Earnings Call: Q1 2020

Apr 29, 2020

Good morning. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Mobile First Quarter 2020 Conference Call and Webcast. Thank you. Now I will turn the call over to Ms. Daniela Laquana, Head of Investor Relations. Thank you. Good morning, everyone. We're here today to present our Q1 2020 financial and operating results. Please hold everybody safe. We have today on the line Mr. Daniel Hajj, our CEO Mr. Carlos Gracia Moreno, CFO and Mr. Oscar Brunnhausen, Chief Operating Officer. Thank you, Daniela, and welcome, everyone, to the Q1 2020 financial and operating report. And I'm going to pass to Carlos, so he can give us a summary of the Q1 results. Carlos? Good morning, everyone. We have a strong with all our main operations performing well. Measures were enforced in all countries, most of them around mid March, operational trends began to change. There is no clarity as to its situation of magnitude overall or its impact in the countries where we operate. In In America Movil, we have been fully committed to ensuring the continuity of our top quality services, prioritizing the health and well-being of our clients and employees and adapting our processes and commercial plans to accommodate the needs of our subscribers. We will continue to work together with our various stakeholders to the region. Signs of the emergence of the coronavirus pandemic in China early in the Q1 and of the ensuing contagion of other regions, first in Europe and then in the Americas, brought about a chaotic response to financial markets, concerned that a major economic contraction would follow. Over the last several weeks, the full or partial lockdown of various countries has resulted in a sharp collapse of economic activity and rapidly rising levels of unemployment. Most Latin American currencies depreciated versus U. S. Dollar within Mexichem peso losing 25% in relation to the levels that we closed of 2019. Operations, we gained the $1,400,000 mobile postpaid subscribers in the 1st quarter, including 874,000 in Brazil and 215,000 in Mexico. In addition, we incorporated 3,500,000 postpaid clients that came to work with the acquisition of Neste in Brazil. Fixed broadband is still the main driver on the fixed line platform. We connected 442,000 new accesses, including 107,000 infra fees and 105,000 in Mexico. Mobile postpaid and fixed broadband continued to be the main drivers of access growth with 7.8 percent and 3.5 percent, respectively. All other access lines continued to decline year on year. Our consolidated revenues expanded at a rapid pace as several operations, including Mexico, Brazil and Colombia, posted the best revenue increase in at least 5 quarters. Consolidated revenues of MXN 250,000,000,000 were up 1.8% year on year in Mexican peso cents, with service revenue growing 5.0% at constant exchange rates from a year before and EBITDA rising 8.3%. Mobile services were the main driver of revenue growth at 8.4% the more dynamic hit pace in several quarters, while fixed line services continued to trend slightly. Mobile shipping revenues increased 15.4% in Brazil, not in Chilean expense and approximately 10% and Colombia with record posting 14.5% growth. Postpaid revenue was up 13.6% at constant exchange rates all throughout AmecaMovie, partly on accountants incorporation of the Nextel. Our federal contracts experienced an acceleration of revenue growth. Prepaid service revenue expanded at 3.9 percent overall of the group, although Mexico, Colombia and Dominicana, which is where the prepaid more relevant, saw 13% increases. Mobile and ARPU growth in most countries from the year before the year, but data services as data consumption declined, it's an increasing rapidly. Fixed broadband revenues of 7.8%, which is the 2nd more dynamic business line in our group after mobile postpaid, did not manage to fully offset the decline seen in voice and pay TV revenues. Peru, Colombia and Nicaragua represented sequential improvements on the best results in over a year. Year. In Mexico, prepaid revenues, as I mentioned, were up 13% with postpaid revenues accelerating to 0.8%. On the fixed platform, broadband revenues covered at 1 3% and fixed voice continued on an improving trend, all of which resulted in EBITDA shooting up 12%. In Brazil, pro form a, and this is us including Nextel for the full year for comparisons, mobile posted revenue growth has stood at 17.2% with prepaid trends improving. On the Streetland platform, broadband revenues expanded 6.3%, but both in Pesti is fair on the declining trend. Nonetheless, EBITDA showed up 7.5%. In Colombia, service revenues expanded at similar rates on both the mobile and the fixed line platforms, approximately 9.5% on each one. On mobile prepaid revenues surged 13.5%, with posted moving up to 7.7%. On fixed, broadband service revenues continued to shine at nearly 13%. EBITDA expanded rapidly in all our main operations, rising more rapidly in Mexico at nearly 12%. In Brazil and Colombia, EBITDA was up 7.5 and 8.2%, as we had mentioned before. Peru stood out with a 13.5% year on year