Earnings Call: Q3 2021

Oct 20, 2021

Good morning, everyone, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Mobile First Quarter 2021 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. Now I will turn the call over to Ms. Daniela Loke Warner, Head of Investor Relations. [SPEAKER VERONIQUE LAURY DEROUBAIX:] Thank you. Good morning, everyone. We're very pleased to join us this morning to discuss our Q3 results. We have on the line Mr. Daniel Haj, Chief Executive Officer Mr. Carlo Garcia Moreno, Chief Financial Officer and Mr. Oscar Thank you, Daniela. Thank you, everyone, for being in the call. Carlos is going to make a summary of the Thank you, Daniel. Good morning, everyone. Well, during the Q3, Supply is short to share with prevalent in several industries at a global level, certain inflation data continue to surpass estimates in the U. S. And other countries. Market consensus appeared to shift in favor of the Fed and other monetary authorities moving more rapidly than anticipated to ease the expansion of the monetized base And set the base for interest rates to begin to rise. In this context, 10 year interest yields from U. S. Government notes It's still a marked correction. Just prior to the end of the quarter, helping strengthen the dollar versus most currencies, including the U. S. And several Latin American ones, Closing the quarter, higher vis a vis all of them. As you have the operations in the 3rd quarter, we added 4,200,000 wireless subscribers, of which 2,200,000 were posted in line ending September with 302,000,000 subscribers, 7% more than a year before. Roughly half the new corporate clients came from Brazil, With Colombia contributing 313,000 subs and Peru 252,000. Chile and Austria, which contributed Mexico led the way in prepaid with 577,000 net adds, Followed by Brazil with 307,000 and 270,000. Colombia, Ecuador, Central American Block And our European operations, each obtained around 200,000 new prepaid clients. On the fixed line platform, we had PayTV net disconnections in Brazil that more than offset the net gains we had in the oil countries. At the end of the quarter, Brazil's pay TV accesses were down 5% from a year before, whereas Colombia's were up 6%, For broadband accesses, Argentina grew up almost 50% year on year, followed by Peru and Colombia with approximately 10 percentage. In the aggregate, American Mobile's broadband access increased 3% over a year ago. Our revenue totaled COP 2.53 billion in the quarter, that's 2.6% decline in nominal peso terms Change rates, service revenue increased 4.5% year on year, twice as fast as our cost and expenses, Leading to a 7.5% increase in EBITDA that totaled MXN 87,000,000,000. Peru, Eastern Europe, the Dominican Republic and Mexico, where the countries where steady value growth was fastest From 16.6% in Peru to 6.4% in Mexico. Central America, Colombia, Puerto Rico and Austria all delivered growth in the Mobile service earnings expanded 5.9% With fixed mobile devices and 5 gs services playing an increasingly important role in some countries, Well, fixed line service revenues increased 1.6%. In both cases, the mobile and the fixed, it was their best showing in several quarters If we correct for the low second quarter spending days that affected the yearly comparison in mortgage. In the Q3, both prepaid and postpaid mobile revenue increased around 6%. The comp that you see in the chart on prepaid care has to do with the distortion in the annual comparison I mentioned before, as prepaid hit its lowest point in the Q2 of 2020. Mexico and Brazil both increased their mobile service revenue 9%, with Peru posting 15.8%. In the Caribbean, Puerto Rico and Dominicana saw revenue increases of 14.5% and 7.7%, respectively. Our European We recorded nearly 11% growth with Bulgaria, Croatia, Macedonia and Serbia already doing better than 10% revenue increases. At nearly 7%, Ostrad revenue growth was buoyed by 5 gs services and fixed mobile device. On the pipeline platform, broadband and corporate network revenue expanded 5.6% And 4.6%, respectively, and pay TV revenues fell 5.62%. These clients in Brazil continue to rebound the cost of their pay TV plans, Reflecting a greater share of content coming from streaming services as opposed to the traditional multichannel offering. On the fixed line platform, revenue growth was noteworthy in Peru, close to 20%, Colombia, 9.8 percent and Eastern Europe, 9.2 percent. Bulgaria posting 15 It represents growth and better service family revenue. Not including the chart with Argentina, Given its high inflation, but its fixed service revenue has risen almost 9% in real terms after inflation. Our EBITDA margin jumped to 34.6% from 33.4% in prior year, And this was our highest EBITDA margin in 'nineteen. Mexico, Central America, Dominican Republic, Peru, They were all behind this margin expansion, having the first trip and registered 3 percentage point improvement, beginning with Mexico and Peru's 2.5. We obtained an operating profit for the same period of deficit in the 3rd quarter. It