Megacable Hldgs Sab Ord

Good morning and welcome to MegaCable's fourth quarter 2022 earnings conference call. With us this morning from MegaCable, we have Mr. Enrique Yamuni, CEO, Mr. Raymundo Fernandez, Deputy CEO, and Mr. Luis Zetter, CFO. Let me remind you that the information discussed in today's earnings call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statement. I will now turn the call over to Mr. Enrique Yamuni. Sir, please go ahead.

Thank you very much, and good morning, everyone. Thank you for joining us today. I hope you had a wonderful start of the year. At the end of this quarter, the challenging economic conditions we saw throughout the entire year prevailed as we reached the end of 2022 with the highest inflationary rates in the last two decades, leading to the continuous ramp up in the reference interest rate by bicycle, while the GDP growth for the 2022 was lower than in previous years, framing the economic deceleration. In this challenging context, we closed 2022 with a robust operating performance that drove revenues back to a double-digit growth path. This reflects the momentum gained from the formal execution of our strategy to penetrate new markets and pick up on important growth projects, especially in the corporate segment, which posted its highest quarterly revenue figure in the last seven years. The net ads figure for this quarter grew sequentially in year to year, confirming the growth trends observed in the third quarter, driven mainly by our entry into more than 30 new markets by the end of the year 2022. As a result, we recorded the best quarterly net ads figure of unique subscribers in total already used in the last nine periods. The quality service we provide focused on customer service that has helped us to maintain the preference of our subscribers as reflected in the lower churn rate coupled with reliable connectivity solutions and the best video platforms in the market. In that regard, we remain satisfied with the acceptance of the EdgeView platform among our subscribers. Nevertheless, We continue to work diligently to increase the quality and content available and to generate further customer growth at the back of an attractive value proposition. Regarding our financials, in this period, we registered a record high revenue figure for the ninth consecutive quarter, reflecting the solid growth trend the company is following. supported not only by the expansion project, but also by organic growth within the existing footprint. The corporate segment continues to perform and the revenue for this period represented the best quarterly figure for this segment ever, highlighting the outstanding performance of OLA, We are confident that this positive trend will continue amid the company's geographic expansion. In light of these results, the company maintains a very healthy financial position with very low leverage, which gives us the capacity, if we need, to increase our debt to support and accelerate the company's future plans. It is important to mention that CAPEX figure, excluding the special projects that we are carrying out, remains at levels close to the 20%. This means that even with the current temporary deterioration of margins, the outlook that we have for the following years is very optimistic, given that once we have doubled the size, the company will have a higher and sustainable cash generation. Moving to our current projects, the outcome obtained so far from our expansion project, particularly in terms of infrastructure, is within our expectations. The growth achieved during the quarter in terms of homes passed and kilometers activated will be a milestone for the next two years as we prepare to reach more than 30 additional cities for a sum of more than 65. Considering the aforementioned, we will continue to move forward as planned, investing in our infrastructure intelligently and practicing a financial discipline with a long-term vision to lay out the foundation for the company's long-term profitable growth. These investments include our expansion to new territories. the consolidation of Jeep Home Evolution Project, and the migration of the remaining HFC territories. In this regard, we are confident that upgrading our network to the latest technology will benefit our business as the demand and connectivity requirements of Mexican homes and businesses continues to grow. Now, regarding the M&A offer that the Board of Directors received last November, For the moment, we can tell you that nevertheless the company is not for sale. The company's board will always remain open to receive and analyze any business proposal. Our main interest is to maximize value creation for all our stockholders. All the decisions are made with the same principle. And nothing comes before what we believe is right for all of us who participate in some way in this company. To conclude, this quarter's results demonstrate that the strategy we have adopted is the right one for the long term, which becomes more meaningful when looking at the persistently challenging environment. We are determined to become a nationwide company, spending our presence to other markets and growing our infrastructure, our financial profile, and our employee base In this sense, we recognize and appreciate the hard work put in to achieve another successful year for our company. I will turn the call now over to Raimundo to discuss our operational performance. Raimundo, please go ahead.

