This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
America Movil, S.A.B. de C.V. American Depositary Shares (each representing the right to receive twenty (20) Series B Shares
Q2 2023 Earnings Conference Call
7/12/2023
spk01: Good morning. My name is Nadia and I'll be your conference operator today. At this time, I would like to welcome everyone to the American Mobile second quarter 2023 conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers and marks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. Now I will turn the call over to Mr. Daniel Hash, CEO of American Mobile, to begin. Thank you.
spk07: Thank you, Nadia. Welcome, everyone. Thank you for being in the American Mobile Second Quarter of 2023 Financial and Operating Report. Carlos is going to make a summary of the results. Carlos, please. Thank you, Daniel. Good morning, everyone. Well, during the second quarter, US dollar interest rates remained as volatile as they had been in the first quarter. With inflationary pressures stronger than anticipated earlier in the year, the reductions of interest rates by the Fed originally expected to take place in the latter part of 2023 appeared increasingly improbable, giving rise to an upward trend in medium and long-term rates throughout the latter half of the quarter that has continued in July. We added 2.2 million wireless subscribers in the second quarter. including 1.5 million post-pays. Brazil contributed $662,000, Austria $267,000, and Colombia $171,000. Street vendors of private editions stood at $787,000, with Brazil and Mexico adding almost $200,000 each, and Colombia $195,000. On the fixed-land segment, we obtained $331,000 door-down accesses, including 140,000 in Mexico, practically identical to the figures in the prior quarter, which makes it the second consecutive quarter with strong door-to-door net additions, 78,000 in Argentina and 45,000 in Brazil. The growth of our mobile subscriber base stayed basically on trend, with the posted base expanding 8.3% and the prepaid one 5.3%. On the fixed-land platform, broadband access growth picked up a bit to 3%, while pay-to-be accesses remained roughly flat. Second quarter revenue was down 4.6% year-on-year to 203 billion pesos in Mexican peso terms, with service revenues falling 4.2%. As in the prior quarter, this reflected the appreciation of the Mexican peso versus other operating currencies in the period. Correcting for foreign exchange effects, service revenue increased 5.0%, a slightly lower pace than that of the prior quarter. EBITDA was down 3.8% in Mexican peso terms to 78.7 billion pesos in the quarter, representing a 38.9% EBITDA margin. At constant exchange rates, it expanded 5.6% in the period, reflecting the greater operating leverage of the company. We did it by growing faster than revenue. The reduction in inflation rates we have seen in most countries, as well as the appreciation of most large currencies and the euro, this ability in dollars, have recently contributed to this through their impact on costs. Service revenue growth continues to advance on the PICS line platform, moving up to 2.3% at constant exchange rates from 1.8% in the prior quarter. On the mobile platform, it slowed down to 6.7% from 9.3% the prior quarter. The improvement of fixed-line service revenue growth was observed in three of our four principal markets, Mexico, Brazil, and Austria. In Mexico, it was driven by both corporate network services and fixed broadband services. In Brazil and Austria, by the latter. Importantly, the downward trend of pay-per-view revenue appears to be coming to an end. In the quarter, they were down 1.3%, the lowest decline in several quarters. The deceleration of mobile service revenue growth stems principally from the normalization of mobile revenue in Brazil exactly a year after the integration of revenue from former oil mobile clients acquired by Claro. The uplift in terms of revenue growth provided by former oil clients has come down to 0.8% from 6.4% a year ago. In addition to the above, we also had somewhat slower growth in Mexico and Colombia. EBITDA yearly increases were in the neighborhood of 9% in Brazil, Eastern Europe, Peru, and Ecuador, followed by Mexico at 5.1% and Austria at 4.3%. Our operating profit in the quarter 40.3 billion pesos, we are down 2.9% year-on-year, with our net profit nearly doubled from the yearly quarter to 26 billion pesos, mostly on account of greater foreign exchange gains. In the first six months of the year, capital expenditures totaled 64 billion pesos, and distribution to shareholders, 3 billion pesos, including share buybacks. In cash flow terms, we reduced our net debt by 4 billion pesos in the period. All the above was funded by our operating cash flow and by proceeds from the sale of certain shares and the payment received of the sales to sale of our interest in platform. Our net debt excluding leases totaled 356 billion pesos at the end of June, having come down by 25.3 billion pesos from the end of December on the back of the appreciation of the Mexican peso vis-a-vis other currencies, particularly the dollar. It was equivalent to 1.43 times EBITDA. So with this summary of our results, I will pass the floor back to Daniel Hash for the Q&A session. Thank you all. Thank you, Carlos.