was 4.7% in peso terms and 10.4% at constant exchange rates in relation to the prior year. Depreciation and amortization charges declined 2.5% in peso terms. Our comprehensive financing costs amounted to COP 35,000,000,000, which was it was the same as the year before, mostly driven I am MXN 11,000,000,000 foreign exchange loss, which resulted from the application of the dollar in the quarter that we mentioned at the beginning. Our net interest expense was down 12% at MXN 15,000,000,000, Our net profit was down 16% from the prior from the year earlier quarter. It was equivalent to 24 pesos per share In the 9 months to September, Our cash flow helped us cover capital expenditures of ARS 91,000,000,000, distribute ARS 37,000,000,000 Just to give you a reference, last year, by this time of year, the The share buyback has been in the level of $1,500,000,000 So this year, we are having $22,000,000 We have our cash flow also have paid down ARS 14,500,000,000 in legal obligations and reduced our net debt By ARS 38,000,000,000, cash flow terms. At the end of the quarter, our net debt It stood at ARS588,000,000,000 or ARS488,000,000,000 if we exclude leases. The Lira amount was equivalent to £1.55 last of this is EBITDA the last 12 months. This is the EBITDA after leases that I'm talking about. So 1.55x net debt excluding leases Thank you, EBITDA after this. Relative to December, the debt in The balance sheet was down MXN 59,000,000,000. Okay. So with that, I would like to Thank you, Carlos. We can start with the Q Your first question comes from Marcelo Santos from JPMorgan. Marcelo, your line is now open. Hi, good morning. Thanks for taking my questions. I have actually two questions on broadband. The first is in Mexican broadband, where you put a good number of ads. Could you speak a little bit more on how are these ads comprised if these are fiber ads? And second and still in that question, if you can comment The second question is on broadband in Brazil, where for the 3rd consecutive quarter, you have been losing subscribers. We saw what you discussed in the Investor Day regarding your network being upgraded and being prepared to offer higher speeds. But How do what do you expect to happen with the subscriber trends in Brazil? Do you think you'll revert these losses, start growing more with the market or not losing. Could you please make some comments regarding Brazil Broadband? Thank you very much. I'm going to start with Brazil, and then I'm going That Oscar can give his comments. But on Brazil, what I just want to tell you is that We have been improving and operating our network, fixed network and our Mobile network. And in not only in fiber, we have been growing fiber this year. We're going to be do Around 2,500,000 to 3,000,000 home passes in fiber. Maybe we're going to end with 5,000,000 Home passes with fiber, both in our cable network, we upgrade all our cable network. And almost every place in Brazil, we can give 1 gig of capacity. So what I can tell you is that Our network, our cable network is as competitive as fiber in terms of speed And that's all. I want to ask Oscar if he can give his Comments on our networks in Brazil and what we're doing with the broadband. Oscar, please. Sure. Well, in Brazil, as you mentioned, we've been investing to getting the fiber closer to the customer. And then we believe that we Eduardo is fully resilient for the market speed needs. Even it's a very competitive market It has been changed. I mean, the traditional telco has been upgrade its networks. As you know, the ISPs They start coming outside our network, but now they are getting some cities in our network. So it has become a very, very, very competitive market in speed I mean prices. So what we've been doing is that we have the network ready to deliver the speed that the markets need. Even we launched, as Daniel mentioned, 1 gigabit speed across all the network, but we believe the speed, of course, is a fact. But not only speed. Our new proposal has Wi Fi Mesh included in the product. We took hotspots that the customers could do the right architecture to distribute the speed across the houses. And we have the best NPS in years that we've been implementing a lot of This is to improve the quality of services in the network and in the services. So it's a very competitive market. We believe that with these new products, We will get gain in the next quarters. So I think we are ready with the quality, with the network. We reshape the organization in order to be in a more competitive market. So we believe that we could We have new apps in the next quarters. To add a little bit more on Brazil, Just we're growing in the broadband revenues in Brazil around 5%. So we're still growing, And I think we're doing good. We're going to talk a little bit more on the pay TV business where we have in Brazil a lot of I would say both in the broadband business, there's the competition in Brazil is changing. It's getting more Competitive all this environment, but we feel that we have a very good network. We can