Earnings Call Transcript
AMERICA MOVIL SAB DE CV/ (AMX)
Earnings Call Transcript - AMX Q3 2022
Operator, Operator
Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil Third Quarter 2022 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. Now I will 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. Thank you for joining us today to discuss our third quarter financial and operating results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO, and Mr. Oscar Von Hauske, COO.
Daniel Hajj, CEO
Hi Daniela. Good morning everyone, Carlos is going to make the summary of the results.
Carlos Garcia Moreno, CFO
Thank you, Daniel. Good morning everyone. Although there has been an increasingly hawkish tone by the Fed Governor on the back of continued inflationary pressures, resulting in renewed increases in U.S. interest rates in the latter half of the third quarter, with 10-year rates ending the quarter at 3.33%, that was the context of the third quarter for us. In the quarter, we added 2.9 million wireless subscribers of which 1.9 million were postpaid. More than half of the new postpaid clients came from Brazil, with Austria contributing 329,000 subscribers, Colombia 215,000, and Peru 155,000. Net subscriber gains in prepaid amounted to 1 million, with Mexico leading the way with 402,000 net adds, followed by Colombia with 300,000, and Central America and European blocks with approximately 135,000 each. On the fixed-line platform, broadband access has increased by 156,000 in the quarter, with Argentina being the main contributor and the Central American and Eastern European blocks following. Mobile postpaid was our fastest growing active group, increasing 11.9% year-on-year to 118 million, followed by mobile prepaid that climbed 8.2% to 190 million. In both cases, access growth accelerated in the third quarter. On the fixed-line platform, broadband access lines rose 2.1% to 31 million, while Fixed Voice and Pay TV access fell 1.6% and 1.3% respectively. Our third quarter revenue reached MXN 215 billion, an increase of 1.8% year-on-year, with service revenues rising 3% in Mexican pesos. At constant exchange rates, service revenue expanded 5.9%, mobile service revenue jumped 9.7%, and fixed-line service revenue remained almost flat, growing 0.2%. Year-over-year, the Mexican peso appreciated strongly against the Colombian and Chilean pesos, 12.9% and 18% respectively, and even more versus the euro, 16%. The appreciation of the peso extends the difference between revenue growth in nominal and constant exchange rates. Mobile service revenue rose by more than 9% year-on-year at constant exchange rates in both the prepaid and postpaid segments. Brazil led the way in mobile service revenue growth at 32.5%, which includes the impact of the incorporation of part of Oi’s mobile clients, followed by Mexico with 9.7% and Eastern Europe with 6.9%. In Colombia, we posted our best revenue growth in the third quarter at 3%, as did the Central America block with 6.5%. Ecuador, on an improving trend for several quarters now, posted a 1.6% revenue increase in the period. On the fixed-line platform, revenue growth was 3.4% at constant exchange rate, with the growth of the copper network increasing by 12.6%, the fastest pace in at least five quarters, helping offset a 5.4% reduction in Pay TV services and a 6.1% decline in wireline voice revenue. Eastern Europe, along with the Dominican Republic and Puerto Rico, were the top performers with double-digit revenue growth. Corporate network was our fastest growing business line across the board, with Brazil posting a 27.7% growth rate, Colombia 14.4%, and Mexico 8.1%. Our EBITDA rose 2.3% year-on-year to MXN 83.2 billion, which was an increase of 5% at constant exchange rate. The EBITDA margin, which has been on an improving trend all year, expanded to 38.8% from 38.6% a year ago. Brazil and Eastern Europe were the main drivers of EBITDA growth, with 10.8% and 8% respectively. Our operating profit rose by 5.7% to MXN 44 billion, resulting in a net profit of MXN 18 billion in the quarter, after MXN 17 billion in comprehensive financing costs, which were 33% below that of the prior year, mostly due to the foreign exchange losses incurred then. Our operating cash flow allowed us to fully cover our capital expenditures of MXN 105 billion in the nine months up to September. The remainder was funded with MXN 72 billion in net financing. Our net debt, excluding leases, ended September-October at MXN 412 billion, equivalent to 1.39 times our last 12 months EBITDA after leases. The spin-off of our Sitios Latin America in August resulted in the separation of 29,090 towers across 13 countries but also brought about a reduction of MXN 47 billion in our net debt as it migrated over to Sitios. With this summary I will pass it back to you, Daniel Hajj. Thank you.
