Earnings Call: Q4 2020

Feb 10, 2021

Morning. My name is Shann Taylor, and I will be your conference operator today. At this time, I would like to welcome everyone to the America Movil 4th Quarter 2020 Conference Call and Webcast. And Answer Session. E. Thank you. Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Good morning, everyone. Thank you for joining us today to discuss our 4th quarter financial and operating results. I'm here on the line with Mr. Daniel Hajj, our CEO Mr. Carlos Garcia Moreno, CFO and Mr. Oscar Boncaozke, COO. Thank you, Daniela. Welcome good morning. Welcome to America Movil 4th Quarter of 2020 Financial and Operating Report. And Carlos Gracia Moreno is going to make a summary of the results. Carlos? Thank you, Daniel. Good morning, everyone. Well, going into the Q4, the economic recovery already underway Appear to be picking up speed throughout most of our region of operations, with confidence levels shooting up in November following the U. S. Presidential election. Shortly thereafter, the announcements of the approval of vaccines meant to ward off the COVID-nineteen virus. In this context, the Latin American currencies, which had deep reserves sharply against the U. S. Dollar as the pandemic began, strengthened notably With the Mexican, Colombian and Chilean peso rising approximately 10% versus the dollar during the quarter. Other currencies did as well, including the euro and the Brazilian trial that appreciated 4% and 8%, respectively. In light of weather observed unexpected COVID containment rates, some countries imposed new confinement measures in various cities in December. Nonetheless, Trends for the quarter generally showed good results in terms of mobile net additions overall. We added 6,800,000 subscribers in the 4th quarter, In the prepaid segment, we gained 4,000,000 subscribers with Mexico and Brazil adding 1,200,000 each and Colombia close to 800,000 clients. In Central America, we also saw more dynamism into prepaid market with nearly 600,000 net additions. By the end of the year, we have fully recovered our prepaid base, the one most affected by the pandemic, which had observed a sharp reduction in headcountquarter on account of the restrictions on mobility and on the functioning of our commercial services. Our postpaid base experienced a much more limited impact and had keeps on rising for the most part. On the fixed line platform, we obtained 208,000 new broadband clients, almost half of them in Colombia, with Mexico and Mobile posted and by fixed broadband with accesses expanding 10.1% in the case of mobile and 5.4% year on year in the 4th quarter revenues, MXN 255,000,000,000 were down 3% in nominal peso terms, With service revenue declining 0.3%, practically flat. At constant exchange rates, Service revenues actually increased 2.2%, faster than in the preceding quarter when they have reached 1.5%. The expansion of service revenues were driven by mobile service revenues that accelerated to 4.1% from 3.5 the prior quarter. For their part, fixed line service revenue declined slightly, minus 0.9%, What was the best performance in nearly a year? Mobile postpaid revenues continue to be our top line item, increasing 6.3%, up from 4.7% in the prior quarter. With Austria, Puerto Rico, Peru, Brazil and Mexico all showing sequential improvements. Prepaid revenues decelerated slightly from 2.5% in 3rd quarter to 2.3% in the 4th one, particularly, you said the same. Our second most important revenue line, fixed broadband services, continued to perform well, expanding 8.4% in the quarter, Slightly less than the 9% pace of Cerro del Parro Corre, as revenue decelerated in Mexico, El Salvador and Chile. Pay TV revenues continue to decline, although less rapidly, minus 7.5% year on year compared to minus 9.2% in prior quarter, reflecting improvements in Colombia, Austria and Chile. EBITDA came in at ARS 83,000,000,000. It was up 1.3% in Mexican peso terms and 5.3% at constant exchange rates. Most countries registered stronger EBITDA growth. Converting for the impact of our one off effective book to the Q4 of 2019, Concerning the restructuring of Zetta lease agreements, EBITDA would have increased 7.6% at constant exchange rates. EBITDA margin expanded 1.4% each point and ended 4th quarter 32.5%. Our operating profit was down 8.7% in peso terms to Ps. 40,000,000,000. And we increased charges for depreciation and amortization by 13%, Having accelerated those associated with the Neste operation we acquired in Brazil the year before, our operating profit, Together with the net financing income in the amount of ARS 15,000,000,000 pending in the quarter stemming from foreign exchange gains, Talking about a net profit of COP 37,000,000,000, 80% higher than that of the year earlier quarter. Was equivalent to MXN0.56 per share, MXN0.54 per ADR. Our operating cash flow allowed us to capital expenditures in the amount of ARS 130,000,000,000 to cover ARS 15,000,000,000 of shareholder distributions, including share buybacks and ARS 