compete. We can do bundles, and we have a very good network to compete there, no? Yes, totally, totally. And Mexico, we reshape our offering in the market even we launched Recently, the 1 gigabit speed as well in Mexico. And we mentioned that the bundles with the streaming providers has been working pretty good. So I think we reshape as well the commercial organization. We are doing a strong migration for customers from copper to fiber. So we will continue to do that, and we will adapt to the market conditions of our market our products. So I think it was a good quarter, and we believe that we could continue doing the effort in the next quarter. We are also improving our network Distribution, our own stores and focusing more on the sales of all these fiber that we have. So that's more or less what is happening in Mexico. Perfect. Very, very comprehensive answers. Thank you very much. Our next question comes from Leonardo Olmos from UBS. Leonardo, your line is now open. Your line is now open, Leonardo Olmos. We're not hearing. We will take the next question. So our next question comes from Fred Mendez from Bank of America. Fred, your line is now open. Hello. Good morning, everyone, and thanks for the call. I have two questions as well. The first one, just a follow-up from the answers you guys just mentioned. You mentioned that Broadband in Brazil is ranked 5%. I just wonder if there is a big difference between the FTTH and the cable growth. I understand is that on the new projects, you guys are going with FTTH. So just wondering if there's a big difference there. That would be the first question. And then the second question also in Brazil, when you look at the mobile segment, ARPU was flat part of the quarter. Just if you see room for further ARPU increase, we are starting to see a little bit more of a competition. So it's not about market share I think the mobile market is a little bit different than the broadband marketing. But I feel the mobile market These were the 4 competitors that we have today. And in the broadband market, there is a lot of people Putting fiber, so and so it's a little different market. But I think in the mobile, we're doing very good. We have been gaining. We're growing 8% to 10% revenue per year in mobile, increasing post doing bundles. And I think in the mobile, we're doing good. We have been doing good for the 2 years, I'm still doing good for this quarter, and I hope that the next ones and the next year, we can do better. And in the broadband, as Oscar said, there's A lot more competition and I think more competition. You as Oscar mentioned, we're launching today 1 gig Of the speed in all the networks. So if it's fiber or if it's cable, we don't have any difference. We have been improving Our network in Brazil, we have been putting a lot of technology to give 1 gig to any of the customers. So Of course, we're growing a little bit more in the new areas where we're putting fiber. So we're growing in fiber because We're putting new areas, new places, new cities. And But we are also where we have cable, we're also growing with new customers. We're losing some, growing in the other ones. So well, that's the competition that we have today in Brazil. I don't know, Oscar, if you want to add something. Okay. Okay. Thank you. Thank you. Our next question comes from Chelsea Colan from Aegon. Chelsea, Your line is now open. Chelsea Cailon, your line is now open for your question. Okay. We will go on to the next question. Our next Question comes from Carlos LaGoretta from GPN. Carlos, your line is now open. My question is regarding handset sales, particularly in Mexico and Brazil. We saw double digit declines year over year. I'm wondering if there is this is due to a Vonagee comparison base or perhaps this is affected by the semiconductor shortage. Thank you. Well, if we compare Q3 last year and this Q3 of this year, I think in Q3 of last year, we start to sell a lot. So what we're going to do in the Q2, I think, is the third one, people as pandemic and COVID lockdowns start to open, then people start to buy. So it's a difficult comparison. But All overall, I think in all the world, in all Latin America and includes Mexico and Brazil, there is lack of handsets. Maybe it's for chips, but also for other components, logistics and but There is no doubt that we are suffering a little bit of lack Okay. And for the follow-up, Daniel, if you could talk about the wireless environment in Mexico. I mean, obviously, you had very good results With the ARPU at that level and that growth, it seems encouraging. So if you can give us more details, that would be great. Thank you. Well, I think the network that we have in Mexico is superior to all the other networks that we have here, and people It's moving to the best network. So we're putting a lot big effort in quality, in coverage, In 4.5 gs speed, and that's what people is choosing. So that's really what It's happening in Mexico. We have competition. We have 2 competitors. We are already we do everything To be ready for 5 gs, so we