Earnings Call Transcript
AMERICA MOVIL SAB DE CV/ (AMX)
Earnings Call Transcript - AMX Q1 2021
Operator, Operator
Good morning. My name is James and I will be your conference operator today. At this time, I'd like to welcome everyone to the América Móvil First Quarter 2021 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise and after the speaker's remarks; there will be a question-and-answer session. Thank you. Now, I'll turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead.
Daniela Lecuona, Head of Investor Relations
Thank you. Good morning, everyone. With me today to discuss our first quarter financial and operating results, we have on the line Mr. Daniel Hajj, CEO; Mr. Carlos García Moreno, CFO; and Mr. Oscar Von Hauske, COO.
Daniel Hajj, CEO
Thank you, Daniela. Good morning, everyone. Carlos is going to make a summary of the first quarter financial and operating results.
Carlos García Moreno, CFO
Thank you, Daniel. Good morning everyone. Well, the strong economic expansion in the United States that gained momentum in the second half of 2020 continued unabated in the first quarter of the year, propelled by news of a second fiscal stimulus plan, a new infrastructure program, and solid progress on vaccination. US economic growth forecasts for 2021 were upgraded, initially leading to an appreciation of the US dollar versus most of the currencies on the back of rapid increases in medium and long-term dollar interest rates. Various Latin American countries, including Mexico and Brazil, experienced new COVID waves that led to renewed confinements, constrained mobility, and a slowdown in economic activity. In spite of this, in the first quarter, we managed 26 million less subscriber additions, which was a third more than a year before. 3.3 million, a little bit more than half of the net additions were posted subscribers, most of them coming from Brazil, 2.4 million; followed by Peru, Colombia, and Austria. As regards to prepaid, we gained 2.8 million, of which 812,000 came from Brazil, approximately 0.5 million each from both Central America and Mexico, some 300,000 from Colombia, and 200,000 from Argentina. On the fixed line platform, we added 246,000 broadband clients with almost every operation showing an increase in access lines, except for Austria, which had the connections of low bandwidth clients. Colombia, Peru, Ecuador, and Argentina were the main contributors. At the end of March, our mobile postpaid subscriber base was up 7.8% year-on-year, followed by our fixed broadband accesses of 4.7%. Even our prepaid base registered an increase from the prior year. Our first quarter revenues totaled MXN248 billion, nearly flat in nominal peso terms, with service revenue declining 1.1% year-on-year. At constant exchange rates, however, service revenues actually increased 1.2%, slightly lower than in the preceding quarter, where they had risen 2.2%. As we saw in the prior quarter, the main reason for our consolidated nominal peso revenues to decline, even though they have risen in local currency terms, was mostly due to the sharp depreciation of the Brazilian real vis-à-vis the Mexican peso, which was 20.4%. The expansion of service revenues was driven by that of mobile service revenues, which decelerated to 1.7% from 4.1% the prior quarter, and was supported by the continued recovery of fixed line services. The acceleration of mobile service revenues was near that of postpaid, which slowed down in Brazil, Colombia, and Austria. Prepaid revenues maintained a peso growth of 2.4% for the third quarter in a row, showing marked improvement relative to the year earlier quarter, except for Mexico, Brazil, and Colombia, where economies appeared to have been more affected by the pandemic in the first quarter of this year. Fixed-line service revenue growth turned positive at 0.1% after several quarters of negative growth. Additionally, we registered an important improvement in corporate networks, with revenues expanding 2.4% in the quarter compared to a 2.9% decline in the fourth quarter. This deepened positive territory in the overall expansion of fixed line revenues. Fixed broadband revenue growth accelerated sharply in some countries, including Peru at 42%; Colombia at 21%; in the Dominican Republic and Ecuador, between 15% and 20%; revenue growth staying on trend at around 7% to 8% in Chile, Brazil, and Central America. EBITDA rose 5.2% to MXN81.7 billion. At constant exchange rates, it was up 8.1%, with EBITDA margin expanding almost two percentage points to 32.9%, supported by strict cost controls and lower selling and marketing expenses, again, related