18,000,000,000 of pension and other liabilities. And on top of this, it allowed us to reduce our net debt by COP 65,000,000,000. This is cash repayment of net debt. Our net debt ended December at COP647,000,000,000, including capitalized lease obligations. It was equivalent to 1.93x Loss from our EBITDA, slightly below where it had been at the beginning of the year. In Mexico, both prepaid and posted service revenues expanded slightly more rapidly than they had in prior quarter. Since broadband services decelerated to a 1% pace, while broadband corporate network revenue declined in line with the rate of sales in 3rd quarter. EBITDA declined 5.2%, but adjusted for the one off effect mentioned before, it would have grown slightly in the quarter, 0.4%. In Brazil, postpaid revenue growth maintained its nearly 10% pace, while prepaid revenues decelerated to 1.5% year on year. On the FishLink platform, fixed broadband revenues stayed on trend, growing nearly 7% year on year, while fixed broadband revenues accelerated their decline. EBITDA increased 8% in the quarter as the margin inched up from the 3rd quarter to 40.4%, which means a 2.3 percentage points margin expansion over the prior year. In Colombia, service revenues expanded 9%, with solid growth in both the fixed and the mobile platforms. Postpaid revenue growth increased to 7.4% as prepaid revenue decelerated to 3.5%. On the fixed line platform, revenue growth continued to accelerate in the case of both broadband and pet TV services. Strong revenue growth brought about a strong EBITDA increase, 7.7% in Colombia. Finally, in Austria, we could see improving trends on both fixed and mobile service revenue growth, With the latter reaching 2.7 percent in spite of the loss of roaming revenues provided by the restrictions imposed on account of the pandemic. EBITDA increased 4.2% before restructuring charges associated with provisions for the early retirement of employees. Well, with this summary, I will pass the floor back to Daniel Garcia. Thank you. Thank you, Carlos. And your first question comes from the line of Leonardo Olmos with UBS. Hi, good morning, everyone. Yes, my first question is about the infrastructure spin off, Right. A few questions here. Will it do something similar to Telecyte? Will you issue new stock for Currently MX owners, or we will eventually sell control for external party or a sales lead back type, Which assets will it be? Will we have fiber infrastructure? I don't know, maybe submarine cables? And which countries will it be? Thank you. It's going to be a spin off, Carlos can explain a little bit more on more detail. I think as you mentioned, it's similar to the It's a Espinosa, we will be distributing shares of the new entity That will be initially just in Mexico, and we will be distributing the shares over to our America Movil shareholders. Okay. Great. Now America Movil Credit shareholders will be the owners of the asset. Got it. And how about countries? And just to understand exactly which asset, we understand that the towers will be there, How long how much fiber will be part of it as well? We're not expecting to do anything It requires fiber. It's only the passive infrastructure of the towers. Exactly. And there are going to be almost all the countries. We are reviewing which countries we'll do first, but it will be all the countries in Latin America and the Caribbean. So that's What we're doing that and we are working with our partners in Telecom Maastricht to decide what will be The way to also decide on the towers. That's enough. Okay. Thank you. That's what I needed. Thank you. Have a good day. Thank you. And your next question will come the line of Rodrigo Villanueva with Bank of America. Thank you. Hi, good morning, Daniel, Tovlos. Daniela, Can you hear me well? Yes, perfect. Excellent. Thank you so much. So first, I wanted To see your thoughts regarding the potential for AIF to be resolved, this was really as part of the AMLO's initiative to eliminate I was wondering if you have any thoughts on this, if this you think could be Positive for the sector as a whole or you would perceive it as negative? That would be my first question. Thank you. Well, we are not too close on that. There's some news that government will and exactly what are the reasons and why they want to do it. So I don't want to take any position on that right now. Then my second question is related to EBITDA margin in Brazil. And you have seen significant expansion to 40% From around 37% last year, I believe part of this has been driven by synergies from the acquisition of Nextel. So I wanted to ask you, do you believe you have already achieved 100% of the synergies from this Acquisition or is there more to come in the future? Well, we have been I think that the synergies of the acquisition of Nextel, we have been already do everything. Still, We have a small part on the towers. There are some towers that we are not using, and we need to decide What to do with them? We're leasing the towers, and we're not using the