increase. Our comprehensive financing costs totaled MXN 79,600,000,000, resulting from MXN 93,000,000,000 in foreign exchange losses stemming from the depreciation of the Mexican peso vis a vis the euro. They gave rise to MXN 29,000,000,000 net loss in the quarter. Most of our debt have been raised in international markets, as we all know, in hard currencies. Since the company is debt in Mexico, the debt is therefore subject to foreign exchange evaluations. However, the exposure arising from this funding is managed through the use of financial derivatives and have been significantly reduced over the last several months to better conform to the currency mix of our revenue base and equity investments. Our net debt ended March at ARS 813,000,000,000. In cash flow terms, it was up ARS 24,600,000,000 year to date, which helped us fund a seasonal increase in working capital. Our net debt to EBITDA for the last 12 months stood at 1.7x 8.7x under the prior methodology of IAEUS 17, which is the one that we have continued to use for comparison on Petrocelles related last year. So with this, I would like to turn the floor back to Daniel. Daniel? Your first question is from someone from Bank of America. Please state your first and last name. Your line is open. Yes. Thank you. Hi, good morning, Daniel, Carlos, Oscar and Daniela. I hope you and your families are well considering the crisis that we're going through. This is Rodrigo Guillermo from Bank of America. I have a couple of questions. First, wireless growth across countries in Latin America has been pretty solid for AMX over the last several quarters, mostly driven by increased data usage. Now that many customers are probably using more Wi Fi networks due to the stay at home measures, would you expect to see significant reduction in wireless data growth? That will be my first question. Thank you. Good morning, Juan de I don't hear you very well the question, but it's turned off on capacity. People are using a lot on Wi Fi. And what I can tell you is that we have almost 1 month with a lockdown in all the countries. And capacity in wireless is growing around 10% more than what we have been seeing is growing. But that's one issue. The other issue in that is that there are some places like the commercial areas where we have a lot of traffic and this traffic is moving to places where people live, to more to residents places. So it's not only the growth of the traffic, it's also that the traffic is moving from one place to another on the same city or from one place to the other one. Let's say, in places where we have a lot of tourism, this is really the traffic is go down very fast and move to places where the people live right now. So it's incremental, it's not so much. It's 10% more on what we have been seeing, what we have been having. But the moving of the traffic is the one that is we are reviewing. And all overall, what we're seeing is that all the big investments that we have been doing in the last years in, let's say, 4.5 gs, 5 gs ready, modernizing the networks, the fiber, putting new technology, increasing our backhaul. We have, I think, the greatest backhaul in Latin America. All single run, single run per need, those could move also traffic very fast from one place to the other one from 2 gs to factory gs to 4 gs to 4.5 gs. So all of those things have been helping us to have the very, very good capacity. And so we have a stress test on the networks and everything is working perfectly. Understood. Thank you very much, Daniel. And then my second question is related to CapEx deployment. At the beginning of the year, the target was of around $8,500,000,000 I believe you already revised this number probably 20% lower. And I was wondering if there is a possibility to take it even lower than that. And where would you be focusing your investments in 2020? Thank you. Yes. It's a very important question. And first, I want to again repeat that we have the best networks in Latin America today by far. So all the investments that we have been doing the last 5 years, again, in everything, frequencies, infrastructure, 4 gs, 4.5 gs, 5 gs, VoLTE, 1 RAN, single RAN, everything, it's working today. So today, we are seeing that we have an excellent networks, that the networks are growing the traffic is growing without any problem. And today, it's difficult because we don't have visibility on really what is going to happen because today, what's happening today? I think second, I see the COVID crisis in 2 ways, okay? The Q2, I think we're going to see the lockdown in all the countries. So too much people not in the streets. So everybody is going to be in their houses. So no not a lot of activations. So in terms of prepaid, I don't see that we're going to sell too much. I don't see that in handsets, it's going to be reduced a lot. Handsets traffic is going to grow. And that's going to be more or less what we see in the Q2. In the Q3, we're going to see other things. No, we're going to see some problems all around the world in the economic part. So that's very difficult to see the visibility on what is