Daniel Hajj, CEO
Thank you, Carlos. We can start with questions, please.
Operator, Operator
Thank you. Our first question today comes from Diego Aragao with Goldman Sachs. Diego, please go ahead.
Diego Aragao, Analyst
Yes, good morning. Thank you for taking my question. The first question is related to the tower spin-off. Can you help us quantify the impact on your financials related to the conditions? And if you can also provide the cost for these towers for América Móvil? And secondly, I would like to understand your tax rate in the quarter which came a bit higher than normally this quarter. Thank you.
Carlos Garcia Moreno, CFO
We don't understand the first question. The second question about the tax rate, is that what you're asking, Diego?
Diego Aragao, Analyst
Yes, so the tax rate in the quarter as well as the cost of the release of the towers that you spun-off recently.
Carlos Garcia Moreno, CFO
Okay, on the tax rate in the quarter, the effective tax rate was high at 40%. It was mostly due to the tax regime in Mexico. As you know, we have the inflation-adjusted tax regime which basically allows you to deduct only the real interest payments on the debt—not the nominal interest. As the inflation increased, the deductions for interest payments in Mexico have become much smaller. That basically explains the situation in the quarter. It obviously also has to do with there being a smaller profit this quarter, but it was mainly due to this inflationary accounting. There will be some changes in our setup, so we don't expect this to continue going forward. On your first question regarding the tower, we didn't quite hear it, so maybe you can repeat it again, please.
Diego Aragao, Analyst
Can you provide us with the guidance on that? Thank you.
Daniela Lecuona, Head of Investor Relations
Diego, you have a very bad line. Why don't you send me your question via text or email? And I will read it out loud, and while I get it, we can take the following question.
Diego Aragao, Analyst
Perfect, I'll do that. Thank you.
Daniel Hajj, CEO
Thank you, Diego.
Operator, Operator
Our next question comes from the line of David Joyce with Barclays. David, your line is open.
David Joyce, Analyst
Thank you. Can you please help us understand if the wireline RGU weakness was more from macroeconomic softening, or was it from a step-up in competitors' offers, or are you seeing your own clients switch to mobile-only voice and video? Thank you.
Daniel Hajj, CEO
Yes, good morning. Overall, in the results of this quarter, you see a very good increase in revenue in mobile and a good trend in the fixed side. We grew 156,000 subscribers in the fixed side, so we have a good increase. We used to have negative trends in revenue service in the fixed line in the first and second quarters, and today we have a 0.2% increase in the fixed side. The competition is high, some countries have more competition than others in the fixed side, with many companies deploying fiber across Latin America. But I think we have a good service and a good combination, and we're offering mobile convergence, assisting us to maintain a better rate and less disconnection. Pay TV is also important, and we are growing there as well. I can say that overall, in mobile we perform very well in terms of revenue growth. The trend in fixed is improving, and we're growing 0.2% after past quarters of negative growth.
David Joyce, Analyst
Thank you. Could you please update us on your plans for your 5G and fiber rollouts, where you expect to be by the end of this year and next year in your key markets?
Daniel Hajj, CEO
Again, 5G and growth on fiber is what you’re asking?
David Joyce, Analyst
Yeah. How much of your plan do you expect to be upgraded by year-end and next year for 5G and fiber?
Daniel Hajj, CEO
It's different in each country. From September last year to September this year, we have deployed around 7.5 million homes with fiber. That's a significant increase and it’s helping us to achieve more speed and better quality. Part of this involves upgrading our existing network, while the other part is going to new cities, greenfield areas. Regarding 5G, in countries where we have licenses, such as Mexico, we already have 64 cities covered, reaching over 60% of the population. 5G has assisted us in increasing our ARPU in postpaid by 7.6%. It has proven successful in regions where we have rolled out 5G. In Brazil, we are still in the early stages of 5G growth.
Oscar Von Hauske, COO
I will mention we are upgrading the cable network across our footprint.
Daniel Hajj, CEO
We're upgrading the network, plus putting more fiber, yes.
