Earnings Call: Q2 2021

Jul 14, 2021

Good morning. My name is Faith. I will be your conference operator today. At this time, I would like to welcome everyone to the America Movil Second Quarter 2021 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. Thank you. Now I will turn the call over to Ms. Daniela Liquana, Head of Investor Relations. Thank you. Good morning, everyone. Thank you for joining us today. We're here to discuss our Q2 financial and operating results. We have on the line Mr. Daniel Saj, CFO Mr. Carlos Garcia Moreno, CFO and Mr. Oscar Muncaozke, Thanks, Daniela. Good morning, everyone. Thank you for being in to the call. Carlos is going to make a summary of the results. Thank you, Daniel. Good morning, everyone. The U. S. Economy recovered rapidly. Signs of higher inflation towards the latter part of the second quarter created uncertainty and confusion and drove price corrections in some segments of the financial markets. The yield and 3 year closure north, for instance, to growth 15 basis points, which was equivalent to a 50% increase in yield. As the market brought forward, we expect the path of increases in interest rates by the Fed. In several Latin American countries, inflation exceeded expectations and pushed some central banks, notably in Brazil and Mexico, to begin to hike interest rates. Foreign exchange volatility increased throughout Latin America. In this context, we added 4,400,000 wireless subscribers in the Q2 compared to a loss of nearly 5,000,000 in the Q2 of 2020. With 1,000,000,000, 1,100,000,000, we are still accounted for half of the postpaid net adds of the quarter, followed by Austria with 289,000 and Peru with 234,000. Colombia was next with 159,000 subscribers. For prepaid, NetApp's total 2,000,000 subscribers with Argentina accounting for 777 1,000 followed by Mexico with 4,000 and Brazil with 328,000. On the fixed line platform, we gained a 100 and 28,000 broadband accesses with Argentina and Colombia each contributing over 1,000 clients. Year on year, mobile postpaid exhibited the fastest access growth with 10.7%. Novae prepaid followed suit with 5.6% with fixed broadband coming in third with a 3.5% annual pace. Revenue stopped at MXN253,000,000,000, slightly higher in MXN than a year before. At constant exchange rates, Service revenue increased 5.3% year on year and importantly was up 1.8% on a sequential basis. It is to be noted that the Q2 of 2020 was the one increase in the effects of the pandemic, both in terms of commercial activity and revenue, to the annual comparison, maybe some companies leaving. But the Q1 of 2020 was largely free of the effects of the pandemic and happy to be a good reference. In the Q1 of this year, service revenue had weakened 1.2% from the prior year. So service revenues and mobile service revenues are both greater than pre pandemic levels. Prepaid and postpaid mobile service revenues are both at higher levels than they had prior to the pandemic, with prepaid revenues surging on the strength of the economic expansion in Mexico, the U. S, Central America, Caribbean and Eastern Europe. Prepaid revenues were up 9.5% and posted 4.4% year over year. As for the Fishland platform, revenue of the different business lines has exceeded as most of trend over the last several quarters, led by fixed broadband that has increased at levels of between 7% and 9% and corporate networks that has recovered ground in the last two quarters. Pay TV and wireline voice are both showing improving trends. 2nd quarter EBITDA It came in at MXN 34,900,000,000, a 2.8% increase in nominal peso terms from the year earlier quarter. At constant exchange rates, we increased 11.9%. However, adjusted for the carrier discounts Opened by Kraken in the Q2 of last year, EBITDA had an even stronger performance, increasing 14.6%. EBITDA margin was 33.6%, which was 0.8 percentage points more than a year before in spite of the greater commercial activity. Our operating profit Increased 9.3 percent to MXN 44,700,000,000. Depreciation and amortization charges held steady at 19% of service revenues, resulting in an increase in EBITDA in an operating profit that was up 17.9% at constant exchange rates on an annual basis and 6.2% quarter over quarter. Correcting for the carryover discounts referred to before, The annual increase in our operating profit would have been 23.7%. We already stated our net comprehensive income in the amount of MXN 17,200,000,000 As foreign exchange gains, ARS 21.1 billion, and gains in our financial expenses, which were MXN 4,400,000,000 more than offset our net interest expense of MXN 8,400,000,000. Our net profit totaled MXN2.3 billion in the 2nd quarter, more than doubling that of the year earlier quarter on the back of strong EBITDA growth and our net comprehensive financial income. It was equivalent to $0.55 per share or $0.54 per year. In the 6 months to June, Our operating cash flow allowed us to fund capital expenditures in the amount of ARS 57,400,000,000, reduce net debt The amount of ARS6.9 billion, which was quite substantial, certainly for the first half of the year. And buyback shares in the amount of MXN11 1,000,000,000 and also quite substantial. In addition, we reduced by MXN5.6 billion our labor obligation. In fact, our share buybacks through June, which amounted to 755 to 1,100,000 shares, topped both ones of each of the last 6 years, through the same period. Our free cash flow has exhibited a trend of strong growth, as you can see