Close

Form 6-K TELECOM ARGENTINA SA For: Aug 11

August 11, 2022 11:31 AM EDT

Get inside Wall Street with StreetInsider Premium. Claim your 1-week free trial here.

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 6-K 

REPORT OF FOREIGN PRIVATE ISSUER

 

Pursuant to Rule 13a-16 or 15d-16 

of the Securities Exchange Act of 1934

 

 

For the month of August 2022

 

Commission File Number: 001-13464

 

 

Telecom Argentina S.A. 

(Translation of registrant’s name into English)

 

General Hornos, No. 690, 1272 

Buenos Aires, Argentina 

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes   No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes   No

X

 

 

Telecom Argentina S.A.

 

 

TABLE OF CONTENTS

 

Item

 

1 English translation of the Unaudited Condensed Consolidated Financial Statements as of June 30, 2022

 

 

TELECOM ARGENTINA S.A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TELECOM ARGENTINA S.A.

 

 

Unaudited Condensed Consolidated Financial Statements as of June 30, 2022

 

 

 

 

 

 

 

 

 

 

General Hornos 690 

(127) Ciudad Autónoma de Buenos Aires 

Argentina

 

$: Argentine peso 

US$: US dollar 

$125.23= US$1 as of June 30, 2022

 

 

 

TELECOM ARGENTINA S.A.

 

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 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)

 

    June 30, December 31,
ASSETS Note 2022 2021
Current Assets      
Cash and cash equivalents 2 21,515 27,025
Investments 2 4,802 14,685
Trade receivables 3 26,788 30,707
Other receivables 4 13,126 12,043
Inventories 5 4,822 4,242
Assets classified as held for sale 27.3 657 -
Total current assets   71,710 88,702
Non-Current Assets      
Trade receivables 3 92 99
Other receivables 4 2,110 2,839
Deferred income tax assets 13 1,057 896
Investments 2 4,364 4,392
Goodwill 6 516,657 516,150
Property, plant and equipment 7 576,367 614,282
Intangible assets 8 186,026 196,215
Right of use assets 9 44,208 45,496
Total non-current assets   1,330,881 1,380,369
TOTAL ASSETS   1,402,591 1,469,071
LIABILITIES      
Current Liabilities      
Trade payables 10 57,435 67,029
Financial debt 11 92,751 88,320
Salaries and social security payables 12 22,821 30,312
Income tax payables 13 23,492 18,962
Other taxes payables 14 5,541 5,395
Dividends payables 2 435 -
Leases liabilities 15 8,043 8,346
Other liabilities 16 3,907 4,160
Provisions 17 2,148 2,922
Total current liabilities   216,573 225,446
Non-Current Liabilities      
Trade payables 10 657 1,493
Financial debt 11 245,698 275,097
Salaries and social security payables 12 2,060 2,104
Deferred income tax liabilities 13 163,962 184,121
Other taxes payables 14 21 -
Leases liabilities 15 14,586 17,409
Other liabilities 16 2,146 1,704
Provisions 17 11,591 13,035
Total non-current liabilities   440,721 494,963
TOTAL LIABILITIES   657,294 720,409
EQUITY      
Equity attributable to Controlling Company   734,470 736,992
Equity attributable to non-controlling interest   10,827 11,670
TOTAL EQUITY(See Consolidated Statements of Changes in Equity)   745,297 748,662
TOTAL LIABILITIES AND EQUITY   1,402,591 1,469,071

 

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 June 30,
  Six-month period
ended June 30,
  Note 2022 2021   2022 2021
Revenues 21 126,897 145,009   264,577 295,198
Employee benefit expenses and severance payments 22 (32,111) (29,834)   (60,519) (57,727)
Interconnection and transmission costs   (3,910) (5,088)   (8,118) (10,898)
Fees for services, maintenance, materials and supplies 22 (16,011) (16,677)   (30,711) (33,625)
Taxes and fees with the Regulatory Authority 22 (9,842) (11,173)   (20,370) (22,854)
Commissions and advertising   (7,228) (8,507)   (14,765) (16,480)
Cost of equipment and handsets 22 (5,405) (8,003)   (12,456) (15,121)
Programming and content costs   (7,925) (9,510)   (16,719) (20,577)
Bad debt expenses 3 (2,702) (3,219)   (6,454) (5,105)
Other operating expenses 22 (8,649) (7,218)   (13,619) (12,366)
Depreciation, amortization and impairment of fixed assets 22 (43,124) (46,884)   (89,381) (91,747)
Operating (loss) income   (10,010) (1,104)   (8,535) 8,698
Earnings from associates 2 3 40   144 189
Debt financial results 23 7,977 14,078   24,989 19,916
Other financial results, net 23 4,509 4,088   13,702 10,569
Income before income tax expense   2,479 17,102   30,300 39,372
Income tax 13 1,547 (36,240)   1,579 (42,114)
Net income (loss) for the period   4,026 (19,138)   31,879 (2,742)
             
Attributable to:            
Controlling Company   3,664 (19,192)   31,260 (3,288)
Non-controlling interest   362 54   619 546
    4,026 (19,138)   31,879 (2,742)
             
Earnings (losses) per share attributable to Controlling Company - Basic and diluted 1.c 1.70 (8.91)   14.51 (1.53)

 

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 June 30,
  Six-month period
ended June 30,
  2022 2021   2022 2021
           
Net income (loss) for the period 4,026 (19,138)   31,879 (2,742)
           
Other comprehensive income - Will be reclassified subsequently to profit or loss          
Currency translation adjustments (no effect on Income Tax) (802) (3,725)   (2,791) (3,683)
DFI effects classified as hedges 9 120   99 233
Income Tax effects on DFI classified as hedges and others - (24)   (29) (80)
Other comprehensive loss, net of tax (793) (3,629)   (2,721) (3,530)
           
Total comprehensive income (loss) for the period 3,233 (22,767)   29,158 (6,272)
           
Attributable to:          
Controlling Company 3,017 (21,962)   29,112 (6,008)
Non-controlling interest 216 (805)   46 (264)
  3,233 (22,767)   29,158 (6,272)

 

