Earnings Call Transcript
AMERICA MOVIL SAB DE CV/ (AMX)
Earnings Call Transcript - AMX Q2 2023
Operator, Operator
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 America Movil Second Quarter 2023 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Now I will turn the call over to Mr. Daniel Hajj, CEO of America Movil to begin. Thank you.
Daniel Hajj, CEO
Thank you, Nadia. Welcome, everyone. Thank you for being in the America Movil second quarter of 2023 financial and operating report. Carlos is going to make a summary of the results. Carlos, please.
Carlos Garcia Moreno, CFO
Thank you, Daniel. Good morning, everyone. 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 reduction 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 postpaids. Brazil contributed 632,000, Austria 267,000 and Colombia 171,000. Prepaid net subscriber additions stood at 787,000 with Brazil and Mexico adding almost 200,000 each, and Colombia 185,000. On the fixed-line segment, we obtained 331,000 broadband accesses, including 140,000 in Mexico, practically identical to the figures in the prior quarter which makes it the second consecutive quarter with strong broadband net additions, 78,000 in Argentina and 45,000 in Brazil. The growth of our mobile subscriber base stayed basically on trend with the postpaid base expanding 8.3% and the prepaid one 5.3%. On the fixed-line platform, broadband access growth picked up a bit to 3% while PayTV accesses remained roughly flat. Second quarter revenue was down 4.6% year-on-year to MXN203 billion, 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% at a slightly slower pace than that of the prior quarter. EBITDA was down 3.8% in Mexican peso terms to MXN78.7 billion 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. With EBITDA growing faster than revenue, the reduction in inflation rate we have seen in most countries as well as the appreciation of most Latam currencies and the euro vis-a-vis US dollar have recently contributed to this through their impact on costs. Service revenue growth continued to advance on the fixed-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% in 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 PayTV 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 Oi mobile clients acquired by Claro. The uplift in terms of revenue growth provided by former Oi 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 MXN40.3 billion was down 2.9% year-on-year with our net profit nearly doubled from the earlier quarter to MXN26 billion, mostly on account of greater foreign exchange gains. In the first six months of the year, capital expenditures totaled MXN64 billion and distribution to shareholders MXN3 billion, including share buybacks. In cash flow terms, we reduced our net debt by MXN4 billion in the period. All the above was funded by our operating cash flow and by proceeds from the sale of certain shares and payment received from the sale of our interest in the platform. Our net debt excluding leases totaled MXN356 billion at the end of June, having come down by MXN25.8 billion 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 would pass the floor back to Daniel Hajj for the Q&A session. Thank you all.
Daniel Hajj, CEO
Thank you, Carlos.
Operator, Operator
Thank you. Our first question goes to Vitor Tomita of Goldman Sachs. Vitor, please go ahead. Your line is open.
Vitor Tomita, Analyst
Good morning, all, and thank you very much for allowing us to 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 the 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 remunerations 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.
Carlos Garcia Moreno, CFO
On share buybacks, as we've noted before, we tend to manage them with our cash flow throughout the year. The cash flow is usually weaker in the first half due to high working capital needs, but it typically improves in the second half, allowing us more liquidity for shareholder distributions. This seasonality has always been a factor. Additionally, we needed to accommodate an increase in capital expenditures, which we raised from MXN8 billion to roughly MXN8.5 billion. We aimed to address this before pursuing share buybacks. Now, we expect to return to a normal pace of distributions aligned with the recovery of our cash flow. Regarding mergers and acquisitions, we currently aren't looking at any new opportunities. We have ample organic growth potential, with strong developments in our fixed-line operations and continued good growth in mobile services. We're not in a position where we need to pursue acquisitions for growth. While there are some potential regulatory opportunities for acquisition in Latin America and limited options in Eastern Europe, we aren't actively seeking any acquisitions either within or outside our current footprint.
Daniel Hajj, CEO
And just to add on what Carlos said is, I think 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 are open to see other opportunities, but right now we're not looking to anything.
Vitor Tomita, Analyst
Very, very clear. Thank you very much.
Daniel Hajj, CEO
Thank you.
Carlos Garcia Moreno, CFO
Thank you.
Operator, Operator
Thank you. The next question goes to Lucas Chaves of UBS. Lucas, please go ahead. Your line is open.
Leonardo Olmos, Analyst
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, on the 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 Vitol from BTG. So overall, I just want to double-click on Vitor'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 in Brazil? Thank you.