David Joyce, Analyst
Okay, thank you very much.
Daniel Hajj, CEO
Thank you.
Daniela Lecuona, Head of Investor Relations
I have Diego's question, so maybe we can continue with that one. About the tower spin-off, can you help us quantify the impact of your financial expenses in Q3 '22 related to the leases? It would be great if you can provide that cost of these towers for AMX as well.
Daniel Hajj, CEO
The question pertains mainly to cost in terms of EBITDA. The difference would be probably an annual rate of approximately $350 million.
Carlos Garcia Moreno, CFO
That we are going to pay to Sitios.
Daniela Lecuona, Head of Investor Relations
And then there's a follow-up question. AMX continues to reduce its stake in KPN. Can you give us some guidance about it?
Daniel Hajj, CEO
We have been selling at points we thought were good. I don't think we have any specific objective or any target in terms of fully divesting at any time soon. It has been very opportunistic, and we view this as part of our financial investment strategy. We will take profits as we see fit.
Daniela Lecuona, Head of Investor Relations
We can proceed with the questions from the audience, please.
Operator, Operator
Thank you. Our next question comes from Alejandro Chavelas with Credit Suisse. Please go ahead.
Alejandro Chavelas, Analyst
Hi, can you hear me well?
Daniel Hajj, CEO
Yes, certainly, yes.
Alejandro Chavelas, Analyst
Okay, great. Margins in Chile were very low this quarter. Was there anything particular that explains this? Do you have any estimates on the level of margins that we should expect going forward? And also, what about the potential cost synergies that could be achieved in this region with the VTR merger in the long-term? Thanks.
Daniel Hajj, CEO
Well, in Chile, I think we finally received the authorization, and we are starting with this joint venture. First, I must say that current market conditions are exceptionally aggressive. There is a lot of competition. Prices have been declining and, given the size of the country, there are many competitors in fixed broadband and aggressive competition in the mobile sector. Regarding the economic situation of the country, Carlos can explain further about the exchange rate and its effect.
Carlos Garcia Moreno, CFO
Yes, the country has developed a very extensive framework, which has led to FX pressures, impacting our performance. This has likely resulted in the margin dynamics we've observed; we believe that this will stabilize over time.
Daniel Hajj, CEO
We're optimistic about the joint venture. Liberty and our company have complementary operations, which should lead to good synergies. We believe our focus on mobile and corporate sides aligns well with Liberty's focus on broadband and TV. You will see significant improvements in the Chile operation in the coming years, as we aim for economies of scale.
Alejandro Chavelas, Analyst
Thanks so much, Daniel. Perhaps a follow-up. Have you adjusted prices for the postpaid subscriber base for inflation? How high was the adjustment for postpaid for you?
Daniel Hajj, CEO
I don't remember. I think we adjusted some prices in postpaid in Brazil. I don't know the exact figures. We do adjustments regarding plans, but only postpaid subscriptions in Brazil.
Alejandro Chavelas, Analyst
Thanks so much.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Our next question comes from Fred Mendes with Bank of America. Please go ahead, Fred.
Frederico Mendes, Analyst
Hello, good morning, everyone, and thanks. I have two questions as well. The first one is on Mexico; there was an important improvement in this quarter growing 4.7% year-on-year. I'm wondering if this is due to your fiber deployment and consolidating share, or if competition is easing a bit or if there is something related to pricing changes. I'm just trying to understand the dynamics. This is my first question. The second one is in Brazil, regarding mobile, you are performing well in terms of net adds and your performance has been solid on mobile front. However, I noticed you increased the number of clients on postpaid by nearly 25% year-on-year, including Oi. Could this pose a challenge regarding billing and the collection of receivables from these postpaid clients? As you’re rapidly changing the structure of your Brazilian clients, how could this impact operations in Brazil?
Daniel Hajj, CEO
Let me start on Brazil. I don't think there's any challenge here. We have set our operations to onboard all these customers in both prepaid and postpaid. We are currently working on integrating these customers into our billing system, and we have good experience from the Nextel acquisition, so I believe we will achieve good synergies. As for Mexico, Oscar can elaborate.