spk01: Thank you. If you would like to ask a question, please press star, followed by 1 on your telephone keypad. If you choose a withdrawal question, please press star, followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. We'll pause for just a moment while we compile the Q&A roster. Our first question goes to Vitor Tomita of Goldman Sachs. Vitor, please go ahead. Your line is open.
spk05: Good morning, all, and thank you very much for letting us have some questions. The first question from our side would be on share buybacks. If you could give us an update on how you are thinking about buybacks for the second half of the year, especially considering that we noticed a slower pace of buybacks year to date, and on how further buybacks will be funded, given that you mentioned that dividends from Verizon and KPN were a source of funding for shareholder remuneration thus far. Also, second question from us on M&A. Now that you have achieved a more comfortable leverage position and are generating cash consistently, could you provide us an update on your M&A strategy and on which regions could potentially be considered for further acquisitions? Thank you very much.
spk07: Okay. Well, on the share buybacks, as we've mentioned in prior calls, we tend to have them all coming with our cash flow throughout the year. cash flow the first half of the year, it's seasonally weak because we need a lot of working capital and then we usually get it back in the second half of the year. So that's where we have a little more liquidity that we can engage in more shareholder distribution. In the case of, so beyond the issue of the seasonality that's been there always, I think that this year we have mentioned the prior call we needed to accommodate the increasing capital that we had mentioned to you. We had increased the capital from $8 billion in the original budget to $8.5 billion more or less. And that's basically what we wanted to cover before we could actually engage in pooling share buybacks. I think that now we will be going back to normal. I think that we should expect to receive distributions very much along the recovery of our cash flow. In terms of M&A, I think that we are not currently looking at anything anywhere. I think that we have a lot of growth organic growth to develop. As we have been saying in some of the numbers, some of the fish land operations are developing very nicely. And we are continuing to have a good growth on mobile. So it's not that we need to buy growth anywhere. I think that there's plenty to develop organically. Overly, out of regulatory concerns, there's a few NTPs that one could acquire in Latin America, that's the case. And in Eastern Europe, I think that it's also because there's not many more assets to buy. So I don't think that we are looking really today at anything outside our footprint. And within our footprint, there's practically no entity that we could buy. And just to add on what Carlos said, I think the... The additional capex that we're putting, we're seeing good opportunities in Latin America, growth opportunities, and that's what we're looking for. So I think this year we can put more fiber or other investments in some countries that I think we're going to get good growth. And on M&A, as Carlos is saying, but we're open to see other opportunities, but right now we're not looking to anything.
spk05: Very, very clear. Thank you very much. Thank you.
spk06: Thank you.
spk01: Thank you. The next question goes to Lucas Chavez of UBS. Lucas, please go ahead. Your line is open.
spk06: Hi, good morning, everyone. This is Leonardo, actually. Thank you for taking the question. A couple of questions in Brazil. The first one, if you could comment on the reduction on the B2B revenue, corporate revenue, which sounded like a one-off, but if you could talk a little bit about that. We're seeing very strong growth in other regions in Brazil in the past quarters. And my second one, We saw yesterday the deal of Vero and Americanet forming one of the largest ISPs in Brazil in fixed broadband. We also see news of Felix talking with Vital from BTG. So overall, I just want to double-click on Victor's question on M&A and if you could talk about either M&A or partnership, what type of opportunities are you looking at specifically in the fixed market? Thank you.
