Earnings Call: Q1 2021

Apr 28, 2021

Thank you. Good morning, everyone. We are here today to discuss our Q1 financial and operating results. We have on the line Mr. Daniel Hajj, CEO Mr. Carlos Garcia Moreno, CFO and Mr. Oscar Boncaoque, COO. Thank you, Daniela. Good morning, everyone. Carlos is going to make a summary of the Q1 financial and operating Thank you, Daniel. Good morning, everyone. Well, the strong economic expansion in the United States that have gained momentum in the On half of twenty twenty, continued unabated in the Q1 of the year, propelled by news of our second fiscal stimulus plan, Talk of a new infrastructure program and solid progress on vaccination. U. S. Economic growth forecast for 2021 We're upgraded and initially led to an appreciation of the U. S. Dollar versus most other currencies on the back of rapid increases in medium and long term dollar interest rate. Very Latin American countries, including Mexico and Brazil, experienced new COVID waves that led to renewed confinements, Constrained Mobility and a Slow Down in Economic Activity. In spite of this, in the Q1, We managed to $26,000,000 net subscriber additions, which was fully 1 third more than a year before. 3,300,000, a little bit more than half of the med adds were postpaid subscribers, most of them coming from Brazil, 2,400,000, Followed by Peru, Colombia and Austria. As regards prepaid, we gained 2 point $8,000,000 of which $812,000 came from Brazil, approximately $500,000 each from both Central America and Mexico, some 300,000 from Colombia and 200,000 from Argentina. On the fixed line platform, we added 246,000 broadband clients With almost every operation showing an increase in access lines, except for Osterholm, we have disconnections of low bandwidth clients. Columbia, Peru, Ecuador and Argentina were the main contributors. At the end of March, Our mobile postpaid subscriber base was up 7.8% year on year, followed by our fixed broadband accesses of 4.7%. Even our prepaid base registered an increase from the prior year. Our first quarter revenues Totaled the COP248 billion were nearly flat in nominal peso terms, with service revenue declining 1.1% year on year. At constant exchange rates, however, service revenues actually increased 1.2%, slightly lower than in the preceding quarter Where they have reached 2.2%. As we saw in the prior quarter, the main reason for our consolidated nominal peso revenues To decline even though they have reached any local currency terms, had mostly to do with the sharp depreciation of the Brazilian real This a vis Domestic and peso, which was fully 20.4%. The The expansion of service revenues was driven by that of mobile service revenues, which decelerated to 1.7% from 4.1% in prior quarter And was supported by the continued recovery of fixed line services. The acceleration of mobile service revenues mirrored that of Postpaid, which slowed down in Brazil, Colombia and Austria. Paper revenues for the part maintained the pace of growth of 2.4% for the Q3 in a row. Prepaid revenue growth showed a marked improvement relative to the year earlier quarter, Except for Mexico, Brazil and Colombia. In these countries, economies appear to have been more affected by the pandemic in the first half of this year. Fixed line service revenue growth turned positive 0.1 After several quarters of negative growth and Vibacos continued strong performance of fixed broadband services, which became our most important revenue line in the quarter, maintaining its nearly 8% annual pace. We registered an important improvement in corporate networks with revenues expanding 2.4% in the quarter compared to a 2.9% decline in the 4th quarter. This stepped into positive territory in the overall expansion of fixed line revenues. Strict broadband revenue growth has accelerated sharply some countries, Including Peru, 42 percent Colombia, 21 percent the Dominican Republic and the Ecuador, Between 15% 20%, with revenue growth staying on trend at around 7% to 8% in Chile, Brazil and Central America. EBITDA rose 5.2 percent to ARS1.7 billion. At constant exchange rates, it was up 8.1% with EBITDA margin expanding almost 2 percentage points to 32.9%, Supported by strict cost controls, lower selling and marketing expenses, again, having to do with Restrictions on mobility and new confinement and reduced bad loan Provisions, we have had a very good experience collecting our invoices. Most countries registered strong EBITDA growth, 59% in the U. S, 47% in Puerto Rico, 36% in Peru, 15% in Dominicana, with Colombia and Central America expanding approximately 10 percentage. EBITDA margins rose across the board, increasing almost 7 points in Peru, 5 in the Caribbean, both Puerto Rico and the Dominican, 4 in Central America, followed by Mexico, Brazil and Argentina with 2.6. With our operating