Earnings Call: Q3 2020

Oct 21, 2020

Thank you for joining us today to discuss our 3rd quarter results. We have today on the line Mr. Daniel Haj, CEO Mr. Carlos Garcia Moreno, CFO and Mr. Oscar Goncalves, COO. Thank you, Daniela. Welcome to the Q3 results. Carlos is going to make a summary of the report. Thank you, Daniel. Good morning, everyone. Well, following the massive monetary and fiscal stimulus introduced throughout the world since the advent of the pandemic, the 3rd quarter saw a rebound in economic activity in most countries in our region of operation and little of the volatility that was present in the prior two quarters. With the exception of the Brazilian real, which continued to deteriorate the U. S. Dollar, the main currencies in Latin America did not see much change over the period. As confinement measures began to be lifted towards the end of the Q2, an improving trend became apparent on commercial activity. We added 3,200,000 wireless subscribers, 1,000,000 of them posted and 1,400,000 prepaid. Brazil led the way in terms of postpaid growth after adding 1,800,000 subscribers followed by Ofsted with 200 and 41,000 and Colombia with a phone number of 2,000. In the second quarter, we had lost 5,000 sites. As for the principal gains, Mexico came the most with $1,200,000 with Colombia and Ecuador contributing approximately $300,000 each Peru, dollars 237,000 and Dominicana, dollars 129,000 We recovered several of the prepaid subscribers that were disconnected in the Q2 as mobility was restricted and making recharges difficult. In the sales line segment, we gained 446,000 new broadband clients with every operation in LatAm posting an increase in accesses. Only Austria and Croatia among all our operations presented disconnections. Colombia and Mexico led the way with over 100,000 accesses each. In Mexico's case, it doubled those of the prior quarter. Altogether, mobile posted and fixed broadband remain our main areas of access growth, with the former increasing 5.7% year on year and the latter 5.2%. Our repeated sub base is still down 3.2% from a year before, while fixed voice and pay TV accesses are falling around 4% each. Our 3rd quarter revenues rose 4.7% in Mexican peso terms from a year before, to reach MXN260,000,000,000 as service revenues expanded 5.4%. At constant exchange rates, service revenues were up 1.5%, roughly twice as fast as in the preceding quarter. On the back of continued strong performance of fixed broadband revenues and recovery of mobile prepaid revenues, those most affected in the prior quarter in the midst of the lockdown measures implemented throughout Latin America. Mobile service revenues accelerated to 3.5% from 2.3% in the 2nd quarter, while fixed line service revenues maintained a 1.4% pace of decline. Across our operations, voice MOUs rose 11%, while mobile data per user was up 41%, all of which resulted in a 5% increase in mobile ARPUs at constant exchange rates. Mobile service revenues were buoyed by prepaid revenues, which rose from to 2.5% from minus 2% the prior quarter. Our posted revenue decelerated somewhat to just under 5% year on year. Equipment revenues bounced back sharply as we moved on to a more forceful commercial activity. The continued decline in fish line revenues took place as the change of share in fishbowl and revenue from a pace of close 7.3 percent to 1 off close 9.1 percent were offset by new revenue losses in fixed line boards and PTV revenues. EBITDA was up 10% in the same quarter from the year earlier quarter to MXN 36,500,000,000. As the EBITDA margin remained at 33.2%. At constant exchange rates, EBITDA increased 7.2%, more than twice as fast as it's higher in the preceding quarter, with Puerto Rico, Mexico and Dominicana posting important advances. Mexico improved from minus 10% in the 2nd quarter to close 1.3%, where Dominicana increased from minus 5.5% to plus 5.8 percent, an 11 percentage points swing in both cases. And it's important just to note that both countries have a high share of prepaid clients. Our EBITDA margin, 33.2%, was 1.6 percentage points higher than in the year earlier quarter. Our operating profit should have been 18% to ARS 45,000,000,000 and was the driver of a 45% increase in our net income, which totaled ARS 19,000,000,000. Our operating cash flow totaled ARS 164,000,000,000 and allowed us to cover our capital expenditures, which amounted to MXN 91,000,000,000 and to reduce financial and labor obligations in the amount of MXN 52,000,000,000, including a COP47,000,000,000 reduction in our net debt. Our capital expenditures in the period were directed to securing adequate net debt to EBITDA ratio stood at 1.38x under IAS 17, slightly less than at the end of June. All throughout this year and in spite of movements in foreign exchange rates, we have kept our leverage ratio at or below 1.19x on the all over the year. Looking at Mexico, retail revenue bounced back to plus 1.1% from a minus 4% decline in the 2nd quarter, with fixed broadband revenues accelerating to 6% from 2%. On the back of the above, EBITDA recovered sharply from a 10% launch in the 2nd quarter to close 1.3%. For Brazil, posted revenues continued to excel, posting a 9% increase from the year before, with prepaid revenues rising 