Millicom International Cellular S.A.

Hello everyone and welcome to our third quarter 2024 results call. This event is being recorded. Our speakers today will be our CEO Marcelo Benitez and our CFO Bart Van Haren. The slides for today's presentation are available on our website along with the earnings release and our financial statements. Now please turn to slide two for the safe harbor disclosure. We will be making forward-looking statements which involve risks and uncertainties and could have a material impact on our results. On slide three, we defined the non-IFRS metrics that we will reference throughout the presentation, and you can 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, Marcelo Benitez.

Thanks, Michel, and hello, everyone. I appreciate you all being here to review the company's performance in the third quarter. This was an excellent quarter for us at Milligo. The actions we've taken over the last 15 months are clearly delivering results. Our restructuring is now almost complete. And even with significant one-off costs this quarter, we were able to generate a record equity-free cash flow. We have successfully combined aggressive cost reduction, capex optimization, and strong customer growth. And just as importantly, This very strong performance is broad-based, with nearly every country producing much improved EBITDA and equity free cash flow. We are also advancing significantly in the organic side, having announced highly strategic transactions in Colombia and Costa Rica, and an important tower transaction in Central America. Each of these transactions is expected to close in 2025, and we expect they will enhance the company return on capital in 2026 and beyond. I want to thank all our team members for these outstanding achievements. Your commitment to the company and our customers is at the heart of these results. Please turn to slide five for the highlights of the quarter. As you will see in a few minutes, Q3 was one of our strongest quarters ever in terms of customer net additions with postpaid ads of almost 300,000 and home net ads of almost 70,000. These are the strongest net ads since 2021, when we were just coming out of the pandemic, which speaks to the strength of our performance this quarter. And I want to recognize our sales teams who are out on the streets every day and delivering record levels of new customer activities in the quarter. We were able to deliver this strong customer growth while also sustaining a very robust cash flow generation, which reached a record of $271 million in this quarter, even better than YouTube. As you can see, the efficiency programs we've implemented have made the company leaner and more cash generative. And they've also strengthened the commercial agility that Tigo has always been known for. Now let's review each of these highlights in more detail, beginning with our mobile business in the next slide. Our mobile business continues to perform very well in Q3, with service revenue growth of about 4%. This is coming mainly from the higher ARP we are getting from the prepaid price increases we've implemented over the past year. And we also get an ARPU uplift where we migrate customers from prepaid to postpaid, which is a key component of our commercial strategy. As you can see in this slide, we continue to grow our postpaid base every quarter. And Q3 was exceptionally strong with net ads of almost 300,000. This solid performance is a direct result of the factors I discussed in our Q2 call three months ago. Specifically, we continue to invest in our networks to increase network capacity. I know that this is hard to believe because you see our capex is down almost 25% year-to-date. But the reality is that we are really doing more with less. And every dollar of capex we spend is a return focus, and is having a bigger impact than ever before. We have also simplified our commercial offerings, making it easier for our customers to see value in what we are providing. And our new plans emphasizes convergence, which drives lower churn, higher ARPU, and a better customer lifetime value. And this is also driving improvement ads in our home business, as you can see in the next slide. On our Q2 goal, we told you that we had been investing in our broadband networks and that we were upgrading customer speeds. We also mentioned our shift from defensive to an offensive strategy. And in Q3, we took a step forward. We simplified our commercial offers, We focus our efforts on nodes with low penetration rates. We strengthen our commercial capabilities and we push convergence. As a result of all these initiatives, customer satisfaction is up and journey is down. And this is driving the improvement we are seeing in net ads, which is now solidly back in positive territory in 2024 and in Q3 in particular. and our home customer base is almost back to where they were last year. And this set us up for a positive return of service revenue growth in our home business sometime next year. Please turn to the next slide for a quick look at our B2B business, which had another solid quarter. B2B service revenue grew 5% organically in the quarter. Over the last 12 months, our B2B business is generating $980 million in revenues. A big part of the growth are coming from digital solutions, which grew 27% in Q3. As we discussed, the two large Panama projects has contributed meaningfully to our growth over the past year. And this is a direct result of investments we've made