Millicom International Cellular S.A.

Hello, everyone. Thanks for taking the time to connect to our third quarter 2023 results conference call. This event is being recorded. Our speakers today will be our CEO, Mauricio Ramos, our CFO, Sheldon Bruja, and our President and COO, Maxime Lombardini. And following their prepared remarks, we will have a Q&A session. By now, you should have received a copy of our earnings release, which is available on our website, along with the slides that we will be referencing during today's presentation. Now, if you please turn to slide two, you can see our safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties, and could have a material impact on our results. We will also be referring to many non-IFRS metrics throughout this presentation, and we define these metrics on slide three, where you can also find reconciliation tables in the back of our earnings release and on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Mauricio Ramos.

Good morning and good afternoon, everyone. Thanks for joining us today. As usual, I will go over the highlights of the quarter and Schindler will discuss the financials. And finally, Maxime, our new president and CEO, will say a few words before we take your questions. Let's start on slide five with a recap of our four key priorities for 2023 and our progress to date. I will go into more detail on each of these points in the next several slides, but here are the key highlights. First, the beginning of the year, we set out to dramatically improve the profitability of our operation in Colombia by simplifying the business, by bringing increased discipline on capital allocation and around pricing for our services. You can see the results of these efforts starting to pay off in this third quarter. Our quarter in Colombia had very strong EBDA and OCF growth, and we're not done yet. We have now agreed with our partner to inject additional equity capital into the business in Colombia, so we can focus now on executing on the rest of the plan, which includes continued mobile growth, further cost discipline, and as you know, some much needed inorganic solutions. Second, in Guatemala, we are creating the conditions for a healthy and very sustainable long-term industry structure. In the last six months, we took part in two transparent and successful spectrum auctions in which both players were able to acquire all of the spectrum that was offered by the government. These were the country's two first auctions in more than 15 years. As a result, both competitors now have similar and much larger amounts of spectrum. We think the conditions are now set to return to a more rational pricing environment. Third, we continue to improve our operational efficiency across the business more than ever before. We're simplifying product offerings and operations, we are digitalizing processes, we are reducing headcount, and we are automating platforms. And across the board, we're driving new opportunities to further reduce costs and increase cash flow. During Q3, we began to implement Phase 2 of Project Everest, which we spoke about last quarter. We expect this Phase 2 to significantly increase the overall savings we can expect from Project Everest overall. Fourth, and finally, we have continued to make great progress towards carving out LATI, our tower portfolio. Earlier this month, we began transferring assets to the new legal entities. We're now preparing to launch the monetization process. So let's review each of these points in more detail, beginning with Colombia on slide six. As most of you know by now, our mobile business has been growing rapidly since we acquired Critical Spectrum in the 700 megahertz band in 2020. Back then, we embarked on a multi-year plan to expand our mobile network and to extend the reach of our commercial distribution. Since then, we have steadily gained market share, especially in the post-bid segment, where we have doubled our customer base since acquiring the Spectrum. The shift in mix towards post-paid has been lifting ARPU and driving mobile service revenues, which increased 8% this Q3. The scale we're gaining in our mobile business, combined with efficiencies from Project Everest, drove EBITDA margin to a record this quarter, as you can see on the middle chart. EBDA grew almost 10% in a quarter, and by close to 20% if we exclude the one offs. We expect that phase two of Everest will drive further margin expansion going forward. And we are converting that EBDA growth into operating cash flow growth, as you can see on the chart on the right. OCF in Colombia is also benefiting from lower levels of capital investment in our own business. This is largely because we're choosing to remain disciplined on price. We're charging installation fees and implementing price increases and stay in the course even when competitors don't follow. And even if this means sacrificing subscriber volume, but gaining profitability. As we have told you many times, a significant portion of our capex is variable in nature and is directly linked to the number of new customers we sign up, given the high cost of the equipment that we install in their homes. So with higher prices, we're selling less, but we're also investing less and attaining a better return on capital. Going