Oscar Von Hauske, COO
In Mexico, as mentioned before, we are aggressively deploying fiber, enhancing nearly 68% of our network. We continue migrating all of our customers to fiber and expanding our presence in greenfield areas. This year we are planning to connect almost 2.9 million homes with fiber.
Frederico Mendes, Analyst
Thank you. Perfect, very clear. Thank you, Oscar. Thank you, Daniel.
Daniel Hajj, CEO
Thank you.
Oscar Von Hauske, COO
Thank you.
Operator, Operator
Our next question comes from the line of Carlos De Legarreta with ITAU. Please go ahead, Carlos.
Carlos de Legarreta, Analyst
Hi. Thank you. Good morning. Thanks for taking the question. I have two actually. The first one goes back to the spin-off of the towers. Now that the CapEx requirement for tower deployment has been largely moved to Sitios LATAM, should we expect changes in your yearly CapEx guidance? Secondly, I understand you kept some of the towers in Peru and the Dominican Republic. Is there a possibility that you will divest those towers to Sitios LATAM down the road? If so, could you consider any extraordinary dividends from those proceeds? Thank you.
Daniel Hajj, CEO
Regarding Sitios LATAM, for this year, we are not expecting any changes in CapEx guidance. We only had three or four months without Sitios. This year's guidance remains unchanged. For next year, we are still finalizing our projects, but we continue to see excellent growth opportunities. There are not many large sites we have been developing recently, but we observe promising opportunities for expanding 5G and broadband. I can't say definitively if CapEx will decrease or not, but we still identify many growth opportunities in Latin America. Furthermore, concerning the towers in the Dominican Republic and Peru, we plan to sell them to Sitios. As mentioned in our release, we believe this will happen, and we anticipate finalizing these operations at the start of next year.
Carlos de Legarreta, Analyst
Thank you, Daniel. And if I may follow up regarding Argentina, could you comment on the competitive environment? You are adding subscribers in both wireless and fixed, yet the results appear to be pressured in real terms. This seems to be due to aggressive pricing currently. If you could comment on that, it would be appreciated. Thank you.
Daniel Hajj, CEO
We are not changing our strategy in fixed or mobile. In some quarters, we've implemented more price increases due to inflation, while in others, we've had to reduce some prices for competitive reasons. Generally, we are performing well in broadband and mobile, with 100,000 broadband accesses added in Argentina. The inflationary accounting complicates the understanding of performance, but from an access and cash flow perspective, the business is doing well.
Carlos Garcia Moreno, CFO
Just to add to what Daniel said, Argentina's contribution to our broadband access growth has been significant. The rollout has been impressive, and I emphasize that the complexities of inflationary accounting obscure our overall performance. Nevertheless, we're experiencing positive growth in terms of access and market share.
Daniel Hajj, CEO
We see very good growth opportunities in various countries in Latin America. We will focus on leveraging our capabilities to improve our fiber connections to homes and foster growth in broadband and TV.
Carlos de Legarreta, Analyst
I appreciate your comments, guys.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Our next question comes from Lucas Chaves with UBS. Please go ahead, Lucas.
Lucas Chaves, Analyst
Hey guys. Thanks for taking my question. The first one, we noticed a reduction in the KPN investment over the calls from 20% to approximately 17%. How were these sales executed, and do you expect to continue this trend in the coming quarters? Also, what is the main free cash flow improvement you expect for 2023, and how could that affect your overall distributions going forward? Thank you.
Daniel Hajj, CEO
Regarding the second question, we didn’t quite catch what you were asking.
Lucas Chaves, Analyst
The second question was about your expectations for free cash flow improvement for 2023, and how that could impact your distributions.
Daniel Hajj, CEO
We haven't finalized our budget for 2023 yet. We're still evaluating the CapEx and growth strategies. Cost reductions, influenced by inflation in various countries, are significant. We hope to wrap that up by the end of November. We're optimistic about the opportunities we see in 5G and broadband across Latin America.
Carlos Garcia Moreno, CFO
Regarding the previous question, we have indicated before that the financial aspects are fluid, without specific targets for future reductions. Sales were opportunistic based on market conditions, so we will evaluate ongoing adjustments as necessary.
Lucas Chaves, Analyst
Okay, thank you. Very clear.
Daniel Hajj, CEO
Thank you very much.