5%, the same pace they had shown prior to the pandemia. On the fixed line platform, broadband revenues continued to perform well, expanding 6.8% and maintaining a stable trend, while the decline in PayTV revenues accelerated to minus 13.6%. Colombia was the only country where service revenues expanded on both the mobile and the fixed line platform in the Q3, almost at the same period in one. Both prepaid and posted revenues expanded at rates similar to those seen in the Q1, where fixed broadband revenues remained at a 15% growth pace, and say TV revenues continued to accelerate to 10%. EBITDA increased 3.4% in the quarter on the strength of the revenue increases and the reduced need to provide for past due collections. Regarding Austria, both fixed and mobile revenue declined slightly. The latter bumped down by reduced roaming revenue as turned to the country's write off on account of the pandemic. In spite of the above, the company's adjusted EBITDA for restructuring showed up 4.7% on reduced interconnection and roaming charges as well as savings from several lower funds. Oilfarms. With this, I would like to conclude with Rob. I will be passing the floor to Daniel Krast. Thank you. Thank you, Carlos, and we can start the Q and A. Your first question comes from the line of Rodrigo Uvangueva of Bank of America. Your line is open. Hi, thank you. Good morning. Can you hear me well? Yes. Perfect. Thank you. Yes. So my first question thank you very much. My first question is if there's any update that you can share with us regarding the potential alternatives to create value from your towers, anything related to timing, amount of towers or type of transaction would be very helpful. Thank you. Rodrigo, what we have been saying on the tower transaction that we have around 60,000 towers in America Movil. And we're working to on the regulatory, on the legal to see what is the best thing to do. We have like 15 countries or in every country different. So we're working on that, and we're analyzing what's the best way to give value to the tower. So we have nothing concrete to say right now, but we're working hard and to have that as soon as possible. Understood, Daniel. Thank you very much. Secondly, I mean, the Mexican government appears to be willing to rate the price for spectrum, particularly in frequencies expected to be used for budget purposes. So I was wondering if you could share with us how relevant this is for AMX and if there's anything that you can do to prevent this from happening? Well, we have been following that discussion in the Congress, in the Cenac. We are not agree on that. I think they shouldn't raise any on the spectrum. It's very expensive right now, and the only thing they are going to do is to delay 5 gs, if they are going to do that, or increase prices in the other side. So Mexico at this time is at the highest levels of spectrum. We're paying a lot of money, and we are not agree on that. We're following the discussions. We don't know what is going to end on. What they are saying is that they want to increase the 800 megahertz frequencies, what they have been in discussion. So we don't know exactly what is going to end on, but we are on favor that we are really we don't think that's a good idea. Understood, Daniel. Thank you very much. Thank you. Your next question comes from Diego Araco of Goldman Sachs. Your line is open. Yes. Good morning, everybody. Thank you for taking my question. I have just two short questions about Brazil. The first, if you can please share your expectations about M and A in the country. I mean, you signed up like an agreement with Tim and Vivo. So if you can just provide like an overview about the next steps and your expectations in the mobile space. And secondly, if you can also share your expectations regarding 5 gs spectrum option that apparently it should occur in the beginning of next year. But if you can share anything on this topic, that would be great. Thank you. Well, on Brazil, first of all, I think we have a very good quarter in Brazil. It's still growing very good on postpaid subscribers and also in prepaid. So the revenue in our wireless operations are doing very good. In broadband, we are also doing excellent in Brazil. On Oi, I think we feel that the option the final option will be before end of the year. We don't know exactly the dates, but we feel that's going to be before the end of the year. The spectrum for 5 gs, well, some I'm hearing rumors that they said that it's going to be in the Q1 of next year, as you are saying. Other ones said that in the middle of next year. So we don't know exactly when we're going to have the option. But right now in Brazil, we have very small amount of our network within 5 gs. So we are already launched 5 gs in a very small town part in Brazil. So we are moving on that direction. And I think next year, we're going to see that we're going to have 5 gs there. In the other side, our with the Nextel purchase, we already integrate the company. We do a very good integration, and we are doing very well on wireless gaining postpaid market share every quarter. So that's more or less what we have been doing in Brazil. In the other side, we have been costing cost all around Latin America. Also in Brazil, we