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 2,154 190,841 519,837 10,895 4,199 82,978 (13,076) (11,843) 785,985 13,151 799,136
Resolutions of the General Ordinary and Extraordinary Shareholders’ Meeting held on April 28, 2021:                      
- Absorption of negative Retained earnings - - - - - (11,744) - 11,744 - - -
- Reserves reallocation - - (24,082) - - 24,082 - - - - -
Dividends to non-controlling shareholders (3) - - - - - - - - - (1,138) (1,138)
Irrevocable Call and Put Option on the shares of AVC Continente Audiovisual value adjustment - - - - - - 30 - 30 - 30
Comprehensive income:                      
   Net (loss) income for the period - - - - - - - (3,288) (3,288) 546 (2,742)
   Other comprehensive loss - - - - - - (2,720) - (2,720) (810) (3,530)
Total Comprehensive Income - - - - - - (2,720) (3,288) (6,008) (264) (6,272)
                       
Balances as of June 30, 2021 2,154 190,841 495,755 10,895 4,199 95,316 (15,766) (3,387) 780,007 11,749 791,756
                       
Balances as of January 1, 2022 2,154 190,841 495,755 10,895 4,199 40,833 (19,387) 11,702 736,992 11,670 748,662
Resolutions of the General Ordinary and Extraordinary Shareholders’ Meeting held on April 27, 2022:                      
- Reserves constitution (1) - - - 556 - 11,241 - (11,797) - - -
- Reserves reallocation (1) - - (20,814) - - 20,814 - - - - -
Dividends (4) - - - - - (31,634) - - (31,634) - (31,634)
Dividends to non-controlling shareholders (3) - - - - - - (95) 95 - (889) (889)
Comprehensive income:                      
   Net income for the period - - - - - - - 31,260 31,260 619 31,879
   Other comprehensive loss - - - - - - (2,148) - (2,148) (573) (2,721)
Total Comprehensive Income - - - - - - (2,148) 31,260 29,112 46 29,158
                       
Balances as of June 30, 2022 2,154 190,841 474,941 11,451 4,199 41,254 (21,630) 31,260 734,470 10,827 745,297

 

(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).

 

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)

 

    Six-month period
ended June 30,
  Note 2022 2021
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES      
Net income (loss) for the period   31,879 (2,742)
Adjustments to reconcile net income to net cash flows provided by operating activities      
Allowances deducted from assets   9,442 7,110
Depreciation of property, plant and equipment 7 69,817 73,679
Amortization of intangible assets 8 9,922 10,547
Amortization of rights of use assets 9 7,112 6,679
Earnings from associates 2.a (144) (189)
Disposals of fixed assets and consumption of materials   3,008 1,658
Financial results and others   (39,501) (30,773)
Income tax 13 (1,579) 42,114
Income tax paid (*)   (4,995) (1,361)
Net increase in assets 2.b (19,782) (17,273)
Net increase in liabilities 2.b 10,581 2,939
Total cash flows provided by operating activities   75,760 92,388
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES      
Property, plant and equipment acquisitions   (42,170) (50,931)
Intangible asset acquisitions   (1,464) (1,623)
Payment for acquisition of subsidiary 27.4 (284) -
Proceeds from dividends 2.b 173 318
Proceeds from the sale of property, plant and equipment and intangible assets   250 46
Investments not considered as cash and cash equivalents   (29,751) (44,507)
Total cash flows used in investing activities   (73,246) (96,697)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES      
Proceeds from financial debt 2.b 25,078 54,645
Payment of financial debt 2.b (12,222) (36,703)
Payment of interests and related expenses 2.b (15,832) (18,349)
Payments of leases liabilities 15 (2,628) (4,159)
Payments of cash dividends 2.b (445) (541)
Total cash flows used in financing activities   (6,049) (5,107)
       
NET DECREASE IN CASH AND CASH EQUIVALENTS   (3,535) (9,416)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR   27,025 38,075
NET FOREIGN EXCHANGE DIFFERENCES AND RECPAM ON CASH AND CASH EQUIVALENTS   (1,975) (1,743)
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD   21,515 26,916

 

(*)

Six-month period 

ended June 

  2022 2021
Corresponding to Controlling Company (4,697) (1,159)
Corresponding to subsidiaries (298) (202)
  (4,995) (1,361)

 

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 JUNE 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. Dividends payables 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-18
Note 13 – Income tax payable and Deferred income tax assets/liabilities F-18
Note 14 – Other taxes payables F-20
Note 15 – Leases liabilities F-20
Note 16 – Other liabilities F-21
Note 17 – Provisions F-21
Note 18 – Additional information of financial assets and liabilities F-21
Note 19 – Purchase Commitments F-23
Note 20 – Equity F-23
Note 21 – Revenues F-24
Note 22 – Operating expenses F-24
Note 23 – Financial results, net F-25
Note 24 – Balances and transactions with Companies under Section 33 - Law No. 19,550 and Related Parties F-25
Note 25 – Restrictions on distribution of profits F-27
Note 26 – Economic environment F-27
Note 27 – Recent developments corresponding to the six-month period ended June 30, 2022 F-28
Note 28 – Subsequent events to June 30, 2022 F-31

 

(*) 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.

 

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 June 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 June 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 consolidated financial statements. Data as of June 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 June 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 six-month periods ended on June 30, 2022, 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 June 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 June 30, 2022, were approved by resolution of the Board of Directors’ meeting held on August 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 six-month periods ended June 30, 2022 and 2021:

 

Consolidated Income Statement as of June 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 216,623 31,358 247,981 15,509 2,200 17,709 (1,113) 264,577
 Operating costs without depreciation, amortization and impairment of fixed assets (150,876) (23,527) (174,403) (9,119) (1,322) (10,441) 1,113 (183,731)
Adjusted EBITDA 65,747 7,831 73,578 6,390 878 7,268 - 80,846
Depreciation, amortization and impairment of fixed assets         (89,381)
Operating loss               (8,535)
Earnings from associates             144
Debt financial expenses             24,989
Other financial results, net             13,702
Income before income tax expense           30,300
Income tax               1,579
Net Income               31,879
                 
Attributable to:                
Controlling Company               31,260
Non-controlling interest               619
                31,879

F-9 

 

TELECOM ARGENTINA S.A.