spk07: I'm going to talk a little bit about Brazil. I think in Brazil we're doing good. We finalized all the synergies that we have with OI. I think we have all the subscribers in our platform. I think we have the savings that we think that we're going to have. So we do and execute very good on the purchase of OI. We're growing very good. We have a very good distribution network all around Brazil. We're starting to grow again in peaks, in broadband, so it's very good news. We have two or three quarters growing again in broadband, so things are looking. For us, it's good that the market consolidates. There's a lot of players in Brazil, so it's good. We are not seeing any consolidation right now, but we're open also to see what opportunities we can have. I think the news today is, or I don't know if it's the news or not, but what they said is that Bero and AmericanNet are merging, is what I hear this morning. So it's good that everybody, that the companies, these companies need to consolidate, and I think it's good for the market. It's good for us. So we are in a very good position. We have been doing good investments. We have been... operating well, so we're in a very good position. In Brazil, in the corporate market, I think what is happening, I need to go more deeply on the corporate side, but I think we canceled some contracts, cloud contracts that we don't have any margins there, so we canceled some of them. But we're doing good and we're growing in the corporate market. And what we want is to have clients, to have profitable clients in this segment. So that's what we are looking for. So I don't know, Oscar, if you want to say something else on Brazil? I don't know what to say. incorporate, as you mentioned, we can say some cloud contracts. But when you look at the rest of the digital solutions, we are growing a double digit in all of them, in network management, in IoT. So we feel that the path of growth will continue. And as you mentioned, in fixed broadband, we are still growing the last three three three quarters we were in negative before so we upgrade the network and we are changing all the customer satisfaction in installation in time to refer so i think we have very good product in the marketplace and and i think where we have network our network is upgraded we have a very good speed And we are doing good. We're gaining market share where we have network. Then there's other places where we need to invest and that other companies are investing. But where we are, I think we have a very good top of mind, very good network, very good customer service, and we're doing very good. Yeah, and we could offer one gigabit in all the networks, right? Also we can, yes.
spk06: I do not disagree on that. Very good performance. Thank you very much. Thank you.
spk01: Thank you. The next question goes to Walter of LightShed Partners. Walter, please go ahead. Your line is open.
spk02: Thanks. I got knocked off the call briefly, so I apologize if this question was asked. But Daniel, in Mexico, when I look at the service revenue, obviously growth, But a little bit slower than what you've been doing in prior quarters. Certainly the sub growth is, it looks fine. Um, so maybe a little bit less recharge, um. In in the June quarter is that I mean, can you just comment on that a little bit? Is there any. Is that a reflection of the economy? I know inflation I think has been coming down in Mexico. I think you're maybe at 5% now and the trend has been down. So just kind of. If you could comment on on. you know, the use or the, you know, I guess the ARPU and specifically the service revenue growth in Mexico. And is it, you know, should we expect some moderation here?
spk07: On Mexico, we're gaining traction again in post-pay. So in post-pay, we're doing better than what we used to be last year. So we're again gaining traction. And it's exactly what you're saying in prepaid services. We have more customers, more active customers, so we can see the customers that recharge, let's say, June last year and June this year, and we have lots more customers recharging this. So what we're seeing, yes, the growth has been slowing down a little bit, and it's, I think, that people is recharging a little bit less. It's maybe something on the economy, a little bit on the economy. Inflation is going down. I think Mexico is having a lot of new investments. So I think that will go again high. So my expectation is that... On prepaid, again, people start to recharge a little bit more in the future.
spk02: Okay. And then on equipment sales, I've noticed that in past years, in the second quarter, that equipment revenue in Mexico tends to go up. I'm not sure why that is. Are people buying more expensive phones? Is that a cycle when...
spk06: It's Mother's Day.
spk07: Mother's Day is something very important, and it's on May, so that's why always in second quarter they increase the equipment revenue, yes.