forward, we expect that our Colombia operation can continue to sustain lower levels of capital intensity than in the past for two reasons. One, because our 700 megahertz network deployment is now largely complete, and two, because of the very material synergies we expect from the combination of our mobile network and spectrum with those of Telefonica. As you may have seen, this transaction has now received regulatory approval just a couple of weeks ago. Finally, as you may have heard, we recently agreed with a partner to each invest approximately $75 million of equity into our Columbia operation. Despite all the noise that you may have heard on this topic, this equity injection had been planned for quite some time, and its key purpose is to provide long-term funding for all the long-term investments that we have made in the business over the past several years. There's tons and tons of work to still do in Columbia, no doubt, but we made real good, good progress this quarter. Now, please turn to slide seven to look at Guatemala. As you know, competition has been intense in the prepaid mobile market since the end of the pandemic in Guatemala. As you also know, we took a variety of important strategic steps to shield our customer base and strengthen our market leadership. that remains convinced that this is the right strategy to preserve and grow the long-term value of our business. And we see signs already that this strategy is beginning to pay off. The chart on the left shows evolution of our molar customer base and market share in Guatemala over the last four years. As you can see, we picked up quite a bit of market share during the pandemic. We've been able to hold on to these gains and to our customer base, even as our competitor began offering access to the most popular social media apps for free to prepaid customers. No doubt, defending our customer base, which is definitely the right thing to do for the long run, has had an impact on ARPU, service revenue, and the overall profitability of the business. You can see this on the chart on the right, showing the evolution of our total service revenue growth in Guatemala over the last several quarters. Yet, two important and positive events are relevant in the last few months in Guatemala. One, after two consecutive spectrum auctions, spectrum positions in the marketplace have been increased and stabilized. We no longer have a spectrum deficiency or a spectrum disadvantage in Guatemala. This has an important positive effect on our network efficiency and costs, as well as on our service and product offerings. And two, we took some price increases in prepaid in mid-September. As a result, while the revenue growth remained negative in Q3, there were clear signs of stabilization compared to Q2 and we're encouraged by the trends we saw during the quarter. It's too early to tell whether this price increase will stick for the long run, but we are encouraged by the response at our points of sales and we're optimistic. And we do see the makings of a healthier industry structure in the making in Guatemala, as we had anticipated earlier. We want to remain cautious on the commercial outlook and also flag that there have been some mass protests on the streets in Guatemala since the presidential elections a couple of months ago. And this may carry on until the new president takes office in January. So we remain cautiously optimistic in Guatemala. Now let's go to slide eight to discuss Project Everest. As many of you will recall, we began implementing our efficiency program earlier this year, and we communicated an ambition of achieving run rate savings of more than a hundred million by year end 2024. We are on track to achieve those savings. In addition, early in the summer, we began working on phase two of the program, as we mentioned on our Q2 call. Indeed, in September, we began implementing important headcount reductions and new cost-saving initiatives, starting with our centralized functions. We expect this first phase of phase two to produce approximately $35 million in additional savings, on top of the initial $100 million target. We also expect to finalize the scooping for the full phase two, along with our annual budget plan. So our ambition is actually much broader as we have already identified very meaningful opportunities that we expect to implement mostly before year end. Sheldon will give you additional details about the cost of the program in a minute. On slide nine, let's review our progress on LATI. LATI is already a separate company and a separate brand. New legal entities have now been created in every country. Earlier this month, we started transferring our assets from TIGO to LATI, and we expect to complete this process in November. This means that we're ready now to launch a process to monetize this important infrastructure asset in Q4. Yes, showtime is coming up soon. As we have said in the past, we have certain preferences on the transaction that we envision will best maximize value. But as we have also said, we kind of keep all our options open until we can evaluate and compare the options that are brought to the table. So stay tuned. Opening date is indeed coming soon. With that, I will hand over to Sheldon to discuss the financials for the quarter.