to restrictions on mobility and reduced bad loan provisions. We had a very good time collecting our invoices. Most countries registered strong EBITDA growth: 59% in the US, 47% in Puerto Rico, 36% in Peru, 15% in the Dominican Republic, with Colombia and Central America expanding approximately 10%. EBITDA margins rose across the board, increasing almost seven points in Peru, five in the Caribbean, including Puerto Rico and the Dominican Republic, four in Central America, followed by Mexico, Brazil, and Argentina with 2.6. With our operating profit increasing 5.7% to MXN 41.1 billion. Our comprehensive financing cost declined by 55% year-on-year to MXN 35.9 billion. We posted a net profit of MXN 1.8 billion, reversing the MXN 29 billion loss registered a year before due to foreign exchange losses. Our net profit was equivalent to MXN 0.03 per share or $0.03 per ADR. Our operating cash flow allowed us to fund capital expenditures of MXN 25 billion and to buy back shares worth MXN 4.4 billion. In addition, it allowed us to reduce our debt in cash flow terms by nearly MXN 10 billion. Our free cash flow has shown a solid path of growth over the last five years, even in the midst of the pandemic. The free cash flow has increased from $5.6 billion in the year to $9.4 billion in 2020, and has kept rising to $9.6 billion in the 12 months to March. So even despite the deceleration in sales and revenue, we have seen continued strong performance in EBITDA and free cash flow. Our net debt fell by MXN 20 billion in the first quarter, ending March at MXN 627 billion. This obviously includes the capital large leases under IFRS 16, which was equivalent to 1.77 times the EBITDA for the last 12 months. With that, I would like to pass the call back to Daniel, and we continue the Q&A session. Thank you.
Daniel Hajj, CEO
Thank you, Carlos. We can start with the first question.
Operator, Operator
Our first question comes from Marcelo Santos at JPMorgan. Please go ahead; your line is open.
Marcelo Santos, Analyst
Good morning. Thank you for taking my question. I have two. The first is if you could provide an update on the tower spin-off operation that you're planning for América Móvil in Latin America. And the second, could you comment on the competitive environment in Colombia now that one has officially launched their mobile brand operations? Thank you.
Daniel Hajj, CEO
Hi, good morning. Talking about the towers, we are currently implementing the structure within the América Móvil Group to separate locally the towers and obtain the required approvals in different countries prior to the final step, the spin-off at the América Móvil level. We expect this implementation to occur by the end of this year. Regarding competition in Colombia, they launched their plans at the beginning of April, mid-April, very aggressively, but I believe we are well-prepared to compete in Colombia. There’s more than just price in Colombia; we have good coverage, and we have a lot of customers in convergence. We have one of the best qualities in Colombia in terms of mobile and fixed service as well. In terms of distribution, we have excellent coverage, a high Net Promoter Score, and overall good service. We are well-prepared to compete across all aspects, not just on price. While their plans were very aggressive, we are ready for that competition, but it’s still very early days.
Marcelo Santos, Analyst
Perfect. Just a follow-up on the first question. The stock that's going to be listed on the tower spinoff, which exchange will it be listed? Is there any update there?
Daniel Hajj, CEO
We haven't decided anything regarding that yet. We still don't know if it's going to be in Mexico or also for the US. We need to make that definition in the next months.
Marcelo Santos, Analyst
Perfect. Thank you very much.
Operator, Operator
Our next question comes from the line of Alejandro Gallostra from BBVA. Go ahead please. Your line is open.
Alejandro Gallostra, Analyst
Hi. Good morning, Daniel, Carlos, Daniela. I have a couple of questions. First, you mentioned different reasons to explain the margin expansion in each country. But what are the main reasons that are currently driving that margin expansion in all geographies, if there is one reason behind that expansion across the board? And how much margin expansion do you expect going forward at a consolidated level? And second, could you comment on your FTTH deployment strategy in Mexico, how much of your network is currently FTTH, and how you're expanding your FTTH footprint given the aggressive investment plans of your competitors? Thank you.
