
(**) Includes $7,731 of loans that do not represent cash movement.
Most of the bank and other financing entities loans subscribed by the Company contain compliance ratios which are usual for this kind of agreements. As of September 30, 2022, Telecom has complied with them.
Recent developments for the nine-month period ended September 30, 2022 of Financial debt as of the date of these unaudited consolidated financial statements are detailed below:
Telecom Argentina
Global Programs for the issuance of Notes
In connection with the Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies, the Company announced the subscription of new series of notes. The amount of the Notes finally issued and its main characteristics are detailed below:
F-16
TELECOM ARGENTINA S.A.
| Series | Currency | Amount involved (in millions) | Issuance date | Maturity date | Amortization | Interest rate | Interest payment date | Unpaid portion (in millions) |
| 12 (1) | US$ | US$22.7 | 03/09/2022 | 03/09/2027 | In one installment at maturity date | Annual fixed rate of 1.00%. | Quarterly basis | $15,945 |
| US$ | US$75 | 08/16/2022 | 03/09/2027 | In one installment at maturity date | Annual fixed rate of 1.00%. | Quarterly basis | ||
| 13 | $ | $2,347.5 | 03/09/2022 | 09/09/2023 | In one installment at maturity date | Variable annual rate (Badlar plus spread of 1.5%) | Quarterly basis | $2,425 |
| (1) | For the Additional Series 12 Notes issued on August 16, 2022, the subscription price was above par, so that on the date of issuance, the Company received funds for US$86.3 million (equivalent to $11,621) net of issuance expenses for $0,05. |
Telecom Argentina's General Extraordinary Shareholders' Meeting held on April 27, 2022, resolved, among others: (i) to extend for 5 years the term of the Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies ("the Program"); and (ii) to extend from December 28, 2022 and for an additional 5 years the delegation to the Board of Directors of the powers to determine and modify the terms and conditions of the Program and of the Notes to be issued under it within the maximum amount in circulation authorized, with powers to sub-delegate powers to some of its members and/or officials of the first line of management.
Bank and other financing entities loans
Banco Santander Argentina S.A. Loan ("Santander")
During March and June 2022, the Company entered into two loan agreements with Santander for a total amount of $3,500 million and $1,000 million, respectively. Total principal will be settled by one installment at maturity dates, which will be on March 9, 2023 and June 22, 2023, respectively. The loans bear interest that will be paid in a monthly basis from its issuance dates until its maturity dates at a fixed rate of 44.5% and 47%.
On July 27, 2022, the Company executed an addendum to Santander loan signed on August 18, 2021 for a total amount of $4,000 million, and agreed to change the principal maturity amortization schedule that would take place on August 18, 2022, by deferring it to July 27, 2023. Additionally, a new fixed interest rate of 55% annual nominal was renegotiated from July 27, 2022. This transaction was recognized as a debt extinguishment, recognizing a loss of $1.5 that is included in "Financial debt renegotiation results" item, within financial results, net.
China Development Bank Shenzhen Branch ("CDB") Loan
During the current period the Company has subscribed new tranches for a total of RMB 381.7 million, equivalent to $7,013 million.
Industrial and Commercial Bank of China (Argentina) S.A.U. ("ICBC") Loan
On January 21, 2022, the Company repaid the remaining balance of a loan agreement with ICBC Bank for $69 ($67 of principal and $2 of interest).
BBVA Argentina Bank S.A. Loans ("BBVA")
During March 2022, the Company subscribed two loan agreements with BBVA for a total amount of $1,000 million and $1,500 million, respectively. Total principal will be settled by one installment at maturity dates, which will be on March 10, 2023 and May 17, 2023, respectively. The loans bear interest that will be paid in a monthly basis from its issuance dates until its maturity dates at a fixed rate of 43.9% and 44.85%.
International Finance Corporation ("IFC") loan
On June 28, 2022 the Company executed a proposal for a credit line to finance the expansion of fixed and mobile network coverage with IFC for a total amount of up to US$184.5 million, as requested in a timely manner by the Company (the "Loan"). The Loan accrues compensatory interest payables semiannually for periods that are due at an annual rate equal to 6-month SOF plus the margin of 6.5 percentage points. Likewise, the principal will be payable in eleven consecutive semi-annual equal installments from August 2024 and final maturity in August 2029.
On July 15, 2022, the Company received a disbursement for a total amount of US$184.5 million (US$181.5 million were received, because US$3 million corresponding to debt issuance expenses were deducted from the initial disbursement).
F-17
TELECOM ARGENTINA S.A.
Loans for purchase of equipment
Cisco Systems Capital Corporation
During the current period, the Company had additions for US$15.7 million, equivalent to $1,782 million, due between February and October 2026.
In October 2022, the Company had additions for US$0.9 million, equivalent to $129.4, due in November 2026.
Export Development Canada (EDC)
On January 3, 2022, the Company submitted a proposal for an export credit line for a total amount of up to US$23.4 million to the following entities: (i) JPMorgan Chase Bank, N.A., as initial lender, residual risk guarantor and agent of the facility, (ii) JPMorgan Chase Bank, N.A., Buenos Aires branch as an onshore custody agent, and (iii) JPMorgan Chase Bank, N.A. and EDC as lead co-organizers, which was accepted on the same date.
The line of credit is guaranteed by EDC, the official export credit agency of Canada.
The funds received will be used to finance up to 85% of the value of certain imported goods and services, up to 50% of the value of certain national goods and services and the total payment of the EDC surplus equivalent to 14.41% of the total amount committed by the lenders under the line of credit.
On June 14, 2022, the Company received a disbursement for a total amount of US$17 million, of which the Company received US$14.1 million net of debt issuance expenses deducted, equivalent to $1,733.1 million, maturing in December 2026. The principal received accrues interest at an annual rate equal to 6-mont LIBO plus 1.20 percentage points.
