Millicom International Cellular S.A.

Hello, everyone, and welcome to our fourth 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 2 for the safe harbor disclosure. We will be making forward-looking statements which involve risks and uncertainties, and these could have a material impact on our results. And then on slide 3, you can see that we defined the non-IFRS metrics that we will be referencing throughout today's presentation, and you will find reconciliation tables in the back of our earnings release as well as on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Marcelo Benitez.

Thanks, Michelle, and hello, everyone. Thanks for joining us to review the company's performance in our fourth quarter. Please turn to slide five for the highlights of the quarter. As you all know by now, 2024 was a transformational year for Millicom, and as you can see on this slide, we ended the year with a very strong note, with equity-free cash flow of $236 million in the quarter. For the full year, equity-free cash flow excluding tower sales was $728 million, a new record. This is the result of our efficiency program, which drove our OCF margin up 8 percentage points to almost 31%, also a new record. I want to express my profound gratitude to the exceptional TIGO team members who made this transformation possible. As promised, we used the cash flow to reduce our debt, and we managed to bring the leverage down below 2.5x. which was one of our key priorities for the year. At the same time, we took key steps to sustain and accelerate revenue growth, which is our key objective in 2025. In Q4, we added 274,000 postpaid customers and 49,000 home subscribers, while maintaining a strong momentum in B2B. This provides a solid foundation for another excellent year in 2025. Now let's dive deeper into these key highlights, starting with our mobile business on the next slide. Our mobile business delivered another solid quarter in Q4, with organic service revenue growing more than 4% in line with Q3. For the full year, mobile service revenue growth accelerated to 4.6% compared to 2.4% in 2023. This improved performance is the result of the four key strategies we focus on throughout the year. First, we've expanded our mobile network capacity, laying the foundation to drive data consumption and monetize growth through strategic price increases, which drove improved service revenue growth in prepaid. Second, we simplified our commercial offers, reducing complexity from too many options to not more than 10 per country, making it easier for customers to see the value we deliver. Third, we continue to practically migrate our best prepaid customers to postpaid, increasing their days connected and ARCU. Our postpaid customer base continues to grow every quarter, and this is an important contributor to our overall mobile service revenue growth. And fourth, We introduced new convergence plans, driving lower churn, higher ARPU, and improved customer lifetime value. And convergence is also driving improved net ads in our home business, as you can see on next slide. At the beginning of the year, our priority was improving profitability while addressing the fundamentals of the business. By Q2, we said we were ready to move from a defensive mode to an offensive strategy. And that's exactly what we did. During Q4, we added 49,000 home customers and our customer base is now up 3% year over year. This is the result of our key strategic initiatives. upgrading our broadband network to deliver higher speeds, simplifying our commercial offers and accelerating convergence, focusing our sales teams in low-penetrated areas, strengthening our commercial capabilities, including the opening of new stores. And as I mentioned in the Q3 call, customer satisfaction is up and churn is down. With this strong customer growth, we expect service revenue to return to growth in 2025. Please turn to the next slide for a quick look at our B2B business, which continues to perform well. B2B revenue grew 3.1% organically for the full year in 2024. Digital solutions continue to grow rapidly, with an increase of nearly 15% in 2024. This growth was supported by our secure and robust infrastructure, as well as our world-class pre-sales and support team, which added about 150 new certifications during 2024. Our revamped FMC offer was very well received by entrepreneurs and small businesses, resulting in growth of around 7% in our SME customer base over the past year. Now let's review our performance in our three largest countries, beginning with Colombia on next slide. The key highlight in Colombia is the EBITDA margin, which reached 38.1% for the full year. That's up more than 6 percentage points year over year. As many of you know, for most of the past decade, Colombia has