in the chart, for the last 6 years. It has been very steady, very consistent increasing free cash flow year after year for the last 6 years, increasing over 80% in dollar terms in the period. And finally, our net debt to EBITDA ratio plunged in this quarter, And it stood at 1.54x last year as month EBITDA, down from 1.9x a year before. So we have had the largest correction in the net debt to EBITDA ratio that we have seen in probably in as many as 10 years. So with that, I would like to open this for Q and A and pass the floor back to Amir Hajj. Thank you. Thank you, Carlos. Your first question is from Marcelo Santos from JPMorgan. Your line is open. Hi, good morning. Thanks for taking my questions. I wanted to ask about broadband in Brazil and in Mexico. So the first question related to Brazil is You have been losing subscribers in broadband, at least when we look at ANAPEL data to May. And we have seen many players in Brazil going Fiber, so new ISPs trying to list, we are seeing the large like OA team, Vivo, creating these vehicles to invest Fiber, what are your plans in Brazil? How do you see this going? Do you plan to invest yourself more in fiber, migrate maybe your Cable Networks Fiber and what would be the impact on CapEx. And on Mexico, I just wanted you to comment a bit on the competitive environment because you also saw some broadband losses in So if you could comment on that, it will be great. Thank you. Thank you, Marcelo. Yes. Hi, Marcelo. Well, first, talking about Brazil. As you know, we have 8 Cable Networks in Brazil. So what we've been doing is upgrading the network. So we have a very strong plan to to break down the notes in order to deliver more speed to our customers. When you look at the new sales, 60% of the new sales It's in a product that is 240 megabits, so we already protect the network through that. So we believe that We will protect all the HFC network. By the end of the year, we will upgrade 70% of the network to really deliver the speed that the market is needed. And secondly, talking about fiber to the home, We already have 3,000,000 home passes with fiber to the home. We opened 110 new cities with GPON technology in order to a bit with fiber. And when you look at those cities, the 110 cities, the penetration that we are getting in those cities is quite Quite well. We have a problem to finish the year with around 5,000,000 on compasses with GPON. And when you look at the figures, we have the leaders on ultra broadband in the marketplace. And now we are not only focused On the speed that we need to deliver the speed of the market is needed and the competition is offering. But as you know, we are focused on the combo play that we at ClaroBot's mobile, and that proposition has been working pretty good. And as you know, the ISPs Are growing pretty rapidly, but in regions that we don't have network. When you look at the market share and where we have network, we even to increase a little bit the market share. So that's the plan for Brazil. And in Mexico, When you look at the customer base, 43% of the Internet base is already zippon and the rest is with BDSL. Just to give you a flavor, on the first half of the year, we built 1,000,000 home passes with fiber, We migrate 500,000 customers from copper to fiber. We want to increase that The bundles that we are doing with the streamers providers. As you know, we have bundled with Netflix, with the Disney Plus And recently, we launched with HBO Max. So we are moving the customers to fiber as well in Mexico. Perfect. Thank you very much. Thank you. Your next question comes from the line of Leonardo Olmos from UBS. Your line is open. Hi, good morning, everyone. I want to discuss a bit the prepaid and postpaid division between mobile clients. I noticed a lot of prepayment additions, Except for Brazil, of course, had a lot of postpaid. But if you can discuss how they see the largest accounts in the regions, to the prepaid and postpaid mix. How do you see that playing out in 2021, considering that you had a lot you and the market had a lot of of disconnections prepaid last year due to the pandemic. How do you see the prepaid right now in the second half of twenty twenty one? Thank you. Well, we don't hear you so well. We don't know if you're talking about Mexico or Brazil, but I can tell you that in my view, as the pandemic as soon as the pandemic starts, a lot last year in prepaid, but I can tell you that this year, today, we have more prepaid subscribers and what we have last year before the disconnection. So people start to reconnect again and start to use more. Our ARPU in Mexico, I'm talking about Mexico. The ARPU in Mexico is higher than Q1 of last year. So people is using more, people is connecting and using more data. So that's more or less what I'm seeing. In the postpaid, people is Still a little bit worried about the pandemic. They don't want to get like Something like a bill every month, so that's why also some people is moving from postpaid to PD based. But as we're seeing, they are using a lot also data. So for in prepaid and postpaid all around Latin America will be in the same. Amit, anything else? Yes, yes. Well, first of all, thank you for hearing. That was my question exactly. Just a quick follow-up. Besides Brazil and Mexico that is discussed Which other regions do you think there's more potential for prepaid growth, specifically prepaid growth? Thank you. Thank you. For the prepaid growth I think Colombia, we're growing