Thanks, Enrique, and good morning, everyone. Our operational performance for the quarter continues to enclose the growth trend we have observed in recent periods. both in the organic territories and in the new cities in which we have started to operate. Although the economic context remains difficult, the company has leveraged its growth on its capacity for innovation and its ability to adapt its services to current market conditions. This includes bandwidth increases to our subscribers and a very aggressive market penetration strategy, which coupled with rate adjustments will result in a higher ARPU and therefore better profitability in the future to come. From the consumer side, we have seen great acceptance and demand for our service packages in all our territories, as reflected in a decrease in churn rate despite more aggressive competitive dynamics and inflationary pressures, which we have addressed with measured pricing and efficient bundling strategies. It is also worth highlighting the performance of the corporate segments especially OLA, whose result for the quarter in line with the reactivation of the public and enterprise segment, provided boost for this segment to contribute with a little over 20% of the consolidated revenue for the period. Now, moving into results, unique subscribers reached almost 4.4 million at the end of this period, increasing 6% versus the fourth quarter of 2021, translating into 245,000 net additions, of which 124,000 correspond for this period, which represents that 50% of the annual growth was achieved in this past quarter. By segment, internet subscribers increased 8% compared to the fourth quarter of last year, totaling more than 4.1 million, resulting in 304,000 net additions In this period, 125,000 new subscribers were registered, the highest figure in the last nine quarters, or 3% growth. In a competitive environment, the constant evolution of our network, including the rollout of new territories, together with the consolidation of the GPON Evolution Project and the migration of other territories, continues to support our company's transformation and ensure our capacity to deliver the bandwidth the market requires. At quarter end, half of our subscribers receive their service through fiber technology. In addition, the investments we have made allow us to increase the speed we provide to our subscribers, and now 54% of the base has a service of 50 megabits or higher, compared to only 18% a year ago. Video subscribers reached almost 3.7 million, growing 4% versus the fourth quarter of 2021, adding 136,000 subscribers. While in the sequential comparison, it had a growth of 2% or 83,000 net additions. Our XView platform continued to grow, going from 2.4 million set-top boxes at the end of 2021 to more than 3.5 million this period. an increase of 46%, or 1.1 million net additions. Our interest remains in increasing the content available in our platform. We are working closely with the content providers in order to maintain XView Plus in the preference of the market on the base of the best content with a friendly interface and superior integration capabilities. The telephony segment records 3.4 million subscribers, growing 12% when compared to the same quarter of 2021. implying 373,000 net additions. At the end of the quarter, REUs totaled more than 11.2 million, 8% more than 10.4 million of the fourth quarter of 2021, driven by the strong subscriber growth, mostly coming from our expansion project, which is also reflected in the REUs per unique subscriber that went 2.51 in the fourth quarter 2021 to 2.55 this reporting period. The MVNO service active lines totaled 357,000, decreasing versus the same quarter of last year due to the implementation of a customer-based cleanup strategy, which we have now concluded, expecting to build a more profitable and active base of subscribers who contribute positively to a healthy ARPU growth. At quarter end, Most of our subscriber base is comprised of post-paid services with one of the highest ARPU in the industry. The accelerated subscriber growth was supported by lower chunk rates on an annual and sequential basis, with broadband at 1.7%, video at 1.8%, and telephony at 1.9%, a clear sign that our subscribers continue to see the value of our offering. Consequently, the ARCO per unit subscriber was 419.5 pesos, an increase against the previous quarter, which is quite meaningful if we consider the promotional rates, meaning that new subscribers have not yet fully contributed to revenue. Therefore, greater growth is expected in the coming periods after the expected penetration is achieved in the new territories. Turning to ARCO by segment, broadband and fixed telephony remained practically unchanged when compared to the third quarter of 2022, while video grew by 2%. And mobile services increased by 20%, reflecting the optimization of the client base. Now, on the corporate side, the corporate telecom segment recorded one of its best results ever, highlighting the performance of OLA, which grew 1.2 times, or 124%, compared to the same period of last year. mainly due to the pickup of several important projects in the public market, coupled with a strong increase in the corporate market when compared to 421. In addition, Metro, Carrier, and MCM also presented solid results, increasing its revenues by 20% and 14% respectively on the same comparison. The results from the expansion project are now more visible. As of year end, we were able to enter 30 new markets by means of nearly 9,500 additional network kilometers, which represented nearly 2 million home paths. That means increases of 14 and 21 percent respectively when compared to the end of 2021. We are certain that this infrastructure will be reflected in the subscribing roads for the next period. Wrapping up, in light of the current momentum of our expansion plan, and important projects to improve our network, we are confident to further grow in the mass and corporate mass market while bringing connectivity and video solutions and with higher value to our customer base. With this, I conclude my remarks. Now, I would like to hand the call over to Luis, who will shed broader color on the financial results.