On October 6, 2022, the Company received a second disbursement for a total amount of US$6.3 million, of which the Company received US$5.4 million net of debt issuance expenses deducted, equivalent to $809 million, maturing in December 2026. The principal received accrues interest at an annual rate equal to 6-mont LIBO plus 1.20 percentage points.
Finnvera
On March 31, 2022, the Company received a disbursement for a total amount of US$11.4 million (US$9.7 million were received, because US$1.7 million corresponding to the premium equivalent to 14.41% of the total amount committed by the lenders under the credit line were deducted from the initial disbursement). With this disbursement, the total amount committed for this line of credit is completed.
Peugeot
On June 10, 2022, the Company executed a proposal for a credit line to finance the acquisition of 350 utility vehicles for a total amount of $1,042.7 million plus VAT. For each acquisition, the Company will pay an advance of 40% of the value, financing the remaining 60% in 36 consecutive monthly installments at the rate agreed at the time of each acquisition through PSA Finance Argentina and/or BBVA.
During the second quarter of 2022, the Company paid 198 utility vehicles for a total amount of $669 million, financing $391 million. The agreed compensatory interest annual rate was 42.9%.
During the third quarter of 2022, the Company paid 152 utility vehicles for a total amount of $514 million, financing $300 million. The agreed compensatory interest annual rate was 47.9%.
Ford
On August 30, 2022, the Company executed a proposal for a credit line to finance the acquisition of 43 utility vehicles for a total amount of $222 million plus VAT. For the acquisition, the Company will pay an advance of 50% of the value, financing the remaining 50% of $122.6 million in 12 consecutive monthly installments at a fixed rate of 4.9% through ICBC.
Other bank loans
On July 18, 2022, the Company pre-paid the remaining balance under the contract Term Loan executed on October 8, 2018 for US$142.2 million (US$140 million of principal and US$2.2 million of interest). The pre-payments made by the Company during the term of the contract did not generate penalties. As a result of the pre-payment made, the Company recognized a loss of $32.5 that is included in "Financial debt renegotiation results" item, within financial results, net.
F-18
TELECOM ARGENTINA S.A.
NOTE 12 - SALARIES AND SOCIAL SECURITY PAYABLES
| September 30, | December 31, | |
| Current | 2022 | 2021 |
| Salaries, annual complementary salaries, vacation, bonuses and their social security payables | 27,752 | 34,620 |
| Termination benefits | 3,488 | 2,354 |
| 31,240 | 36,974 | |
| Non-current | ||
| Termination benefits | 2,676 | 2,567 |
| 2,676 | 2,567 | |
| Total salaries and social security payables | 33,916 | 39,541 |
NOTE 13 - INCOME TAX PAYABLE AND DEFERRED INCOME TAX ASSETS/LIABILITIES
Income tax payable by company is presented below:
| September 30, | December 31, | |
| 2022 | 2021 | |
| Telecom | 32,055 | 22,858 |
| Núcleo | 135 | 178 |
| Adesol | 12 | 78 |
| Telecom USA | - | 2 |
| Pem | 1 | 13 |
| NYSSA | 47 | - |
| 32,250 | 23,129 |
Deferred Income tax assets and liabilities, net and the actions for recourse tax receivable are presented below:
| September 30, | December 31, | |
| 2022 | 2021 | |
| Tax loss carryforward | (791) | (329) |
| Allowance for doubtful accounts | (7,894) | (8,687) |
| Provisions | (2,556) | (4,639) |
| PP&E and Intangible assets | 188,485 | 200,648 |
| Cash dividends from foreign companies | 1,951 | 2,300 |
| Income tax inflation adjustment deferral effect | 16,577 | 38,519 |
| Other deferred tax liabilities (assets), net | (1,762) | (2,845) |
| Total deferred tax liabilities, net | 194,010 | 224,967 |
| Actions for recourse tax receivable | (889) | (1,476) |
| Total deferred tax liability, net | (*) 193,121 | 223,491 |
| Net deferred tax assets | (1,619) | (1,093) |
| Net deferred tax liabilities | 194,740 | 224,584 |
| (*) | Includes $62 of currency translation adjustments on foreign subsidiaries' initial balances. |
As of September 30, 2022, some subsidiaries have cumulative tax loss carryforwards of approximately $2,349 million, that calculated considering statutory income tax rate, represents a deferred tax asset of approximately $791 million.
The detail of the maturities of estimated Tax loss carryforward is disclosed below:
| Company | Tax loss carryforward generation year |
Tax loss carryforward amount as of 09.30.2022 |
Tax loss carryforward expiration year |
| Telemás (*) | 2019 | 269 | 2024 |
| Microsistemas | 2021 | 240 | 2026 |
| Microsistemas | 2022 | 1,804 | 2027 |
| AVC | 2021 | 3 | 2026 |
| AVC | 2022 | 33 | 2027 |
| 2,349 |
| (*) | This company is consolidated in the financial statements of Adesol. |
F-19
TELECOM ARGENTINA S.A.
Income tax expense differed from the amounts computed by applying the Company's statutory income tax rate to pre-tax income as a result of the following:
| Nine-month period ended September 30, | ||
| 2022 | 2021 | |
| Profit (loss) | ||
| Income (loss) before income tax expense | (159,200) | 58,542 |
| Non-taxable items - Earnings from associates | (342) | (384) |
| Non-taxable items - Impairment of Goodwill charges | 207,940 | - |
| Non-taxable items - Other | 1,652 | (641) |
| Restatement in current currency of Equity, goodwill and other | 162,338 | 130,722 |
| Subtotal | 212,388 | 188,239 |
| Weighted statutory income tax rate | 34,44% | 34,49% |
| Income tax expense at weighted statutory tax rate | (73,145) | (64,924) |
| Deferred tax liability restatement in current currency and other | 134,529 | 62,282 |
| Income tax inflation adjustment | (65,116) | (52,474) |
| Income tax on cash dividends of foreign companies | (566) | (1,550) |
| Income tax expense (*) | (4,298) | (56,666) |
| Current tax | (34,934) | (23,263) |
| Deferred tax | 30,636 | (33,403) |
| Income tax expense | (4,298) | (56,666) |
(*) In 2022 includes $10,756 corresponding to the adjustment made in the Income tax affidavit of 2021 (see "Income Tax - Inflation Adjustment for Tax Purposes"). In 2021 includes the effect of the change in the income tax rate provided for in Law No. 27,630 generated by the recalculation of the tax impact on balances at the beginning and on the result of the period, for approximately $(93,450).