in prepaid. All Central America, we're growing also in prepaid. The Dominican Republic, we're doing well. Eastern Europe also, we're growing in the prepaid side. So All overall, people so sometimes people doesn't want to have a commitment every month, both and they are moving to a prepaid platform, but we think that They are having good focus and consuming well all the data. So it's we're okay on that. That's very helpful. Thank you very much and have a good day. Thank you. Thank Your next question is from Alejandro Galostra from BBVA. Your line is open. Hi, good morning, everyone. Thank you very much for taking my question. We have been significantly increasing to the pace of share buybacks in recent months and even before reaching your desired level of leverage. So do Should we expect an increased amount of capital distributions to shareholders once you reach your 1.5 times net debt to EBITDA and complete the sale of Bryson. Or you're already reaching your levels of your inside levels of capital distributions to shareholders. Thank you. Thank you. Well, I think what I mentioned in the overview a moment ago Well, we had actually very good cash flow in this first half of the year, and that allowed us to pay really $2,000,000 of debt. We obviously raised La Castre from the operation. This is before getting any of the proceeds from the platform or whatever we may end up having the details. So I think that gave us confidence We were very much on track to get to our desired levels. We need to wait on that longer. So I think that we that's a little bit dependent on the company today. We will be reaching our levels. We are confident that the Two things. I mentioned both our platform and the towers are still on track to close this year. And with that, I think that maintaining a good cash flow allows us to raise the share buybacks Your next question is from Carlos Leguero from GBM. I have Two questions, if I may. The first one regarding CapEx, we see that in the 1st 6 months of 2021, it's actually down to last year. Does this imply that it will pick up significantly during the second half or has something changed there? And And the second one, in terms of regulation in Mexico, there's been a public consultation regarding the potential wholesale deregulation Great for Telmex in certain municipalities. So I'd like to understand if this can lead to perhaps the Well, on the CapEx side, we have our budget of to $8,000,000,000 5% more, 5% less. So we're in that range, and we are on track For the 1st 6 months, we are on budget, and we are not increasing anything else. What Oscar says about fiber to the home in Brazil, fiber to the home in Mexico, we have also a lot of fiber to the home all around Latin America. Everything is including in this project. So that's more or less. And on Telmex, On Pay TV, I hope we can get it. Yes, there's a lot of time that the IFP is saying that it's going to give us the TV. So I hope that we can have the TV in Telmex for this year. So As we said always, there is maybe not in the world there's A company a phone company that doesn't have a pay TV license. I hope that we can get that pay TV license this year. Do you think it's reasonable to think that those processes are related or not necessarily? I don't think so. I don't not necessarily is related to that. We have been having that the pay TV for maybe 10 years. No, we're asking for the paychecks or more than that. So I hope this year we can get it. Okay. Thank you. Thank you. Your next question is from Arturo Langa from Itau. Your line is open. Hi, good morning. Thank you for taking my question. Just one, I wanted to see if you can provide any more color Regarding Colombia and what you're seeing there from the launch of 1's operation, just to get a sense how aggressive Do you perceive them to be right now? And what is the base case that we should be working with? Should we expect something like When AT and T went into Mexico or maybe went to Chile, is that or when Intel came into Peru, is that Like your working assumption or do you expect something much less aggressive? That would be very helpful. Thank you. I cannot compare what they do AT and T in Mexico or the other ones in Chile or in Peru. I think one today in Colombia is very aggressive. Their plants are very aggressive. But I think not It's not only aggressiveness, no? You need to have a good network, a good branding. We have quad play convergence, customer care centers, good distribution network. So there's a lot of things around a good offer, okay? And customers, we have a very good NPS in Colombia. People prepare us. So of course, there's strong competition there. There's 3 other big competitors, one to And Tivo, but we're still comfortable. We're investing there in the network. We're having good quality there. And the convergence is very important for us. We have been putting a lot of our subscribers in foreplay. So what can I say? So it's a big competition. It's a strong competition, good competitors. We're competing against good competitors, but we feel that we're in a good position in Colombia. Thank you, Donnie. There are no further questions at this I will now turn the call over back to Mr. Daniel Heche for final remarks. Okay. Well, so it was a short call. Thank you, everyone. And I don't know if you want to add something, Carlos or Oscar? No. No, thank you. Thank you. Thank you very much. Thank you. This concludes today's conference call. You may now disconnect. Perfect.