still don't know exactly when we're going to launch 5 gs, but we're ready to launch also 5 gs in Mexico. So We have a good network, plus also very important is we have a very good customer We have the NPS in Mexico, good high good distribution networks. We have 400 More or less owned stores plus the retails plus distributors. So we are Really focus on all of those things. So Mexico, we feel that we are strong in also Our next question comes from Roberto Garcia from Barclays. I had a follow-up question on the Mexican result, very strong margins. Can you Comment if there were any particular drivers for the improvement? And related to that, just to confirm, With the bundles with from OTT providers, do you Recognize as revenue only your commission from this sale. And On wireless, another follow-up. The performance in postpaid was a contrast to the Strong performance in prepaid. Was this related to the lack of handsets? Thank you. Well, I don't know if that thing wireless will be totally to the lack of handsets. Could be some, The lack of concept, but what we're seeing is that people in Mexico doesn't not want to get a compromising postpaid, but they are Moving some of them to prepaid, and we feel also comfortable. They are recharging often, and the ARPU It's been well. So I still think that in Mexico, people is a little bit worried about the pandemic And maybe they don't want to have like a contract for 18 months with rent or something like that. And But they are moving to the prepaid, and we are doing good. So that's what we're seeing. What I understand is that no, It's only the commission that we're putting on bundles with OTPs, we're only putting the commission. We're not putting all the revenue. Yes, that's right. Okay. Thank you very much. Thanks. We now have a question from Chelsea Colon from Aegon. Chelsea, your line is now open. Hi, and thanks for taking the questions. I was wondering if you could just put a little more Contest around your recent M and A announcements in both Panama and Chile. I'm just wondering, From a strategic perspective, what your thoughts were behind, on one hand selling the Panamanian business, but then entering into a JV and keeping your involvement in Chile. What makes Chile a more attractive environment to you than Panama in the longer In Panama, I think we were the 3rd competitor. But in the last Our competition, Merzol Zertigo consolidated The cable company and then Liberty also buy, and they are strong in mobile and in pixel. We feel the country it's a very important country, but there is the population Our 3,000,000, 4000000 POPs, so it's not a very big country. So there's not a big space For us to grow, and that's really the reason why we decided to sell the company in Panama. So that is going to take us a lot of years and a lot of money to improve and gain market share and put a big Network. So that's really the rationale and the reason why we decided. In the other side, Chile is a much bigger country. We're very interested to be in Chile. And we are Strong in mobile. We're strong in corporate. Liberty is strong in TV and broadband. I think the merch make a lot of sense. They In a good position in the market as the size of the other 2. So that's The rationale we are interested in Chile makes a lot of sense. The synergies are going to be very good, and And that's the rationale why we do the fifty-fifty joint venture in Chile. And do you have any concern over regulatory approvals in Chile? No. No. We as I said, this we're going to be as the size as The other 2, we're not going to be bigger than the other ones. And no, I think we need To give all the information to the authorities there, we already submit that information, and I think there's not going to be any problem. Our next question comes from Leonardo Olmos from UBS. Leonardo, your line is now open. Hello. Can you hear me now? Yes, I'm right. Hello? Yes? Okay. Yes. Okay. A quick one, quick one, everyone. I want to discuss about broad financial position that you have. If you could discuss the logic behind the breakdown of buybacks and cash dividends, what has been the logic Hello, Leonardo. Well, as we've been Providing an ordinary dividend that grows every year, sometimes it's somewhere between 5% 10% per year. What we have done Very consistently over the years is that we have distributed quite a bit excess cash we have by way of share buybacks show us to remain at the desired leverage target that we wanted. In the last 5 years, we were higher than our leverage target, and that meant that we didn't really have any excess cash. We I had to reduce our debt. But now we are in a position, as you have seen in the report, where our net debt has come down 1 pump gas, 5x. And that means that we have now the capacity is already not even the end We have still not completed the transaction of the sale of Tracfone. You know that we have also the spin off of Itau is ahead of us. So these two transactions alone would represent a further deleveraging of about $8,000,000,000 between the two. So we are in a