Income Tax - Inflation Adjustment for Tax Purposes
Given the judicial precedents detailed in Note 15 to the consolidated financial statements as of December 31, 2021 (section "Income tax - Actions for recourse filed with the Tax Authority") related to the different mechanisms used to recognize the effect of inflation in the assessment of income tax, on May 6, 2022, the Company filed the Income Tax affidavit for fiscal year 2021, considering the deduction of the restatement of the tax amortizations of all its fixed assets and intangible assets in accordance with the provisions of articles 87 and 88 of the Income Tax Law and allocating the computable tax loss carryforward from previous years in accordance with the update mechanism provided for in article 25 of the mentioned law.
This, given the fact that the relationship that arises between the tax determined without the full application of the aforementioned adjustment mechanisms for tax inflation and the actual result subject to tax for the year, causes the application of an effective tax rate for the year 2021 which is confiscatory. If the Company would not resort to the full application of the adjustment mechanisms for tax inflation, a tax would be determined whose effective rate would consume 100% of the Company's income and would even reach its own generating capital, yielding an effective rate that would amount to 146.6%, which would exceed any reasonable tax limit, thus setting up a case of confiscation that seriously damages their constitutional rights and guarantees.
Therefore, on the occasion of the presentation of the Income Tax affidavit for the fiscal period 2021, the Company made a presentation to AFIP, under the protection of the fiscal secrecy provided in the procedural law, in order to preserve its rights in a framework of transparency in its actions.
As a consequence of the foregoing, the income tax charge for the period includes a lower charge of $7,517 million ($10,756 million in constant currency as of September 30, 2022), determined considering the weighting of the probability of occurrence of certain variables according to the aforementioned jurisprudential precedents.
Due to the fact that the evaluation of whether or not a situation of confiscatory tax burden arises can only be carried out at the end of each fiscal year, the Company has not applied this criterion in the calculation of assets and liabilities for deferred income tax, nor in the estimation of the tax charge for the three and nine-month periods ended September 30, 2022.
It should be noted that, if new information became available, the Company may modify its judgments in relation to recognized tax liabilities, in which case such changes would impact on the income tax for the period in which such assessment is made.
The Company's Management, with the assistance of its legal and tax advisors, believes that the arguments presented to AFIP in such reimbursement claims follow the same criteria as those jurisprudential background detailed in note 15 to the consolidated financial statements as of December 31, 2021 considered by the Argentine Supreme Court in the precedents cited above, among others. Therefore, the Company believes that it has strong grounds to defend the criteria applied.
F-20
TELECOM ARGENTINA S.A.
NOTE 14 -OTHER TAXES PAYABLES
| September 30, | December 31, | |
| Current | 2022 | 2021 |
| Other national taxes | 6,142 | 5,546 |
| Provincial taxes | 923 | 185 |
| Municipal taxes | 707 | 849 |
| 7,772 | 6,580 | |
| Non- current | ||
| Provincial taxes | 58 | - |
| 58 | - | |
| Total other taxes payables | 7,830 | 6,580 |
NOTE 15 - LEASES LIABILITIES
| September 30, | December 31, | |
| 2022 | 2021 | |
| Current | ||
| Argentina | 7,880 | 9,202 |
| Abroad | 188 | 978 |
| 8,068 | 10,180 | |
| Non- current | ||
| Argentina | 13,707 | 19,259 |
| Abroad | 2,219 | 1,976 |
| 15,926 | 21,235 | |
| Total leases liabilities | 23,994 | 31,415 |
Movements in Leases liabilities are as follows:
| September 30, | ||
| 2022 | 2021 | |
| At the beginning of the fiscal year | 31,415 | 25,822 |
| Increases (*) | 10,372 | 22,820 |
| Financial results, net (**) | 4,726 | 3,750 |
| Payments | (4,740) | (7,618) |
| RECPAM and currency translation adjustments | (17,779) | (14,076) |
| At the end of the period | 23,994 | 30,698 |
(*) Included in Rights of use assets acquisitions.
(**) Included in Other exchange differences and Other interests, net and other investments results.
NOTE 16 - OTHER LIABILITIES
| September 30, | December 31, | |
| Current | 2022 | 2021 |
| Deferred revenues on prepaid credit | 2,566 | 2,860 |
| Deferred revenues on connection fees and international capacity leases | 1,465 | 1,604 |
| Debt for acquisition of NYSSA (Note 27.4) | 167 | - |
| Other | 532 | 610 |
| 4,730 | 5,074 | |
| Non-current | ||
| Pension benefits | 1,024 | 989 |
| Deferred revenues on connection fees and international capacity leases | 626 | 1,075 |
| Debt for acquisition of NYSSA (Note 27.4) | 463 | - |
| Advances received for assets held for sale (Note 27.3) | 295 | - |
| Other | 26 | 14 |
| 2,434 | 2,078 | |
| Total other liabilities | 7,164 | 7,152 |
F-21
TELECOM ARGENTINA S.A.