towers. So we need to decide what to do with that. But All overall, I think that the synergies that we have from buying Nextel, we already do it. But also the expansion on the margin is not only because of the synergies of Nextel. I think We're doing very good on the market. We're gaining share, gaining share on revenues. On the mobile We're reducing cost and expenses. We're transforming on the digital side a lot Of our costs, so we're being more efficient. So there's a lot of things that we're doing in Brazil, not only The synergies of Nextel, but Oscar can talk a little bit more about what we are doing in Brazil. Thank you, Edwin. Yes, as you mentioned, we We went line by line in all the P and L and to find opportunities to reduce costs in all of them. Of course, one of the main one is to do a de utilization of process, customer care and customer attention. We developed a chatbot. We are using WhatsApp. We are moving the payments to do it digital. So it's a different action item that goes to a digital transformation and, of course, taking the synergies from Next step, Maurizio has full packages of conversion and expenses. And in the other side, I think what I We're doing very good on the commercial side. We're gaining good revenues, and that is helping also to increase our margin. Very clear, Andrea. Thank you so much. And one final question, if I may, which is related to your Buyback funds, I think recently you increased the fund by around MXN 6,000,000,000. I mean, I was expecting you potentially now that you're close to sell the operations of TracFone and We're reaching a net debt to EBITDA target of 1.5 times, potentially to be more aggressive with respect to buybacks. Is this something that you are still considering to do? Can we see AMX increasing its the resources for its buyback fund Yes. What we do like extraordinary assembly, I think what's on Monday, because we almost finished what we have on the fund on the Buyback fund that we have. So we do it and we're going to have our ordinary assembly in April, And we're going to review what to do or what amount we can increase on the share buyback So that's what we only do this to go to April and on April, we're going to decide the amount of the fund again. Okay. Thank you so much, Daniel. Thank you. And your next question will come from the line of Carlos Lagereta with GBM. Hi, thank you. Can you hear me? Yes. Yes. Thank you. Daniel, I don't know if you can provide us with some color regarding CapEx, I mean, obviously, the figure for 2020 was very much in line with your previous comments. But I don't know if you can talk about a little bit about 2021. Thank you. What we always do around the previous CapEx In 2020, the budget that we have on 2020 was around $8,500,000,000 And We decided during the pandemic to reduce that because a lot of things, but one of the most important thing is because we cannot do There were 3 months where we were stopped, so we cannot put the CapEx, put the infrastructure Structure because of the pandemic in April, May June. So that's also a reason why we do For 2020 was around $7,000,000,000 more or less is what we finish off From $8,500,000,000 we do around $7,000,000,000 a little bit less than $7,000,000,000 And I think for this year, we are around €8,000,000,000 including what we are going to buy on frequencies for 5 gs. So that's more or less what we're thinking to do in 2021. That's very helpful. Thank you. And your next question will come from the line of Alejandro Kalashfa with BBVA. Hi, good morning, Carlos, Oscar And Daniela, thank you very much for taking my questions. The first one is related It relates to the ICT segment. You have been mentioning in the past few conference calls and test releases The progress that you are making in IT Solutions and you're even launching a new set of products for corporate clients in some countries. So it would be very helpful to know more about your strategy here And what is the market opportunity that you see in this segment? How much of your revenues come from the ICT sector? And how much you could grow? Sure. As we mentioned before, we'll start selling ICT services and cloud services 4 years back. And we have, as you know, a very large footprint on data centers. What we've been doing is to all the data centers So we could do more loads across all these clouds. While we do we offer a cloud, we offer The different range of cloud services, software as a services, infrastructure as a services and platform as a services. And as you know, one of the things is that we develop a process that is cloud broker. We Orchestrate different clouds and we have a single point of contact with the customers that we could offer to them different protection around the cloud. And above the cloud, we are bringing vertical solutions for agricultural sector and mining, Transport Retail. So what we want to become is a single point of contact to the customer from the connectivity, Security, data centers, it could be private cloud or public cloud. And then above