 

 

Consolidated Income Statement as of June 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 153,205 121,161 274,366 12,441 9,823 22,264 (1,432) 295,198
 Operating costs without depreciation, amortization and impairment of fixed assets (99,867) (82,606) (182,473) (7,669) (6,043) (13,712) 1,432 (194,753)
Adjusted EBITDA 53,338 38,555 91,893 4,772 3,780 8,552 - 100,445
Depreciation, amortization and impairment of fixed assets         (91,747)
Operating income               8,698
Earnings from associates             189
Debt financial expenses             19,916
Other financial results, net             10,569
Income before income tax expense           39,372
Income tax               (42,114)
Net loss               (2,742)
                 
Attributable to:                
Controlling Company               (3,288)
Non-controlling interest               546
                (2,742)

 

Additional information per geographical area required under IFRS 8 (Operating Segments) is disclosed below:

 

  As of June 30, As of December 31
  2022 2021 2021
Sales revenues from customers located in Argentina 247,078 273,374 n/a
Sales revenues from foreign customers 17,499 21,824 n/a
       
CAPEX corresponding to the segment “Services rendered in Argentina” 34,868 49,787 n/a
CAPEX corresponding to the segment “Other abroad segments” 3,804 4,152 n/a
       
Fixed assets corresponding to the segment “Services rendered in Argentina”  1,281,283 n/a 1,326,383
Fixed assets corresponding to the segment “Other abroad segments”  41,975 n/a 45,760
       
Financial Debt corresponding to the segment “Services rendered in Argentina” 329,297 n/a 353,182
Financial Debt corresponding to the segment “Other abroad segments” 9,152 n/a 10,235
       

 

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 six-month periods ended June 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 June 2022.

 

The table below shows the evolution of the indexes in the last two years and as of June 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 June 

30, 2021 

As of December
31, 2021

As of June 

30, 2022 

         
National Consumer Price Index (December 2016=100) 385.88 483.60 582.46 793.03
         
Variation in prices        
Annual 36.1% 50.2% 50.9% 64.0%
Accumulated 3 months since March 2021 / 2022 n/a 11.0% n/a 17.3%
Accumulated 6 months n/a 25.3% n/a 36.2%
         
Banco Nación US$/$ exchange rate 84.15 95.72 102.72 125.23
         
Variation in the exchange rate        
Annual 40.5% 35.9% 22.1% 30.8%
Accumulated 3 months since March 2021 / 2022 n/a 4.0% n/a 12.8%
Accumulated 6 months n/a 13.8% n/a 21.9%

 

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. DIVIDENDS PAYABLES

 

a)     Cash and cash equivalents and Investments

 

  June 30, December 31,
Cash and cash equivalents 2022 2021
Cash and Banks  (1) 17,937 17,919
Time deposits 2,807 4,877
Mutual funds 771 4,229
Total cash and cash equivalents 21,515 27,025
(1)  As of June 30, 2022, includes restricted funds for $105 million.    
     
Investments    
Current    
Government bonds at fair value 3,380 14,571
Mutual funds 1,422 114
Total current investments 4,802 14,685
Non- current    
Investments in associates (a) 4,363 4,391
2003 Telecommunications Fund 1 1
Total non-current investments 4,364 4,392

 

(a)Information on Investments in associates is detailed below:

 

Financial position information:

 

Companies Main activity Country Percentage of
capital

stock owned and
voting rights (%)
Valuation as of
06.30.2022
Valuation as of
12.31.2021
Ver TV. (1) Cable television station Argentina 49.00 2,670 2,737
TSMA (1) (2) (3) Cable television station Argentina 50.10 985 931
La Capital Cable (1) (2) Closed-circuit television Argentina 50.00 708 723
Total       4,363 4,391

 

(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
 

June 30, 

 

Six-months period
ended
 

June 30, 

  2022 2021   2022 2021
Ver TV (62) 32   69 154
TSMA 69 2   90 25
La Capital Cable (4) 6   (15) 10
Total 3 40   144 189

F-11 

 

TELECOM ARGENTINA S.A.

 

 

b)    Additional information on the consolidated statements of cash flows

 

Changes in assets/liabilities components:

 

  June 30,
Net increase in assets 2022 2021
Trade receivables (8,539) (11,561)
Other receivables (8,905) (5,605)
Inventories (2,338) (107)
  (19,782) (17,273)
Net increase (decrease) in liabilities    
Trade payables 15,040 7,132
Salaries and social security payables 1,039 (338)
Other taxes payables (2,923) (2,281)
Other liabilities and provisions (2,575) (1,574)
  10,581 2,939

 

Main Financing activities components

 

The following table presents the main financing activities components:

 

  June 30,
  2022 2021
Bank overdrafts 4,989 14,467
Notes 5,637 37,726
Bank and other financial entities loans 13,278 743
Loans for purchase of equipment 1,174 1,709
Total financial debt proceeds 25,078 54,645
Notes (33) (22,251)
Bank and other financial entities loans (9,802) (12,010)
Loans for purchase of equipment (2,387) (2,442)
Total payment of debt (12,222) (36,703)
Bank overdrafts (3,188) (1,245)
Notes (5,812) (8,029)
Bank and other financial entities loans (6,266) (7,333)
By DFI, purchase of equipment and others (566) (1,742)
Total payment of interest and related expenses (15,832) (18,349)

 

Main non-cash operating transactions

 

Main non-cash operating transactions and that were eliminated from the consolidated statement of cash flows are the following:

 

  June 30,
  2022 2021
PP&E and intangible assets acquisition financed with accounts payable 13,500 29,521
Dividends payment with investments not considered as cash and cash equivalents
(See “Cash and non-cash assets dividends from the Company and its subsidiaries”)
31,634 -
Debt for acquisition of NYSSA (Note 27.4) 426 -
Trade payables cancelled with financial debt 4,123 3,586
Trade receivables cancelled with government bonds 469 3,211
Social security payables cancelled with government bonds - 1,789

 

Dividends proceeds

 

Brief information on dividends proceeds by the Company is provided below:

 

Six-month period
ended 

June 30, 

Associate 

Company 

Dividends collected
Currency of the
transaction date
Current currency
as of June 30,
2022
2022 Ver TV 104 136
  TSMA 28 37
      173
2021 Ver TV 110 208
  TSMA 57 110
      (*) 318

 

(*) Includes $20 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

 

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, 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.