NOTE 17 - PROVISIONS
Movements in Provisions are as follows:
| Balances as of December 31, 2021 | Additions | Reclassifications | Payments | RECPAM and currency translation adjustments | Balances
as of | ||
Capital (i) |
Interest | ||||||
| Current | |||||||
| Provisions | 3,564 | 4,149 | - | 4,921 | (9,517) | (801) | 2,316 |
| Total current provisions | 3,564 | 4,149 | - | 4,921 | (9,517) | (801) | 2,316 |
| Non- Current | |||||||
| Provisions | 10,145 | 2,280 | 949 | (4,921) | - | (2,636) | 5,817 |
| Asset retirement obligations | 5,755 | 391 | - | - | - | (2,425) | 3,721 |
| Total non-current provisions | 15,900 | 2,671 | 949 | (4,921) | - | (5,061) | 9,538 |
| Total provisions | 19,464 | 6,820 | 949 | - | (9,517) | (5,862) | 11,854 |
| Balances as of December 31, 2020 | Additions | Reclassifications | Payments | RECPAM and currency translation adjustments | Balances
as of | ||
Capital (iii) |
Interest | ||||||
| Current | |||||||
| Provisions | 4,052 | 5,864 | - | 1,225 | (8,028) | 377 | 3,490 |
| Total current provisions | 4,052 | 5,864 | - | 1,225 | (8,028) | 377 | 3,490 |
| Non- Current | |||||||
| Provisions | 11,229 | 2,083 | 811 | (1,225) | - | (3,196) | 9,702 |
| Asset retirement obligations | 7,477 | - | 1,561 | - | - | (2,205) | 6,833 |
| Total non-current provisions | 18,706 | 2,083 | 2,372 | (1,225) | - | (5,401) | 16,535 |
| Total provisions | 22,758 | 7,947 | 2,372 | - | (8,028) | (5,024) | 20,025 |
| (i) | $6,429 charged to Other operating expenses and $391 charged to Right of use assets. |
| (ii) | Charged to Other financial results, net - Other interests, net and other investments results. |
| (iii) | Charged to Other operating expenses. |
NOTE 18 - ADDITIONAL INFORMATION OF FINANCIAL ASSETS AND LIABILITIES
Financial assets and liabilities denominated in foreign currencies
Financial assets and liabilities denominated in foreign currencies as of September 30, 2022 and December 31, 2021 are the following:
| 09.30.2022 | 12.31.2021 | |
| In equivalent millions of Argentine pesos | ||
| Assets | 39,406 | 33,163 |
| Liabilities | (326,885) | (388,588) |
| Net Liabilities | (287,479) | (355,425) |
In order to reduce this net position (debt) in foreign currency, Telecom has DFI as of September 30, 2022 amounting to US$70 million, therefore the net liability not hedged amounts to approximately US$1,881 million as of that date.
Offsetting of financial assets and financial liabilities in scope of IFRS 7
The information required by the amendment to IFRS 7 as of September 30, 2022 and December 31, 2021 is as follows:
| As of September 30, 2022 | ||||
| Trade receivables | Other receivables | Trade payables | Other liabilities | |
| Current and non-current assets (liabilities) - Gross value | 32,101 | 5,157 | (64,737) | (1,747) |
| Offsetting | (2,221) | (346) | 2,221 | 346 |
| Current and non-current assets (liabilities) - Book value | 29,880 | 4,811 | (62,516) | (1,401) |
| As of December 31, 2021 | ||||
| Trade receivables | Other receivables | Trade payables | Other liabilities | |
| Current and non-current assets (liabilities) - Gross value | 40,502 | 5,343 | (86,506) | (779) |
| Offsetting | (2,925) | (571) | 2,925 | 571 |
| Current and non-current assets (liabilities) - Book value | 37,577 | 4,772 | (83,581) | (208) |
F-22
TELECOM ARGENTINA S.A.
Telecom and its subsidiaries offset the financial assets and liabilities to the extent that such offsetting is provided by agreements and provided that Telecom has the intention to make such offsetting, in accordance with requirements established in IAS 32. The main financial assets and liabilities offset correspond to transactions with other national and international operators including interconnection, carriers and Roaming (being offsetting a standard practice in the telecommunications industry at international level that Telecom and its subsidiaries apply regularly). Offsetting is also applied to transactions with agents.
Fair value hierarchy and other disclosures
The measurement at fair value of the financial instruments of Telecom are classified according to the three levels set out in IFRS 13:
| - | Level 1: Fair value determined by quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| - | Level 2: Fair value determined based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (e.g. as prices) or indirectly (e.g. derived from prices). |
| - | Level 3: Fair value determined by unobservable inputs where the reporting entity is required to develop its own assumptions. |
Financial assets and liabilities recognized at fair value as of September 30, 2022 and December 31, 2021, and the level of hierarchy are listed below:
| September 30, 2022 | Level 1 | Level 2 | Total | |||
| Assets | ||||||
| Current Assets | ||||||
| Mutual Funds (1) | 4,492 | - | 4,492 | |||
| Investments: Government bonds | 6,140 | - | 6,140 | |||
| Non-current Assets | ||||||
| Other receivables: DFI | - | 227 | 227 | |||
| Total assets | 10,632 | 227 | 10,859 | |||
| Liabilities | ||||||
| Current Liabilities | ||||||
| Other liabilities (See Note 27.4) | - | 167 | 167 | |||
| Financial Debt: DFI | - | 81 | 81 | |||
| Non-current Liabilities | ||||||
| Other liabilities (See Note 27.4) | - | 463 | 463 | |||
| Total Liabilities | - | 711 | 711 | |||
| December 31, 2021 | Level 1 | Level 2 | Total | |||
| Assets | ||||||
| Current Assets | ||||||
| Mutual Funds (1) | 8,477 | - | 8,477 | |||
| Investments: Government bonds | 17,773 | - | 17,773 | |||
| Total assets | 26,250 | - | 26,250 | |||
| Liabilities | ||||||
| Current Liabilities | ||||||
| Financial debt: DFI | - | 307 | 307 | |||
| Total Liabilities | - | 307 | 307 |
(1) are included in Cash and cash equivalents, Investments and Guarantee of financial operations included in Other receivables
The methods and assumptions used to estimate the fair values of each class of financial instrument above are detailed on Note 22 to annual financial statements as of December 31, 2021, except for other liabilities whose fair value was determined by the variation between the quoted values of certain public securities in foreign currency and Argentine pesos, for which their valuation qualifies as Level 2.