spk02: So for this year, I guess what I noticed is, because in past years it's been up, and this year I guess it was a little bit more flat. I guess people weren't buying their mothers some replacement phones as much this year.
spk07: yeah i think people is starting to to to wait a little bit more to to replace the phone i think it's more or less the same thing as you see in prepaid people wait a little bit to recharge again the the the phone and here they wait a little bit to uh to to to buy a new phone what we're doing and being being successful is we have a new platform called Amigo Paguitos that we're financing to some customers a prepaid phone. And it's been successful. It's growing. We are being a little bit cautious with that. But as we finance in the post-paid segment, we are starting to finance also in the prepaid segment goods. I think it's good for the people, it's good for us, and it's been taking traction. We have been putting this platform in Intel Cell. I think we're going to do that all around American Mobile if it works, and we're happy the way it's been developing.
spk02: Okay, and then just one last one for Carlos, if you don't mind. Carlos, you know, with I guess inflation kind of moderating, maybe the outlook seems a little bit better. Just curious if there's any, it's a question I always ask you, I guess, target leverage ratios, any change in how you're thinking about leverage ratios as it relates to capital return?
spk07: Well, we are looking at leverage ratio. We want to keep it at not less than 1.2. and not more than 1.5. I think that would be the open range that we will be looking at. And that, obviously, is an answer to your question in terms of the return on capital, Walter. So we will not allow it to go below 1.2. That's the idea, and that's consistent with what we outlined in our investor day unit category.
spk02: Thank you very much. Thank you.
spk01: Thank you. The next question goes to Fred Mendez of Bank of America. Fred, please go ahead. Your line is open.
spk04: Hello. Good morning, everyone. I have two questions as well. The first one is with Telmex. Once again, very strong net ads for Telmex. So just wondering if that's coming mainly from gross ads or you're basically reducing your churn, right? Basically, what we're trying to understand is if you're gaining clients from the competition or let's say you stopped bleeding, in terms now that you have more fiber in your network. That would be the first question. And then the second question is more like a reconciliation. When I look at your results in Brazil for the mobile business, they are increased by 6.5. Net ads on post paid by 1%. Prepaid, you had some net losses, but the mobile service revenue was like 12% organically. So just wondering if I missed something here or maybe a mix here. Anyways, just trying to reconsider it here. Thank you very much.
spk07: Well, let me tell you that, as we mentioned before, we've been doing a very aggressive investment in fiber. Now, 73% of the customer base is already collected with fiber. As well as we mentioned, we've been working on the commercial activity, we improve the installation processes as well, and we have a better retention of the customers. So we released the churn a little bit. So all of them impacting this net gain that we've been having. And we launched a new proposition in the market that we believe that is very unique in the market and very adequate to the market. Recently, two weeks ago, we launched 300 megabits symmetrical, including clear video on Paramount with a very good price. We believe that it's going to be taking the market very well. So that's it. I think we're very happy the way Telmex is developing. And what Oscar is saying exactly is not only churn or not only – it's everything. It's less churn because we have a lot more fiber and people leave where customers are... Better installation speeds. Better installation speeds, less churn, and good promotion. And new products. Yes, so we're... And on the slowdown of mobile revenue growth in Brazil, it basically has to do with the normalization of revenue growth a year after we had factored in the first revenue from all mobile clients. And that means that the uplift that we were getting from the old clients has come down from over 6% a year ago to a bit less than 1% today. I think that's basically what explains the slowdown, okay? So it's just a change in the base that's just for the reference for the comparison. The other thing in terms of the ARPU goals in Brazil is part of this, is partly to do with these connections of all mobile clients that took effect toward the end of the prior quarter. And that's basically what is helping the ARPU numbers in Brazil.
spk04: Perfect. Thank you, Daniel, Carlos, Oscar. If I just may, just a follow-up here. It's 73% of the clients or 73% of the homes passed already in fiber in Mexico for Tomex?
spk07: 73% of the clients.
spk04: Perfect. Perfect. Thank you very much, Oscar.