profit increasing 5.7 percent to ARS41.1 billion And our comprehensive financing costs coming down by 55% year on year to ARS 35,900,000,000. We were able to post a net profit of ARS 1,800,000,000, reversing the ARS 29,000,000,000 loss raised to a year before On account of foreign exchange losses. Our net profit was equivalent to $0.03 per share or $0.03 per AVR. Our operating cash flow allowed us to fund capital expenditures in the amount of ARS 25,000,000,000 And to buy back shares worth of ARS 4,400,000,000. In addition, it allowed us to reduce our debt In cash flow terms by nearly MXN 10,000,000,000. Our free cash flow this chart is interesting. Our free cash flow, this is looking at EBITA minus CapEx, Has exceeded a solid part of growth over the last 5 years, even in the midst of the pandemic. So the free cash flow has gone from $5,600,000,000 in the year 2016 to 9 point $4,000,000,000 in the year 2020. And Hajj kept on rising in the 12 months to March to $9,600,000,000 So even in spite of this deceleration in sales and revenues that we have had. We have seen continued strong performance On EBITDA and free cash flow. Our net debt fell by ARS20 1,000,000,000 in the Q1 ending March at ARS27 1,000,000,000. This obviously includes the capitalized leases under IFRS 16. At this time, it was equivalent to 1.77x EBITDA for the last 12 months. So with that, I would like to pass the floor back to Daniel, and we can begin the Q and A session. Thank you. Thank you, Carlos. We can start with the first Our first question comes from the line of Marcelo Santos with JPMorgan. Go ahead please. Your line is open. Good morning. Thank you for taking the questions. I have 2. The first is if you could provide an update on the towers pin off operation that you're planning for America Movil in Latin And the second, if you could compete if you could comment on the competitive environment in Colombia now that WOM has officially launched their Mobile Brand, Mobile Operations. Well, talking about the We are currently implementing the structure within the America Movil Group to separate locally the towers and obtain the required Approvals in the different countries prior to the final step, the spin off at the American mobile level. So we think And we expect that this implementation will occur in this year, end of this year is what we have right now. On the Colombia 1 and the competition, well, I think They already launched their plans at the beginning of April, mid of April. They were very aggressive plans, but I think we are well prepared to compete in Colombia. There is not only price in Colombia. I think We have a very good coverage. We have foreplay, so we have a lot of our customers in convergence, so in Foreplay offer that is very important, reduce a lot our churn. We have one of the Qualities in Colombia in terms of in mobile and in fixed also. Good distribution. We have a good very good distribution all around Colombia. Good image net promoter Core very high and very good image and very good service. So I think it's not only price. We are prepared to compete in price, but Also, we are prepared to compete in all these other things. So we have a strong competition. Their plants were Aggressive. We know that they are coming very aggressive, these plants, and we prepare for that. So we are competing. So I don't have Any news, it's only 10 or 20 days of competition. This competition is going to take all these years. So We are prepared to compete. So that's what I can say. Perfect. Just a follow-up on the first question. The stock that's going to be listed on the tower spin off, which exchange will it be listed? Is there any update there? We haven't decided anything until right now. So we don't know if it's going to be on Mexico, It's going to be also for Mexico and the U. S. So we still We're not we need to make that definition in the next month. Perfect. Thank you very much. Our next question comes from the line of Alejandro Galastra from BBVA. Go ahead please. Your line is open. Hi, good morning. Daniel Carlos, Daniela. I have a couple of questions. First, you mentioned different reasons to explain the margin But what are the main reasons that are currently driving That margin expansion in all geographies, if these are common reason behind that expansion And how much margin expansion do you expect going forward at a consolidated level? And second, Could you comment about your FTTH deployment strategy in Mexico? And how much of your network is currently FTTH? And how you're expanding your FTTH footprint given the aggressive investment plans of your competitors? Thank you. Well, as Carlos said previously, I think part of the margin or the EBITDA growth that we had is controlling costs and expenses. But we have been having the last 2, 3 years Digital transformation that is allowing us