The Company also has certain financial instruments that are not measured at fair value for which the book value approximates their fair value, except for:
Financial Debt
As of September 30, 2022, fair value of financial debt is as follows:
| Carrying Value | Fair Value | |
| Notes | 221,922 | 225,270 |
| Other financial debts | 178,028 | 168,179 |
| 399,950 | 393,449 |
F-23
TELECOM ARGENTINA S.A.
The fair value of the financial debt was assessed as follows:
| a) | The fair value of Notes traded in active markets was measured based on quoted market prices at the end of the reporting period. As a result, its valuation classifies as Level 1. |
| b) | The fair value of Notes that are not traded in an active market was measured based on quotes provided by first-tier financial entities, so their valuation qualifies as Level 2. |
| c) | Fort the rest of the financial debt, the fair values were calculated based on cash flows discounted using a current lending rate, so as they are classified as level 3. |
Hedge accounting
In order to reduce the effect of fluctuations in interest rates, during September, 2022, Telecom Argentina entered into several DFI agreements to hedge the fluctuation of SOFR from the IFC loan signed on June 28, 2022 (see Note 11), for its total amount, for the period beginning February 15, 2023 to August 15, 2025. The amounts hedged in each agreement are: two for a total amount of US$60 million each, and one for a total amount of US$64.5 million. The interest rates are 3.605%, 3.912% and 3.895%, respectively.
As of September 30, 2022 the Company recognized in Other non-current receivables and in the line DFI effects classified as hedges, included in Other comprehensive income (loss), a total of $227 million, which will be reclassified subsequently to profit or loss, when hedged items expected cash flows affect profit or loss.
NOTE 19 - PURCHASE COMMITMENTS
The Company has entered into various purchase commitments with domestic and foreign suppliers amounting to approximately $135,282 as of September 30, 2022 (of which $41,002 corresponds to PP&E commitments).
NOTE 20 - EQUITY
(a) Capital Stock
As of September 30, 2022 and December 31, 2021, the capital stock of Telecom Argentina amounts to $2,153,688,011, represented by the same number of common book-entry shares with nominal value of $1 peso, as detailed below:
| Class of Shares | Total | |
| Class "A" | 683,856,600 | |
| Class "B" | 628,058,019 | |
| Class "C" | 106,734 | |
| Class "D" | 841,666,658 | |
| Total | 2,153,688,011 |
As of the date of these unaudited consolidated financial statements, all the shares of Telecom Argentina are authorized by the CNV for public offering.
Class B Shares are listed and traded on the leading companies' panel of the BYMA and the American Depositary Shares (ADS) representing 5 Class "B" shares of the Company are traded on the NYSE under the symbol TEO.
(b) Provisions of the Telecom Ordinary and Extraordinary Shareholders' meeting
The Ordinary and Extraordinary Shareholders' meeting of Telecom held on April 27, 2022 decided, among other issues, the following:
| (a) | to approve the Annual Report and the financial statements of Telecom as of December 31, 2021; |
| (b) | to approve the Board of Directors' proposal expressed in current currency of March 31, 2022 using the National Consumer Price Index (National CPI), as provided by CNV Resolution No. 777/18, in respect to the unallocated retained earnings as of December 31, 2021 of $10,056,956,479 Argentine pesos ($14,389 million in current currency as of September 30, 2022): (i) to allocate $502,847,824 Argentine pesos ($678 million in current currency as of September 30, 2022) to "Legal Reserve", (ii) to allocate $9,554,108,655 Argentine pesos ($13,712 million in current currency as of September 30, 2022) to the "Facultative Reserve to maintain the capital investments level and the current level of solvency", and (iii) the reclassification of $18,817,248,927 Argentine pesos ($25,389 million in current currency as of September 30, 2022) from the "Facultative Reserve to maintain the capital investments level and the current level of solvency" to the "Contributed Surplus"; |
| (c) | approved to delegate to the Board of Directors the power to cancel before June 30, 2022 the "Facultative Reserve to maintain the capital investments level and the current level of solvency" in an amount such that it allows distributing a combination of Global Bonds 2030 and Global Bonds 2035 as non-cash assets dividends for a market value at the date of determination of its value of up to $41,000 million. For further information on the distribution of dividends see Note 2.b "Cash and non-cash assets dividends from the Company and its subsidiaries - Non-cash dividends". |
F-24
TELECOM ARGENTINA S.A.