been a challenging market for us and for almost every other telco in the country. Over the past year, we have taken meaningful steps to improve the profitability of our business. It wasn't easy, and I want to express my appreciation to the extraordinary team in Colombia. Your dedication is at the heart of this transformation. And while our focus has been on improving profitability, we have not lost sight of the need to continue to take care of our customers and capture our fair share of new customer growth. We did just that again in Q4, with very strong net additions in both our postpaid mobile and our home business. And we are confident that this momentum in net additions will drive faster service revenue growth in 2025. Now, please turn to the next slide to look at our performance in Guatemala, our largest market. Let me start with the punchline. 2024 was a record year for cash flow in Guatemala, with OCF up about 10% to $692 million. This is mostly the result of our efficiency program, which drove the full-year 2024 EBITDA margin to 54%, our highest margin in more than five years. Meanwhile, we've also produced some capex savings, as we optimized our network by putting to work the new spectrum that we acquired in 2023. Most importantly, we deliver this strong cash flow while also driving top-line growth. 2024 was our strongest year since 2021 in terms of service revenue growth. This came mostly from a combination of ARPU increase in prepaid and an acceleration in our postpaid customer base. And our strategy is delivering results, as reflected in our fourth straight quarter of mobile revenue growth. Now let's look at our 2024 performance in Panama on next slide. 2024 was a truly exceptional year for our business in Panama. As you can see here, service revenue grew close to 5% thanks to the strong performance in both mobile and B2B, which more than offsets the decline of our home business. Importantly, growth in mobile accelerated through the year and our home business improved in Q4. Meanwhile, we had a record year in B2B, thanks largely to the two governmental projects. This will create a tougher comparison in 2025. but we are very well positioned to compete and land more of this type of contracts in the future. And finally, on the right-hand side of the slide, you can see the key takeaway. Panama, with its stable and dollarized economy, generated more than a quarter billion dollars of OCF in 2024. Now, please turn to the next slide to look at equity-free cash flow and leverage. Over the past year, we've told you about all the initiatives we've implemented as part of our efficiency program, and these have paid off. As I mentioned at the start of my remarks, we have successfully and permanently turned around the company's financial profile. delivering $728 million of equity-free cash flow in 2024. And we used this cash to reduce our leverage, which ended the year at 2.4 times, which is within our target range. Some of you will recall that we had initially guided to 2024 EFCF of around 550 million, and we increased this guidance throughout the year as we executed on every component of our efficiency program in every one of the nine countries where we operate. We are very pleased with these results, but rest assured that we are already taking steps to ensure that the company can continue to sustain and grow its cash flow in 2025 and beyond. Before handing the call over to Bart, I'd like to take a moment to update you on the strategic initiatives we have previously announced. First, regarding the sale of LATI International to SBA, we filed for antitrust approval in every country where this was required. We remain on track to close this transaction on either Q2 or Q3 of this year. Second, with respect to Colombia, we filed for regulatory approval and we made great progress towards formalizing our agreement with Telefonica to acquire their 67.5% stake in Coltel. we also remain committed to offering the same price per share to the minority partner the government of colombia and we are pleased to see that they have now hired financial and legal advisers who will help them to launch and manage the process to sell their stake under the privatization law two to six And as we have already told you, we are also ready to acquire our partner's 50% stake in our own Colombia operation. If EPM decides to sell, we will offer up to the same valuation multiple agreed for Contel, which is the best possible valuation comparable for a transaction like this. Third, and finally, in Costa Rica, where we've agreed to combine our operations with those of Liberty Latin America, the regulatory process is ongoing and expected to be completed later this year. Now let me turn the call over to Bart to review the finances for this quarter.