comfortable position to assume share buybacks. So that's I think that we would Commit going forward that we would remain in the leverage The target that we mentioned in our Investor Day 2 weeks ago, which is to remain in a band of between 1.2 and 1.35 Net debt to EBITDA and basically whatever cash we have, if it's not Requiring for M and A, whatever, then it should be available for distributions. Okay. That is clear. Thank you very much. I'm sorry for my connection problems early. Thank you. Have a good day. Thank you. We now have a question from Walter Piecyk from Light Shed Partners. Walter, please go ahead. Walter, your line is now open. Okay. Our next question, we now have a follow-up question from Marcelo Santos from JPMorgan. Marcelo, your line is now open. Hi, thanks for the follow-up. I just wonder if you could comment a bit on the pay TV behavior that you mentioned in the release that is taking place in Brazil, You, I believe, people downgrading their plans as they migrate more to streaming. Is this something that you see more on Net Servicos or in Or in DTH. And are you seeing this behavior in other countries besides Brazil? Yes. Well, as Daniel mentioned, we the trend of the, let's say, traditional pay TV That has been moving to streaming. And that's why we launched in Brazil's Claro Box. That is a we believe that is a trend that includes The traditional TV and the on demand TV in a while, a simple set of box And has been very well accepted in the market, of course, not enough to set up the decline of the legacy. And this is affecting satellite and cable, it was your question. Well, another one is what Daniel mentioned around the piracy In Brazil, we've been seeing that since we, the operators, start to launch IPTV, It's open up the possibility to increase the piracy in levels that we've been seeing that 3 or 4 times that we had 2 years ago, so big part of the market is using this kind of services in Brazil. And it's a very sophisticated Operation, they hack all the content through Internet or different sources. They deliver to the customer through a set top box or through a smart TV, and they have the way to collection with PayPal and other sources of So that's what we've been seeing in the pay TV market. If you see the decline in the pay TV market in total, Year over year has declined around 8% in subscribers, and we are declining as well 8% in subscribers. So that's what I could tell you. And just a follow-up on this question. Is this piracy issue only is Strictly to Brazil or is something you're seeing across other countries? Well, mainly in Brazil, we've really seen something in Central America. But I think it's all over the place, but in Brazil, it's very, very important. Got it. Thank you very much. But what we are saying what we have said in the report is that we are indeed seeing That in some plants, we are providing certain bundles with streaming services. Those are probably not including the same number of Multi channels that we have in the previous offers, okay? So those are there is some that in that regard With some people basically reducing the content that they are having from the established channels that we have I'm moving more towards the type of bundle that we have in sometimes in gold and we're swimming. Your next question comes from Walter Piecyk from Lightyear Partners. Is the TracFone transaction still expected to close by year end? Or is there some Additional SEC items there? No. We think we can close the TracFone transaction before year end. We're in Target and I hope we can do it before year end. Yes, we're okay with that. Thanks. And Daniel, is there other what is what's kind of going on in that business? I think a lot of times when companies are bought or sold, Maybe there's some distractions at the company. And at the same time in the U. S, I think it sounds like MVNO rates Some of the operators are more aggressive, meaning that like AT and T is offering better rates to get DISH or maybe Verizon is offering aggressive rates. I'm just curious if there's been changes in the market because I also noticed that Straight Talk lost subs this quarter. That's not typical. I don't think I can't recall the last time, if ever, that straight talk lost subs. So I wonder if you could Give us any color. I know you're selling this asset, so I apologize that it's not something that you're going to deal with. But if you can give us any color on what you see happening In that business, in the prepaid market in the U. S, I'd appreciate it. I think the only color that I can give you is that in TracFone, As in a lot of the other countries, we're seeing a little bit problem of handset. So we don't have enough handsets to sell there. There's handsets, but remember that The handsets that we're selling in the prepaid business are lower in handsets. So really, the Problem in the handset business is more on the low end or mid end segment of Prices on those handsets than in the high end prices. So that's what we're facing a little bit in track And not only in Traccon, in