Daniel Hajj, CEO
As Carlos previously mentioned, part of the margin or EBITDA growth we experienced is attributed to controlling costs and expenses. We have undergone digital transformation over the last two to three years, which is allowing us to reduce costs significantly, and that’s primarily why we are succeeding in reducing costs in many parts of the company. Each country is different; the bad debt situation varies, and the commercial expenses also differ due to the level of competition. For instance, in Colombia, we are placing more focus on the commercial side, while in other locations, savings are coming from administrative expenses and improving network efficiencies. We are rolling out 5G and have virtualized our networks across all countries, and this program of cost savings through technology and digital investments will continue over the next five years. As for revenues, while Carlos indicated we saw slight growth in constant currency, the resurgence of COVID in southern Latin America has impacted our commercial activities, but we anticipate revenue to improve as the economy stabilizes. Regarding FTTH, Oscar can elaborate on our advancements.
Oscar Von Hauske, COO
We operate a network with FTTH in Mexico. Currently, we have around 4.4 million connections, and we continue to grow in order to enhance the network and migrate customers from copper to FTTH.
Carlos García Moreno, CFO
To give you a little more context to what has been mentioned, the cost of service remained in line with service revenues, while selling and marketing expenses were down 6% at constant exchange rates. Administrative expenses were down 14%, resulting from significant reductions due to the digitalization efforts implemented in the company.
Alejandro Gallostra, Analyst
Okay. Thank you, Daniel, Carlos, and Oscar.
Carlos García Moreno, CFO
Thank you, Alejandro.
Operator, Operator
Our next question comes from the line of Andres Coello with Scotiabank. Go ahead please. Your line is open.
Andres Coello, Analyst
Thank you. Good morning and thank you for taking my questions. Two quick ones. First, can you give us an update on the negotiations with the Telmex union regarding the patient liability? And second, given TracFone's strong results, how do you feel about achieving the performance measures established in agreement with Verizon regarding the MXN 500 million in additional payment? Thank you.
Carlos García Moreno, CFO
Regarding the negotiation, we are still in the process. There's nothing new to report at this stage, but we hope to reach an agreement with the unions soon. On the TracFone sale, we're in the regulatory approval process, and it's going well. We're working closely with Verizon and regulatory authorities, and we believe this transaction will close in the third quarter of this year. As for the earnouts, since the beginning, nothing has changed with the company's performance, and we are confident that we will meet the indicators we established regarding the earnouts associated with this transaction, which are approximately $500 million.
Andres Coello, Analyst
Thank you very much.
Carlos García Moreno, CFO
Thank you.
Operator, Operator
And our next question comes from the line of Arturo Langa with Itaú BBA. Go ahead, please. Your line is open.
Arturo Langa, Analyst
Hi. Good morning, everyone. I apologize if this was already answered; I had some trouble on my line. With regards to the acquisition of Oi, when should we see that being consolidated into your financials? When do you expect to see that? And similarly, when can we expect the acquisition of or the sale of U.S. operations to be excluded from your reporting files? Lastly, any color regarding the PayTV license request in Mexico would be useful. Thank you.
Daniel Hajj, CEO
On Oi, the approval process before Cade and Anatel in Brazil is advancing according to schedule, and all parties are committed to cooperating with the authorities during this process. We think we can close this transaction this year too, so we hope to consolidate Oi in our financials by this year. Regarding TracFone, we will discontinue reporting the U.S. operations when the sale closes, which we anticipate happening in the third quarter of this year. As for the PayTV license, we are working diligently to obtain it, and we remain hopeful for a positive outcome after significant effort.
Arturo Langa, Analyst
Perfect. Thank you very much.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Our next question comes from the line of Carlos Legarreta from GBM. Go ahead, please. Your line is open.
Carlos Legarreta, Analyst
Hi. Thank you. I have two questions, please. The first one in Mexico, you're mentioning a negative effect from the chip shortage on handset sales. However, it doesn't seem to have affected most of the other operations at all. Can you give us some color on whether this is an isolated effect in Mexico? Or can we expect any problems like this in other countries on the road? That's the first one. Then, in your financial statement for 2020, you saw a significant revaluation in your tower portfolio. Can we take this figure as a proxy for the value unlocking associated with the tower transaction? Thank you.
Daniel Hajj, CEO
It's no secret that there's a chip shortage not only for handsets but also for set-top boxes and even cars. We've been experiencing shortages for some time in all areas, and it's getting worse. We're facing challenges in acquiring handsets, broadband boxes, and set-top boxes across all operations. However, we have been placing orders for some time, which is helping us maintain sufficient equipment levels. We do not expect a quick resolution to this issue. Regarding the tower revaluation, Carlos can provide further details.
