Earnings Call Transcript - AMX Q1 2022

Operator, Operator

Good morning, my name is Lauren. I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil First 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. Thank you. Now I'll turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Daniela, please go ahead.

Daniela Lecuona, Head of Investor Relations

Thank you. Good morning, everyone. Thank you for joining us today to discuss our first quarter financial and operating report. We have on the line, Mr. Daniel Hajj, our CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

Daniel Hajj, CEO

Thank you, Daniela. Good morning, everyone. Thank you for being on the call. Carlos is going to make a summary of the first quarter financial results.

Carlos Garcia Moreno, CFO

Thank you, Daniel. Good morning, everyone. Well, the first quarter of 2022 was marked by sharp increases in interest rates across the board with five-year U.S. inflation rates nearly doubling and ten-year rates rising from 151 to nearly 250 as concerns about growth and inflation led investors to revise their projections regarding future monetary policy moves by the Fed and other Central banks. These moves occurred even in the face of the Russia invasion of Ukraine, which initially caused inflation to come down as investors looked for a safe haven. Notwithstanding these increases in rates, the main Latin American currencies appreciated vis-à-vis the U.S. dollar during the period, partly as a result of interest rates increasing more rapidly in Gulf countries. We added 3.2 million wireless subscribers in the quarter, of which 1.9 million were postpaid subscribers, with over half of them coming from Brazil, nearly 300,000 from Colombia, and 217,000 from Austria. In terms of prepaid subscribers, we added 1.3 million, with Mexico contributing 485,000, Colombia 349,000, and Brazil and Central America approximately 200,000 each. Our wireless subscriber base ended March with 219 million clients. In the fixed-line segment, we ended up with MXN74.5 million in March, practically flat from a year before. We connected 232,000 broadband accesses, including 68,000 in Argentina; 63,000 in Mexico; bringing the total to 30.7 million accesses which is 2.3% more than a year before. Our postpaid subscriber base exhibited the fastest rate of growth over the last 12 months at 8.4%, followed by prepaid with 5%. Fixed broadband accesses came in next at 2.3%. Both fixed voice and Pay TV continue to register declines. The former has leveled off, while the latter has remained stable. Our first quarter revenues reached MXN211 billion, up 2.4% with service revenues rising 3.3%. There were no major differences in terms of growth between the denominal peso revenues and those at constant exchange rates, the latter excluding Argentina, given the very high inflation rate in the country. The Mexican peso appreciated versus the U.S. dollar and the Euro but depreciated versus all other major Latin American currencies, with the exception of the Argentinean peso and most notably against the Brazilian real, 12.1%. Mobile service revenues expanded 6.3% year-on-year, matching the pace of the preceding quarter and substantially higher than that seen a year before at 1.2%. On the fixed-line platform, service revenue declined 1.1% in the first quarter after increasing 0.5% the prior quarter, mostly due to faster declines in revenue growth, down 5.8% annually compared to minus 3.6% in the preceding quarter. The year before, fixed-line service revenues had been practically flat year-on-year at 0.1%. Colombia and Peru experienced a noticeable deceleration in sales relative to the previous year's quarter. Both prepaid and postpaid revenues maintained a rough pace at 8% and 5.2% respectively on a sequential basis, much higher than the 1.4% and 1.0% rate posted in the year-earlier quarter. Brazil led the way in terms of mobile service revenue growth with 10.3%, followed by Peru and Mexico with 9.7% and 9.5% respectively. Colombia and Chile saw declines in their growth rates, with Colombia being nearly flat and Chile extending the decline to negative 8%. Corporate networks was the fastest growing business line on the fixed-line platform, with 4.9% growth in the quarter, with broadband revenues next at 3.4%. A year before, they had posted 2.4% and 7.8% rates, respectively. Pay TV revenues continued to decline at a rate of 6% while fixed voice revenues were down 5.8%, both of which are in line with the rates seen a year before. Broadband service revenue expanded faster in the Dominican Republic at 15%, Peru at 11%, and Eastern Europe at 8%, while Corporate network revenues rose more rapidly in Eastern Europe at 23%, Brazil at 16%, and Colombia and the Dominican Republic at 12% each. Our EBITDA rose 4.2% year-on-year to MXN81.1 billion, which was 4.3% at constant exchange rates, with the EBITDA margin expanding to 38.4% from 37.8% a year before. That's a 0.6 percentage point margin expansion year-on-year. The Dominican Republic, Eastern Europe, and Central America exhibited the highest annual EBITDA increases at 10%, 8.9%, and 7.6%, respectively. All countries except for Chile and Peru posted EBITDA increases in the quarter from a year before. Notably, Peru and Chile did manage to increase their EBITDA margins. The expansion in EBITDA reflects a 6.1% increase in our operating profit, which totaled MXN39.8 billion. Our operating profit and our net comprehensive financing income, amounting to MXN7.3 billion, helped us achieve a net profit of MXN30.8 billion in the quarter, which compares to a net profit of MXN1.8 billion in the year-earlier quarter. The comprehensive financing income mentioned above resulted from foreign exchange gains of MXN22.6 billion stemming from the appreciation of the Mexican peso against the U.S. dollar and the Euro in particular during the period. We raised MXN28.9 billion in net financing in the quarter, which helped cover MXN28.6 billion in capital expenditures and MXN9.2 billion in share buybacks, alongside MXN6 billion in labor obligations from a year before. It should be noted that the first quarter of this year involved a seasonal increase in working capital as accounts payable for past purchases of network equipment and handsets come due, as well as income taxes for the prior fiscal year and telecom duties in some countries, including Mexico and Brazil. This seasonal requirement for working capital is reversed in later quarters and did not manifest itself in the first quarter of 2021 due to the significant reduction in capital expenditures and asset purchases in 2020, particularly in the second half due to the pandemic. You can see in the chart how stable and well-defined our working capital requirements are. Our net debt, excluding leases, ended March at MXN425 billion, having increased by MXN17.4 billion relative to December. It was equivalent to 1.83 times last 12 months EBITDA - EBITDAaL. We disposed of TracFone in November 2021 and the impact on our consolidated EBITDA is already reflected in the last four months. This net debt follows two major financings arranged in March: one, a five-year $1 billion equivalent syndicated loan denominated in Mexican pesos, and a 10-year bond issue in the amount of $1 billion, totaling $2 billion. While both were arranged by América Móvil, they will become obligations of Sitios Latinoamérica upon its spinoff from América Móvil, expected to occur in the third quarter. The proceeds will be fully applied to reduce América Móvil's debt. With that, I would like to pass the floor back to Daniel for the Q&A session. Thank you all.