Thank you, Raimundo. Good morning and welcome, everyone. First of all, it is important to clarify that all the competitive figures related to 2021 using our report correspond to the 2021 audited financial statements, which were published on May the 3rd of 2022, and could differ from the numbers reported in the quarterly report a year ago. Now, moving into results, our consolidated revenue reached 7.2 billion pesos in the full quarter. and 11% growth compared to the same period of last year. This was largely attributed to the strong performance achieved in all business units. For the full year 2022, consolidated revenue was in the boundaries of 27.2 billion pesos, 10% more than the figure recorded in 2021. The max segment revenue for the quarter was up 5% year over year, totaling 5.6 billion pesos revenue for broadband, video, and mobile services increased on an annual basis by 8%, 3%, and 60%, respectively, mainly derived from the stronger subscriber base growth. Meanwhile, fixed telephony revenue contracted 5% following its declining importance as a traditional form of communication, with more customers relying on Internet solutions. Mass segment revenue for the full year reached nearly $22 billion, an increase of 8% versus 2021, maintaining a solid growth trend. The revenue of the corporate segment reached almost $1.6 billion in the fourth quarter of 2022, 37% more than the same period last year, also marking the highest figure recorded in the last seven years. This was mainly the result of OLA's outstanding performance, recording a 124% year-over-year growth, benefiting from the success found in projects for the public and enterprise sectors in the same line. MCM rose 14%, being its third quarter growth growing at double digits. In Metro Carrier, poster revenue growth rate of 20% versus the fourth quarter of 2022. Lastly, CCTV climbed 20%. This achievement also follows the contribution of the ongoing expansion plan. Azolla and Metro Carrier have also increased their footprint into new territories. For the full year 2022, corporate segment revenue amounted to almost 5.2 billion pesos, up 23% compared to the 4.2 billion pesos recorded in 2021. It is worth mentioning that the revenue mix changed to 78% of contribution coming from the mass segment and 22% from the corporate segment compared to 17% a year ago. The cost of services rose 21% year over year, reaching 2.1 billion pesos. These variations were primarily due to the cost related to the revenue growth in OLA, as it comes with a lower margin contribution, as well as the growth achieved in the mobile services business unit. The aforementioned, coupled with the cost related to the overall expansion of the company into new territories, which also contributed to a 16% growth in SG&A when compared to the same period of last year. For the full year 2022, both cost of services and SG&A were up 15% year over year. Consolidated EBITDA for the fourth quarter amounted 3.1 billion pesos, an increase of 2% compared to the same period of 2021. with an EBITDA margin of 43.4% for the full year. Sorry. Consolidated EBITDA grew 6%, reaching 12.8 billion pesos, implying a margin of 47%. In the last quarter of the year, the EBITDA of cable operations reached close to 3 billion pesos, with a margin of 46.9%. While on a yearly basis, it reached $12.1 billion with a margin of 49.1%. As we have mentioned before, as a result of our expansion plans and as included in the projections, we expected our margins to be pressured during a number of quarters and then recover when the new territories mature, which is consistent with current results. Net income totaled 582 million pesos in the fourth quarter of 2022, 72% higher than the audited figure recorded in the same period last year. On a sequential basis, the decrease is mainly due to a one-time tax payment pertaining to several years ago, in addition to a higher depreciation effect related to the heavy investments made over the last three years. and an increase in the interest expense as a result of a higher leverage. For the full year, net income was nearly 3.7 billion pesos, up 3% against the audited figure for 2021. It is important to clarify that The net income audited figure for the fourth quarter of 2021 and full year 2021 differs from the figures presented in the Quality Report mainly due to the recognition of the impairment in Alton's investment. Moving into the balance sheet, as of December 31 of 2022, net debt was 12.8 billion pesos compared to the 10.3 billion recorded a quarter ago. and the 4.5 billion pesos recorded a year ago. The increase is largely explained by the issuance of long-term local notes for 7 billion pesos in July 2022, and additional debt in the amount of 3.1 billion pesos that was acquired during this quarter. Both of them are mainly aimed at accelerating the expansion of the company into new territories, and therefore to contributing with additional revenues and profits. Nevertheless, the NAPDAT to EBITDA ratio stood at 1.01 times, while the interest coverage ratio was 8.21 times, remaining at very healthy levels when compared to other players in the industry. Regarding CAPEX, 3.9 billion pesos were recorded this quarter for a total of 11.8 billion pesos during 2022. which represented 43.6% of the revenues for the period. We continue to invest in our expansion and network modernization, as seen in the home spots and newly added kilometers of network. With this, I conclude my remarks. Now let me turn back the call to the operator to open the line for questions and answers. Operator?

