Millicom International Cellular S.A.

Hello, everyone, and welcome to our first quarter 2025 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 michelle and hello everyone thanks for joining us to review the company's performance in the first quarter

As you will see throughout today's presentation, the restructuring program that was completed in 2024 is paying off, and the benefits are visible in these Q1 results. And I am pleased to say that we are on track to deliver another excellent year in 2025. This includes a strong customer growth, increased profitability and cash flow generation, and the closing of some important M&A transactions. Please turn to slide five for the highlights of the quarter. Postpaid net ads of 262,000 were up nearly 50,000 from a year ago, while home net ads of 62,000 compares to the decline of minus 13,000 that we saw in Q1 of last year. And as you will see later, our B2B business continues to perform very well. Meanwhile, our efficiency program continues to deliver higher profitability, with the OCF margin up almost two percentage points to 36.7%. a level that is higher than many other telcos' EBITDA margins. And once again, our relentless focus on efficiency produced very strong equity-free cash flow of 135 million in Q1, which is typically our weakest quarter of the year in terms of cash flow generation. Leverage ended the quarter at 2.47 times. As we had told you in our last call, leverage increased a little bit during the quarter due to the impact of the dividend and our share buyback program. These are things that Bart will talk about later. Now let's review each of these highlights in more detail. Beginning with our mobile business on the next slide. Our mobile business performed well in Q1. On the right, you can see that mobile business grew just over 3% this quarter. This is a bit of a slowdown compared to the last several quarters. But keep in mind that in 2024 had an extra day on February, which is very meaningful in our prepaid business. And we also benefited somewhat from the cyber attack that impacted our main competitor last year. These two factors made for a tougher comparison this quarter, and this was embedded in our plans for the year. In fact, when we look more closely at our mobile service revenue growth in Q1, we see that postpaid accelerated while prepaid was slightly negative because of the two items I just mentioned. Our strong mobile postpaid growth is a direct result of the key levers at the bottom of this page. We have talked about this in recent quarters, but today we are adding channel productivity to the list. We have made a lot of changes in our distribution channel, traditional and digital, and we have seen a big increase in the overall sales productivity. The simplification of our service offering is also contributing to the increased productivity. Meanwhile, we continue to migrate our best prepaid customers to postpaid and to push fixed mobile conversion packages. All of these initiatives are increasing the lifetime customer value with a combination of higher ARPU and lower churn. Now, please turn to the next slide to look at our home business. As I mentioned earlier, we added 62,000 home customers in the quarter, and this is consistent with the trends we saw in the second half of last year. We are very pleased to see our second largest business continue to deliver solid commercial performance. Our HCFC and FTTH customers is back above 4 million and is up almost 5% year over year. As we discussed in our Q4 call, many of our new customers are broadband only. In fact, our broadband customer base went up almost 7%, while pay TV is flat and fixed telephony is down more than 20%. One third of our home customers are now convergent. This means that they have both home and postpaid mobile services. One year ago, only one quarter of our home customers were convergent. So we have made great progress in a very short period of time, and we think there's still a lot of potential here. In parallel, we have been reducing our exposure to our legacy DTH business, where our focus has been to improve profitability of the business. When you put all of this together, you see that we are building a strong foundation to drive profitable revenue growth in our home business over the long term, centered around fast and reliable fixed broadband bundle with mobile services on the best network. Please turn to the next slide for a quick look at our B2B business, which continues to perform well. As you know, we had two very large projects in Panama last year, and this disturbed the year-on-year comparisons. B2B services declined 6.4% organically, but this is entirely due to these large projects. To normalize for this, we think it's useful to look at the performance of B2B business over the past two years. And on this basis, you can see that B2B grew at 4% CAGR in dollars over the past two years. Again, this growth is mainly driven by digital solutions, which are up 18% over the same time frame. Now let's review our performance in our three largest countries, beginning with Colombia on the next slide. Once again, the key highlight in this slide is the adjusted EBITDA margin, which reached 39.1%. That's up more than two percentage points year over year as we continue to reap the rewards of our restructuring program. And as you can also see on this slide, we continue to grow our postpaid mobile and home customer bases, which is a result of our continued investment in our networks combined with simplified offers and channel productivity. This strong commercial performance is now starting to show up in our service revenue, which accelerated to 3.6% in the quarter. This is our strongest quarter service revenue growth in two years. Now please turn to the next slide to look at Guatemala. As you know, this is a market that consolidated from three to two players five years ago when our competitor bought the third largest operator of the country. That transaction has created a more robust competitive dynamic throughout the country, and