all these, at all these vertical solutions that I have mentioned. And to be honest, we've been leading the market and we won a very big Thank you, Oscar. And I have a follow-up question on the I thought to spin off, if I may. I believe that we said that the company will be listed in Mexico. I mean, if that's right, I would also like to know what will be the legal structure of the company, To transfer some of your debt to a new entity in similar ways with both sides Yes, we're not thinking to do Aseebra right now. We're going to only spin off as We do it in Televise, and we're going to put some debt. So we want to give and give value to the actual share Holders on America Movil. So we're going to spin off the towers in Latin America, and we're going to put to debt. So It helps for the shareholders, we're giving value and we're reducing the debt in America Movil. So we still don't know What's the levels of debt that we're going to put? We're still making all the Paperworks and we think we can complete all these reorganization this year to spin off the company. Great. Thank you very much, Daniel. Thank you. And your next question will come from the line of Andreas Coelho with Scotiabank. Yes. Thank you for taking my question. I have two quick ones. If you can clarify how many of the The 60,000 towers are in Latin America and how many in Europe? And my second question It's pretty technical. I was just wondering if you can confirm how many operating lease Liabilities you have with related parties at America Movil. I believe that in the last 20 S report, you mentioned MXN 23,800,000,000 Operating lease liabilities with related parties. And I was wondering if this is primarily related to telehealth. I think in Latin America, we have around between 35,000 and 37,000 towers, I think it's what more or less we're going to spin off. And in Europe, we have around 16,000 Ours, it's Austria plus the rest of the other countries where we are. So That's more or less what we have. So we divided in 2, Latin America and Europe. And the other question, I don't It's just a very technical question. In your last 20 F report, you mentioned operating lease liabilities with related parties for MXN 22,800,000,000. I was wondering if this is related to tele sites because this could be an important reference for the new company in regards to how many operating lease liabilities you will have to book as a result of the spin off. So I was just wondering, confirming with you that the MXN 22,800,000,000 is primarily related to teletypes. I think that we need to check, I don't really have this information here fresh with me on the 20 F, but let me go through that. Okay. Thank you. Thank you. Thank you. And your next question will come from the line of Marcelo Santos with JPMorgan. Hi, good morning. Thanks for taking my question. I would like to ask about 5 gs auction. So first, if you could give us some color on the Discussions for the 5 gs auction in Mexico. And second, you mentioned that the $8,000,000,000 CapEx for 2021 should include the frequencies for 5 gs. So what countries are you considering in this calculation? If you could give some color on that component of the CapEx as well, would be very helpful. Thank you. I don't have exactly the countries. I think it could be Brazil, could be Colombia. Here in Mexico, we already have of course, we are interested in the auction, but in Mexico, We already have some 3.5 frequencies that we have. Maybe the Dominican Republic would be other country. So there's a lot of countries, but we can Daniela can give you a little bit more color on And yes, the CapEx is include what we have been doing the last year Yes, we have been investing heavily investing in our networks. I think we have the best networks in Latin America, And we're preparing the networks to do 5 gs. So the 5 gs investments we have been doing last year and previous year to prepare the network to do 5 gs. So we are We already a lot of our countries already have been virtualized our networks, our core. So there's a lot of things we already advanced. And I think this year, we can launch 5 gs in some countries. And there are 3 types of 5 gs, the DSS, the non standalone And the stand alone. And so we are deciding in which frequencies and which 5 gs we are going to launch and then what the That's we're going to take. So that's more or less what we can tell you. And long, there's important there's very important Microwave. High Speed Microwave. So we also are prepared for that. So There will be a lot of things. We have a good core network, fiber all around the nodes. So We have been advancing a lot on the for to put 5 gs. Thank you. And some color on the Mexican 5 gs auction, is there anything that you could say? I don't have it right now, The dates where they want to launch, but as I told you, we already have 3.5 megahertz. We bought 50 megahertz, some maybe last year, and then we already have another 50 megahertz where we're in the process On the reviewing with Istatel The rules for those