to reduce costs. And that's mainly one of the reasons why we are reducing costs Because everything that we're doing, we're trying to do digital, saving people and Reducing costs in a lot with a lot of parts of the companies, okay? So in every country, it's different. In every country, the in the That debt is different than in the other countries. The expenses the commercial expenses are going to be different because we have different competition. Let's So in Colombia, we are putting more efforts in the commercial side. In other places, it's more On the administration of in the network, we are saving a lot with new technologies in the networks. We're going to Start to rollout 5 gs. So we are already virtualized all the network that we have in all the countries. We're virtualizing all the networks. So it's a Program cost expenses, technology, digital that we have been having for the last 2, 3 years And it's not ending this year. It's going to go for the next 5 years. So it's a big program that we're having and is what we're doing. In the revenues, as Carlos said, We in constant exchange rates, we grow a little bit on revenues. But as he said, there's a new wave of COVID in the South of Latin America. And this we have more Stores closed and our commercial has been hit a little bit. But I think as the economy gets better in all these Countries, I think, we're going to return with the revenue. So that's more or less. In the FTTH, Oscar can tell us a little bit on Telmex what We have been doing nothing. We've been operating the network to exit FTTH in Mexico. We have around 9 home classes, and we are the leaders in the market With Internet connections with the fiber to the home. So we have 4,400,000 connect almost with fiber. And we're still growing every month to improve the network to FTTH and to migrate Customers from copper to STPH. So adding a little bit to what Daniel was mentioning, just to give you a little bit more color. The cost of service stayed in line with service revenues, but Selling and marketing expenses were down 6% at constant exchange rates and administrative expenses were down 14%. So we did have very major reductions. So a lot of that came, as Daniel was saying, out of the digitalization that has been implemented in the company. Our next question comes from the line of Andres Coelho with Scotiabank. Go ahead please. Your line is open. Thank you. Good morning, and thank you for taking my questions. Two quick ones. First, can you give us an update on the negotiations with the And regarding the patient liability. And second, given TracFone's strong results, How do you feel about achieving the performance measures establishing the agreement with Verizon regarding the $500,000,000 in additional payment? Thank you. Well, talking 1st, TracFone, okay? So I think the regulatory approval process for the sale of Raxophone is ongoing. It's going well. We're working very closely with Verizon and the regulatory authorities to get clearance on that transaction. And we think and we believe that this transaction will be closed in the Q3 of this year. So that's the first The second earnout that we have, I'm sure since the beginning, nothing changed with the Performance of the company, both the indicators that we put, I'm sure that we're going to comply with that and we're going to take an out Of what we agree in the transaction. It's around $500,000,000 and I think that we're going to get No, it's more related that amount of money. I don't remember if it's $500,000 or $700,000,000 but we are sure that we're going to get for the 100% or a big part of that earnouts. On the Telmex negotiation, we're still in negotiations, nothing else to say. We are still negotiating with them, and we hope we can get on an agreement with the unions, okay? So that's mainly what I can tell Thank you very much. Thank you. And our next question comes from the line of Arturo Langa with Itau BBA. Go ahead please. Your line is open. Hi, good morning, everyone. I apologize If this was already answered, I had some trouble in my line. But with regards to the acquisition of Voi, when should we See that being consolidated into your financials. When do you expect to see that? And then Two other questions, if I may, but also similarly, when can we expect the acquisition of Sorry, the sale of U. S. Operations to be excluded from your reporting files. And lastly, if there's any color regarding The pay TV license request in Mexico. That would be useful. Thank you. Well, Onoy, the approval process before Kave and Anatel in Brazil is advancing accordingly with its different stages. All parties are committed to cooperate with the authorities during this process, and we think that we can close this transaction this year also. So we hope that this year we can consolidate all in our financials. So that's