it allowed the government to successfully complete two spectrum auctions in 2023. This new spectrum has allowed us to optimize our network, which has resulted in expanded coverage and improved services. And we see this reflected in our customers' data consumption, which has increased significantly during this period. In fact, data consumption continues to increase rapidly, and we are meeting this challenge by investing to add capacity. And we are pricing our services in a way that compensates us for that growing traffic consumption. As I mentioned earlier, one of our levers is the migration from prepaid to postpaid, which is particularly relevant in Guatemala, where postpaid is still relatively small compared to the total base. You will notice that service revenue growth slowed a little bit this quarter, but as I mentioned earlier, there were some positive factors that helped us last year and made for a challenging year-on-year comparison, especially for a mobile business, but this is in line with our plans for the year. Finally, the key highlight in Guatemala this quarter is the OCR, which grew 10% and reached a new record of 190 million in the quarter. Please turn to the next slide to look at Panama. 2024 was a truly exceptional year for our business in Panama, as you can see here. Once again, the highlight this quarter is the profitability of the business, with an adjusted EBITDA margin reaching 51.2%, a new record. Our post-pay business remained an important growth engine, and this is helping us to sustain steady growth in our mobile business. we have more than tripled the size of our postpaid customer base since acquiring the business in 2019. Postpaid is only 16% of our customer base in Panama compared to 34% in Colombia. So we think there is a long runway of growth potential for our postpaid mobile business in Panama. Finally, and before I turn the call over to Bart, I'd like to update you on the M&A projects that we have previously announced. First, regarding the sale of LAT International to SBA, we filed antitrust approval in every country where this was required. We received approval in Nicaragua and we closed that portion of the transaction during Q1. As for the other countries, we are still waiting for the approvals, but we continue to expect to close this on either Q2 or Q3. Separately, we also recently entered into a new agreement to sell our Lati Paraguay operations to Atis Group. This covers approximately 280 sites and we expect to close these transactions in coming weeks. Second, with respect to Colombia, this past March we signed a binding agreement with Telefonica to acquire their 67.5 stake in Coltel. We also remain committed to offering the same price per share to their minority partner, the government of Colombia. And we are pleased to see that they have now hired financial and legal advisors who will help them to launch and manage the process to sell their stake under the privatization law 226. We are also ready to acquire our partners 50% stake in our Colombian operation. If EPM decides to sell, we will offer to pay up to the same price implied by the valuation multiple we agreed to pay for Cortel, 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. We have no other updates for you here. Now let me turn the call over to Bart to review the financials for this quarter.

Thanks, Marcelo. Let's look at our financial performance beginning on slide 14. Service revenue was 1.29 billion in the quarter, which is down 6.6% from 1.38 billion a year ago. The impact of weaker foreign exchange rates was very significant this quarter due to a 40% devaluation of the Boliviano resulting from our adoption of Accounting Standard IAS 21. Excluding FX impact, organic service revenue was flat. As mentioned many times before, service revenue in Q4 2023 and Q1 2024 included a very significant contribution from two large B2B projects in Panama, as well as a smaller revenue pickup from a cyber attack that impacted our main competitor. Excluding these items, organic service revenue growth would have been more than 2%, which is in line with recent trends and more indicative of where we expect to see service revenue on a PxQ basis. Adjusted EBITDA was up 0.6% year-on-year to $636 million, and the margin reached 46.3%, our highest ever. Excluding FX, organic growth was 6.9%. Beginning this quarter, we are using the term adjusted EBITDA instead of EBITDA to confirm with the most recent SEC guidance on this topic. In our case, this is simply a change in label. In fact, EBITDA without adjustments would have been more than $100 million higher this quarter due to the inclusion of non-recurring items such as the gain on asset sales, foreign exchange gains, and the share of profits from our Honduras joint venture. Including these kinds of items would make our EBITDA more volatile from quarter to quarter, and in my mind, would not contribute to useful analytics. Equity-free cash flow, excluding 42 million net proceeds from tower disposals, was 135 million in the first quarter. This is up 172 million compared to the negative 37 million or $1 million including tower sales as reported in Q1 last year. The significant portion from the year-on-year improvement comes from having a better control over the working capital. In this quarter, only a negative $77 million, a difference of $116 million compared to last year. This is the result of a deliberate and comprehensive effort to reduce the seasonality of our cash flow throughout the year. In other words, the strong performance in Q1 may revert somehow in the remaining quarters of the year. you should not extrapolate from q1 the other relevant takeaway on the equity free cash flow is that we were able to deliver a very strong q1 despite facing a very adverse foreign exchange impact this is in part the result of some very specific actions we have taken over the past year to reduce our fx exposure and volatility specifically we look for opportunities to replace dollar denominated debt with more local currency debt financing