frequencies and I think what Daniel is telling me that on October 2021 And Daniel, just I guess a quick question on just CapEx again. I think you said 2020 was $7,000,000,000 I think when I look at the numbers, The math says it's $6,000,000,000 but you might have been including some acquisitions or something that I wasn't familiar with or maybe it's a currency change, but is there Of the $7,000,000,000 was there something else in there that would not be like actual network equipment for 2020? And then for 2021, For the $8,000,000,000 can you give some sense of the breakdown of like network equipment versus spectrum, what the difference what the allocation would be? Maybe you are right. There's going to be $6,000,000,000 total what we have including that For last year, I think it's between $6,000,000,000 $7,000,000,000 I need to review exactly The number, but it could be $6,000,000,000 $6,500,000,000 $6,500,000,000 So it's around that. We're still closing Everything on the infrastructure. So and on the Transformation, digital transformation that we're doing a lot on that. So I can check and give you the details on that. And then the 8 for next year, is there do you have a sense of the mix between spectrum and network equipment of that 8? I think the spec I don't have the numbers exactly, but I can tell you that we're really interested In doing more things in some countries, I think we have a lot of There is a lot of opportunities in the fixed, let's say, in Peru that we're growing around 20% revenues in the peak side. I think in Colombia also will be a good opportunity. In Brazil, we are doing Like more than $2,000,000 of home passes for this year. So we're looking where we have good Opportunities revenue opportunities, and we're going to invest on that. I think you are right. The accrue, It's around $6,300,000,000 the accrued, but we already asked for more. So that's the number that I gave you. So That the rest of this $500,000,000 is in process to finalize and do that. So that's And I don't know exactly what's the number of the on the spectrum. And also, it's important that we don't know what's going to be the end Price of all the spectrum, but we have around for this year maybe $600,000,000 to $700,000,000 on the spectrum. It's what we feel We have to pay this year on the spectrum. So obviously an increase in network equipment even if you exclude all that other stuff. Understood. And then, I don't know if Carlos wants to answer this or you Daniel, but Historically, when you kind of hit these milestones of your leverage ratios, sometimes you do very large special dividends, sometimes you do very large share Is that are you conceptually looking at that the same way? Or is it possible that it's kind of a more steady flow of share report purchases or dividends every quarter as opposed to these just kind of onetime large special things that you've done historically? Well, we still I have to be honest to you, we still don't know. We need to really finalize the sale of We need to concrete the oil repurchase and to do our towers spin off. And When we have all of that, of course, I think it has to be on more share buybacks or A special dividend that we used to give previous years. So we still does not We haven't decided exactly what we're going to do, but we really want to finalize all these The transactions, all these operations that we have in the way. And when we decide that and see exactly where we are, Then we're going to take a decision. So it's more share buybacks or it could be an extra dividend, a special dividend, Something like that. I don't know Carlos, if you want to add Carlos, you want to add something on that? No, I think what Anil said, I think Once we hit our leverage targets and we are clear in terms of I think that we are prepared to do more distributions. What I'm really saying is we still need to define what is going to be More along the lines of share buybacks, so we're going to be more exceptional dividends, more extraordinary dividends. Or maybe it's old. Carlos, I understand that. I think the question I guess that you can decide between the 2. The question It was more about whether it's going to be regular versus like these large special ones that you've done because it seems like companies are more tempted to do regular ones because If it's predictable, it draws in a broader investor base and maybe helps the valuation a bit more, but that might not be something that you guys care about. I don't know. Thanks for the answers. Thanks, Carlos. Thanks, Daniel. Thank you. And your next question will come from the line of Ernesto Gonzalez with Morgan Stanley. Hi. Thank you so much for the call and for taking the question. We just have one question and it's how Sorry, I don't hear you well. You said about the KPN? Yes. How should we think about the increased stake in KPN recently? Well, on KPN, the only thing I can tell you is that There's what we're doing is only a financial investment, and we are not interested in doing a bid for buying the