in our infrastructure, smart connectivity products, data centers, cloud solutions, and digital solutions. We remain very focused on capturing our share of SME customer segment, which is growing at middle single digits and where we are uniquely positioned to meet their needs for reliable and convergent solutions that help them to grow their businesses. Now let's review our performance in our three largest countries, beginning with Colombia on the next slide. Colombia had another solid quarter in Q3, Customer net additions were very strong, as you can see in this slide. We added 180,000 postpaid customers, 40,000 home customers, and we also added nearly a quarter of a million prepaid customers in this quarter. This was our stronger quarter since the pandemic in terms of new customer activity. As a result, what you're seeing is that our mobile service revenue continues to grow at an industry-leading rate of 8% in local currency terms, and our home business is now starting to recover. And this sets us up for a stronger revenue growth in 2025. We achieved all this while keeping our EBITDA margins at 39%, six points higher than last year. Despite additional restructuring costs this quarter, as we work to ensure long-term profitability and sustainability in our most challenging market. Now please turn to the next slide to look at the Q3 performance in Guatemala. The key message here is that service revenue growth continues to accelerate in our largest market, with growth of 4% in Q3. The acceleration is largely coming from ARPU in our mobile business. As you recall, We implemented price increase in all our prepaid offerings over the past year, and these actions were well absorbed by the market. At the same time, we continue to implement our efficiency program. With margin consistently above 50% in recent years, most of you probably did not expect that there was room to make Tigo Guatemala even more efficient. But as you can see on this slide, we have managed to do exactly that over the past year. EBITDA of 220 million in the quarter was a new record, and the margin of 55% was one of our highest ever. Our team in Guatemala is taking our operation to a whole new level of efficiency and profitability. I want to take a moment to congratulate the entire team for their focus of execution over the past year. Now let's look at Panama on next slide. These charts show you how our service revenues EBITDA and OCF has been trending on the last 12 months basis. We think it is helpful to look at Panama this way, even that some quarters were impacted by our large B2B contracts and by restructuring expenses. And when you look at Panama this way, the picture that emerged is that the business is growing very steadily. Our mobile and B2B business continued to grow double digits in the third quarter. And a lot of this growth is coming from mobile ARPU and from growth in postpaid. We see a big opportunity to transform Panama into a more postpaid market over time. And we think we are still in the early innings in terms of pursuing that opportunity. Likewise, we see a lot of opportunity in B2B going forward. The SME segment is expanding along with the economy, while large corporations are adopting digital solutions like smart connectivity, private and public cloud, and cybersecurity services. Our targeted approach and specialized product portfolio are well-suited to capture this growth. We anticipate ongoing digitalization of government services and our expertise in telemedicine, cybersecurity, and cloud give us a unique advantage to compete for and secure these projects. So our top line is growing, and there are powerful long-term growth opportunities that should help us to sustain healthy growth in the future. Meanwhile, we've been busy implementing our efficiency programs, which drove margins to 47% in Q3. That's an increase of more than four percentage points over the past year, which is quite remarkable. Panama, with its stable and dollarized economy, is now generating close to a quarter of a billion dollars in OCF annually for the group. Now, please turn to slide 12 to look at the punchline for the quarter. On our Q2 call, we told you about all the initiatives we've already implemented to make the company more efficient. And these are paying off. As you can see, our equity-free cash flow more than doubled compared to last year. and our leverage continued to decline rapidly and ended in Q3 at 2.59 times. We are pleased with the results, but we continue to take steps to ensure that the company can continue to sustain and grow its cash flow well beyond this year. Finally, and before I turn the call over to Bart, please turn to the next slide to discuss the landmark tower transaction we announced last week. We are incredibly grateful pleased to have reached an agreement with SBA. Like us, SBA already has significant presence in Central America, and we are very enthusiastic about expanding our partnership with them. This transaction will unlock close to a billion dollars in capital and is consistent with our plans to make Millicom a more efficient telecom operator by focusing on our core operations. We also entered into a build-to-suit agreement up to 2,500 new towers to be built by SBA over the next years. This BTS partnership will allow us to further optimize our CapEx as we continue to expand our mobile coverage in the region. Now let me turn the call over to Bart to review the finances for this quarter. Thank you, Marcelo.