spk01: Thank you. The next question goes to Fanny Kanyumori of HSBC. Fanny, please go ahead. Your line is open.
spk03: Thanks, everyone, for taking my question. So my question is related to monetization of assets. Are there any assets that you're trying to monetize, whether it's that you have or the new tower company that is being formed in Australia? Are there any plans to monetize them in the next couple of years? That's my first question. I have a follow-up question later.
spk07: Can you repeat a little bit slowly? We don't understand the question. Please.
spk03: I'm trying to understand if you have any monetization plans for the resort stake or the new tower company that is being formed in Austria. So you have some stake in that tower company. I'm planning to monetize that in the next couple of years. Okay.
spk07: Okay. The tower company in Austria, as you've already seen, because of being spun off, We expect this will happen sometime in the third quarter, before the end of the third quarter. And in fact, our company has already raised the financing that needs to be fully funded from day one. In this particular case, as opposed to CTOs and as opposed to telesites before then, we, America Mobile, will continue to control and consolidate the company. And we have, in fact, a commitment to maintain our state at least for a few or five years in the tower company. Okay, so at least for this period of time, the Austrian company is going to be called the will be controlled and consolidated by American Mobile.
spk03: So we will be seeing as- And regarding Verizon's stake, Sorry. Where is your own stake? Any genius times? Where is your own stake that you have?
spk07: Your own stake? Yeah, what I would say is that the stake we have in the company, 51%, we have a commitment not to sell for a period of at least five years.
spk03: Okay. Okay, sure. So the second question I have is regarding the... enterprise segment revenues in Mexico. They have been growing significantly in the last few years. Do you think that they can maintain the double digit growth rates going forward, the corporate segment revenues?
spk07: I think we're doing very good on the corporate segment in Mexico. Oscar can talk a little bit about our propositions and what we're doing there. We have a very good distribution, people, propositions, and... Oscar, please. Yeah. We started to work three or four years ago about the focus on the enterprise market. And we've been very successful on next generation network, which is called SD-WAN. So we're moving to that. And we're adding to the connectivity value added. One is security, second is cloud. And third is vertical solutions for different vertical business as finance, retail. So we did some alliance with experts on the field, and we generally go to the market to offer the whole package to the enterprise. Has been working pretty nicely. So we developed our core business that is connectivity, but we aggregate value to the connectivity through security, cloud, and vertical solutions. It has been working very well, not only in Mexico. If you look at Colombia, if you look at other countries, we are doing the same, Brazil as well. So we believe that we need to convert not just connectivity, so bring value to the connectivity with this new proposition.
spk03: Thank you, everyone.
spk07: Thank you.
spk01: Thank you. And as a reminder, if you would like to ask a question, please press star, followed by one on your telephone keypad.
spk07: I'd just like to clarify something because it has come to our attention. In the case of the Austrian Power Company, as I mentioned before, we have a commitment not to sell the stake in five years. I understand that the question may have been about the state that we have in Verizon. And in that particular case, there's no limitations. So we don't really have any kind of limitations in terms of when we can sell. We do not have at present any plans to sell this space.
spk01: Great, thank you. The next question goes to Carlos de Legareta of ITAU. Carlos, please go ahead. Your line is open.
spk08: Hi, thank you. Good morning. I have two quick questions here. The first one on CapEx, I know you mentioned that you are still planning to do the slightly larger allocation this year. So looking at the data, year to date, your CapEx was actually down 2%. Just wondering if that's just the pace or seasonality this year. And secondly, going back to the tower company in Europe, so you... Hello? The entire... Hey, can you hear me?
spk06: Yeah, on the tower, can you please repeat the tower question?