are being and trying to be more digital company, more digital. It's saving a lot of costs over there. So we're working on that direction and putting money and a lot of work on that. That's very helpful. And just a follow-up on the concentrate in Brazil because it was indeed quite strong. So I was curious to understand where are those customers coming from? I mean, do you feel that you feel is this still a trend of prepaid shifting to postpaid? Or do you believe that you are gaining share from competitors? I think all there's a lot of our prepaid moving to postpaid. Of course, that's something prepaid from other companies moving to postpaid and also postpaid from other companies moving. We have a very good network, and we have been showing that for the last year. So that's been very, very good. And also, you can see in number portability, in number portability, we're gaining more than any other company. So that's where we're getting all these postpaid subscribers. Your next question comes from the line of Arturo Lainga of Itau BBA. Your line is open. Hi, good morning. Thank you for taking my questions. I would just like to get your thoughts on your intention to reduce debt, maybe potentially the sale of towers in Southern America will help. But is the intention still to reach 1.5 percent net net debt EBITDA? And if so, how can we think about cash distribution to shareholders once A and M next reach at this level? Is the intention still to increase distribution to shareholders? And if so, what levels of yield you have in mind? And then what mechanism maybe to share buybacks? That will be my first question. And then my second question is related to Colombia and how you see the arrival of WOM in the country. And specifically, would you be interested in offering all these services to Q1 like you did for them in Chile? Those are the next two questions. Thank you. Well, on the first question, I mean, I think with the sale of Tracom to Verizon, we turn it closer, that should bring that alone should bring those down or which should bring those down to 1.5 times net debt to EBITDA. So whatever is obtained from the disposal of the Taos, these tenders are disposal of some kind, That would be something that would better reduce our leverage. I'd say that in addition to this, we have a strong cash flow and we're expecting to for this cash flow to remain well into the next year, the next couple of years. So I think from a leverage standpoint, we feel that we are in very good shape. This is something that the rating agencies that we are very much in touch with have ratified to us. We're in very, very good shape financially. And we think it's important, particularly in times of so much economic uncertainty that we are living through today, to navigate more to with a lighter load of debt than would normally be the case. So I think that it's important. Again, given the uncertainty, it appears to be somewhat more conservative on the financial structure of the company. And can you repeat the second question, please? Yes, sorry, Daniela. Just your thoughts on the arrival of 1 into Colombia. And they have big obligations in terms of network rollouts. And what's in discussion right now is those should be achieved via roaming agreements, which you might be willing to provide. And you guys did offer roaming agreements to Guam in Chile. So I was just wondering what your thoughts on the arrival of Guam into Colombia are and how you will manage that? Well, I think what we know WOM, as you said, they are in Chile, and they are aggressive. So we have been preparing the company for maybe all this year. So we're putting more capacity, and we're working to be prepared when one starts. And that's something that's nothing else I can say that we like to compete and we're going to compete in Colombia and also Stigo and Movistar over there. So we haven't had any roaming agreement until now with WOM. If that's your question, we haven't had anything there. They haven't do anything with us. So we're working you know that we gained the spectrum in Colombia, and we're working to build all the consumables to all the investments that we need to do and to put the capacity and the network in the small towns that they require. So we are doing very well in Colombia. We are growing in postpaid, growing in prepaid, growing in TV, growing in broadband. So we're really doing very well there. So we have a converged plant platform, and Oscar can talk a little bit more on what we have been doing in Colombia. Thank you, I mean, yes, as you mentioned, we are a fully integrated company in Colombia. We've been doing quite well on mobile, but more in the convergence. So we deliver all the set of products, so fixed broadband, fixed the line in mobile, pay TV in different flavors. And as well, we started 3 years ago focused on enterprise and all the cloud services that we delivered there. So we are more a telco integrated solution that has only connectivity, and we've been really successful in that market on enterprise. So it's going to be more competition. But we feel that we are in a very good position. Your next question comes from the line of Walter Piezk of Lake Shed. Daniel, the trend for ARPU has been pretty positive since 2017. I understand that