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star 1 to register questions at this time. The first question is coming from Fred Mendez of Bank of America. Please go ahead.

uh hello uh good afternoon everyone and thanks for the good morning mexico right and thanks for the call i have two questions here i mean the first one uh when you look at the the number of connections right above uh 50 megabytes you went it's much higher today right more than 50 against 18 2021 but when you look at the arpu is that best flat right if not with some pressure Given this higher fiber, don't you see any room for price increase, especially looking forward? This will be my first one. And then the second one is the level of leverage remains comfortable, as you mentioned in the call, and I agree at one time. But it is growing at a fast pace, right, because you're burning 2.5 billion pesos per quarter. At which level you'd still feel comfortable with this leverage going up? Thank you very much.

Sure, Fred. Thank you for the questions. The albums remain flat, as I said, because we have a very aggressive promotional campaign, and it's remarkable that we remain at that part. Normally, when you have a ramp-up of that, that's when you have a mix of new subscribers with existing subscribers. We expect going into the future something slightly above of what we have. It's going to be increasing, but we will remain with pressure on promotions. all the time that we will continue to grow over 2023 in that part. So expect ARPUs to increase slightly on that part, but expect also growth in subscribers coming from new territories at the end. We have also looking into price increases on that part at the end of last year. We did a price increase in the company, so that's going to help us in terms of the of the ARPA that we have. And we will look during the year to see special markets where we have room to adapt for those rates. At the end, as I said, slightly above of what we have right now. Luis, you want to discuss about the leverage?

Sure. Fred, as you said, we feel comfortable on the current leverage ratio, and we think that we will still be burning cash, increasing this ratio. And we will be comfortable in around 1.5 to 1.7. We still think that it's a very reasonable position.

Perfect. Very clear. Thank you. I want to thank Luis. Thank you. You're welcome.

Thank you. The next question is coming from Marcelo Santos of J.P. Morgan. Please go ahead.

Good morning, thank you for taking my questions. The first question is if you could provide some view of margin, margin outlook for 2023, how should this behave? The second, sorry to bring back the potential, the proposal from Televisa, but is there any negotiation going on? What's the current status of this potential transaction? Thank you.

Sure, Marcelo. Talking about the customers,

Well, we expect to grow with the expansion project. We're not giving a guideline for that, but we still expect to invest, to continue to grow in kilometers. We're going to put around 2.5 million home paths for 2023. Investing, as Luis said, we feel comfortable that we can have a 1.5 to 1.7 net debt ratio for that part. That's going to take money and capex for us is going to be pressure on margins, which is for us, and the message we want to provide is normal. On a growing company like the one that we have, we did a very good fourth quarter in terms of activating. Unfortunately, it was very, very late into the year. As you might imagine, we opened 30 cities. We built in all of them. We have the infrastructure. and we create 2 million more home paths over the year, we need to capitalize that. It's going to be, as every company, we need to start growing market penetration. That doesn't go much more faster to build than to bring subscribers, but we're having great results. So you can expect that we're going to have, of course, a double-digit growth pretty much in every of our financial measures for 2023. And I don't know if, Enrique, you want to address. It's very simple, the other one.