Carlos García Moreno, CFO
As you pointed out, there was a process for revaluing towers. Under IFRS 16, we had the option to either present our assets at cost or at market value. We chose to evaluate the towers and captured this valuation based on impairment terms necessary for our various operations. The revaluation gives us a first proxy, mainly for the value in Latin America. All categories of towers have undergone revaluation as per our consolidated results, even though we have not yet determined anything regarding towers in Austria. Nonetheless, we consider it important to comprehensively incorporate this value in our consolidated results.
Carlos Legarreta, Analyst
Right. But this is an incremental value over the book value you have over the towers, right?
Carlos García Moreno, CFO
That is correct. We have already included the incremental value as of the end of December, when we changed our accounting policy to adopt the new policy of reporting towers based on market value rather than cost.
Carlos Legarreta, Analyst
Great. Appreciate the answer. Thank you.
Operator, Operator
Our next question comes from the line of Leonardo Olmos from UBS. Go ahead, please. Your line is open.
Leonardo Olmos, Analyst
Hi, good morning, everyone. My question is related to content and over-the-top content. We noticed that you have some new launches, for example, the Claro Box TV in Brazil. My question is, do you intend to roll out that product to other regions, and what other content or over-the-top strategies do you have planned for launch in 2021?
Daniel Hajj, CEO
We launched Claro Box in Brazil, and we plan to roll it out across all Latin American countries. This product offers a compelling value proposition, and I think Oscar can provide a bit more detail on what Claro Box entails.
Oscar Von Hauske, COO
As you know, the PayTV business is evolving due to many streaming offers in the market. We have conducted market analysis, and Claro Box in Brazil features full IP technology, including functionalities like catch-up TV and remote accessibility. The attractive commercial aspect is that customers can start with basic packages and then layer on additional content options tailored to their preferences, such as global play, streaming services, and sports channels. This model is more cost-efficient since it does not require installation and allows customers to set up the service themselves. As mentioned earlier, we view this as an entertainment hub, extending our services beyond PayTV to include music and social media platforms. We anticipate launching this initiative in additional countries soon.
Leonardo Olmos, Analyst
That’s an interesting proposal. Okay. Thank you very much. Have a good day.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Our next question comes from the line of Maria Azevedo with Banco Santander. Go ahead, please. Your line is open.
Maria Azevedo, Analyst
Hi, thank you for the call. My first question is on the CapEx. Can you comment a little bit on the CapEx outlook for the next few years? With your strong metrics, can we assume that 5G is not going to require an aggressive cycle of CapEx going forward? Any color on that would be very helpful.
Daniel Hajj, CEO
We have provided guidance on the CapEx for this year, and we do not anticipate any substantial increases for 5G in the future. As mentioned in previous calls, we have been implementing 5G by virtualizing networks and installing fiber throughout our network, so 5G is included in this CapEx and will not necessitate additional funding. We do not foresee any drastic increases in CapEx in the coming years.
Maria Azevedo, Analyst
Perfect. Thank you. This is very positive. My second question is regarding the competitive environment in Brazil and Mexico for mobile. Could you provide some insight into the offers and whether you see opportunities for price and ARPU increases? Additionally, would you mind commenting on Claro Pay?
Daniel Hajj, CEO
In Brazil, we have been gaining good market share and subscriber growth, including in both postpaid and prepaid segments. As Carlos mentioned, the current wave of COVID is slowing down activity, but overall, we maintain a competitive edge in terms of our quality offerings. We are actively promoting bundles that combine fixed broadband and TV services alongside wireless. In Mexico, we are seeing a shift with some subscribers moving from postpaid to prepaid, but they are also beginning to consume more. Overall, we believe we are competitive in both countries in the wireless segment for both prepaid and postpaid offerings. As for Claro Pay, we are advancing it in many countries, including Colombia, Brazil, and Mexico, and we are working on expanding our services. That’s all I have for now.
Maria Azevedo, Analyst
Perfect. Thank you very much.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Our next question comes from Walter Piecyk with LightShed. Please go ahead, your line is open.