NOTE 21 - REVENUES
Revenues include:
Three-month period ended September 30, | Nine-month period ended September 30, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Mobile Services | 60,601 | 66,990 | 187,113 | 200,703 | |
| Internet Services | 32,728 | 38,542 | 105,070 | 113,620 | |
| Cable Television Services | 26,116 | 33,783 | 85,700 | 105,120 | |
| Fixed and Data Services | 17,789 | 23,419 | 58,534 | 75,192 | |
| Other services revenues | 1,210 | 1,221 | 3,952 | 3,523 | |
| Subtotal Services revenues | 138,444 | 163,955 | 440,369 | 498,158 | |
| Equipment revenues | 9,794 | 12,220 | 30,591 | 38,089 | |
| Total Revenues | 148,238 | 176,175 | 470,960 | 536,247 |
NOTE 22 - OPERATING EXPENSES
Operating expenses disclosed by nature of expense amounted to $705,628 and $534,078 for the nine-month periods ended September 30, 2022 and 2021, respectively. The main components of the operating expenses are the following:
| Three-month period ended September 30, | Nine-month period ended September 30, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Employee benefit expenses and severance payments | Profit (loss) | Profit (loss) | |||
| Salaries, social security expenses and benefits | (34,563) | (35,457) | (101,438) | (100,710) | |
| Severance indemnities | (6,226) | (3,799) | (11,899) | (7,638) | |
| Other employee expenses | (862) | (784) | (2,133) | (2,105) | |
| (41,651) | (40,040) | (115,470) | (110,453) | ||
| Fees for services, maintenance, materials and supplies | |||||
| Maintenance and materials | (9,365) | (11,781) | (29,482) | (35,213) | |
| Fees for services | (9,542) | (8,304) | (26,602) | (25,361) | |
| Directors and Supervisory Committee's members' fees | (136) | (120) | (419) | (646) | |
| (19,043) | (20,205) | (56,503) | (61,220) | ||
| Taxes and fees with the Regulatory Authority | |||||
| Turnover tax | (5,415) | (6,509) | (17,381) | (19,890) | |
| Regulatory Entity Fees | (2,864) | (3,254) | (9,008) | (9,909) | |
| Municipal taxes | (1,607) | (1,843) | (5,004) | (5,760) | |
| Other taxes and fees | (1,539) | (1,885) | (4,879) | (5,809) | |
| (11,425) | (13,491) | (36,272) | (41,368) | ||
| Cost of equipment and handsets | |||||
| Inventory balance at the beginning of the year | (6,528) | (7,247) | (5,711) | (9,968) | |
| Plus: | |||||
| Purchases | (6,552) | (8,121) | (23,491) | (24,046) | |
| Other | 836 | 136 | 1,765 | 338 | |
| Less: | |||||
| Inventory balance at the end of the period | 5,692 | 6,675 | 5,692 | 6,675 | |
| (6,552) | (8,557) | (21,745) | (27,001) | ||
| Other operating expenses | |||||
| Provisions | (961) | (4,101) | (6,429) | (7,947) | |
| Rental and internet capacity | (919) | (1,377) | (2,863) | (3,706) | |
| Energy, water and other services | (2,968) | (2,970) | (8,656) | (8,809) | |
| Postage, freight and travel expenses | (1,125) | (1,029) | (3,244) | (3,161) | |
| Other | 400 | (761) | (994) | (1,699) | |
| (5,573) | (10,238) | (22,186) | (25,322) | ||
| Depreciation, amortization and impairment of fixed assets | |||||
| Depreciation of PP&E | (43,295) | (48,705) | (128,455) | (138,576) | |
| Amortization of intangible assets | (5,931) | (6,412) | (18,034) | (19,277) | |
| Amortization of rights of use assets | (4,735) | (4,413) | (13,410) | (12,560) | |
| Impairment of fixed assets (*) | (206,821) | (998) | (209,907) | (2,025) | |
| (260,782) | (60,528) | (369,806) | (172,438) |
(*) Includes $(207,940) corresponding to the impairment of goodwill of the CGU Argentina for the three and nine-month periods ended on September 30, 2022.
F-25
TELECOM ARGENTINA S.A.
Operating expenses, disclosed per function are as follows:
Concept | Operating costs | Administration costs | Commercialization costs | Other expenses |
Total 09.30.2022 |
Total 09.30.2021 |
| Employee benefit expenses and severance payments | (65,653) | (23,462) | (26,355) | - | (115,470) | (110,453) |
| Interconnection costs and transmission costs | (14,574) | - | - | - | (14,574) | (19,544) |
| Fees for services, maintenance, materials and supplies | (25,254) | (10,607) | (20,642) | - | (56,503) | (61,220) |
| Taxes and fees with the Regulatory Authority | (35,682) | (248) | (342) | - | (36,272) | (41,368) |
| Commissions and advertising | (748) | (458) | (26,525) | - | (27,731) | (30,255) |
| Cost of equipment and handsets | (21,745) | - | - | - | (21,745) | (27,001) |
| Programming and content costs | (29,560) | - | - | - | (29,560) | (36,663) |
| Bad debt expenses | - | - | (11,781) | - | (11,781) | (9,814) |
| Other operating expenses | (11,926) | (2,749) | (7,511) | - | (22,186) | (25,322) |
| Depreciation, amortization and impairment of fixed assets | (121,523) | (23,891) | (14,485) | (209,907) | (369,806) | (172,438) |
| Total as of 09.30.2022 | (326,665) | (61,415) | (107,641) | (209,907) | (705,628) | |
| Total as of 0.30.2021 | (373,150) | (45,439) | (113,464) | (2,025) | (534,078) |
NOTE 23 - FINANCIAL RESULTS, NET
| Three-month period ended September 30, | Nine-month period ended September 30, | ||||
| 2022 | 2021 | 2022 | 2021 | ||
| Profit (loss) | Profit (loss) | ||||
| Interests on financial debts (*) | (1,236) | (6,623) | (3,997) | (19,934) | |
| Foreign currency exchange gains on financial debts (**) | 11,725 | 21,167 | 44,967 | 58,771 | |
| Financial debt renegotiation results | (34) | - | (34) | - | |
| Total Debt financial results | 10,455 | 14,544 | 40,936 | 38,837 | |
| Losses on operations with notes and bonds | (794) | 977 | (12,162) | (901) | |
| Other exchange differences (***) | 1,463 | 1,279 | 2,020 | 9,591 | |
| Other interests, net and other investments results | 408 | (108) | 773 | (2,173) | |
| Other taxes and bank expenses | (1,542) | (1,833) | (4,649) | (5,346) | |
| Financial expenses on pension benefits | (118) | (136) | (430) | (452) | |
| Financial discounts on assets, debts and others | (700) | (1,394) | (2,215) | (4,539) | |
| RECPAM | 18,760 | 5,475 | 50,853 | 20,972 | |
| Total other financial results, net | 17,477 | 4,260 | 34,190 | 17,152 | |
| Total financial results, net | 27,932 | 18,804 | 75,126 | 55,989 |
(*) Includes ($125) and ($523) corresponding to net losses generated by DFI in the nine-month period ended September 30, 2022 and 2021, respectively.
(**) Includes ($115) and ($1,550) corresponding to net losses generated by DFI in the nine-month period ended September 30, 2022 and 2021, respectively.
(***) Includes $181 corresponding to income related to decreases in financial assets at amortized cost in the nine-month period ended September 30, 2021.