No, the other one is about Televisa proposal. We already did a press release about that. And I do not think that there has been any more conversations with them. We are focused, the administration of the company is focused in our alternative plan, which is growth. and investment, do a lot of infrastructure, double the size of the company. We've been successful in that. The plan is going accordingly to what we have planned, and we are accomplishing our goals over time. And that's all we have to add about that. I mean, I did some comments in my speech today And that's all we have to say today. Thank you very much.

Perfect. Thank you.

Thank you. The next question is coming from Ricardo Ovidio of GBM. Please go ahead.

Hi. Hi, Enrique, Raimundo, Luis. Thanks for taking my questions. The first one would be an update on your network expansion plan. In the first couple of months of this year, have you seen an accelerated pace of additions? And secondly, for the full year of 2023, do you see your CapEx2 sales in the 40% ballpark? Thanks.

Sure, Ricardo. Thank you for the questions. Yes, we continue, as Enrique just said, and Luis also. We continue with our expansion plan, which will be building between 2 to 2.5. Our goal is to build 2.5 million home paths. We have the goals and the management of the companies which is only focused in doubling the size of Mega Cable. And that requires investment in CAPEX. The CAPEX will remain around the low 40% of the revenue, as you will say. We have a very healthy, we consider CAPEX of the revenue in the organic part. And the pressure on the CAPEX is, of course, because of the expansion project. So you will have 15,000 more kilometers and 2.5 million more home paths that for sure is in line with what Enrique, Luis, and everybody were mentioning. We need to have a very healthy balance. It does allow us to get there. Getting to 1.5 is a pretty manageable level of financial debt. for the company and will put us in a great position for 2024 and 2025, if I might add on that part. Also, let me tell you that the company is not only looking into the expansion project on that. Our capex over revenue for 2023 and years on, it does include, of course, the evolution of the existing network. Our existing network, as I remarked, It's already 50% of the network is G1, is fiber to the home. We will end the 2023 with around 72% of the network in fiber. The rest is being upgraded to 250. In summary, it's 225 home paths per node, which gives us great capacity in these small towns. But we're building this company to be very, very robust for the years to come. with a much more better financial position also in 2025 and 2026. So our plan is going according to what we projected and presented to you in the past quarters, Ricardo.

Yes, and the full capex for the year, we expect that to remain around 40% of revenues, yes.

Thanks, Raimundo. Luis, so would you say that the... net additions numbers have been growing in these two first months of the year? May I say?

Yes. We shouldn't be touching.

What, what, what? That's, that's, that's, that's, Ricardo, please. That's a tricky question. We're doing okay. Let's say in that way.

Okay. Gracias, Ramon. Thank you, Ricardo.

Thank you. The next question is coming from Andres Coelho of Scotiabank.

Please go ahead. Yes, thank you for taking my question. I was looking at some of the new cities that you launched last year. And, for example, if you look at Mexico City, you guys cover the north of the city, right, where probably you have a little bit less competition or you don't have as much fiber to the home as in other areas. But if I look at Tijuana, if I look at Cancun, if I look at Aguascalientes, you guys are covering exactly the same neighborhoods as Total Play. as easy, even as the Telmex fiber. So I'm wondering, Ramon, if you can perhaps give us an update on these new cities, if you are first launching, say, in the city center and then you're moving to the outskirts of the city, or if you can just give us a little bit of color in terms of the overlap with Total Play and EC and Telmex. Thank you.