spk08: Sure, sure, sure, sure. Just you raised $1 billion in debt. I just want to know if that's going to be the entire... amount of this company and i read in the european press that it has around 200 million in ebitda 200 million euros or so are these numbers uh more or less correct thank you okay on on the uh that of the tower company yeah the amount of health ingress was 1 billion and this amount will basically
spk07: The new debt at the power company and less debt in the telco, in Telecom Austria. Telecom Austria will have a leverage of approximately 0.5 times the debt to EBITDA, so it will be free to go a bit faster. The numbers you mentioned on EBITDA, I think they are probably more or less right, around 200 million. But we can confirm to you and we can send you some information, okay? And on the CAPEX, it's only seasonality. We do the CAPEX and we are, I think, on target, on plan on this, on the CAPEX that we're going to put. Always remember that we always have like 5% more or less depending in countries, places, and... And, Carlos, one thing that is important to take into account is that the currencies have appreciated vis-a-vis the dollar in many of the places, and CapEx has a little dollar component, yes. That changed a little bit.
spk08: No, that's a good point. Thank you, Carlos. And thank you both, Carlos and Daniel. Just broadly, more broadly, I guess, I guess the strong appreciation of the Mexican peso against basically all currencies. I just want to understand how are you managing that? Is that a net positive for AMX or not necessarily?
spk07: Well, it's a net positive to the extent that, you know, we are seeing a lot of effects gains, obviously, on the one hand. We had a lot of debt that was non-pesos, and this debt, this exposure is now... I was looking, for instance, at interest costs, net interest costs for American mobile have come down in peso terms year-on-year, and that is partly reflective of this appreciation of the peso. So that is a net positive, no doubt, on the financial part. I would say on the operations part, there's a number of OPEX that are linked to dollars. Most of maintenance expenses for networks are dollar-based. Most of the IT related expenses are dollar-based. So in all of those counts, we are getting some relief from the appreciation of the certainly of the peso, but not only the peso. We are seeing the dollar declining vis-a-vis almost all of the countries in Latin America this year.
spk08: Right. No, thank you for that, Carlos. That's very useful.
spk07: Thank you, Carlos.
spk01: Thank you. The next question goes to Chelsea Colon of Adon. Chelsea, please go ahead. Your line is open.
spk00: Hi, and thank you for taking the questions. I see that I was wondering if you could comment on your strategy in Central America. I see that, you know, you had good top line growth. but your EBITDA margin has come down a bit. Can you just comment on, you know, the underlying factors, maybe the main countries driving that and what your strategy is there from a, you know, competitive standpoint?
spk07: Well, I think Central America is an important place, area for America Mobile. And in Latin America, it's a lot. We have companies, places, cities or countries like Guatemala or El Salvador and even Nicaragua that we have the company for a long time. We have pigs for a long time. In other ones like Honduras, Costa Rica, we don't have, we start there, we have the mobile starting, and we're doing the fix. And in Latin America, we are, in Central America, we're changing and putting a little bit more fiber, as we said, is one of the places where we're going to invest more. And it's important, I think, we're looking to grow, to change, more to fiber all our customers and to, I think it's doing more 4G, more coverage. The penetration in broadband is not high, so we have more opportunities on doing more on broadband penetration. So it's an area where we're looking to develop more and see good opportunities.
spk00: From, are you also, you know, is it a region where you find the need to offer discounts to gain market share? Like, is that a goal to gain market share in this region, or are you pretty comfortable with where you are?
spk07: Well, we're looking to operate good to good propositions to increase Our coverage, so I don't know if it's gaining market share from the other ones or gaining market share by developing the country. So what we're looking is to cover more, to increase the broadband penetration, to move more customers from 3G for 4G to have more and more access. that they can use more data, that they can use more the phone. So we're going to do more on the corporate side, data centers, more in cloud and all these services. It's an area that we want to develop more. It's not necessarily taking from the other ones. It's more developing these countries.
spk00: Understood.
spk01: Thank you.
spk06: Thank you very much.
spk01: Thank you. We have no further questions. I'll now hand back to Mr. Daniel Hash for any closing comments.
spk07: I just want to thank you everyone for being in the call and thank also Carlos, Oscar and Daniela being here. Thank you very much.
spk01: Thank you. This now concludes today's call. Thank you all for joining Human Elders Connect Your Lines.
Disclaimer