some of that is postpaid, prepaid mix, but clearly LTE usage has certainly had an impact. Obviously, COVID gave you a little bit of a headwind, last couple of quarters. But when you're looking at 2021, assuming we have some type of COVID recovery, at least health wise, but maybe not economically, do you think that across your markets, especially the big ones that you can get back to ARPU growth? And then 2 kind of additional questions as it relates to that, which is, can you give us an update on what is the mix of LTE traffic today and kind of a capital CapEx outlook? Because your CapEx looks like it's down a lot this year. Is there going to be kind of a return to CapEx investment based on some of this LTE growth? Thank you. Yes. Well, what we have been seeing in these two things are very important with the pandemic. The pandemic show us that our networks are really strong. So we handle all the traffic in all the countries that we meet. So people move from offices to houses and then a lot more in houses, in broadband, in Wi Fi. They see a lot more TV. So all these trends looks very good in our network. So we have a very strong network, and that's because the last 3 years, we have been investing a lot on that. We're focused on photonics, in the backbones, in the last mile. So that's very important, and we're very happy. We have been doing a lot of testings all around Latin America, and we have been the best network in most or maybe all of the countries. We have been doing very good on that. So that's very, very important. So other thing that what happens during the pandemic is it accelerates a lot, the digital, payments, for shopping, for studying, for everything. So it looks like people is going to use more and more and more on that. So I don't know what is going to happen on 2021, but what I can tell you is that people is using a lot more telecom. Telecom has becoming more and more important every day. And with this lockdown, accelerate a lot the digital in the digital side. So we're doing that. On the CapEx, I'm going to talk a little bit about the CapEx this year. Well, I think the CapEx is going to end reducing maybe $0.34 $0.25 to $0.34 We're going to reduce the CapEx from our original CapEx this year because we also because execution, because in the lockdown, it was very difficult to execute, also because we take out some projects that we don't need and maybe we're going to delay that. And we're working right now to see what's going to be the CapEx for next year. So I still I don't know what will be the CapEx, but the CapEx of this year is going to be around $6,000,000,000 instead of the $8,500,000,000 that we have there. So that's more or less what we have. Part execution because of the lockdown, other ones because we delayed some projects that we don't think or we don't need at this moment. That's a pretty big decline. I don't it didn't seem like usage declined that much. So I mean, at a minimum, shouldn't you think that CapEx I mean, I know you don't want to give a CapEx guidance for 2021 now, but if you're down that much this year, should it at least be flat in 2021? Is it would it be reasonable to assume that? To compare with this year or compare with our original CapEx? When I look at 2021, if it's $6,000,000,000 this year, I would assume that at a minimum, that's going to be flat, if not up in 2021 from that level? Yes. From that level, it's going to be higher, of course. It's going to be higher. But we're working. I don't want to advance anything, but it's going to be higher than this year. But Maybe not at the $8,000,000,000 from 2018 2019. I got it. Okay. Okay. Thanks. Well, other thing that has been really interesting is that, well, there's a lot of suppliers that are helping and reducing prices and moving with new technologies, and there's a lot that we have been doing there. So also, it's helping us on that. So what I can tell you right now, very important that with this $6,000,000,000 we haven't lose anything. We have a lot of capacity, very good quality. And in the commercial side, in the variable CapEx, that it's 100% done what we need. So we are not stopping anything on that. So that's important. So we're not going to stop growth. We're not going to stop capacity. We're not going to stop quality. We're not going to stop very important all the digital things that we're doing in the company. So that's very important to that. Just one quick follow-up, Daniel, and I apologize for the third question, but it's related, is when you say execution, does that mean you're using like different radio vendors like Fujitsu or Airspan or whoever rather than the traditional guys? Or is it just that pricing is coming down from the Nokia Urchin Waleways of the world? Well, there's new vendors plus, maybe not in radio, but in other things, there are new people entering in some of the new technologies. So it doesn't have radio is a very small part of our CapEx. So it's a lot on backbones, a lot of photonics, a lot on digital, fiber. There's a lot of things in the CapEx. It's not only radio core, virtualization. So it's a lot of things related to Cap. Your next question comes from the line of Marcelo Santos of JPMorgan. There are 2 actually. So the first is about the pickup in broadband