Sure, Andres. We look for the areas where we believe we have the much more potential uh according to our market market studies on the part uh looking at competition what kind of network do they have how they manage uh please don't forget that that we already have 3.7 millions of boxes already with xv plus and we're very confident and we are a compared to other ones we're rolling video we believe that video the way that we have the xv plus makes a very robust offer with the Android TV platform that we have and integrate all the apps. So when we get to those markets with the ARP and the prices that we have, we're bringing subscribers from both, from Easy and Total Play. I don't want to say one or the other ones, but what we have in some areas is only Easy, in some areas are both, in some areas is Telmex and Easy, Telmex also has Fiverr in some areas, but we're doing okay, we're growing. Our main A constraint and restraint is we need to execute, as I continue to say. We have and we built and we proved to build those 950,000 home paths in the fourth quarter. Now we need to prove and go for those homes. it's a great offer. If you look at our user interface and DXU Plus, Andres, I'm pretty sure you will move yourself from another company and come and get our service, which I hope you can have and tell us is better.

Right. So let me just push back a little on this. If I recall, originally your strategy was to deploy Fiverr in these new cities, but in areas where, you know, Total Play wasn't there, Pelmex wasn't there, and then you will take advantage of that opportunity. But, for example, if you look at Tijuana, like, it's a huge city, right? But you're covering, I mean, your footprint overlaps entirely with Total Play. So my question is if the new strategy or the expansion strategy can now be also to cover the same areas as the other guys, as opposed to areas where the other guys were not present. I just want to see if there was a kind of a change in direction.

No, no, there is no change in direction. It's a matter of time to deploy and to grow. We want to double decide. We always say that we're going to reach certain penetration where we feel comfortable. We are very well into that goal. We are also, when we enter new cities, we build 30 cities, but we didn't build the whole cities. We start from some areas where we feel more potential, but we're going to get there. We're going to get to overbuild those areas to a certain extent. We might not build 100%, but we're going to be very close. We did not invest in hubs and metro rings and the expansion of metro carry and OLA and the massive market just to build 30% of the city. Of course, we're going to build a huge amount of percentage of those areas. And sorry to say, we're going to have some overlap, but we're going to have a good penetration for the results that we have. And let me tell you, we're doing really good in Tijuana.

In Tijuana, we had to stop our sales force because we had so many sales that our backlog in installations was becoming too long. So we decided to stop sales and... send crews to accelerate the installations. That big was the success when we launched. And I think that the, I mean, what we've seen so far from new cities It's in line with what we expected and projected. That's why we did not modify our expansion plan, because it's going according to what we expected and what we planned.

And also, Andres, we have 11.5 million home paths. We're going to continue to grow. When we say we will double the amount, That's going to take us to 18, 17 million home paths in the years to come. We need to do that, and we're going to do that. The cities where we built, we have had a great result on that one. And we're not going to stop that path. We, I believe, and we believe we execute right. And like Enrique is saying, the problem now is to get enough crews and sales force and everything to take the advantage of our great, and the network that we have. Just in this fourth quarter, I believe we did really well. We should be the highest growth for the quarter of all the industry here in Mexico. And we expect to have a very good 2023 and 2024. It's not going to be an explosion in one month because it's a physical job we need to do city by city.

But it's going to be there. Very clear. Thank you very much.

Thank you.

The next question is coming from Fanny Kanumori of HSBC. Please go ahead.

Thanks for taking my question. So you said that the EBITDA margin should recover going in time. So what is the timeline that you're looking at where you think the EBITDA margin would be back to the 2021, 2020 levels? That's my first question. Second question is regarding the interest rate. This quarter, it seems that your interest is pretty high. And you attributed that to retrospective taxes. So can you just elaborate on what was the taxes there? Thank you.

Sure. As we mentioned in the projections and until the new territories mature, we expect the margins to be depressed. And for new territories, we expect around 24 months to really get to a mature state. territory that we build in 2025 or 2024 will need two years to mature. But the first that we build in 2021 or 2022 will be ready by 2024. So it is a mix. And after all is said and done, that would be maybe the second half of 2025, we will go back to almost normal margins, but don't expect to get to 50% again.