going on in the rest of the year. And I think, yes, that we can defer part of our CapEx. It's an important part of our CapEx. And all of that will be without sacrificing any on the quality, on the capacity, availability and having always the best technology there. But yes, we can reduce far below the 20%, yes. I don't have a number. We are a very flexible company. So we can stay when we have more visibility, then we're going to take the decision what we're going to do, which projects we're going to take out or defer and which other ones we are going to put and because things are moving online growing a lot in terms of things that we'll do online instead of doing personally in the customer care center. So all these projects, I think, we're going to move faster than what we have been doing. But other ones, maybe we're going to stop them. We need to see really what's going to be the end of this and what's going to be the traffic and then we're going to take the decision on that. Understood, Daniel. Very clear. Thank you very much. Thank you. Your next question comes from Marcelo Santos from JPMorgan. Your line is open. Hi, good morning. Thanks for taking the question. I hope you are well and stay well. The first question would be if you could give a little bit more detail on the behavior on the last 2 weeks, especially 2 weeks of the quarter, especially on the main markets, Brazil, Mexico, maybe Colombia, on how the different lines behave? Like we saw, for example, prepaid very strong Brazil and Mexico in the quarter. But how did that behave towards the end of the quarter? If you could anticipate a bit of what happened in April? This is the first question. Yes. Well, the provided crashes and the lockdown starts in 2nd 1st week in Austria, maybe 2nd and third week in the other countries. So in April, we have locked down all the countries in Latin America. I think Europe, Austria is different than what we have in Latin America. In Latin America, what we're seeing is very different things in each of the countries. I think we have more strong lockdowns in countries like Ecuador and Peru, In Mexico, Brazil and Colombia, we passed from Phase 1 then to Phase 2 and then we are in Phase 3 in Mexico, let's say. So what we're seeing all overall in the main countries is a big reduction on handset sales. So handset people is not getting out and buy handset. On the postpaid side, I think activations are decreasing. Revenue, I think, it's okay. In prepaid, it's not big reductions on the prepaid side as people who can't go out or they are not they don't have the money today to buy this cars. So it's more or less what we are seeing in the big countries. In other countries where the lockdowns are more strong like Ecuador and Peru and that some regulations that you cannot disconnect the subscribers postpaid subscribers, then we're seeing a little bit of some people who is not paying, and then we need to see when the lockdown is finished, then we're going to see how many of those will pay and how many of these accounts will cancel. But all overall, I think during April, we were seeing these indicators. It's activations, low handsets selling handsets going down very fast and the revenues more or less a little bit less than what we have in March. Thank you. Just a follow-up on this first question. Broadband remains at a strong pace in April. This will be the follow-up. And the second question is your comment about government action. Could you summarize what are the main government actions in the countries which affected you in a relevant way? You mentioned Peru, you mentioned Ecuador, but are there other important government actions that impacted you elsewhere? Thank you. Well, in broadband, broadband is doing good. Broadband is still growing even with everything close in April. Broadband is still growing in April. Let's see what's going to happen on May June. But broadband fixed broadband is growing. It's been a very good product and people consuming. So that's doing okay. So I think it's the best product right now in terms of the lockdown. It's the one that people is asking for. And other products like all the things Oscar can talk a little bit later about what we're selling because there's a lot of people going to home office, and we're having a lot of sales on these products. And in the government, well, I think let's say let's talk a little bit about Mexico. In Mexico, we have been healthy in prepaid. We give maybe to 28,000,000 customers, we give for free a package of minutes and SMS during April. We offer to all of our prepaid customers, the ones that download that package, it's for free and they can talk some minutes and SMS. They do it for free. We have also some reduction in our plans for this timing. So if you don't you cannot pay, then we'll reduce you the rent for 2, 3 months until everything is done. And then you again increase your postpaid plan. So we're having all around the countries a lot of different plans and we call them sometimes emergency plans for our people to help them and to stay connected. And so we have that. In terms of