 

Cash dividends distributed

 

Brief information on cash dividends distributed and paid is provided below:

 

Six-months
period ended 

June 30, 

Paying 

company 

Distribution
month
Distributed amount Payment
month
Dividends
paid in current
currency as of
June 30, 2022
Currency of the
transaction
date
Current currency
as of June 30,
2022
2022 Núcleo April 2022 804 889 May 2022 445
        (a)    889   445
2021 Núcleo April 2021 650 1,138 May 2021 541
        (b)   1,138   541

 

(a)The second installment will be paid in October 2022.

(b)The second installment was paid in October 2021.

 

c)     Dividends payable

 

  June 30, December 31,
  2022 2021
  ABC Telecomunicaciones 435 -
Total dividends payable 435 -

 

NOTE 3 – TRADE RECEIVABLES

 

  June 30, December 31,
Current Trade receivables 2022 2021
Ordinary receivables 38,309 43,791
Companies under section 33 - Law No. 19,550 and related parties (Note 24.c) 207 247
Contractual asset IFRS 15 24 5
Allowance for doubtful accounts (11,752) (13,336)
  26,788 30,707
Non-current Trade receivables    
Ordinary receivables 85 91
Contractual asset IFRS 15 7 8
  92 99
Total trade receivables, net 26,880 30,806

 

Movements in the allowance for current doubtful accounts are as follows:

 

  June 30,
  2022 2021
At the beginning of the fiscal year (13,336) (20,736)
Increases– Bad debt expenses (6,454) (5,105)
Uses 4,280 5,969
RECPAM and currency translation adjustments 3,758 4,198
At the end of the period (11,752) (15,674)

F-13 

 

TELECOM ARGENTINA S.A.

 

NOTE 4 – OTHER RECEIVABLES

 

  June 30, December 31,
Current Other Receivables 2022 2021
Prepaid expenses 7,310 6,951
Guarantee of financial operations 1,243 2,607
Tax credits 2,361 1,156
Companies under section 33 - Law No. 19,550 and related parties (Note 24.c) 282 310
Receivables from sale of customer relationship 21 26
Financial DFI 16 -
Other 2,318 1,495
Allowance for other receivables (425) (502)
  13,126 12,043
Non-Current Other Receivables    
Prepaid expenses 1,707 2,275
Receivables from sale of customer relationship 21 29
Tax credits 3 3
Other 379 532
  2,110 2,839
Total other receivables, net 15,236 14,882

 

Movements in the allowance for current other receivables are as follows:

 

  June 30,
  2022 2021
At the beginning of the year (502) (684)
Increases (55) -
RECPAM and currency translation adjustments 132 90
At the end of the period (425) (594)

 

NOTE 5 – INVENTORIES

 

  June 30, December 31,
  2022 2021
Mobile handsets and others 5,352 3,458
Inventories for construction projects - 1,224
Subtotal 5,352 4,682
Allowance for obsolescence of inventories (530) (440)
Total inventories 4,822 4,242

 

Movements in the allowance for obsolescence of inventories are as follows:

 

  June 30,
  2022 2021
At the beginning of the year (440) (521)
Increases (108) (11)
Decreases 18 51
At the end of the period (530) (481)

 

NOTE 6 – GOODWILL

 

  June 30, December 31,
  2022 2021
Argentina (1) 515,466 514,960
Abroad (2) 1,191 1,190
Total goodwill 516,657 516,150

 

(1)The variation in the amounts with respect to balance as of December 31, 2021 corresponds to the goodwill recognized with NYSSA acquisition (Note 27.4)

(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

 

  June 30, December 31,
  2022 2021
PP&E 584,725 622,919
Valuation allowance for obsolescence and impairment of materials (6,726) (6,432)
Impairment allowance of PP&E (1,632) (2,205)
Total property, plant and equipment 576,367 614,282

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:

 

  June 30,
  2022 2021
At the beginning of the year 622,919 666,427
Incorporation by acquisition of NYSSA (Note 27.4) 240 -
CAPEX 36,813 52,209
Currency translation adjustments (2,826) (2,230)
Net carrying value of decreases and consumption of materials (2,604) (758)
Depreciation of the period (69,817) (73,679)
At the end of the period 584,725 641,969

 

Movements in the valuation allowance for obsolescence and impairment of materials are as follows:

 

  June 30,
  2022 2021
At the beginning of the year (6,432) (5,351)
Increases (295) (1,289)
Currency translation adjustments 1 41
At the end of the period (6,726) (6,599)

 

Movements in the impairment allowance of PP&E are as follows:

 

  June 30,
  2022 2021
At the beginning of the year (2,205) (1,669)
Increases (677) (769)
Uses 1,250 2
At the end of the period (1,632) (2,436)

 

NOTE 8 – INTANGIBLE ASSETS

 

  June 30, December 31,
  2022 2021
Intangible assets 193,622 209,320
Impairment allowance (7,596) (13,105)
Total intangible assets 186,026 196,215

 

Movements in Intangible assets (without considering the impairment allowance) are as follows:

 

  June 30,
  2022 2021
At the beginning of the year 209,320 226,599
CAPEX 1,859 1,730
Currency translation adjustments (273) (190)
Net carrying value of decreases (Note 27.1.b) (7,362) -
Amortization of the period (9,922) (10,547)
At the end of the period 193,622 217,592

 

Movements in Impairment allowance of intangible assets are as follows:

 

  June 30,
  2022 2021
At the beginning of the year (13,105) (12,818)
Increases (Note 27.1.b) (1,853) 64
Uses (Note 27.1.b) 7,362 -
At the end of the period (7,596) (12,754)

 

NOTE 9 – RIGHT OF USE ASSETS

 

  June 30, December 31,
  2022 2021
Leases rights of use    
Sites 28,598 29,890
Real estate and others 5,596 5,915
Poles 2,884 2,564
Indefeasible right of use 1,314 1,443
Asset retirement obligations 5,816 5,684
Total rights of use assets 44,208 45,496

F-15

 

TELECOM ARGENTINA S.A.