the first one. The second one, I don't hear you very well. Can you repeat it, please? Yes. Sorry, Daniel. With regards to the sale of TracFone to Verizon, When do you expect to discontinue the U. S. Operations or stop reporting the U. S. Operations in your results? When it's closed, and I think we are thinking that This transaction is going to be closed in the Q3 of this year. So that's our expectations. And the pay TV license, we hope that we can get the pay TV license. We're working To get the pay TV license and well, nothing to say, only we are hoping that to really get the pay TV license. So yes, that's Lots of time working on that. Our next question comes from the line of Carlos Legaretta from GBM. Go ahead please. Your line is Hi, thank you. I have two questions, please. The first one, in Mexico, you're mentioning a negative effect from the chip shortage from handset sales. However, this doesn't seem to have affected most of the other operations at all. So can you give us some color on whether this is an isolated effect in Mexico? Or can we expect Problems like this in any other countries on the road. That's the first one. And the second, please, in your financial statements for 2020, you show a significant Valuation of the Timshior Tower portfolio. Can we take this figure as a proxy for the value unlocking associated with Tower transaction? So I think it's not a secret that there's no chips for For the handsets and not only for the handsets, for the set top boxes and for even cars, I read that there is some shortage in the Chips forecast. So there's a shortage in the chips of all around the world, and it's Getting worse, I think, all the operations, we have been having some problems getting the Handsets that and the brands and in the segments that we need. So and also, We have been having some shortage in the set of boxes and the broadband boxes. So All around, we're having some problems, but I hope and I don't think it's going to get fixed immediately. But We have been placing orders for some time ago, and it's been helping us to have the amount of Equipment that we need. So that's where we are. Carlos can talk a little bit about the revaluation. Camo, as you point out, there was a process for devaluing the towers. As you know, on the value of IFRS 16, you can choose This is over you hit your assets or second capital, your assets at cost. Also, you have it at market. We had a valuation on the towers, and then we kind of cut This valuation based on impairment that we have to come up with for various operations. But net net, What we have is our first proxy for particularly for quality value, Mostly the value in Latin America, okay? It is all of the the full category of towers have been revalued. As you know, we have not yet determined anything regarding powers in Telecom Austria. So which But nonetheless, we have to bring all the category of towers within our consolidated results, And we had a certain revaluation, okay? So that For 30 days for this PIMA eventually. So this would be incremental value over the book value you have over the towers, right? That's correct. That's correct. We have already affected the increment in value as of the end of December, Which was when we changed the accounting policy to be able to The new policy of booking towers Based not on cost, but on market value. Great. I appreciate the answer. Thank you. Our next question comes from the line of Leonardo Olmos from UBS. Go ahead please. Your line is open. Hi, good morning, everyone. My question is related content and over the top content. We noticed that you have some new launches, For example, the Claro Box TV in Brazil. My question is, do you intend to roll out that for the regions? And What are the other content or the top strategy that you have waiting for to be launched in 2021? Thank you. I think we launched Claro Box in Brazil, and we are thinking to launch that Claro Box all Around Latin America and all the other countries. And I think it's a good idea that Oscar can talk a little bit what's the Claro box and Please, Oscar. Well, as you know, the pay TV traditional business has been Moving, there is a lot of streaming of Brazil in the market. So we did guide and analyze how the market is moving on. And I think Flarebox TV in Brazil, there is a full IP technology And as well as a new functionality like voice recognition, catch up TV, remote TVR. Well, the good commercial proposition in the market is that you could start with basic packages, and then you could add on It's a little stream that it's more related what the customer Content slides, so if you could add on, in the case of Brazil, global play or you could On Netflix or Telecine or Paramount or Sports. So you could bundle your services Given the profile of the customers. So we feel that this with the LATAM, it's more