the regulators, I think the only thing that I don't think it's a very good idea, let's call them that way, is that people, they allow them not to pay. So what would they some like Ecuador and Peru, they said if you cannot pay because we are in lockdown, then you cannot disconnect the line. I think that only I think these two countries and maybe other ones in Central America, I don't remember exactly which ones, we have that. But I don't think it's a good idea for nobody, and that's only in those countries where we have that. That. Perfect. Thank you very much. Very clear. Thank you. Your next question comes from Maria Azevedo from Santander. Your line is open. Hi. Thank you everyone for taking the question. My first question is on competition. So you're seeing lower churn, especially where the stores are closed and players are adopting a more defensive mode, telephonica reducing the focus in some countries. Do you think you can be a bit more aggressive commercially? Or is it time to be more defensive? I think it's I don't see more aggressiveness in the commercial side in April. I think everybody is a little bit and doesn't make any sense because nobody is in the streets, nobody is buying. So it doesn't make any sense to have more aggressive products in April. I don't think in May, I don't know really when we finish this lockdown and people start going out and start going again and buy things. So I don't know how the competition would be. But I think I'm not seeing more aggressive plans all overall in the countries this base. So it doesn't make any sense, and I don't think so. I think today, what we need to do is to take care about our customers, to have a good quality, to give more options online to all our customers and to work on having the capacity, the quality and to give a very good service. I think people working from their homes need that service, and we're giving that. And I think all overall in Latin America, by far, we are the best networks in Latin America. Thank you very much. This is very reassuring. And as a follow-up question, I mean, as you're approaching your leverage targets and cash flow remains strong, do you see any interesting M and A opportunities, not only in Brazil, but also in LATAM in general? And if you can comment anything on synergies expectations from the Nextel Brazil acquisition, that would be very helpful. Thank you very much. I don't hear the first part of the question. But in Nextel, 10, I think we're working on the synergies. I think it was very good for us. We incorporate 3,500,000 customers wholesale customers to our base in Brazil. And we're working very hard there. All the synergies, we're not going to get it immediately, but I think in the next year, all this year, we're going to work on that. We have a plan, and we're executing that plan. So I think it's a very good purchase for America Movil. Other things on mergers, we are not seeing any other merger today. We're only focusing today on being very strong financially, to have liquidity, to be careful on the inventory because today, liquidity, cash is very important, and we are being very careful. And Carlos can talk a little bit about that. But no, we're not seeing anything on buying or merging something in the short term. Always, we are open to anything, but today, we are not seeing any. Your next question comes from Carlos De La Grata from GBM. Your line is open. Please go ahead. Thank you so much for taking the question. I hope you everybody is safe and healthy. And my first question is perhaps for Carlos, if you could provide more color on the measures you have taken to improve liquidity, specifically the amount of credit lines that he has drawn and the number of people available? Thank you. Can you repeat the question? I couldn't tell. Sorry. Just regarding the measures to improve liquidity, Carlos, if you could talk about the credit lines that you have drawn and the ones that are still available. That will be helpful. Thank you. Okay. See, well, we have drawn as we've gone out, we have drawn 2 committed lines. So we have 1 for €2,500,000,000 and the other one for a little bit less than €2,000,000,000 We basically have them to be able to face situations when on account of things nothing to do with the company after the fair trade, the financial markets will not be functioning properly. So we decided to go on these lines at the time that we did towards the end of March. The financial market was very much dislocated. So I think that we are in a good position. We had a big motivation to do. We have in at the end of May, which is a EUR 3,000,000,000 bond that was exchangeable into Paytm shares. This bond we painted for 1 or 2 weeks ago and that we have already paid down roughly half of the bond. So the other half would be paid the May. We do have a number of other lines of credit. They are all short term in nature. But I'd say, in all, I think we have already EUR 1,000,000,000,000 of lines that are partly being used today, but not fully. We do not expect that we would require any further financing to be able to pay down the maturity