 

Movements in right of use assets are as follows:

 

  June 30,
  2022 2021
At the beginning of the year 45,496 36,524
CAPEX 6,526 14,450
Net carrying value of decreases (406) (904)
Currency translation adjustments (296) (175)
Amortization of the period (7,112) (6,679)
At the end of the period 44,208 43,216

 

NOTE 10 – TRADE PAYABLES

 

  June 30, December 31,
Current 2022 2021
Suppliers and commercial accruals 56,107 65,373
Funds to be paid to clients 105 7
Companies under Sect. 33–Law No. 19,550 and Related Parties (Note 24.c) 1,223 1,649
  57,435 67,029
Non-current    
Suppliers and commercial accruals 657 1,493
  657 1,493
Total trade payables 58,092 68,522

 

NOTE 11 – FINANCIAL DEBT

 

  June 30, December 31,
Current 2022 2021
Bank overdrafts – principal 15,703 16,589
Bank and other financial entities loans – principal 47,704 44,354
Notes – principal 2,660 -
DFI 38 252
Loans for purchase of equipment 4,372 4,894
Interest and related expenses 22,274 22,231
  92,751 88,320
Non-current    
Notes – principal 144,673 151,625
Bank and other financial entities loans – principal 65,263 78,620
Loans for purchase of equipment 4,380 5,332
Interest and related expenses 31,382 39,520
  245,698 275,097
Total financial debt 338,449 363,417

 

Movements in Financial debt are as follows:

 

   Balances at the beginning of the year  

Cash Flows

  

Accrued interests

   Exchange differences, currency translation adjustments and others   Balances as of June 30, 2022
Bank overdrafts   16,589    4,989    -    (5,875)    15,703
Bank and other financial entities loans – principal   122,974    3,476    -    (13,483)    112,967
Notes – principal   151,625    5,604    -    (9,896)    147,333
DFI   252    (1,217)    -    1,003    38
Loans for purchase of equipment   10,226    (1,213)    -    (261)    8,752
Interests and related expenses   61,751    (15,475)    2,174    5,206    53,656
Total as of June 30, 2022   363,417    (3,836)    2,174    (*)   (23,306)    338,449
                         
Total as of June 30, 2021   411,433    (619)    10,618    (**)  (27,406)    394,026

 

(*) Includes $4,123 of loans that do not represent cash movement.

(**) Includes $3,586 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 June 30, 2022, Telecom has complied with them.

 

Recent developments of Financial debt of the period 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 US$ US$22.7 03/09/2022 03/09/2027 In one installment at maturity date Annual fixed rate of 1.00%. Quarterly basis $2,833
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 $2,400

 

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 Río S.A. Loan

 

During March and June 2022, the Company entered into two loan agreements with Santander Río Bank S.A. 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%.

 

China Development Bank Shenzhen Branch (“CDB”) Loan

 

During the first semester of 2022 the Company has subscribed new tranches for a total of RMB 244 million, equivalent to $4,279 million.

 

On July 27, 2022 the Company has subscribed a new tranche for a total of RMB 36.7 million, equivalent to $700 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 will accrue 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 the disbursement for the total amount, which was received net of debt issuance expenses.

 

Loans for purchase of equipment

 

Cisco Systems Capital Corporation

 

During the first semester of 2022, the Company had additions for US$13.7 million, equivalent to $1,500 million, due between February and July 2026.

 

In July 2022, the Company had additions for US$1 million, equivalent to $131, due in August 2026.

F-17

 

TELECOM ARGENTINA S.A.

 

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, equivalent to $2,090 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 Banco BBVA.

 

On June 27, 2022, the Company paid an advance for 198 utility vehicles for a total amount of US$669 million, financing $391 million. The agreed compensatory interest annual rate was 42.9%.

 

On July 14, 2022, the Company paid an advance for 45 utility vehicles for a total amount of US$152 million, financing $88.9 million. The agreed compensatory interest annual rate was 47.9%.

 

NOTE 12 – SALARIES AND SOCIAL SECURITY PAYABLES

 

  June 30, December 31,
Current 2022 2021
Salaries, annual complementary salaries, vacation, bonuses and their social security payables 20,852 28,382
Termination benefits 1,969 1,930
  22,821 30,312
Non-current    
Termination benefits 2,060 2,104
  2,060 2,104
Total salaries and social security payables 24,881 32,416

 

NOTE 13 – INCOME TAX PAYABLE AND DEFERRED INCOME TAX ASSETS/LIABILITIES

 

Income tax payable, net is presented below:

 

  June 30, December 31,
  2022 2021
Income tax provision 25,690 25,365
Withholdings and advance payments for income tax (2,198) (6,403)
Income tax payable, net 23,492 18,962

 

Income tax payable by company is presented below:

 

  June 30, December 31,
  2022 2021
Telecom 23,349 18,740
Núcleo 128 146
Adesol 6 64
Telecom USA 3 1
Pem 1 11
NYSSA 5 -
  23,492 18,962

F-18

 

TELECOM ARGENTINA S.A.

 

Deferred Income tax assets and liabilities, net and the actions for recourse tax receivable are presented below:

 

  June 30, December 31,
  2022 2021
Tax loss carryforward (370) (270)
Allowance for doubtful accounts (6,915) (7,122)
Provisions (3,386) (3,803)
PP&E and Intangible assets 157,783 164,497
Cash dividends from foreign companies 1,734 1,886
Income tax inflation adjustment deferral effect 16,573 31,579
Other deferred tax liabilities (assets), net (1,625) (2,332)
Total deferred tax liabilities, net 163,794 184,435
Actions for recourse tax receivable (889) (1,210)
Total deferred tax liability, net (*)  162,905 183,225
     

 Net deferred tax assets

(1,057) (896)
 Net deferred tax liabilities 163,962 184,121

 

(*) Includes $1 of currency translation adjustments on foreign subsidiaries’ initial balances.

 

As of June 30, 2022, some subsidiaries have cumulative tax loss carryforwards of approximately $1,180 million, that calculated considering statutory income tax rate, represents a deferred tax asset of approximately $370 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 06.30.2022
Tax loss carryforward
expiration year
Inter Radios 2018 1 2023
Telemás (*) 2019 322 2024
Microsistemas 2021 240 2026
Microsistemas 2022 567 2027
TVD 2021 38 2026
AVC 2021 3 2026
AVC 2022 9 2027
    1,180  

 

(*) This company is consolidated in the financial statements of Adesol.