ads in Mexico. I just wonder if you could talk a bit about the sources. You mentioned the agreements with OTTs, also if there's some demand from COVID coming in? And what do you think about the sustainability of this higher growth in broadband? And the second question is about Brazilian weakness in the fixed line, which you comment is more on pay TV. Is it limited to DTH? Is it also suffering cable? What's the outlook here? How much more of a decline could we have on the VTH? Thank you. So your first question around the Mexico broadband, what we've been doing is upgrading all the speeds of our customers that have been keeping the loyalty from our customers. Another thing is that we've been migrating from copper to fiber as soon as we can within the market. And the third one is that we launched a new set of packages that includes several add ons with the program. And I think it has been very well reset on the market. We and is a pickup, as you mentioned, around the COVID. All the people working from home needs more speed. There is more people connected to the restaurant. That's another thing that happens not only Mexico, which it is in other countries. On the Brazilian side, as you know, pay TV is decreasing the revenues, as Carlos mentioned, 13%. But what we see is that when you look at the total market, the total market is decreasing in Brazil. So there is a downgrading in some of the customers given the economic condition in Brazil. But what we are doing is to develop new set of products that is more like an entertainment hub, moving just the pay TV, regular pay TV. And we believe that included add ons and more functionality to the pay TV, we could stabilize that revenues in the near future. Your next question comes from the line of Cesar Matina of Morgan Stanley. Your line is open. Hi, thanks for taking my call. I have two questions related to the deleveraging process. I mean, one is other than the towers that you're working on, how should we think about other states? I think, for instance, there's been news regarding KPN. And once you reach to that 1.5 level, what's next? I mean, should we expect distribution to shareholders, buyback dividends, more on that front? Appreciate your thoughts on that. Thank you. Well, first on your question on KPN. So we know this Swedish private equity bond that is the rumor over there is we don't know nothing. We know that from the media. So we don't know what is going to happen there. Of course, there's going to be consolidation. Of course, there's going to be consolidation in Europe, but we don't know nothing about that. And on the financial Okay. I think as regards to our as we have the KPN shares listed as disposable for sale, an asset disposable for sale. It is reflected as marketable securities. They are indeed marketable securities, And that will not change our net debt, okay? So even potential divestment of the our KPN stake will have any impact on the levers. The As I was pointing out, I think we have, on the one hand, the cash flow that is providing us ample room to reduce debt, as we have done so far this year. I have mentioned nearly COP 50,000,000,000 cash, reduction of net debt. And we expect by the time the Platinum transaction closes, we expect receive initially $6,300,000,000 So that really would take us a long way to 1.5 times or even below 1.5 times net debt to EBITDA. As I was saying, I think these days are rates of great uncertainty in the world. I don't know if you're familiar with the latest IMF forecast for the world. But basically, we have several countries not coming back where they were in 2019 until 2 or 3 or 4 years from now, okay? So I think this is still in some ways the early part of this COVID related crisis. And we think it pays to remain conservative and to, as I was saying, to navigate with a like a load of debt in few years when things are uncertain. So that's what I would say to you. You. Your next question comes from the line of Carlos Saccia of BTB Pactual. Your line is open. Thank you. Good morning, everybody. So my question is, does AMX have any plan to relay its coaxial cable network in Brazil with fiber and fiber to the home technologies? I know you have a big cable network operation there, and I was just wondering if you have anything to overlay it at some point. Thank you. Ladies and gentlemen, we are experiencing technical difficulties. And it's yours. Maybe speakers are back on the call. Feel free to reach out again. Sorry, we're back. Thank you. We pushed the wrong button, sorry. Yes, maybe you want me to make the question again? I can do it again. Sorry. Yes. Okay. So my question is, if AMX has any plans to overlay its coaxial cable network in Brazil with fiber or fiber to the home technologies? If not now at some point in time, what is how you see the cable network in Brazil versus the possibility of upgrading to fiber events? Well, As you know, in the field, we have a HFC net mix. And what we've been doing is to upgrade those networks to DOCSIS 3.1. Compacted already with half, the fiber, the GPON. And home package already. We have the fiber, the GPON. We believe that that is similar one with the Your next question comes from the line of Chelsea Collin of Aegon. Your line is open. Hi. Thank you for taking