all the other countries also. So in the low and mid end, We're facing some challenge to have enough handsets to sell. Okay, great. And then kind of just A question for Carlos. Just the Investor Day was helpful. And these new targets for the debt leverage 1.2 to 1.3.5, Your business is very diversified. It's recurring revenue. You're generating very good free cash flow. I don't think there's CapEx cycle, you've given very good commentary on kind of M and A opportunities or lack thereof. Why with this low interest rate environment would you take leverage that low? Why not set your leverage targets at 1.5 2 or even 2.5 which investment grade companies can sustain and you can still borrow at a very low rate and then use that We have always had a conservative financial policy as you are Well aware of. I think that quite well at 1.5, today, we have Part of our what we will consider to be cash is basically marketable securities in the form of KPN stock, and we would eventually have Verizon stock, okay? So I think since that is not exactly cost Although it does provide a nice return, I think it is more prudent for us at this stage, at least Such stakes are not monetized to remain below the 1.5% that we had set for ourselves before. On the other hand, most of our operation, as you know, it's in Latin America. And we know that in certain cycles, particularly when there's increases in interest rates Globally, that can lead to some kind of financial volatility. So we think it's To navigate with lighter loads of debt, whenever we are expecting that Financial might be financial turbulence. So we believe that there's a clear period ahead of us where there will be increases in interest rates. And I think that the way we are We have defined it for ourselves. We are going to be able to sell through this turmoil in a very comfortable fashion and in a very secure fashion. Thank you, Carlos. Appreciate that color. Thank you, Hunter. Our next question comes from Alessandro Galestro from BBVA. Alessandro, your line is now open. Hi, good morning, Daniel and Carlos and Oscar. I have a question regarding margins. You have been posting A great performance here for several quarters in most of the operations. And I wanted to know How far do you think you can go from here? And what will be the main drivers? And I also like to know if you think that if The talcum industry overall, internationally speaking, do you think If the telecom industry is poised to reach new In terms of particularly digitalization of the operations. Thank you. Well, as you said, I think we have been doing that for some years, but the last year with this lockdown, we decided to increase very hard All the digitalization of the company, and that is helping us to cost control. And we are really Focusing on being very efficient and focusing on cost control. Also, as we said in our Investor Day, we still see A lot of growth in the region. We think that we can grow with more broadband, more house connected, That's more 5 gs, increasing RPOINT, 5 gs, increase Wireless fixed wireless, broadband fixed wireless. And I think it's important, and I think in the region still we have room to grow. We cannot talk All overall, because I think in different countries, we're going to face different things. By an example, a little bit in Brazil, we're facing Some inflation right now, and we don't know exactly we're going to how we're going to increase and when we can increase Prices because of the competition, but still some growth in Brazil with more broadband that we're putting. So in Colombia, we're facing a new competition also there. So all overall in different countries, we're facing different challenges. But what I can tell you is that in America Movil, we have been doing all the investments the last years To be a asset of our competition and to have the best network, good distribution channels, Good digital platforms. We're strong in corporate and good alliances in the corporate to sell More IT products. So that will give us more market, that will give us more revenue, and I hope that, that will be Most profit. So that's what I can tell you. One thing that is interesting, if I may add to what Angelica said, is that We are now having practically all of the operations. Secondly, the derivates were only one exception. They are all delivering Growth in both the mobile and the fixed line platform. They are all delivering secondary growth on both platforms. And this was not the case in the past. In the past, it was either we were going on mobile, but not on both platforms. Today, we are practically everywhere going on board platforms and that is primarily helpful from the point of view of EBITDA margin expansion. We currently have no further questions. So I'll now hand you back over to Mr. Daniel Hash for any final remarks. Just want to thank everybody for being in the call and also Carlos, Oscar and Daniela. Thank you very much. This concludes today's call. Thank you for joining. And I hope you have a lovely rest of your day. You may now disconnect your lines.