 

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:

 

  Six-month period ended
June 30,
  2022 2021
  Profit (loss)
Pre-tax income 30,300 39,372
Non-taxable items – Earnings from associates (144) (189)
Non-taxable items - Other 1,211 92
Restatement in current currency of Equity, goodwill and other 93,553 78,751
Subtotal 124,920 118,026
Weighted statutory income tax rate 34,54% 34.43%
Income tax expense at weighted statutory tax rate (43,152) (40,640)
Deferred tax liability restatement in current currency and other (*) 77,524 30,598
Income tax inflation adjustment (32,445) (30,881)
Income tax on cash dividends of foreign companies (348) (1,191)
Income tax 1,579 (42,114)
     
Current tax (18,772) (8,788)
Deferred tax 20,351 (33,326)
Income tax 1,579 (42,114)

 

(*) In 2022 includes $8,818 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 for approximately $(58,300).

 

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.

F-19

 

TELECOM ARGENTINA S.A.

 

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 ($8,818 million in constant currency as of June 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 six-month periods ended June 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 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.

 

NOTE 14 –OTHER TAXES PAYABLES

 

  June 30, December 31,
Current 2022 2021
Other national taxes 4,679 4,547
Provincial taxes 258 152
Municipal taxes 604 696
  5,541 5,395
Non- current    
Provincial taxes 21 -
  21 -
Total other taxes payables 5,562 5,395

 

NOTE 15 – LEASES LIABILITIES

 

  June 30, December 31,
  2022 2021
Current    
Argentina 7,882 7,544
Abroad 161 802
  8,043 8,346
Non- current    
Argentina 12,543 15,789
Abroad 2,043 1,620
  14,586 17,409
Total leases liabilities 22,629 25,755

 

Movements in Leases liabilities are as follows:

 

  June 30,
  2022 2021
At the beginning of the fiscal year 25,755 21,172
Increases (*) 6,158 14,223
Financial results, net (**) 2,413 2,359
Payments (2,628) (4,159)
RECPAM and currency translation adjustments (9,069) (7,376)
At the end of the period 22,629 26,219

 

(*) Included in Rights of use assets acquisitions. 

(**) Included in Other exchange differences and Other interests, net and other investments results.

F-20

 

TELECOM ARGENTINA S.A.

 

NOTE 16 – OTHER LIABILITIES

 

  June 30, December 31,
Current 2022 2021
Deferred revenues on prepaid credit 2,143 2,345
Deferred revenues on connection fees and international capacity leases 1,374 1,315
Debt for acquisition of NYSSA (Note 27.4) 130 -
Other 260 500
  3,907 4,160
Non-current    
Pension benefits 899 811
Deferred revenues on connection fees and international capacity leases 602 881
Debt for acquisition of NYSSA (Note 27.4) 382 -
Advances received for assets held for sale (Note 27.3) 241 -
Other 22 12
  2,146 1,704
Total other liabilities 6,053 5,864

 

NOTE 17 – PROVISIONS

 

Movements in Provisions are as follows:

 

  Balances as of December 31, 2021 Additions Reclassifica-tions

Payments

(iii)

RECPAM and currency translation adjustments

Balances

as of
June 30, 2022

Capital

(i)

Interest
(ii)

Current              
Provisions 2,922 3,294 - 1,122 (4,543) (647) 2,148
Total current provisions 2,922 3,294 - 1,122 (4,543) (647) 2,148
Non- Current              
Provisions 8,317 1,189 648 (1,122) - (1,171) 7,861
Asset retirement obligations 4,718 368 - - - (1,356) 3,730
Total non-current provisions 13,035 1,557 648 (1,122) - (2,527) 11,591
               
Total provisions 15,957 4,851 648 - (4,543) (3,174) 13,739

 

  Balances as of December 31, 2020 Additions Reclassifica-tions

Payments 

(iii) 

RECPAM and currency translation adjustments

Balances 

as of
June 30, 2021

Capital 

(iii) 

Interest
(ii) 

Current              
Provisions 3,322 2,524 - 545 (2,865) (258) 3,268
Total current provisions 3,322 2,524 - 545 (2,865) (258) 3,268
Non- Current              
Provisions 9,206 629 59 (545) - (1,423) 7,926
Asset retirement obligations 6,130 - 894 - - (1,315) 5,709
Total non-current provisions 15,336 629 953 (545) - (2,738) 13,635
               
Total provisions 18,658 3,153 953 - (2,865) (2,996) 16,903

 

(i)$4,483 charged to Other operating expenses and $368 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 June 30, 2022 and December 31, 2021 are the following:

 

  06.30.2022 12.31.2021
  In equivalent millions of Argentine pesos
Assets 30,509 27,188
Liabilities (285,420) (318,576)
Net Liabilities (254,911) (291,388)

 

In order to reduce this net position (debt) in foreign currency, Telecom has DFI as of June 30, 2022 amounting to US$66 million, therefore the net liability not hedged amounts to approximately US$2,035 million as of that date.

F-21

 

TELECOM ARGENTINA S.A.

 

Offsetting of financial assets and financial liabilities in scope of IFRS 7

 

The information required by the amendment to IFRS 7 as of June 30, 2022 and December 31, 2021 is as follows:

 

   As of June 30, 2022 
    Trade receivables    Other receivables    Trade payables    Other liabilities 
Current and non-current assets (liabilities) - Gross value   27,492    3,668    (58,704)   (1,044)
Offsetting   (612)   (249)   612    249 
Current and non-current assets (liabilities) – Book value   26,880    3,419    (58,092)   (795)

 

   As of December 31, 2021 
    Trade receivables    Other receivables    Trade payables    Other liabilities 
Current and non-current assets (liabilities) - Gross value   33,204    4,380    (70,920)   (639)
Offsetting   (2,398)   (468)   2,398    468 
Current and non-current assets (liabilities) – Book value   30,806    3,912    (68,522)   (171)

 

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 June 30, 2022 and December 31, 2021, and the level of hierarchy are listed below:

 

June 30, 2022  Level 1   Level 2   Total 
Assets               
Current Assets               
Mutual Funds (1)   3,436    -    3,436 
Investments: Government bonds   3,380    -    3,380 
Other receivables: DFI   -    16    16 
Total assets   6,816    16    6,832 
Liabilities               
Current Liabilities               
Other liabilities (See Note 27.4)   -    130    130 
Financial Debt: DFI   -    38    38 
Non-current Liabilities               
Other liabilities (See Note 27.4)   -    382    382 
Total Liabilities   -    550    550 

 

December 31, 2021   Level 1    Level 2    Total 
Assets               
Current Assets               
Mutual Funds (1)   6,950    -    6,950 
Investments: Government bonds   14,571    -    14,571 
Total assets   21,521    -    21,521 
Liabilities               
Current Liabilities               
Financial debt: DFI   -    252    252 
Total Liabilities   -    252    252 

 

(1) are included in Cash and cash equivalents, Investments and Guarantee of financial operations included in Other receivables

F-22

 

TELECOM ARGENTINA S.A.