NOTE 24 - BALANCES AND TRANSACTIONS WITH COMPANIES UNDER SECTION 33 - LAW No. 19,550 AND RELATED PARTIES
| a) | Controlling Company |
CVH is the controlling company of Telecom Argentina, holding directly and indirectly 28.16% of the capital stock of the Company. Additionally, both VLG S.A.U. (company controlled by CVH) and Fintech Telecom, LLC, contributed to the Voting Trust, according to the Shareholders' Agreement, shares representing 10.92% of the capital of the Company, respectively, so the shares subject to such agreement represent 21.84% of the capital of the Company (the "Shares in Trust").
According to the Voting Trust Agreement, the trustee appointed by CVH must vote the Shares in Trust as instructed or voted by CVH with respect to all issues except in respect of certain matters subject to veto under the Shareholders' Agreement.
For further details on the Voting Trust Agreement and the Shareholders' Agreement, see Note 27 to the consolidated financial statements as of December 31, 2021.
| b) | Related Parties |
For the purposes of these unaudited consolidated financial statements, related parties are those individuals or legal entities which are related to Telecom in terms of IAS 24.
F-26
TELECOM ARGENTINA S.A.
| c) | Balances with Companies under section 33 - Law No. 19,550 and Related Parties |
| ● | Companies under section 33 - Law No. 19,550 - Associates |
| CURRENT ASSETS | September 30, | December 31, |
| Trade receivables | 2022 | 2021 |
| Ver TV | 1 | 1 |
| 1 | 1 | |
| Other receivables | ||
| La Capital Cable | 657 | 369 |
| Ver TV | 2 | 3 |
| 659 | 372 | |
| CURRENT LIABILITIES | ||
| Trade payables | ||
| TSMA | 1 | - |
| 1 | - |
| ● | Related parties |
| CURRENT ASSETS | September 30, | December 31, |
| Trade receivables | 2022 | 2021 |
| Other Related parties | 200 | 300 |
| 200 | 300 | |
| Other receivables | ||
| Other Related parties | 3 | 7 |
| 3 | 7 | |
| CURRENT LIABILITIES | ||
| Trade payables | ||
| Other Related parties | 1,762 | 2,011 |
| 1,762 | 2,011 |
| d) | Transactions with Companies under section 33 - Law No. 19,550 and related parties |
| ● | Companies under section 33 - Law No. 19,550- Associates |
| Transaction | Nine-month period ended September 30, | ||
| 2022 | 2021 | ||
| Profit (loss) | |||
| Revenues | |||
| La Capital Cable | Services revenues and other revenues | 45 | 55 |
| Ver TV | Services revenues and other revenues | 7 | 7 |
| 52 | 62 | ||
| Operating costs | |||
| La Capital Cable | Fees for services | (117) | (108) |
| (117) | (108) |
| ● | Related Parties |
| Transaction | Nine-month period ended September 30, | ||
| 2022 | 2021 | ||
| Profit (loss) | |||
| Revenues | |||
| Other Related parties | Services and advertising revenues | 315 | 384 |
| 315 | 384 | ||
| Operating costs | |||
| Other Related parties | Programming costs | (4,539) | (5,363) |
| Other Related parties | Editing and distribution of magazines | (827) | (1,095) |
| Other Related parties | Advisory services | (628) | (728) |
| Other Related parties | Advertising purchases | (400) | (626) |
| Other Related parties | Other purchases and commissions | (203) | (227) |
| (6,597) | (8,039) |
The transactions discussed above were made by Telecom under the same conditions than would have been obtained from unaffiliated third parties. When Telecom's transactions represented more than 1% of its total shareholders' equity, they were approved according to Law No. 26,831, the Bylaws and the Executive Committees' Faculties and Performance Regulation.
NOTE 25 - RESTRICTIONS ON DISTRIBUTION OF PROFITS
Under the LGS, the by-laws of the Company and rules and regulations of the CNV, a minimum of 5% of net income for the year in accordance with the statutory books, plus/less previous years' adjustments and accumulated losses must be appropriated by resolution of the shareholders to a legal reserve until such reserve reaches 20% of the outstanding capital (common stock) plus inflation adjustment of common stock.
F-27
TELECOM ARGENTINA S.A.
NOTE 26 - MACROECONOMIC ENVIRONMENT AND ANALYSIS OF GOODWILL RECOVERABILITY
Macroeconomic environment
The Company operates in a complex economic environment, with a strong volatility in the main variables, both at the national and international level, mainly during the last two years.
Since 2019, the main macroeconomic and business variables in Argentina have suffered a significant deterioration. This situation got worse significantly during 2020 due to the consequences of Covid. Since the World Health Organization declared COVID-19 a global pandemic on March 11, 2020, governments around the world, and in particular the Argentine Government, have put in place various measures throughout the years 2020 and 2021 to curb the spread of the virus. The implementation of such measures led to a sharp decline in production levels and economic activity.
During the nine-month period ended September 30, 2022, given the considerable decline in infection levels thanks to the large-scale vaccination campaigns that reached the whole population, and that the current cases mostly entail mild symptoms, the Ministry of Health waived the obligation to keep social distancing and the use of face masks, establishing, however, recommendations for general care at work, educational and social environments and at public transport.
On the other hand, the international conflict that started in March 2022 between Ukraine and Russia also led to a fall in financial markets, an increase in the prices of raw materials and certain commodities (for example wheat and oil, among others), causing an increase in inflation rates, fluctuations in the exchange rate of foreign currencies, and a general increase in interest rates.