Daniel Hajj, CEO
Well, I'm going to talk a little bit about Brazil. I think in Brazil, we are doing good. We finalized all the synergies that we have with Oi. I think we have all the subscribers on our platform, I think, where you 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 fixed, in broadband. So it's very good news. We have two or three quarters growing again in broadband. So things are looking good for us. It's good that the market consolidates. There are 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 news or not, but what they said is that Vero and AmericaNet are merging is what I hear this morning. So it's good that all 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 profitable clients in this segment. So that's what we are looking for. So what, I don't know, Oscar, if you want to say something else on Brazil.
Oscar Von Hauske, COO
No, as you say, in corporate, as you mentioned, we canceled some cloud contracts. When you look at the rest of the digital solutions, we are growing double-digit in all of them, in network management, in IoT. So we feel that the path overall will continue. And as you mentioned in fixed broadband, we are still growing the last three quarters. We were in negative before. So we operate the network and we are changing all the customer satisfaction, installation in time to prepare. So I think we have very good products in the marketplace.
Daniel Hajj, CEO
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 very good top of mind, very good network, very good customer service and we're doing very good.
Oscar Von Hauske, COO
Yeah. And we could offer 1 gigabit in all the networks, right?
Daniel Hajj, CEO
And also we can. Yes. I don't know if.
Leonardo Olmos, Analyst
Great. Cannot disagree on that. Very good performance. Thank you very much.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Thank you. The next question goes to Walter Piecyk of Lightshed Partners. Walter, please go ahead. Your line is open.
Walter Piecyk, Analyst
Thank you. I briefly lost connection to the call, so I apologize if this question was addressed. Daniel, regarding service revenue in Mexico, there is clearly growth, but it seems a bit slower compared to previous quarters. Subscriber growth appears to be satisfactory. It seems there might have been a slight dip in recharge during the June quarter. Could you provide some insight on that? Is this indicative of the economic situation? I understand that inflation in Mexico has been decreasing, possibly around 5% now, and the trend is downward. Could you also comment on the average revenue per user and the service revenue growth in Mexico? Should we anticipate a slowdown in this area?
Daniel Hajj, CEO
On Mexico, we're gaining traction again in postpaid. So in postpaid, we're doing better than what we used to be last year. So we're again gaining traction. And it's exactly what you were saying, in prepaid, 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 a lot more customers recharging these. So what we're seeing, yes, the growth has been slowing down a little bit and it's I think that people are recharging a little bit less. It's maybe it's 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.
Walter Piecyk, Analyst
I noticed that in past years, equipment revenue in Mexico tends to increase during the second quarter. I'm not certain why that is. Are people purchasing more expensive phones or is it just part of a cycle?
Daniel Hajj, CEO
It's Mother's Day. Mother's Day is something very important and it's in May. So that's why always in the second quarter there is an increase in equipment revenue, yes.
Walter Piecyk, Analyst
So for this year, I guess, what I noticed that 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 that is fresh this year.
Daniel Hajj, CEO
Yeah. I think people are starting to wait a little bit more 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 phone. And here they wait a little bit to buy a new phone. What we're doing and 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 postpaid segment, we are starting to finance also in the prepaid segment. Good, 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 America in Telcel. I think we're going to do that all around America Movil if it works and we're happy with the way it's been developing.
Walter Piecyk, Analyst
Okay. And then just one last question for Carlos, if you don't mind. With inflation seemingly moderating, the outlook appears a bit more positive. I'm curious if there's any update on your thoughts regarding target leverage ratios and how they relate to capital return.
Oscar Von Hauske, COO
We are currently assessing our leverage ratio. Our goal is to maintain it between 1.2 and 1.5. This range is what we are focusing on. In terms of return on capital, we have a clear guideline that prevents the ratio from falling below 1.2. This approach aligns with what we communicated during our Investor Day a year and a half ago.
Walter Piecyk, Analyst
Yeah. Thank you very much.
Daniel Hajj, CEO
Okay. Thank you.
Operator, Operator
Thank you. The next question goes to Fred Mendes of Bank of America. Fred, please go ahead. Your line is open.
Fred Mendes, Analyst
Hello. Good morning, everyone. I have two questions as well. The first one is with Telmex. Once again, very strong net adds for Telmex. So just wondering if that's coming mainly from gross adds. Are you 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, the ARPU increased by 6.5%, net adds on postpaid 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. Just trying to reconcile here. Thank you very much.