cost efficient because It doesn't require installation. It's in a sense thought by the customer. And as I mentioned before, it's the full IP That helped us to manage better the traffic in the network. So I think that is a unique proposition in the market. We will start to proceed. And as Daniel mentioned, we are ready to open another property with the same concept. And I think we are adapting the trends that is happening in the pay TV. And let me add, this is only pay TV. We see this As an entertainment hub, so we do put add on music as well. We put add on Facebook Watch and another Alon's that are in the market and to set up like a whole ecosystem of entertainment that we are offering in the market. Very interesting proposal. Okay. Thank you very much. Have a good day. Thank you. Thank you. Our next question comes from the line of Maria Azevedo with Banco Santander. Go ahead, please. Your line is open. Hi. Thank you for the call. My first question is on the CapEx, can you comment a little bit on the CapEx outlook for the next years? You have a very strong network. So can we assume that 5 gs is not going to require an aggressive cycle of CapEx going forward. Any color on that would be very helpful. No, I we already give you the color of what's going to be the CapEx of this year. And I don't think even for this year or for the next Yes. We are not going to have an increase substantially increase of CapEx as the 4 5 gs. So as we said in previous calls, We have been working to implement 5 gs virtualizing networks, putting fiber in the towers, Putting the photonics in the backbone. So a lot of things we have been doing so. We are ready to launch 5 gs in many countries, and we are not Thinking to put more money because we are going to launch 5 gs. So it's in our numbers, 5 gs is included in this CapEx and in the future CapEx that we have. So no substantial CapEx for next years. Perfect. Thank you. This is very positive. And my second question is on the competitive environment in Brazil and Mexico for mobile. If you can comment a little bit on how the offers are, if you see any opportunities for price and ARPU increases? If you can also comment on Cuatro Pico, that would be very helpful. Thank you very much. Cuatro Pico, I'm Cuatro Pico. Well, let's talk 1st on Brazil, I think on Brazil, we've been gaining good market share, good Good subscribers on cost base and also in prepaid. Our What Carlos said at the beginning, the new wave of COVID is slowing down a little bit, Brazil, but I think it's slowing down for everybody, for all the Company, we have, at this moment, some store closures. So Our commercial activities is slowing down a little bit. Also, the helps in money The government is giving to the people is reducing. So also reduce a little bit The amount of money in the people in prepaid that they are spending. But all overall, I can tell you that we have a very good network, Very good proposal. We are doing and making our combos in with fixed Broadband and TV, also with wireless. So we have a very good proposal for the customers, good quality. So we are very competitive in Brazil at this moment in prepaid and in postpaid. And in Mexico, well, Mexico, we're seeing that a lot of subscribers, Not a lot, but some subscribers are moving and wants to be more careful and moving from postpaid to prepaid, But they are starting to consume a little bit more. So all overall, we are also competitive in Mexico, And I think we're doing good in both countries in the wireless side, in the prepaid and postpaid side. On ClaroPay, we are advancing in all the countries. We are doing ClaroPay in Colombia, Brazil, Mexico and Tico, I'm putting ClaroPay in other ones. And well, that's going to be A new offer that we're going to do, and we're working on that. Nothing else to say right now. Perfect. Thank you very much. Thank you. Our next question comes from the line of Walter Piecyk with LightShed. Go ahead please. Your line is open. Thanks. Daniel, just wanted to talk about the share repurchase. I think like you guys if I have it right, you did in pesos, I think it was 6,000,000,000. Last April, you upped it again another $6,000,000,000 So you probably should have a couple of $100,000,000 left, then you added $25,000,000,000 I think historically, you have utilized whatever you've been authorized to do over the Course of the year. Is there any reason we should think about that differently as we look over the next four quarters when you get to next April when you You can look at your regular reauthorization plan. Well, let's wait until that time. But we Let's say in February, we asked for an extra volume and we use it. In this assembly, we do MXN 25,000,000,000 on FoamDeck. So We're thinking to spend it. We think that share is a very good price, and we're thinking to spend all the funds