company. So that's only a financial investment, that's what we're doing in KPN. Great, thank you. Thank you. And your next question will come from the line of Gilberto Garcia with Barclays. Hi, good morning. Thank you for the call. Can you comment on whether you continue to Eventually, request again a pay TV license for Mexico. Thank you. Yes. Yes. Well, of course, we're interested in asking for a TV license. There is We already submit in the Isotel TV license. So of course, in Mexico, we want the TV license. There is no reason And why they don't give us the TV license, and we hope we can have that TV license soon. So It's very important for us to have a TV license, and we're waiting for that. Of course, we're in direct. Understood. Thank you very much. Thank you. And your next question will come from the line of Maria Acevedo with Santander. Hi, thank you for the question. My first question would be on your view On the network sharing agreement that some of your competitors are doing in Brazil, would you be interested in joining such agreements in Latin strategic markets and how do you see those neutral fiber networks playing out? Thank you. On network Sharing, we have maybe a different view in some of our competitors. I think in some places, we can We agreed to do network sharing, depends where and how. But to do network sharing, let's say, in big cities and then do the network sharing and then grow because you are going to have more capacity and then you have to Besides with the one with your partner that you do the network sharing and increase and do more, I think doesn't make any sense for us. So In some places, maybe where we need some coverage and there are rural places, and we don't think we're going to need capacity or upgrade or do So we can do network sharing on the fiber. Of course, we can put fiber and then do Sharing on that fiber in some places. So in some things, we agreed to do network sharing. In other things, It's not because we don't agree. It's because we think that doesn't make any sense for us to do network sharing at this time. I don't know, Oscar, if you want to add something. No, I totally agree. I mean, we'll say thank you. It's an Perfect. Thank you. And my second question would be on, did you see any initiatives taking place in monetizing our subscriber base, Financial services, digital wallets, mobile advertising, anything that could generate some incremental ARPU more advanced in the region? We're doing the digital wallet in Mexico. We want to do it in Brazil, in Colombia, and we can expand Argentina also, and we want to expand to all the rest of the country. Oscar can talk a little bit about what we do on the digital wallet. Yes, we are investing in this digital wallet concept So this is an ecosystem around and we believe that the focus is the people that is not bankedized. We are in a friends and family environment in Mexico, in Colombia, in Argentina and in Brazil. So it's a concept that we will Export to other properties as we stand out the way to address the bank. But we are now in our friends and family group Perfect. Thank you very much. And your next question will come from the line of Samit Datta with New Street Research. Yes. Hi there. Thank you for the question. 2, please. Firstly, on Brazil, just regarding the acquisition of Oi wireless, You did not pick any spectrum up in that transaction, I think mainly for regulatory reasons. Should we assume because you're picking up subscribers but low spectrum, you might have to increase your CapEx in Brazil to And then the second question, please, is on Colombia. I wondered have we yet seen any activity from the new entrant or effective new entrant 1 in the market. And how are you preparing for the imminent launch? Yes. On the Brazil CapEx, We already have included in the CapEx that we have in Brazil to take all the Oi subscribers in our network. So we are working on that. We're expanding our infrastructure in the places we need to expand, and it's already taken that into consideration. So the CapEx include the OE subscribers in Brazil. On ONE, yes, ONE is another competitor. We know them very well what they do in Chile. As for any competitor, we're working and We're increasing capacity. We have very good coverage. We have very good network. We have 3 or 4th play in some of our customers. And well, we're prepared to compete now as we compete in other places with new competitors. So we have that On Peru with Entel and the Bitel both and in Chile also, We compete. So let's see how what they are going to do and what we need to do, but we're prepared. What we can tell you is we are going to compete and we're prepared to compete there. Okay. Thank you. And there are no further questions at this time. I would now like to turn the call over to Mr. Daniel Hatch for final remarks. I just thank all Thank you for being in the call. And thank Daniela, Carlos and Oscar for being here. Thank you. Thank you, Ryan. Thank you, everyone. This concludes today's conference call. You may now disconnect.