 

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 June 30, 2022, fair value of financial debt is as follows:

 

   Carrying Value   Fair Value 
         
Notes   180,054    178,621 
Other financial debts   158,395    151,821 
    338,449    330,442 

 

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.

 

NOTE 19 – PURCHASE COMMITMENTS

 

The Company has entered into various purchase commitments with domestic and foreign suppliers amounting to approximately $130,995 as of June 30, 2022 (of which $35,803 corresponds to PP&E commitments).

 

NOTE 20 – EQUITY

 

(a)   Capital Stock

 

As of June 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 $10,056,956,479 Argentine pesos ($ 11,797 million in current currency as of June 30, 2022): (i) to allocate $502,847,824 Argentine pesos ($ 556 million in current currency as of June 30, 2022) to “Legal Reserve”, (ii) to allocate $9,554,108,655 Argentine pesos ($ 11,241 million in current currency as of June 30, 2022) to the “Facultative Reserve to maintain the capital investments level and the current level of solvency”, and (iii) the reclassification of $18,817,248,927 Argentine pesos ($ 20,814 million in current currency as of June 30, 2022) from the “Facultative Reserve to maintain the capital investments level and the current level of solvency” to the “Contributed Surplus”;

F-23

 

TELECOM ARGENTINA S.A.

 

(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.

 

NOTE 21 – REVENUES

 

Revenues include:

 

  

Three-month period ended

June 30,

  

Six-month period ended

June 30,

 
   2022   2021   2022   2021 
Mobile Services   50,490    54,124    103,718    109,622 
Internet Services   28,295    29,783    59,308    61,551 
Cable Television Services   23,296    28,049    48,849    58,484 
Fixed and Data Services   16,019    20,915    33,404    42,445 
Other services revenues   1,124    812    2,248    1,888 
Subtotal Services revenues   119,224    133,683    247,527    273,990 
Equipment revenues   7,673    11,326    17,050    21,208 
Total Revenues   126,897    145,009    264,577    295,198 

 

NOTE 22 – OPERATING EXPENSES

 

Operating expenses disclosed by nature of expense amounted to $273,112 and $286,500 for the six-month period ended June 30, 2022 and 2021, respectively. The main components of the operating expenses are the following:

 

   Three-month period ended June 30,  Six-month period ended June 30,
   2022  2021  2022  2021
Employee benefit expenses and severance payments   Profit (loss)   Profit (loss)
Salaries, social security expenses and benefits   (28,361)   (27,227)   (54,826)   (53,496)
Severance indemnities   (3,065)   (1,974)   (4,651)   (3,147)
Other employee expenses   (685)   (633)   (1,042)   (1,084)
    (32,111)   (29,834)   (60,519)   (57,727)
Fees for services, maintenance, materials and supplies                
Maintenance and materials   (8,327)   (9,509)   (16,493)   (19,210)
Fees for services   (7,543)   (7,001)   (13,986)   (13,984)
Directors and Supervisory Committee’s members’ fees   (141)   (167)   (232)   (431)
    (16,011)   (16,677)   (30,711)   (33,625)
Taxes and fees with the Regulatory Authority                
Turnover tax   (4,724)   (5,417)   (9,810)   (10,970)
Regulatory Entity Fees   (2,343)   (2,627)   (5,037)   (5,456)
Municipal taxes   (1,339)   (1,588)   (2,785)   (3,211)
Other taxes and fees   (1,436)   (1,541)   (2,738)   (3,217)
    (9,842)   (11,173)   (20,370)   (22,854)
Cost of equipment and handsets                
Inventory balance at the beginning of the year   (3,082)   (7,605)   (4,682)   (8,171)
Plus:                
Purchases   (8,129)   (6,010)   (13,887)   (13,056)
Other   454   (329)   761   165
Less:                
Inventory balance at the end of the period   5,352   5,941   5,352   5,941
    (5,405)   (8,003)   (12,456)   (15,121)
Other operating expenses                
Provisions   (3,959)   (2,888)   (4,483)   (3,153)
Rental and internet capacity   (740)   (886)   (1,594)   (1,909)
Energy, water and other services   (2,390)   (2,400)   (4,663)   (4,787)
Other   (1,560)   (1,044)   (2,879)   (2,517)
    (8,649)   (7,218)   (13,619)   (12,366)
Depreciation, amortization and impairment of fixed assets                
Depreciation of PP&E   (34,680)   (37,513)   (69,817)   (73,679)
Amortization of intangible assets   (4,880)   (5,236)   (9,922)   (10,547)
Amortization of rights of use assets   (3,638)   (3,424)   (7,112)   (6,679)
Impairment of fixed assets   74   (711)   (2,530)   (842)
    (43,124)   (46,884)   (89,381)   (91,747)
                 

F-24

 

TELECOM ARGENTINA S.A.

 

Operating expenses, disclosed per function are as follows:

 

Concept

  Operating costs  Administration costs  Commercialization costs  Total
06.30.2022
  Total
06.30.2021
Employee benefit expenses and severance payments   (34,966)   (11,244)   (14,309)   (60,519)   (57,727)
Interconnection costs and transmission costs   (8,118)   -   -   (8,118)   (10,898)
Fees for services, maintenance, materials and supplies   (14,168)   (5,866)   (10,677)   (30,711)   (33,625)
Taxes and fees with the Regulatory Authority   (20,019)   (158)   (193)   (20,370)   (22,854)
Commissions and advertising   (8)   (260)   (14,497)   (14,765)   (16,480)
Cost of equipment and handsets   (12,456)   -   -   (12,456)   (15,121)
Programming and content costs   (16,719)   -   -   (16,719)   (20,577)
Bad debt expenses   -   -   (6,454)   (6,454)   (5,105)
Other operating expenses   (9,559)   (1,761)   (2,299)   (13,619)   (12,366)
Depreciation, amortization and impairment of fixed assets   (68,045)   (13,138)   (8,198)   (89,381)   (91,747)
Total as of 06.30.2022   (184,058)   (32,427)   (56,627)   (273,112)    
Total as of 06.30.2021   (200,764)   (24,998)   (60,738)       (286,500)