But in addition to what Luis is telling you, Freddie, our cable operations remain at 47%. It did decline, but this is 47%. The pressure that we have also over this fourth quarter was because of the extraordinary results of the corporate segment coupled with the growth of the mobile revenue, but mostly was because of the corporate segment in that part. So we are still at 47. It's below what we have, but with pressure. How much we're going to decrease, I don't think it's going to be too much. It's going to be pressure in the 2023 and 2024, of course. But it's going to be around those areas pretty much one point, maybe two below that, not more.

The interest was basically affected also by a tax payment from previous years that included also a financial piece for that because it was a really old thing.

It is not the normal level of interest, so don't expect that to continue to be in the future coming of the interest.

Absolutely, on that one.

Thank you, very clear.

Thank you. The next question is coming from Carlos Margareta of Itao. Please go ahead.

If I may follow up on the question about the .

Carlos, can you speak a little bit louder? We can barely hear you.

Is that better? Way better.

Now it's Ricardo's window.

Okay, thank you so much. So my question is about the CapEx to follow up on Ricardo's question. I guess you had mentioned, Raimundo, previously that you were budgeting $2 billion for the 2021-2024 period. Are you still looking at the same figure, or has this gone up in any way? And the second one is, if you can disclose the non-recurring amount of tax payments that you mentioned in the press release, and also just for housekeeping purposes, why was that booked as an interest expense and not a tax payment? Thank you.

Sure. We announced and we say that the company was going to invest $2 billion over a certain period. What we're moving is bringing some of that into the future, accelerating some of the parts. That's why you see the level of capex that we have in 2022, 2023. But you can expect that the level will remain. We're not going to exceed those $2 billion that we say for that period.

Okay. But Carlos, what I can share with you is the impact on financial. So the financial piece that is in results for this tax payment was around $370 million. That's right.

I'm sorry, can you repeat that number, please? $370 million. $370.

Carlos, I believe when I'll tell you a little bit more about the capex. Years changes in terms of the project, but I believe that the more important way to look at megacable is how is megacable going to be looked and perceived in 2025 and 2026 when we increase significantly our revenue in EBITDA and we will lower the percentage of capex of our revenue to a very healthy levels once we finish all the projects that we have, including the expansion. Everything we're doing in the network is for the future to come. It's future-proof. All the key projects that we have and building to get to that 72% and increase fiber in the future to come will not require more capex in external plants for quite a while. The cities that we're building, they do include our massive expansion as well as metal carrier and MCM expansion if needed with enough fiber to do that. So it looks really well that you think about a much more healthy and lower capex over revenue in the years to come.

Right. I mean, I see that. I know it's difficult because obviously the capex is not equally distributed between these years. But just to double-check, you are still looking at the same overall figure of $2 billion for the expansion project? Or for the whole company for 2021 all the way through 2024?

Carlos, we are accelerating, and we might be a little bit higher than that between 2021 and 2024, if you want to be exact on the years on that part. we can be slightly above that because of the acceleration and the speed of compass and penetration that we are having. It's not going to be anything that will put more of what Luis and myself told you about the net debt ratio and the goals of doubling the size goal, but we might spend a little bit more of that before the end of 2024. Yeah, it might be a little bit above that.

Thank you. I appreciate the answer. Well, thank you.

Thank you. The next question is coming from Patrick Brennan of Brennan Asset Management. Please go ahead.

So I had two questions, one on just the theme on the new territory and the penetrations you're getting and, you know, potentially going into areas that already have fiber. Can you talk about, I guess, you know, a couple of items? Do you assume for the penetrations that you've discussed in the past, are you assuming different penetration levels when you enter the parts of the city that have fiber versus those that do not? And do you have different penetration assumptions when you go up against HFC when that is presumably the HFC that remains that is upgraded to DOCSIS 3.1? Is there a difference in assumptions? And then just if penetration rates don't equal expectations, what's sort of the checks within the company to not continue the expansion project if you're not hitting levels? Do you sort of look if we're below expectations after six months, after 12 months? What is the kind of control within the company to potentially scale back the expansion if it isn't hitting returns? And then my second question is just, is there any other details you can share on just how the merger discussions with TV progressed? You know, a lot of minority investors in Megacobble would look at the offer and sort of say that it's clear that, you know, there's an industrial logic to a merger. You know, it's a larger cable company. There's synergies. A lot of people would think that, you know, mega is a fulcrum asset and there's a lot of value from mega. I'm just trying to understand a little bit that just sort of a terse press release saying mega is not for sale versus, you know, clear value, you know, in a potential deal. Is it it's not for sale at the price TV wants? It's not for sale ever. And just any other color you can give. in light of your comments that Mega is most interested in creating shareholder value. Thank you.