Walter Piecyk, Analyst
Thanks. Daniel, I just wanted to discuss the share repurchase. I think, if I have it right, you did MXN 6 billion last April, you upped it again to another MXN 6 billion. You probably should have a couple of hundred million left, and then you added another MXN 25 billion. Historically, you have utilized all that you've authorized over the year. Should we expect anything different looking forward over the next four quarters as you approach your next reauthorization plan in April next year?
Daniel Hajj, CEO
Let's wait until that time. In February, we requested an extra form and took action. In this assembly, we authorized MXN 25 billion for buybacks. We believe shares are a good price, and we plan to utilize all the funds we have for this purpose. If we require more, we will ask for additional funds. So, for the rest of the year, we anticipate maintaining a similar buyback rate as we did in the first quarter.
Walter Piecyk, Analyst
More or less, meaning at the same run rate you experienced in Q1?
Daniel Hajj, CEO
Yes.
Walter Piecyk, Analyst
Thank you. Regarding dividends, was there any discussion at the April meeting about your dividend policy? I know that you typically address this in the second half of the year, but you've been around MXN 0.19 to MXN 0.20 per share. Should we expect a similar dividend policy moving forward, or are you shifting more capital to share repurchase?
Carlos García Moreno, CFO
What we discussed in the assembly was the dividend for this year, which will be MXN 0.40, similar to last year, disbursed in July and November. As for next year, we haven't decided; we need to complete the sales and transactions we have ongoing, like the Oi and TracFone transactions, and then we will determine our next move.
Walter Piecyk, Analyst
Thank you. Lastly, in Mexico, I read recent press reports about Altan Redes struggling to sign up subscribers and achieve their coverage targets. Has there been any discussion in Mexico about whether that spectrum might be better utilized by your company or AT&T?
Daniel Hajj, CEO
No, we haven't had any discussions on that. I saw those reports in the press as well. I have no further insights into their situation or any talks regarding spectrum utilization.
Walter Piecyk, Analyst
Okay. Thank you, Daniel.
Daniel Hajj, CEO
Thank you very much.
Operator, Operator
Our next question comes from the line of Gilberto Garcia with Barclays. Go ahead please. Your line is open.
Gilberto Garcia, Analyst
Hi, good morning. Thank you for the call. Just a quick follow-up on the towers. Have you decided whether you will list the company on the US market or only in Mexico?
Daniel Hajj, CEO
No, we still don't have a decision regarding whether it will be listed in Mexico only or also in the US. We're in the process of determining that and are also deciding whether it will encompass only the LatAm Towers or if it includes European elements as well. We're still working on gaining all necessary authorizations for the spin-off of the towers.
Gilberto Garcia, Analyst
Okay. Thank you.
Daniel Hajj, CEO
Thank you. Our next question comes from the line of Arturo Langa with Itaú BBA. Go ahead please. Your line is open.
Arturo Langa, Analyst
Hi, thank you. Just a follow-up. It's more of a strategic question, but we're observing many telecom groups around the world reducing their footprints, such as Telefónica in Latin America or Vodafone in India. Is there any implication for your company’s footprint? For instance, are you considering reducing or selling assets in Europe?
Daniel Hajj, CEO
No, we are very satisfied with our operations in Telecom Austria. It has demonstrated remarkable performance, and the company is doing well. We are growing in Northeastern Europe as well. Therefore, we have not considered making changes in that regard. What we already did was sell tracfone, an MVNO in the US, but that's different. We remain focused on the expectations and future potential of the markets we are involved in.
Arturo Langa, Analyst
Okay, and regarding regions like Chile or Argentina, which continue to consume cash, could there be a possibility of reducing pricing or maybe pricing events?
Daniel Hajj, CEO
Argentina is not consuming cash; it is indeed a very profitable part of the company. It produces substantial cash flow. Chile is also performing well. So we haven’t considered any adjustments in Argentina or other areas.
Arturo Langa, Analyst
Okay, understood. Thank you. That’s very helpful.
Daniel Hajj, CEO
Thank you.
Operator, Operator
There are no further questions at this time. I'd like to turn the call back over to Mr. Daniel Hajj for some final comments.
Daniel Hajj, CEO
Thanks everyone for being on the call. Daniela, Carlos, and Oscar, thank you very much.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.