We have renegotiated a lot of contracts to local currency, and we have incentivized our local country CFOs by adding a new dollar exposure KPI that we use to determine near-end bonuses. We are very pleased to see all of these initiatives paying off already in Q1. Please turn to the next slide to look at service revenue by country. Guatemala's service revenue of 349 million represented year-on-year growth of 0.9% in local currency, driven primarily by mobile ARPU. Colombia's service revenue of 334 million grew 3.6% year-on-year. This is a nice improvement compared to flat performance in Q4. We're happy to see that now quarter-on-quarter, all three business units are growing. Panama's service revenue was 170 million, down 15 million year-on-year, as sustained double-digit growth in mobile was more than offset by the decline in B2B caused by the non-recurring large government contracts in Q1 of 2024. Excluding these projects from both years, service revenue growth would have been almost 5%. Paraguay's service revenue was 131 million, increased 3.6% year-on-year, driven by double-digit growth in B2B. Bolivia's service revenue increased 3.4% in local currency, with positive growth in mobile and B2B, offset by a small decline in home, where we continue to prioritize profitability. In dollar terms, service revenue declined almost 40%, again as we implemented IS21, which shaved off about $60 million in the quarter. Service revenue in other markets comprised of El Salvador, Nicaragua, and Costa Rica declined 3.1% in dollar terms, reflecting declines in Nicaragua and Costa Rica and flat performance in El Salvador. This segment was the biggest beneficiary of the cyber attack that impacted our main competitor in Q1 of last year, so suffers from a tough last year comparable. Please turn to the next slide for a look at adjusted EBITDA by country. I indicated already that the EBITDA margin for Q1 was 46.3% for the group. The key message on this slide will be that the margins expanded in all our largest markets over the past year. And now both Panama and Paraguay have joined Guatemala in the Club 50, as I called it last quarter. Congratulations. And actually Honduras and Nicaragua are knocking at the door. With this being said, let's look at it country by country. Guatemala adjusted EBITDA increased 1.9% year on year to 222 million, reflecting service revenue growth and efficiencies. as the margin increased another 90 points to 54.9%. Colombia adjusted EBITDA increased 10.4% year-on-year to 133 million, and the margin expanded by 2.6 percentage points to 39.1%, reflecting cost savings. Panama adjusted EBITDA grew 2.8% year-on-year to 92 million and the margin reached another record of 51.2% thanks to our efficiency program. Paraguay adjusted EBITDA grew 9% to 69 million in Q1 2025 and the margin was 51.2%. Bolivia adjusted EBITDA increased 12% to 43 million and the margin increased 3.7 percentage points to 46.4 as we continue to focus on profitability in this market. Adjusted EBITDA in our other segment was flat in US dollar terms as savings from our efficiency program offset the decline in revenue. Please turn to the next slide for a look at equity free cash flow and leverage. As we've already discussed, adjusted EBITDA for the quarter was $636 million. That's up $4 million from last year despite all the negative currency impacts. Cash capex was $140 million, and that's down $19 million from last year. Cash capex includes proceeds from asset sales of $64 million in Q1 2025 and $39 million in Q1 2024. So excluding these items in both years, cash capex would have increased $7 million year-on-year. So don't take this as underspending. Spectrum was $36 million, down $42 million compared to last year due to lower spending on performance bonds and license fees, for instance in Colombia. Changes in working capital, another was negative $77 million. As a reminder, working capital is usually a big drag on cash flow in the first quarter due to the timing of some payments, such as taxes, fees, licenses, as well as employee bonuses. The good news is that working capital was significantly better this year with a year-on-year improvement of 116 million, as mentioned earlier, coming from deliberate effort to reduce the seasonality of cash flow throughout the year. Taxes paid were 66 million. This is an increase of 28 million due to higher profitability and capital gains taxes on the tower sale. Finance charges were 107 million, down 26 million from last year due to lower debt levels and currency. Lease payments were 82 million, up 10 million due to last year's tower sale in Colombia. Honduras repatriation was 23 million in the quarter, that's up 8 million from 2024. As a result of all these factors, equity free cash flow for the quarter was 177 million. Excluding net proceeds from tower disposals in both years, EFCF was 135 million, up 172 million compared to last year. On the top right portion of the slide, you can see that net debt increased 101 million during Q1. And as we had warned you on our Q4 call, leverage increased slightly to 2.47, but stayed nicely below 2.5. This is a consequence of resumed shareholder remuneration, which included 170 million paid in dividends and 119 million used to complete the 150 million share repurchase program. Excluding these items, leverage would have dropped below 2.35. Now please turn to the next slide to review our financial targets for 2025, which remain unchanged from what we communicated at our Q4 results. We continue to target 2025 equity-free cash flow of around 750 million, and we expect to end the year with a leverage below 2.5 times. These targets do not include the impact of any of the strategic M&A projects that Marcelo talked about. As we have previously communicated, the Board has proposed an annual dividend of $3 per share to be paid in four quarterly installments, with the intent to sustain or grow this dividend every year. This is subject to shareholder approval at the AGM later this month. We are now ready for your questions.