that we have. So If in the future we use it and we need more, then we're going to do another one and ask For another fund. So that's what we're thinking. We are increasing. In the first quarter, we do good buybacks, And we think that we're going to do more or less the same in for the rest of the year. So That's mainly what I can tell you. More or less the same meaning basically at the run rate you did in Q1. Thank you. And then on dividends, at the April meeting, was there any discussion of kind of the dividend policy? I know that You've kind of do this in the second half of the year. You've been kind of around, you know, dollars 19,000,000, dollars 20 per Share. Should we think about a similar dividend policy going forward? Or are you shifting more of your capital to share repurchase? What we discussed in this assembly was the dividend for this year that is going to be $0.40 and it's going to be like Last year in, I think, July November. And you're asking me for next year and what we're going to do, I really don't know. First, we need to sell what we need to sell to close all the transactions that we have, and then we're going to decide what to do. So that's More or less. We have a lot of things. We have Oi transaction. We have Tranfon transaction. And then we have the towers transaction. On all of these, we're working hard and try to close everything this year. So depending on that is what decision we're going to take. Thank you. And just one last question, if you don't mind. In Mexico, I think there were some press reports very recently about Maybe the struggle that Alten Redes has had to sign up subscribers and maybe hit some of their coverage targets. Has there been any discussion within Mexico about whether that spectrum is better utilized by Yourself or AT and T in Mexico? No, no discussions with us. What you're telling me, I Read it in the press as you, and I don't have any discussions with nobody about the spectrum 2 more about the company. So no, I don't know nothing about that. Thank you. Thank you very much. Our next question comes from the line of Gilberto Garcia with Barclays. Go ahead please. Your line is open. Hi, good morning. Thank you for the call. Just a quick follow-up on the towers. Have you decided yet whether you will List the company in the U. S. Market or only in Mexico? They asked us at the beginning of the call, we don't know still if it's going to be on Mexico only or it's going to be on Mexico and then the U. So still, we are deciding. And we're deciding also if it's going to be only the LatAm towers and the Yes, and we're still deciding when they are going to be. So it's still we're working and having all the authorizations On the spin off of all the towers, now that we're going to get a lot of work to do, Thank you. Thank you. Thank you. And our next question comes from the line of Achor Olanda with Itau BBA. Go ahead please. Your line is open. Hi. Thank you. Just a follow-up. And it's maybe more of a strategic question, but we're seeing a lot of telecom groups around the world Sort of reduce their footprint, for example, Telefonica pulling out of LATAM or Vodafone out of India, you've accessed out of the U. S. Is there any read through for your footprint? I mean, for example, looking at Europe, is there a possibility you could be reducing or selling Assets going forward. Is there any consideration regarding that? No. I think we're very happy with Telecom Austria. It's a very good performance. The company is doing very good. We're growing in all these and Europe also. So no, we haven't think of doing something like that. I think we're really, really happy with the performance of the company, being partner with the government. So that's what we already do is Tracfone, no? And what you're saying is Tracfone, yes, we decide to sell Tracfone, And that's an MVNO in the U. S, so it's a little bit different. So yes, we are looking What's the best for America Movil, where we are and the expectations, the future expectations of the companies where we are is important. Okay. And maybe just on that for a couple of regions like Chile or Argentina, which continue to consume cash. Could there be a possibility maybe of reducing your prices then? Argentina is not consuming cash. Argentina is a very profitable company. I think it's getting very good cash flow. And Chile also is doing very good. So Both companies are doing good. But now we haven't think Doing something in Argentina, let's say, in our place. Okay, understood. Thank you. That's very helpful. Thank you. Thank you. And there are no further questions at this time. I'd like to turn the call back over to Mr. Daniel Hajj for some final comments. I just thank everyone for joining the call. And Daniela, Carlos and Oscar, thank you very much. Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.