Operator, Operator
Thank you. Our next question comes from Marcelo Santos with JPMorgan. Please go ahead.
Marcelo Santos, Analyst
Hi, good morning. Thanks for taking my questions. I have two. First, regarding your opportunity mentioned earlier on LATAM fixed-line, could you rank the countries that present the most broadband growth opportunities? Second, regarding ICMS in Brazil, you have shifted to focus solely on postpaid. I'd like to understand how the prepaid business is performing—did you see revenue increases, and how clients are behaving regarding allowances? How has the prepaid business performed with the ICMS reduction in Brazil? Thank you.
Daniel Hajj, CEO
In terms of opportunities across Latin America, we identify several countries: Central America has considerable potential, where penetration is still low. Ecuador presents good growth opportunities along with Peru, as we continue to rollout fiber. The Dominican Republic is likewise performing well. In Mexico, we have established a strong foothold due to a robust fiber rollout over the last two years. Further, Eastern European countries have shown promise for growth.
Carlos Garcia Moreno, CFO
On your question regarding Brazil, let me emphasize that revenue growth in prepaid this quarter was 82.3%, indicating positive performance. We've seen a similar trend in previous quarters as customers respond positively to price reduction strategies.
Marcelo Santos, Analyst
Perfect. Thank you very much. Very clear.
Operator, Operator
Our next question comes from Walter Piecyk with Lightshed Partners. Please go ahead.
Walter Piecyk, Analyst
Thanks. Daniel, following up on your previous comments regarding Brazil and ARPU, while Mexico seems promising, suggesting minimal recession signs, there are predictions for a recession in 2023. How do you anticipate that could impact your business, or is it possible that telecommunications has become so essential that you might not see ARPU or other impacts moving into 2023?
Daniel Hajj, CEO
Well, we don't have exact predictions yet. There is widespread discussion about a possible recession next year, but it remains uncertain how severely it will affect different Latin American countries. Telecommunications has shown significant resilience, with consumers increasingly relying on these essential services. The pandemic forced people to stay connected, and this trend has continued. Thus, we believe telecom services will remain a necessity during an economic downturn.
Carlos Garcia Moreno, CFO
Furthermore, based on the latest outlook and forecasts, Chile is currently the only Latin American country projected to face recession as of today.
Walter Piecyk, Analyst
That's correct. Carlos, could you clarify regarding your share repurchase program? Given that Oi took some cash, we note that share repurchase activity for Q1, Q2, and Q3 was lower than Q4 of last year. Now that we have settled payments to Oi, could we anticipate that share repurchase might ramp back up to Q4 2021 levels within the next few quarters?
Carlos Garcia Moreno, CFO
It’s important not to just look at buybacks but at total distributions. We made a significant dividend payment in August, amounting to $1.4 billion. If you review the total shareholder distributions year-to-date through the third quarter, you'll see they align with last year's figures. We will maintain our distribution strategy, reflecting the outlook for free cash flow for the year.
Walter Piecyk, Analyst
Great, thank you, Carlos.
Carlos Garcia Moreno, CFO
Thank you, Walter.
Operator, Operator
Our next question comes from Soomit Datta with Newstreet Research. Please go ahead.
Soomit Datta, Analyst
I've just got one question. Regarding Chile, with current macroeconomic difficulties and trading conditions, how do you plan to fund the joint venture going forward? Have your plans changed due to the operating environment? Will you need to contribute more equity into that joint venture soon?
Daniel Hajj, CEO
We already established the funding agreements for this year in Chile. Additional funding discussions will depend on operational developments and how the situation evolves. However, Liberty and we remain committed to executing our plans successfully in Chile.
Soomit Datta, Analyst
Okay, thanks.
Daniel Hajj, CEO
Thank you.
Operator, Operator
Thank you. There are no further questions for today. I will turn the call over to Mr. Daniel Hajj for final remarks.
Daniel Hajj, CEO
Thank you all for being on the call. To reiterate, the growth we observed in mobile was outstanding for this quarter, and we anticipate continued improvement in the fixed segment as well. Thank you very much for joining us.
Operator, Operator
Thank you everyone for joining us today. This concludes today's conference call, and you may now disconnect your lines.