Thank you, Marcelo. Now let's look at our financial performance beginning on slide 15. Service revenue was 1.34 billion in the quarter, which is 2.9% down from 1.38 billion a year ago. Operationally, this is not what we see. In fact, the P times Q is growing quarter over quarter. But there are two elements to consider in analyzing this quarter level. One, Panama B2B projects. which we have consistently referred to, that had a peak revenue recognition in Q4 of last year and in Q1 of this year. This creates a year-on-year difference for Q4 of about $25 million. And two, FX, mainly in Colombia, where Q4 average exchange rate was about 5.8% weaker in Q4 than in Q3, or 9.5% year-on-year. This represents approximately $30 million. Now, on a good note, that trend is curving in Q1, as we see the COP appreciating now. So to conclude, we report 2.9% revenue decrease, excluding FX and Panama projects. We see operationally a growth of about 1.3%. EBITDA was up 11% year-on-year to 618 million. This included 30 million of restructuring and other one-off charges. We have now significantly completed our restructuring program, spending a total of about $150 million, which again is all included within the reported numbers. We will obviously continue to focus on efficiencies across the grid, but going forward, we'll consider associated costs to be business as usual. Equity-free cash flow excluding net proceeds from tower exposings was $236 million, up almost $200 million compared to $39 million in Q4 of last year. Equity-free cash flow for the full year was $728 million, again excluding the $49 million in tower monetization, which was well ahead of our most recent guidance of around 650. On the next slide, let's drill down further on service revenue by country. Marcelo has already talked about revenue trends in Guatemala, Colombia, and Panama, so we'll be very brief. One, Guatemala, back to growth, check. Two, Colombia hit by FX. As I mentioned, we have approximately 30 million negative impact from FX, without which revenues would have been flat. Panama, as mentioned before, approximately 25 million of difference year-on-year related to B2B projects. So a tough quarter to compare on year-on-year. But if you look sequentially quarter-on-quarter, you will see Panama grew 1.6%, which annualizes to 6.5%. Then looking at Bolivia, service revenue increased 2.5% with positive growth in mobile and B2B, offset by flat performance in home, where we continue to prioritize profitability in light of the challenging macroeconomic environment, especially as it pertains to the lack of dollars. As many of you know, the Boliviano exchange rate is currently pegged at a rate of 6.91 to the U.S. dollar. However, we are having to pay commissions of as much as 70% to buy dollars at that exchange rate. Beginning in Q1 2025, we expect to begin using an estimated spot rate for our financial reporting, consistent with the latest amendment to Accounting Standard IAS 21, which went into effect in January. This is expected to negatively impact service revenue, EBITDA, and basically the entire P&L as reported in US dollars. A massive exercise to convert costs into local currency has been performed this year. in addition to a natural hedge of local currency debt, both somewhat mitigating these negative effects on the organic business. We're expecting nonetheless low to mid-double-digit million US dollars impacts on our group EFCF due to the upstream costs. Product-wise, service revenue was 136 million, and the year-on-year growth accelerated to 4.7% in local currency, driven primarily by solid growth in mobile and B2B. This was a nice improvement compared to growth of just over 1% in Q3. Service revenue in other markets comprised of El Salvador, Nicaragua and Costa Rica declined 3% in US dollar terms, with positive growth in Nicaragua more than offset by declines in El Salvador and Costa Rica. The decline in El Salvador relates primarily from a non-cash adjustment to B2B revenue for prior periods. Now please turn to the next slide for a look at EBITDA by country. Guatemala EBITDA was relatively stable, increasing 0.7% in local currency terms to $215 million, reflecting service revenue growth and efficiencies, which were partially offset by the impact of $8 million in restructuring charges in the quarter. Colombia EBITDA declined 5.2% to $122 million due to the weaker Colombian peso. In local currency terms, EBITDA increased 3.7%, now reaching 37.1% as we continue to take steps to make our second-largest operation profitable on a sustainable basis. Panama EBITDA grew 19.9% year-on-year, and the margin reached a new record of 50%. I herewith want to congratulate our Panama team with this landmark achievement. welcoming them as a second country in our IFRS perimeter into our Club 50, an internal competition for our countries to reach 50% EBITDA profitability. Bolivia EBITDA increased 39.8% to 71 million, and the EBITDA margin expanded to 45.3% as we continue to focus on