my questions. I was just wondering if you could provide a little bit more color around the performance in CLA. I'm just wondering how much of this performance is do you think is due to competition in the market versus the effects of the pandemic? And if you could also just remind us of what technology you have on the mobile and fixed side in Chile? You're talking about Chile? Yes. Yes. No, in Chile, we have the same technology in mobile that we have all around Latin America. We have 2 gs, 3 gs. Not 2 gs, no. It's I think it's almost 0 for 2 gs and 4 gs and 4.5 gs. So that's the technology that we had. In PIC, We also have fiber to the home. So what we need in Chile, Chile is doing a little bit more difficult on the country. The lockdown has been on and off, and we need to improve there. So I think we are putting better. So we are working on that, and I hope that we're going to see better results in the next year. So it's not something about technology. I think we are well prepared on the technology, very good also in mobile, in PIC. We incorporate also data centers with us. So we need to execute a little bit better. So the market is also very difficult there. Prices have been going down. And for that, nothing else to say. We need to execute that. And what is your exposure to the SME segment in Chile? What is your what? Sorry, I didn't hear you. Your exposures to SMEs in Chile? I think we're in a good position, Oscar can talk a little bit about what we're doing on the corporate side in the small and medium enterprise also. Sure. I mean, the small business is excellent segment in the market. And what we've seen in small business that these enterprises are looking for more digitalization, more cloud services, more applications. They've been asking us to help them to get online to have a store in the digital world. So what we've been doing is bundle all these products in terms of to deliver to the small business. And on enterprise, if you look at the change of value from the connectivity to the end of the change, You have connectivity and then you have security, you have data centers, you have the business analytics, you have in the market, Not only keep us on connectivity, we want to bring value to the customers to improve them the productivity or increase in revenues. It's more and more business oriented proposal, not only connectivity. And we've been working setting up all this portfolio in the last within the 3 years ago. So I think it will be very well located in the market more as an aggregator than only Thank you. Your next question comes from the line of Marie Azevedo of Santander. Congratulations for the strong numbers. I have two questions. The first one is a follow-up on the question on CapEx. Do you think that network sharing, Open RAN and those initiatives can also help the optimization of CapEx? And how much do you expect to spend with 5 gs spectrum in 2020 and 2021? And then the second question is about a trend about monetizing subscriber base and some of the companies are talking about digital wallet and you launched some initiatives of using prepaid credit as digital wallet. How big is that opportunity in lockdown? Thank you very much. I think in terms of 5 gs, I don't have a number on how much we're going to invest on 5 gs next year, but we're going to have 5 gs in some of the countries next year. It's going to depend a lot on the spectrum. Let's say, when those Brazil is going to launch the spectrum, when those other countries are going on the spectrum, not the ones who already have the spectrum. So we're working in 5 gs, and we can have 5 gs, launch 5 gs in some countries next year. So we have that. Network sharing, I think network sharing helps, for itself in some places. So I'm not a fan of network sharing, let's say, in this business by an example, okay? Because in big cities, you are always investing more new technologies, a lot of capacity, and then you have to grow the capacity and put more and more because of the usage. Both network sharing in rural areas where the growth is not so big or in places where you don't you need more coverage than a lot capacity, I think it's a very good idea. And that's the way we feel and what we think is important. So of course, network sharing is a good idea, but depending where and with whom you put it, okay? So that's what we feel. And on the wallet, Oscar can talk a little bit what we have on digital wallet. Yes, yes. We develop our product around digital wallet. It's called Claro Pay. And while the functionality that is within the Claro Pay is that that you could cash in or cash out different sources from credit cards or from deposit. As you know, in Latin American countries, there is a lot of use of cash. We're getting into that to digitalize that in fashion should be great. And it's an application that is an ecosystem. They use the usage of cash. But as well, you could pay certain services like a telephone to recharge the prepaid mobile phone. And we are on the personal bank right now, so we are developing more consumerities. But we are ready to go in its cloud based product. Okay. Thank you very much. There are no further questions at this time. I hand the call over to Mr. Daniel Haj. I just thank everyone for being in the call.