 

NOTE 23 – FINANCIAL RESULTS, NET

 

   Three-month period ended June 30,  Six-month period ended June 30,
   2022  2021  2022  2021
    Profit (loss)   Profit (loss)
Interests on financial debts (*)   (1,955)   (6,204)   (2,264)   (10,913)
Foreign currency exchange gains  on financial debts (**)   9,932   20,282   27,253   30,829
Total Debt financial results   7,977   14,078   24,989   19,916
Losses on operations with notes and bonds   (6,203)   (910)   (9,320)   (1,540)
Other exchange differences (***)   524   2,626   457   6,814
Other interests, net and other investments results   (192)   (929)   299   (1,693)
Other taxes and bank expenses   (1,225)   (1,463)   (2,547)   (2,880)
Financial expenses on pension benefits   (118)   (123)   (256)   (259)
Financial discounts on assets, debts and others   (606)   (1,385)   (1,242)   (2,578)
RECPAM   12,329   6,272   26,311   12,705
Total other financial results, net   4,509   4,088   13,702   10,569
Total financial results, net   12,486   18,166   38,691   30,485

 

(*) Includes ($90) and ($295) corresponding to net losses generated by DFI in the six-month period ended June 30, 2022 and 2021, respectively.

(**) Includes ($170) and ($992) corresponding to net losses generated by DFI in the six-month period ended June 30, 2022 and 2021, respectively.

(***) Includes $149 corresponding to income related to decreases in financial assets at amortized cost in the six-month period ended June 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-25

 

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  June 30, December 31,
Trade receivables  2022 2021
Ver TV  2 1
   2 1
Other receivables     
La Capital Cable  276 302
Ver TV  2 3
   278 305
CURRENT LIABILITIES     
Trade payables     
TSMA  3 -
   3 -

 

Related parties

 

CURRENT ASSETS   June 30, December 31,
Trade receivables   2022 2021
Other Related parties   205 246
    205 246
Other receivables      
Other Related parties   4 5
    4 5
CURRENT LIABILITIES      
Trade payables      
Other Related parties   1,220 1,649
    1,220 1,649

 

d)Transactions with Companies under section 33 - Law No. 19,550 and related parties

 

Companies under section 33 - Law No. 19,550– Associates

 

  Transaction

Six-month period

ended June 30,

    2022 2021
    Profit (loss)
    Revenues
La Capital Cable Services revenues and other revenues 24 31
Ver TV Services revenues and other revenues 4 3
    28 34

    Operating costs
La Capital Cable Fees for services (66) (56)
    (66) (56)

 

Related Parties

 

  Transaction

Six-month period

ended June 30,

    2022 2021
    Profit (loss)
    Revenues
Other Related parties Services and advertising revenues 175 208
    175 208

    Operating costs
Other Related parties Programming costs (2,541) (2,757)
Other Related parties Editing and distribution of magazines (492) (599)
Other Related parties Advisory services (350) (423)
Other Related parties Advertising purchases (166) (344)
Other Related parties Other purchases and commissions (105) (126)
    (3,654) (4,249)

 

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.

F-26 

 

TELECOM ARGENTINA S.A.

 

 

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.

 

NOTE 26 – ECONOMIC ENVIRONMENT

 

The Company operates in a complex economic environment, with a strong volatility in the main variables, both at the national and international level.

 

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 marked decline in production levels and economic activity.

 

During the first half of 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 issued Resolution No. 705 which waived the obligation to keep social distancing, establishing recommendations for general care at work, educational and social environments and at public transport, which include the use of face masks and ventilation in indoor settings.

 

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 an increase in interest rates.

 

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 for the six-month period of 36.2% and the variation of the Banco Nación Divisas $/US$ exchange rate of 21.9%; for the six-month period;

 

ii)volatility in the stock market in which the Company operates. The market price of its shares in nominal values increased by 12.0% half-yearly, while in constant currency it decreased by 17.8%, due to the fact that the market price of shares is not usually directly affected by the inflation (It is important to note that the value of the shares has begun to recover at the date of presentation of these unaudited consolidated financial statements);

 

iii)greater exchange restrictions on the access to the FX 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 June 30, 2022 between the MULC and the existing alternative markets (Electronic Payment Market “MEP dollar”) amounts to 97.5%; and

 

iv)an increase in country risk and interest rates.

 

These situations generate various consequences in the economic and financial situation of Telecom, such as a decrease in sales revenues (given the impossibility of transferring accumulated inflation to prices) and increases in labor costs that follow the inflationary increase, despite the efforts of the Company in reducing its costs. This results in operating loss as of June 30, 2022 of $8,535 million, compared to a profit of $8,698 million as of June 30, 2021, showing a total decrease of $17,233 million.

 

On the other hand, it is worth mentioning that, as mentioned in previous paragraphs, given that the market price of the company's shares does not directly follow the inflationary increase, the Company value may occasionally be lower than the equity book value. This occurs mainly because fixed assets increase their values based on the inflation rate.

 

The fact that these situations are maintained and last over time, may imply the need to review the valuation of fixed assets.

 

Consequently, the Company's Management will continue to permanently 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.

F-27 

 

TELECOM ARGENTINA S.A.

 

 

NOTE 27 – RECENT DEVELOPMENTS CORRESPONDING TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2021

 

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”) amending 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.

 

Decree No. 690/20 further 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.

 

Moreover, Decree No. 690/20 established that ENACOM is the agency responsible for the enactment of any regulation related to the ICT’s PBU.

 

Finally, Decree No. 690/20 suspended any price increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020.

 

Decree No. 690/20 has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions No. 1,466/20 and 1,467/20.

 

Resolution No. 1,466/20 allowed ICT licensees providing Internet access services, subscription broadcasting services through physical, radio-electric or satellite link, fixed telephony services and mobile telecommunications services -in all cases in their different and respective modalities- to increase retail prices for services up to 5% during January 2021. In order to establish the percentages approved, licensees mus