Oscar Von Hauske, COO
Well, let me tell you, as we mentioned before, we've been doing very aggressive investment in fiber. Now 73% of the customer base is already connected with fiber. As well as we mentioned we've been working on the commercial activity. We improved the installation processes as well. And we have better retention of the customers. So we released the churn a little bit. So all of them impacting this net gain that we have 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 megabit symmetrical including Claro Video and Paramount with a very good price. We believe that it's going to be taken in the market very helpfully. So that's it.
Daniel Hajj, CEO
I think we're very pleased with the way Telmex is progressing. What Oscar is saying is that it's not just about churn; it's everything. We're experiencing less churn because we have much more fiber, and our consumers are responding positively.
Oscar Von Hauske, COO
Better installation speeds.
Daniel Hajj, CEO
Better installation speeds, less churn and good promotions.
Oscar Von Hauske, COO
And new products, right.
Carlos Garcia Moreno, CFO
And on the slowdown of the 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 Oi mobile clients. And that means that the uplift that we were getting from the Oi 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 would be a change in the base that's just for the reference for the comparisons. The other thing in terms of the ARPU growth in Brazil in spite of this is partly to do with disconnections of Oi mobile clients that took effect towards the end of the prior quarter and that's basically what is helping the ARPU numbers in Brazil.
Fred Mendes, Analyst
Perfect. Thank you. Thanks, 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 the fiber in Mexico for Telmex?
Oscar Von Hauske, COO
73% of the clients.
Fred Mendes, Analyst
Perfect. Perfect. Thank you very much, Oscar.
Operator, Operator
Thank you. The next question goes to Phani Kanumuri of HSBC. Phani, please go ahead. Your line is open.
Phani Kanumuri, Analyst
Thank you, everyone, for taking my question. My question is about the monetization of assets. Are there any assets you are looking to monetize, such as your stake in Verizon or the new tower company being established in Austria? Do you have any plans to monetize these in the next couple of years? That’s my first question. I’ll have a follow-up question later.
Daniel Hajj, CEO
Can you repeat a little bit slowly? We don't understand the question, please.
Phani Kanumuri, Analyst
I'm trying to understand if you have any monetization plans for the Verizon stake or the new tower company that is being formed in Austria. So you have some stake in that tower company, are you planning to monetize that in the next couple of years?
Oscar Von Hauske, COO
Okay. The tower company in Austria as you point out is still in the process of being spun off. We expect this will happen sometime in the third quarter before the end of the third quarter. And in fact, this tower company has already raised the financing that it needs to be fully funded from day one. In this particular case, as opposed to Sitios, and as opposed to TeleSites before them, we, America Movil, will continue to control and consolidate the company. And we have, in fact, a commitment to maintain our stake at least for a period of five years in the tower company, okay? So at least for this period of time, the Austrian tower company is going to be called EuroTeleSites and will be controlled and consolidated by America Movil.
Phani Kanumuri, Analyst
And regarding the Verizon stake? Sorry, please continue.
Oscar Von Hauske, COO
Regarding the Verizon stake, yes, what I would say is that the stake we have in the company, 51%, we have our commitment not to sell for a period of at least five years.
Phani Kanumuri, Analyst
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?
Daniel Hajj, CEO
I think we're doing very well in the corporate segment in Mexico. Oscar can provide more details about our offerings and what we're doing there. We have strong distribution, a talented team, and solid propositions. Oscar, please continue.
Oscar Von Hauske, COO
Yeah, as we start to work three or four years ago in focus in the enterprise market. And we've been very successful on next generation network which is called SD-WAN. So we will move into that. And we are 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 need some alliances with the experts in the field and we jointly want to market to offer the whole package to enterprise. It has been working pretty nicely. So we developed our core business that is connectivity, but with aggregate value to connectivity with these new propositions.
Phani Kanumuri, Analyst
Yeah. Thank you, everyone.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Thank you.
Oscar Von Hauske, COO
Phani, I would just like to clarify something because it just has come to our attention. In the case of the Austrian tower 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 stake that we have in Verizon and in that particular case, there is 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 the stake.
Operator, Operator
Great. Thank you. The next question goes to Carlos de Legarreta of ITAU. Carlos, please go ahead. Your line is open.