Thank you, Mauricio. Before we review the financials, let me quickly recap the macro context on slide 11. As you can see on the slide, inflation across most of our markets has followed closely the trend we've seen in the US, with inflation back to a more reasonable level of around 4%, with the exception of Colombia, where inflation is still in the double digits. The good news, though, is that the Colombian pace was strengthened significantly this year. And in fact, you will see that FX was a small tailwind for us during Q3. And in terms of economic activity, our markets are generally proving quite resilient with some countries like Panama and Paraguay expected to grow real GDP in the range of four to 5% this year. Now let's look at our Q3 performance beginning on slide 12. Service revenue was $1.32 billion in the quarter, which is up 3.2% on a reported basis from $1.28 billion a year ago. For the first time in more than a year, our service revenues benefited from favorable FX trends this quarter, primarily due to the Colombian peso, as I just mentioned. Excluding the impact of FX, organic growth was 1.8% in the third quarter, very similar to the growth we reported in Q2. Our mobile business continues to perform well and accounted for nearly all of the growth in the quarter. Meanwhile, our fixed businesses were flat, and this is consistent with our broader capital allocation strategy over the past year, as I'll discuss later. Going down further on slide 13 to the service revenue by country, as you can see, most of the countries experienced positive service revenue growth in the quarter. The two exceptions were Guatemala, which Mauricio already discussed, and Bolivia, which was down less than 1% in Q3. This is a significant improvement for Bolivia compared to last quarter, as we've begun to lap the regulatory changes that have impacted results since August of 2022. Our mobile business had positive growth in the quarter, and the decline is coming from our home business, where we are choosing to be very disciplined on price to drive better cash flow from this market, given the more volatile macro backdrop in this country. Colombia and Panama had low single-digit growth, and this is largely the result of our commercial and capital allocation decisions to focus on mobile in these countries. On the positive side, we've had solid mid single digit growth in the four countries on the bottom part of this page, with all three business units contributing to growth in these countries. Okay, turning to slide 14, EBITDA of $533 million was down 1.2% from $539 million from a year earlier. This is a cleaner quarter than first half of the year, but there are still a few items to unpick here to provide a fuller picture of the performance. First, Forex, primarily from Columbia, provided a small tailwind of about $4 million this quarter. Second, we had two large one-offs. The first was $22 million for severance related to Project Everest, which I'll talk about later. The second one was for $11 million and was the result of an adverse legal ruling in Columbia. Excluding FX and these one-offs in this quarter, as well as another in Q3 of last year, EBITDA would have grown 2.6% during the quarter, with positive growth in most countries, as you can see on slide 15. On this page, you can see that EBITDA tells a similar story as our service revenue growth, with positive growth everywhere except Guatemala and Bolivia. As Mauricio discussed previously, we are seeing some signs of stabilization in Guatemala. EBITDA declined 3% year over year, but it has been stable at $199 million for the third consecutive quarter. Bolivia was down 2.2%. This is a big improvement from the last three quarters as we've begun to lap the regulatory change that went into effect in August of last year, and we've seen improvement in our mobile business there. On the positive side, Columbia stood out with EBITDA growth of 9.1% and almost 20% excluding the legal one-off. As Mauricio mentioned already, our margins have been expanding over the past few years, and we think there is still more upside here, thanks to Project Everest and other initiatives that we have been implementing in order to drive better profitability and cash flow from our business in this country. Panama grew 2%, which is consistent with the 1.4% service revenue growth we saw in the quarter. Remember also that we have made investments in our sports content offering that hurt our EBITDA growth this year, but that investment strengthens our home business and help us maintain our leading market share in this business. You will also notice a lower margin in the quarter, and this is due to higher equipment sales related to the large B2B contract that we expect will start generating service revenue beginning in Q4. Paraguay had impressive EBITDA growth of 8.1%, and it was 11.6%, excluding the Everest-related severance. The strong performance is consistent with the strong service revenue growth we are seeing. In