that we have this year probably the next year. I think the cash flow we expect will be resilient and should allow us also to maintain good liquidity. Thank you. That's very helpful. And if I may, a follow-up. Regarding collections, would it be possible to talk about how dependent is the per channel payment for collections? And if that can be a problem down the road if the lockdown measures extend? The question is about quarter collections? Just overall, the collections, how much are they dependent on import payments And given that most both are some top end sellers are close, is that going to be a problem number? I think this is something that covers many countries where you have situations in most places. So the pretax is not an issue that's really linked to the charges. In the case of invoices that we collect, there could have been a little bit of disruption on account, for instance, of our credit cards have been closed. But we have been moving everything more to a digital payment mechanism. So we are, at this point, not having much to present a journey for the group as a core. But this is something that we are monitoring closely, both the cash collections overall and the past due accounts, account receivables. So we monitor this and be very closely. I don't think that there's anything that we can report as a significant profit point. So we're paying a lot of attention and making sure that we don't have any issue. Thank you so much. Thank you. We do have another question from Fred Miksic. Please state your company. Your line is open. Good morning, everyone, and thanks for the call. I have two questions here. I want to more towards Brazil, actually. I saw once again very strong results on the mobile segment. And my apologies if this question was already made. I just I had to answer the call late. But very strong results once again. You are believing like 10% growth mobile service revenue while the other guys are believing like low single digits. So that definitely calls the attention. So I'm just wondering if these very solid results, even on the prepaid as well, plus 5%, if these solid results comes more from your do you end up selling on your own base? So basically, of course, increasing ARPU and then selling more for more and more data for more price? Or you basically being able to gain a lot of clients from competition? And if you can give us that if I from any specific company as well. So just trying to understand the very strong results on the mobile front in Brazil. Yes. Thank you the call. And yes, we have very, very good strong results in America Movil also and especially in the postpaid and prepaid side, in the mobile side. And we can see that in Mexico, we have very strong results. And that's really because the I insist it's because of our good network. So people is preparing to move our network. So it could be a little bit more on consumption, but there's also part that will be on gaining market share. So in Mexico, definitely, we are doing very well. People having we have the best distribution networks, so very good brand. We have recently, we have opened a signal study where we have the best availability, off link, down link, latency, and people is looking for quality. So that's very important, and that's why we are growing. In Brazil also, we are growing very, very strong. We have been putting a lot of money in the CapEx in the last years in postpaid, in prepaid, in all the mobile side, growing coverage, growing 4.5 gs speeds. We have the best speed in 4.5 gs in Brazil. I think we get almost 1,000,000 subscribers per quarter for the last 3 or 4 quarters. So that's also, I think, where we are gaining. Let's see the last numbers when everybody reports, but I think we are also gaining a little bit on market share there. And Colombia also moving good. We are growing in Colombia, we're growing prepaid and postpaid, very strong prepaid and very strong postpaid. So all overall, in the rest of the countries also, we're doing good. Chile, we're starting to grow again. And Peru, we're doing excellent. Dominican Republic, very good. So all overall, we are doing very good. In Mexico, especially, we have very good we have been having very good increases in the prepaid market. Prepaid has been growing very strong using a lot more data, moving to better balances they used to charge, let's say, Ps. 50, and today, they are charging Ps. 100. So people is moving and people is consuming more and more in prepaid in Mexico. So I can tell you that it's distribution, it's competition, it's more consumption, better networks, everything together. I cannot say that's something that is what is helping us. No, I think it's all overall a big work on the last 3 years, 2 years that is giving us these results today. Thank you very much, Daniel. Very, very clear. Thank you. Thank you. I would now like to turn the call back over to Mr. Daniel Hajch for closing remarks. I just want to thank you everybody for being in the call. Carlos, Daniela, Oscar, thanks very much everyone. Bye bye. This concludes today's conference call. You may now disconnect.