Sure, Patrick.

In terms of the new territories penetration, we of course have by social economic level, by competition, by price of the product, by quality of the service that the competition provides. And that's how we come to an overall penetration and market share goal for the markets where we are. What I can tell you is that we are very comfortable, that we are above the expectation that we have in the markets where we open. We will continue to that. And when it doesn't make sense, sure, management will see and will come to the board and tell them if we need to stop. But it's not in our mind right now. We're very confident at the level that we have made sense. Money, it creates value to the shareholders. It's going to make a very well and efficient national company with national footprint. Synergies with MetroCard and MCM and OLA across everything with the great financials. We'll see what happens in Megacable in three years, but But we don't have anything in our mind that will make us believe that we're not going to be successful for the rate and penetration that we expect. I can answer.

You want to answer the question? Yes. I mean, the evaluation was made by the board. The board took into consideration two things. The proposal they received and the business plan that the management of the company has presented about two years ago in the scope of five to six years forward. And the board considered that it was a better path for them or for the company to keep with the management presentation and plan than to do the merger proposed. I mean... the special dividend that was offered, I mean, that's not something that is an advantage for the shareholders of McGowan College. We could do that if we wanted. Now, I mean, the real evaluation that the board did was We have these two options. Which one is better for us? They decided that the one that was better for the shareholders and for the whole company was to stick with the management plan that was presented to them two years ago.

And it was a very clear response, and it was all said in that response in public.

Thank you. The next question is coming from Alejandro Azar of GBM. Please go ahead.

Hi, guys.

Good morning, Enrique, Raimundo, and Luis. Just follow up on the margins, if I may. There is a question that you guys have the most efficient operation across the industry, but my question is if on the expansion plan, you are sacrificing profitability for growth. And just to be clear, you have mentioned you are doubling your operation by 25, 26, but at the same time, should we think of margins in the long run or on that run in between, in a range of 46 to 48% once that plan reaches full capacity in terms of additions? Thank you.

So as we have mentioned, we are going to get back to higher margins once the new territories are mature. And basically, yes, the margins we expect are going to be within the numbers you mentioned, 46 and 48.

And you mentioned sacrificing profitability, Alejandro. I would like to think on sacrifice and profitability, it is really, really normal that when we start operation in a city, we have a fixed base of cost that needs to be divided by the number of subscribers in the future. As we have more subscribers and revenue coming from the expansion project, our margins from those areas will come to something, will improve. But if we start a city back in December last year with X amount of facilities and poles and cable and energy and employees, we need to have the subscribers. So it is normal that there is pressure on the margins of the company for the expansion project? Yes. And if you come and you say, okay, the majority of the growth is going to come from there, because it's natural, that's where we're putting the cap, is to, you know, when you have a new subscriber, you have also some some promotions that has a lower ARP, and then they recover in the future when they try our product. So it is not sacrificing. It's a very clear strategy and normal, in my opinion, and it's working so far.

And it's an environment where we will have competition. In our 50, in the margins that we were 50, was basically with only one competitor that was Total Plate. So it's a different environment as well.

Very clear, guys. Thank you again.

Thank you. At this time, I'd like to turn the floor over for any web-submitted questions.

Yeah, we have a question from Terran Capital, from Rupesh Hahu, but it's regarding the M&A that we have already discussed, so I think that we have no more questions. So I'll turn the call over to Mr. Yamuni for final remarks.

Okay. Thank you very much, guys, and thank you. As always, it is a pleasure to discuss our results with you. Please contact our investor relations department if you have any questions or concerns regarding the company, and have a wonderful weekend, everyone.

Thank you.

Thank you very much.

Enjoy your conference. Thank you very much.

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