profitability here as well. Again, I want to point out to the FX issues as a cautionary statement. Paraguay EBITDA grew 37.6% to 66.0% in Q4 2024, and the EBITDA margin was 46.7%. We were pleased to see Paraguay deliver both strong margins and top-line acceleration in Q4. EBITDA in our other segments increased 1.5% in US dollar terms, as savings from our efficiency program offset the decline in revenue that I've already mentioned. Now please turn to the next slide for a look at equity-free cash flow and leverage. As we already discussed, EBITDA for the quarter was 618 million, that is up 61 million from last year. Cash capex was 162 million and that's down 52 million from last year. Spectral 26 million, down almost 100 million compared to last year when we acquired some new spectrum in Guatemala and Colombia. The remainder spectrum is always a little bit bumpy quarter on quarter. Changes in working capital and other was positive $30 million and stable versus last year. Taxes paid were $65 million, which is up $10 million from last year due to the increase in pre-tax income over the past year. Finance charges were 101 million and has been steadily declining as we've reduced debt over the past year and is partially offset by Bolivia conversion charges. Lease payments were stable at 80 million. We've seen an increase in lease payments in local currency terms, but this was largely offset by FX as most of our lease obligations were denominated in local currency. Honduras' repatriation was $23 million in the quarter and just shy of $90 million for the full year 2024. That's up about $3 million from 2023, which is a good outcome given the capital controls that continue to impact our access to dollars in the country. As a result of all these factors, equity free cash flow for the quarter was $236 million. This is up almost $200 million compared to Q4 2023. To conclude on this slide, as you can see on the top right, the equity-free cash flow was used to reduce our debt, which declined 230 million during Q4. Our leverage therefore ended at 2.42, nicely within our stated targets. Now please turn to the next slide or look at our equity-free cash flow and leverage for the full year 2024. I won't go over each of these points individually. And I will simply highlight that most of the improvement came from a mix of higher ABDA for $357 million, lower CAPEX for a similar amount, and about 100 million lower spectrum charges. And more importantly, we did what we told you we were going to do. We use that incremental year-on-year cash flow to reduce our net debt, and with that, bringing our leverage below 2.5 times. Now, please turn to the next slide to review our financial targets for 2025. As you have seen, we generated record equity-free cash flow of 728 million in 2024. This excludes 49 million in Columbia Tower monetizations and includes more than 150 million of one-off charges, mostly related to our restructuring program, which is now largely completed and is expected to produce additional savings in 2025 based on the run rate savings already achieved in Q4. Now, there are factors that may negatively impact our equity-free cash flow in 2025. As you know, we operate in emerging markets that are sometimes volatile and hard to predict. This includes Bolivia, where the adoption of an estimated spot rate in our financial reporting will negatively impact our EBITDA and leverage. And of course, it's also a risk factor in Colombia and Paraguay. Finally, we also have some ongoing legal disputes that may impact equity-free cash flow in 2025 if we can't win those cases. With all this in mind, we're targeting 2025 equity-free cash flow of around 750 million, and we expect to end the year with a leverage below 2.5. I want to caution you that leverage may go up a bit in Q1, given the usual seasonality of our cash flows and considering also the shareholder remuneration. On the one side, the dividend paid in January, and on the other side, the ongoing share buyback program. Nonetheless, again, we target to end below 2.5 at the end of the year. Also, I should remind you that these targets do not include the impact of any of these strategic projects that Marcelo talked about. Finally, as we have previously communicated, the board has recently decided to resume shareholder remuneration. We paid an interim dividend of $1 per share in January. Yesterday, the board approved another interim dividend of $0.75 per share to be paid in April. And the board will propose to the AGM in May a new quarterly dividend of $0.75 per share with the explicit intent to sustain or grow this dividend every year. In addition, we have been executing on a $150 million share buyback program. As Marcelo said earlier, the efficiency program we implemented has changed the cash flow profile of the business in a way that we believe is permanent and sustainable. And the board's decision to resume shareholder remuneration is consistent with this view. We are now ready for your questions.