Carlos de Legarreta, Analyst
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 the slightly larger allocation this year, but looking at the data year-to-date your CapEx was actually down 2%. Just wondering if that's just the base or seasonality this year. And secondly going back to the tower company in Europe.
Daniel Hajj, CEO
Hello?
Carlos de Legarreta, Analyst
Going to be the entire. Hi. Can you hear me?
Daniel Hajj, CEO
Yeah, on the tower, can you please repeat the tower question?
Carlos de Legarreta, Analyst
I understand that you've raised MXN1 billion in debt. I would like to know if this will cover the entirety of the company. Additionally, I saw in the European press that it has around EUR200 million in EBITDA. Can you confirm if these figures are accurate? Thank you.
Carlos Garcia Moreno, CFO
Okay. On the debt of the tower company. Yeah, the amount that has been raised was MXN1 billion and this amount will basically be new debt at the tower company and less debt in the Telekom Austria. Telekom Austria will have a leverage of approximately 0.5 times net 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 EUR200 million so that we can confirm to you and we can send you some information, okay?
Daniel Hajj, CEO
Regarding the capital expenditures, it's just a matter of seasonality. We're on track with our planned capital expenditures. It's important to note that we usually have a variation of about 5% depending on the country and locations.
Carlos Garcia Moreno, CFO
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 as a lower dollar component.
Daniel Hajj, CEO
That changed a little bit.
Carlos de Legarreta, Analyst
No, that's a good point. Thank you, Carlos, and thank you both Carlos and Daniel. I wanted to ask about the strong appreciation of the Mexican peso against almost all currencies. How are you managing that? Is it a net positive for AMX or not necessarily?
Carlos Garcia Moreno, CFO
It's a net positive since we are experiencing significant FX gains. On one hand, we previously had substantial debt that was not denominated in pesos, and this debt exposure has decreased. For example, our net interest costs have decreased in peso terms year-on-year, which reflects the appreciation of the peso. This is undeniably a financial benefit. However, from an operational standpoint, several operating expenses are linked to dollars. Most network maintenance costs are dollar-based, along with many IT-related expenses. Therefore, in these areas, we are benefiting from the peso's appreciation, but it's not just the peso; we are also seeing the dollar decline against nearly all currencies in Latin America this year.
Carlos de Legarreta, Analyst
Right. No, thank you for that, Carlos. That's very useful.
Carlos Garcia Moreno, CFO
Okay. Thank you, Carlos.
Operator, Operator
Thank you. The next question goes to Chelsea Colon of Aegon. Chelsea, please go ahead. Your line is open.
Chelsea Colon, Analyst
Hi and thank you for taking the questions. I was wondering if you could comment on your strategy in Central America. While I see that you had good top line growth, your EBITDA margin has decreased slightly. Can you discuss the underlying factors, including the main countries contributing to this trend, and what your competitive strategy is in that region?
Daniel Hajj, CEO
I believe Central America is a key region for America Movil. In Latin America, we have a significant presence with companies in places like Guatemala, El Salvador, and Nicaragua, where we have operated for a long time and have a fixed network established. In countries like Honduras and Costa Rica, we are just starting with mobile services and are also developing our fixed offerings. In Central America, we are investing more in fiber, which is a priority for us. We're focused on expanding our fiber network for our customers and enhancing our 4G coverage. The broadband penetration in the region is relatively low, presenting us with opportunities for growth in this area. We see significant potential to further develop and capitalize on these opportunities.
Chelsea Colon, Analyst
Are you finding any regions where you need to offer discounts to increase market share? Is gaining market share in this area a goal for you, or are you satisfied with your current position?
Daniel Hajj, CEO
We aim to implement solid propositions that enhance our coverage. It's unclear whether this will result in gaining market share from competitors or by advancing within the country. Our goal is to extend our reach to increase broadband penetration and transition more customers from 3G to 4G, allowing them to use more data and integrate their phones more effectively. We also plan to focus on the corporate sector, including data centers, cloud services, and related offerings. Our intention is to further develop these areas, not simply at the expense of competitors, but by fostering growth in these countries.
Chelsea Colon, Analyst
Understood. Thank you.
Daniel Hajj, CEO
Thank you very much. I just want to thank you everyone for being on the call and thank also Carlos, Oscar and Daniela for being here. Thank you very much.
Operator, Operator
Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.