El Salvador, EBITDA growth of 16.1% benefited from a lower than usual level of bad debt that flattered performance this quarter. On a year-to-date basis, EBITDA is up just under 7%, which is more consistent with the mid-single-digit service revenue growth in that country. Nicaragua EBITDA grew 3.6% as our business and the broader economy continue to grow despite the volatile political environment, and that is largely thanks to remittances from the United States, which continue to grow very rapidly. Finally, Honduras, which we do not consolidate, had another strong quarter with growth of 7.9%, reflecting the improved revenue trends during the quarter. Now please turn to slide 16 to review our efficiency program project, Everest. Mauricio already gave you the highlights, but I want to help unpack the various puts and takes. In terms of savings, we are accelerating our plans. For phase one, we remain on track to deliver more than $100 million by year end 2024, and are in fact accelerating our plans. On a run rate basis, we now expect to achieve more than 75% of these savings by end of 2023. This is up from our previous estimate of more than 50%. As Mauricio told you, we have decided to significantly expand the scope of the project, which we refer to as phase two. During the quarter, we incurred $22 million of implementation costs. $19 million of this was related to new actions and initiatives we took that were concentrated in our headquarters and other centrally managed and shared service activities, including approximately 30% of our Miami-based population. This will result in additional run rate savings of approximately $35 million above and beyond the phase one savings of $100 million. In total, since the beginning of this year, we will have reduced our Miami-based population by approximately 40% through a number of separate restructuring decisions. Over the next several weeks, we'll be finalizing our 2024 budget, and we expect to take additional measures across all our geographies as part of that process, where we expect additional severance charges to drive additional savings for the business. We will provide further information at our full year results in February. Now please turn to slide 17. In addition to organizational savings, we've also had significant savings in capital expenditures this year. Through the first nine months, our CapEx spend is about $150 million lower than prior year. I've mentioned in prior calls the source of these savings, which is a combination of three key components of roughly equal size. Firstly, earlier this year, we conducted three-year renewals with our largest mobile vendors, where we have received multi-year discounts. As you can see on the left-hand side of this chart, our level of mobile build activity has remained constant, while we are also able to absorb the impact of activating the new 700 and 2600 MHz spectrum we obtained in Guatemala. Secondly, we've reduced our home footprint expansion in light of tougher competitive and macro environments in Colombia and Bolivia in particular. And lastly, home installations are down, again, primarily in Colombia and Bolivia, as we are being more disciplined in pricing and promotions, given the more challenging environments there. On top of this, we continue to scrutinize all other CapEx spending and are finding other opportunities to lower spend and contribute to this year on year savings. Now please turn to slide 18 for our usual net debt bridge. Net debt declined $74 million in the quarter to just over $6 billion. Net debt deputy after leases was 3.32 times. That's down from 3.34 times at Q2. If we include lease obligations of just over $1 billion, our leverage was 3.34 times. The decline of that debt during the quarter was primarily due to strong equity-free cash flow of $100 million, which was partially offset by the Forex impact from the translation of local currency debt as the Colombian peso strengthened this quarter. Regarding our equity-free cash flow, I want to remind you that there is a lot of seasonality here. Q1 is usually negative, and then we see improving 10s throughout the year. The strong cash flow in Q3 reflects typical seasonal patterns, as well as some of the benefits of Project Everest and of our capital allocation decisions over the past year. Looking ahead to Q4, which is usually the strongest quarter of the year for equity-free cash flow, I want to caution you that this year should be a bit different. This is because we're expecting more than $100 million of spectrum payments in Q4. This is for the renewal of the 1900 megahertz spectrum in Colombia and the acquisition of the new spectrum of 700 megahertz band in Guatemala, items that we flagged for you when we revised our equity-free cash flow targets in June. Also in Q4, we have to pay a lot of the severance that we booked in Q3 and that we expect to book in Q4. Let me hand the call over to Maxime, who is joining us for the first time on this earnings call.