For the nine-month period ended September 30, 2022, at the national level, the impact of the situation described above and the prevailing political conditions had an adverse effect on the Argentine economy in general and on the stock market in particular, mainly causing:
| i) | an inflationary acceleration and higher devaluation of the Argentine peso, being the inflation rate of 66.1% and the variation of the Banco Nación Divisas $/US$ exchange rate of 43.4%; |
| ii) | volatility in the stock market in which the Company operates. The market price of Telecom shares in BYMA, increased by 24.7%. On the other hand, the price of the Telecom´s ADR in US$ on the NYSE decreased by 21.4%; |
| iii) | greater exchange restrictions on the access to the Argentine Single and Free Exchange Market (MULC, for its Spanish acronym), which could affect the Company's ability to access it and also affect the value of foreign currency in existing alternative markets. The gap as of September 30, 2022 between the MULC and the existing alternative markets (Electronic Payment Market "MEP dollar") amounts to 105.3%; and |
| iv) | an increase in country risk and a general increase in interest rates. |
The inflation, the exchange restrictions for access to the MULC, as well as general increases in interest rates generate various consequences in the economic and financial situation of the Company, affecting the operating results, mainly due to the decrease in revenues (given the impossibility of transferring accumulated inflation to prices) and increases in costs, despite the Company's efforts to reduce them.
As a result of the above-mentioned, the Company's Management identified the need to review the estimate of the recoverable value of goodwill assigned to the cash-generating unit (CGU) in Argentina.
Recoverability of Goodwill
The most significant goodwill held by the Company was generated by the merger between Telecom Argentina and Cablevision (which became effective on January 1, 2018). The goodwill was measured as the excess of the fair value of the consideration transferred over the fair value of the net identifiable assets and liabilities of Telecom Argentina. On the other hand, such transaction also generated the corresponding merger surplus, which mainly reflects the difference between the fair value of the transferred consideration and the book value of Telecom Argentina's equity as of the effective date of merger, which was the setoff of the recognition of goodwill and the higher value of the fixed assets, arising from its valuation at market value at the time of the merger, net of the tax effect.
Due to the fact that the merger was a business combination carried out through an exchange of equity interests, the consideration was determined based on the fair value of the shares of Telecom, calculated based on the market price of the ADR of Telecom on NYSE on the last market day before the effective date of the transaction, which amounted to US$36.63 per ADR (as of September 30, 2022, this value amounted to US$4.01 per ADR).
F-28
TELECOM ARGENTINA S.A.
The table below shows the book value of fixed assets allocated to the Argentina CGU subject to the impairment testing as of September 30, 2022:
| CGU of Argentina | Goodwill | PP&E | Intangible Assets | Right of use assets | Total |
| Balances as of September 31, 2022 | 629,193 | 655,199 | 207,545 | 48,934 | 1,540,871 |
The carrying value of an asset is considered impaired when it is higher than its recoverable value, which is the higher between the fair value (less direct selling costs) or its value in use. In the case of Telecom, as of September 30, 2022, since the value in use was lower than the fair value less the costs of disposal, the latter was considered to be the recoverable value.
In order to determine the fair value less the costs of disposal of the CGU of Argentina, which amounts to $1,332,931 million as of September 30, 2022, the Company's Management has considered the market capitalization value based on an average share market price of $265.9 per share (calculated based on market prices in BYMA weighed by the volume of the transactions corresponding to the three-month period prior September 30, 2022).
In order to determine the fair value of the CGU of Argentina, the above-mentioned market capitalization value was adjusted by (i) the estimated fair value of other CGUs; (ii) the effect of the net liabilities not subject to this impairment testing, calculated at their estimated fair value; (iii) the effect of a 28.6% control premium (determined by the Company with the assistance of independent advisors, based in the values observed in market transactions of the period May 2015 to June 2021 for the ICT services industry); and (iv) estimated disposal costs for an orderly transaction, which include costs such as legal and advisory fees that could be directly associated with the sale of the CGU. Therefore, the fair value qualifies as level 2 of fair value hierarchy in accordance with IFRS 13. The Company's Management has used this valuation method because the share market price is volatile and subject to wide fluctuations, mainly due to the difficult macroeconomic environment in general described in "Macroeconomic environment".
As a result of the calculation mentioned above, the carrying amount of the CGU of Argentina exceed the recoverable value by $207,940. Consequently, as of September 30, 2022, the Company recognized an impairment of goodwill for that amount, which is recorded in the line "Depreciation, amortization and impairment of fixed assets" of the Consolidated Income Statement, not affecting other fixed assets of the Company.
As mentioned above, this impairment was caused by the fact that the evolution of the market price of the shares of Telecom, has not followed the evolution of the inflation rate, used to adjust the fixed assets of the Company in accordance with the requirements of IAS 29.
The Company estimates that the estimated recoverable value of the CGU is sensitive to significant variations in any of the key assumptions. Therefore, significant differences could arise in the future in relation to the estimated recoverable values at the date of these consolidated financial statements.
The Company's Management will continue to monitor the evolution of the aforementioned situations and the evolution of the variables that affect its business in order to determine the potential impacts on its economic and financial position. Therefore, the Company's unaudited consolidated financial statements must be read in the light of these circumstances.
NOTE 27 - RECENT DEVELOPMENTS CORRESPONDING TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2022
| 1. | Regulatory issues |
| a) | Decree No. 690/20 - Amendment to the LAD |
On August 22, 2020, the PEN issued Decree No. 690/20 ("Decree N° 690/20"), through which:
| ● | amended the LAD. Decree No. 690/20 declared ICT Services (which includes fixed and mobile telephony services, cable television and Internet) as well as access to telecommunications networks for and between licensees as "essential and strategic competition public services", and empowered the ENACOM to ensure accessibility; |
| ● | established that the prices of: (i) the essential and strategic competition public ICT Services, (ii) the prices of those services provided in accordance with the Universal Service and (iii)the prices of those services determined by the ENACOM for public interest reasons, shall be regulated by ENACOM; |
| ● | established that ENACOM is the agency responsible for the enactment of any regulation related to the ICT's PBU; and |
| ● |
suspended any price increases or changes set or announced by the ICT's licensees from July 31, 2020 to December 31, 2020. |
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Telecom Argentina SA published this content on 14 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 November 2022 12:53:08 UTC.