Please turn to slide 15 for the financial highlights. Service revenue was 1.34 billion in the quarter, which is 1.8% up year-on-year, or 2.4% organic. The first two quarters, we had tailwinds from currency, while now we are facing headwinds, notably in Colombia and Paraguay. As Marcelo already mentioned, our growth is mostly generated on the back of our mobile business, which grew 4.2%. EBITDA was up 9.8% year-on-year to 585 million. Note, however, this included $73 million of restructuring and other one-off charges, which compares to $33 million of one-off charges in Q3 2023. The $73 million is composed mainly of $48 million in severance payments and $21 million in insurance costs related to the Atlas tender offer. As we discussed on the Q2 call, we are aiming to complete most of our restructuring this year. Note, however, that we are currently expecting significantly lower one-off charges in Q4 compared to Q3. Equity-free cash flow for the quarter was $271 million, which compares to $100 million in Q3 of last year, another milestone achievement. Now, please turn to the next slide. What amount of service revenue of $350 million represented year-on-year growth of 4.0%, an acceleration from 3.0% in Q2 driven by mobile output. I do not want to be overly optimistic on the trend here, though, because we've seen increased competitive pressure in recent weeks. Colombia's service revenue of 331 million grew 1.6% year-on-year, an improvement from flat in Q2 2024, fueled by high single-digit growth in mobile, coming from ARPU, and mid-single-digit growth in B2B. Our home business sustained a double-digit decline in service revenue, but as Marcelo already discussed, we saw signs of recovery with 40,000 customers net ads this quarter. Panama's service revenue was 170 million, up 5.8% year-on-year due to strong growth in both our mobile and B2B businesses. Bolivia's service revenue increased 1.1%, with positive growth in mobile and B2B, offset by a low single-digit decline in home. Not that we continue to be very conservative with capital deployment into Bolivia, due to the difficult currency situation. Paraguay's service revenue of 133 million increased 1.1% year-on-year, with positive growth in B2B and home, offset by a low single-digit decline in mobile. Service revenue in our other markets, comprised of El Salvador, Nicaragua, and Costa Rica, was 0.8% in US dollar terms, with growth in mobile offset by a decline in home, a very consistent story this year. Now, please turn to the next slide for a look at EBITDA by country. Rather than reading you our country by country EBITDA growth numbers, I'd like to point you to a few key achievements. We have now managed to lift the EBITDA margin above 40% in nearly all our markets, with Colombia being very close to it. This is on a reported basis and includes all the one-off costs and restructuring charges mentioned before. As you can see, all country segments contributed to this growth. Looking into the components of EBITDA growth, big picture, I see approximately half the growth came from incremental revenues and half from savings in operational OPEX. This is then a bit of simple increased corporate costs coming from severance, as well as cost incurred by the board for defensive advisory related to the Atlas tender. Now please turn to slide 18 for a look at equity-free cash flow. As we've already discussed, EBITDA for the quarter was 585 million. That's up 48 million from last year, despite the 73 million in restructuring and other one-off charges. Cash capex was 125 million. This was down 78 million versus last year. Note that this includes approximately 13 million of proceeds from the Columbia Tower transaction announced earlier this year. This is included here as negative capex. So the underlying year-on-year cash capex reduction is 65. Changes in working capital and other was positive 51 million. This is $18 million better than last year, largely because a portion of the restructuring charges that were booked in the quarter haven't been paid yet, or they were paid in stock. Finance charges were $118 million. This is down $19 million due to the reduction in debt over the past year. Lease payments were $83 million, an increase of $10 million due to the Columbia Tower sale, as well as annual inflation adjustments to most of the artists. Honduras repatriation was 25 million, up 11 million from last year, mostly due to phasing. As a result, the equity-free cash flow was 271 million during the quarter. This represents an increase of 171 million compared to Q3 2023. We continue to use our cash flow generation to reduce net debt, which declined by 245 million this quarter, down to 5.4 billion. This brings our leverage down to 2.59 compared to 2.77 last quarter and 3.29 at the end of last year. Now, please turn to slide 19 to review our financial targets for 2024. In the first nine months of the year, we generated equity-free cash flow of 540 million. which includes 49 million of net proceeds from the Columbia Tower sale, partially offset by 8 million of taxes related to LATI, meaning we generated about $500 million EFCF, excluding M&A, in the first three quarters, compared to our previous guidance of more than 600 million for the full year. Q4 is usually the strongest quarter of the year in terms of equity-free cash flow. But there are a number of factors that we expect will pressure cash flow in Q4 of 2024 compared to Q3. Specifically, we're expecting 50 million more cash capex and approximately 50 million less tailwind from working capital as we pay for some of the restructuring and other one, of course, that we incurred in Q3 and that we expect to pay in Q4. And then at the end, a bit more spectrum and more taxes. All in all, we therefore feel comfortable to increase our guidance again to around 650 million equity field cash flow for the full year. Now, I do want to caution everyone that these forward-looking statements contain both risks and uncertainties and are still subject to capital allocation decisions and CapEx execution in the year to go, which can move this boat up and up. We are now ready for your questions.