Telecom Argentina S A : Financial Statements 4Q21.pdf

TELECOM ARGENTINA S.A.

TELECOM ARGENTINA S.A.

Consolidated Financial Statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019

General Hornos 690

(1272) Ciudad Autónoma de Buenos Aires Argentina

$: Argentine peso

US$: US dollar

$102.72 = US$1 as of December 31, 2021

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TELECOM ARGENTINA S.A.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Telecom Argentina S.A.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Telecom Argentina S.A. and its subsidiaries (the "Company") as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

1. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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TELECOM ARGENTINA S.A.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment - CGU in Argentina

As described in Notes 3.l), 3.v), 3.v.1) and 8 to the consolidated financial statements, the Company's consolidated goodwill balance was $ 379,220 million as of December 31, 2021, and the goodwill associated with the Argentinian business operations ("the Cash Generating Unit (CGU) in Argentina") was $ 378,863 million as of December 31, 2021. Management conducts an impairment test as of December 31 of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. Potential impairment is identified by comparing the recoverable value of the CGU in Argentina, which includes goodwill balance, to its carrying value. Recoverable value of the CGU is determined as the higher value between its fair value less costs of disposal and its value in use. Fair value less cost of disposal is calculated by management using the Company's market capitalization value and value in use is estimated using a discounted cash flow model. The assessment of the recoverable value of the CGU in Argentina included significant judgments by management. As of December 31, 2021, the recoverable value of the CGU in Argentina was determined by management through the fair value less costs of disposal. To determine the fair value of the CGU in Argentina, the market capitalization value of the Company was adjusted for (i) the estimated fair value of other CGUs, (ii) the effect of the net liabilities not subject to this impairment test at their estimated fair value (iii) an estimated control premium and (iv) estimated disposal costs in an orderly transaction.

The principal consideration for our determination that performing procedures relating to the goodwill impairment assessment of the CGU in Argentina is a critical audit matter is that there was significant judgment applied by management when developing the assessment of the recoverable value of the CGU in Argentina, which was determined using fair value less costs of disposal. This, in turn, led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to assess the fair value less costs of disposal of the CGU in Argentina and to evaluate adjustments made by management to the Company's market capitalization value, including the estimated fair value of other CGUs, the effect of the net liabilities not subject to the impairment test at their estimated fair value and the estimated control premium. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management's goodwill impairment assessment, including controls over the determination of the fair value less cost of disposal for the CGU in Argentina. These procedures also included, among others, evaluating the appropriateness of the fair value less costs of disposal determination for the CGU in Argentina; testing the completeness, accuracy, and relevance of underlying data used in the estimate; and evaluating the adjustments to the Company's market capitalization value made by management, including (i) the estimated fair value of other CGUs (ii) the estimated fair value for the net liabilities not subject to the impairment test and (iii) the estimated control premium. Evaluating management' adjustments to Company's market capitalization value to determine the fair value less costs of disposal of the CGU in Argentina involved evaluating whether the assumptions used by management were reasonable considering the consistency with: (i) valuation techniques generally used to determine fair values, (ii) external market data and (iii) evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the methodology used by management to determine the fair value less costs of disposal and the reasonableness of the adjustments to the Company's market capitalization value made by management.

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TELECOM ARGENTINA S.A.

Regulatory Disputes - Decree No 690/20 and Resolution No. 50/10

As described in Note 2 (c), the "Decree No. 690/20" (hereinafter as "DNU") declared information and communication technology services as "Essential and Strategic Competition Public Services" and determined that the prices of those services shall be regulated by ENACOM. In response to this regulation, the Company initiated legal proceedings before the Federal Court on Administrative Litigation Matters challenging the constitutionality of DNU and the ENACOM Resolutions. In addition, as described in Note 19

1. h), Resolution No. 50/10 and subsequent ones of the Secretariat of Domestic Trade determined that cable television operators must apply a formula to calculate their monthly subscription prices. In response to these resolutions, the Company filed an administrative appeal requesting the suspension of Secretariat of
   Domestic Trade resolutions' effects and their nullification. Management recognizes liabilities in the consolidated financial statements for the resolution of pending litigation when management determines that a loss is probable and the amount of the loss can be reasonably estimated. No liability for an estimated loss is accrued in the consolidated financial statements for unfavorable outcomes when, after assessing the information available, (i) management concludes that it is not probable that a loss has been incurred in any of the pending litigation; or (ii) management is unable to estimate the loss or range of loss for any of the pending matters. The Company also discloses the contingency in circumstances where management concludes no loss is probable or reasonably estimable but it is reasonably possible that a loss may be incurred. As disclosed by management, the company and its legal counsels consider that solid arguments exist in its favor that have a high probability of prevalence in court, notwithstanding which, it is, as also disclosed by management, not possible to ensure in this instance the definite result of the controversy.

The principal considerations for our determination that performing procedures relating to Regulatory Disputes

• Decree No 690/20 and Resolution No. 50/10 is a critical audit matter are the significant judgment applied by management when assessing the possible impacts of these disputes over the consolidated financial statements, which in turn led to a high degree of auditor judgment and effort in evaluating management's assessment of the possible impacts of these disputes over the consolidated financial statements. Also, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's evaluation of litigation claims, including controls over determining whether a loss is probable and whether the amount of loss can be reasonably estimated, as well as financial statement disclosures. These procedures also included, among others, obtaining and evaluating the letters of audit inquiry with internal and external legal counsel, evaluating the reasonableness of management's assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company's regulatory disputes disclosures. Professionals with specialized skill and knowledge were used to assist in the evaluation of the reasonableness of the arguments put forward by management in its defense as part of these regulatory disputes.

/s/ PRICE WATERHOUSE & CO. S.R.L.

(Partner)

/s/ Alejandro Javier Rosa

Autonomous City of Buenos Aires, Argentina

March 22th, 2022

We have served as the Company's auditor since 2003.

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TELECOM ARGENTINA S.A.

CONTENTS

Consolidated Statements of Financial Position

Consolidated Income Statements

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Glossary of terms

Note 1 - Description of business and basis of preparation of the consolidated financial statements Note 2 - Regulatory framework

Note 3 - Significant accounting policies

Note 4 - Cash and cash equivalents and Investments. Additional information on the consolidated statements of cash flows

Note 5 - Trade receivables

Note 6 - Other receivables

Note 7 - Inventories

Note 8 - Goodwill

Note 9 - Property, plant and equipment

Note 10 - Intangible assets

Note 11 - Rights of use assets

Note 12 - Trade payables

Note 13 - Financial debt

Note 14 - Salaries and social security payables

Note 15 - Income tax payable and Deferred income tax assets/liabilities

Note 16 - Other taxes payables

Note 17 - Leases liabilities

Note 18 - Other liabilities

Note 19 - Provisions

Note 20 - Purchase commitments

Note 21 - Equity

Note 22 - Financial instruments

Note 23 - Revenues

Note 24 - Operating expenses

Note 25 - Financial results, net

Note 26 - Financial risk management

Note 27 - Balances and transactions with Companies under Section 33 - Law No. 19,550 and Related Parties

Note 28 - Restrictions on distribution of profits

Note 29 - Impact of Coronavirus in Telecom

Note 30 - Subsequent events to December 31, 2021

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