Daniel Hajj, CEO

Thank you, Carlos. We can start. Please.

Leonardo Olmos, Analyst

Hi, good morning everyone. So my first question is related to Colombia. Can you discuss a bit regarding both the mobile and the fixed segment? We noticed that churn reduced, but still ARPU is going down. Net adds decelerated a bit. Can you discuss if competition has changed? Should we expect the same dynamic for the rest of 2022?

Daniel Hajj, CEO

Yes. What we have been seeing in Colombia is, as we know and as we have been talking about for the last year, the new competitor in the market offers more promotions, new plans with more megabytes and more data. Overall, this quarter, we grew around 300,000 new net adds in postpaid, which was a very good growth. What is happening, and it’s true and you can see that is that our ARPU is declining. The reason why it is declining is that as you give more data in your plans, then people decide to reduce the amount that they pay. So that’s really what happens when you provide those promotions. But the trend piece is still we are growing. And I want to mention that we have a very good network, a strong network and it is very good. Our brand is preferred by customers. We have a very good Net Promoter Score (NPS) and our customer care is excellent with very good distribution. Overall, people still prefer our network, even though the competitors are offering more and higher promotions than we are providing. That said, we are the market leader, no doubt. The market is very competitive, but I think what we have achieved last quarter is good, as we are still growing in postpaid; we also had good growth in prepaid. In terms of broadband, we experienced a one-off growth of 20,000, which is very important. We’re among the companies providing quadruple play as part of our convergence strategy. I can say that around 60% of our customers already have our combo — our convergent plan — and that is performing really well.

Oscar Von Hauske, COO

I want to mention that we have a complementary offering market this year.

Daniel Hajj, CEO

We also had 37,000 new TV subscribers, which represents good growth in that sector. Overall, I think we are doing well. There is new competition, including a lot of fiber competition. We are deploying fiber and providing good speeds to our customers. So while Colombia is in a very competitive environment, we are performing well, particularly in the corporate customer segment. Please, Oscar.

Oscar Von Hauske, COO

In the corporate market, we are introducing new value-added services. We have a strong position in cloud solutions, which is proving to be effective in the market. We are focusing on small businesses by offering value-added services in their segments. Overall, we feel we are doing well in Colombia, even amid strong competition. Our brand, distribution network, combo offers, and corporate market services are robust.

Carlos Garcia Moreno, CFO

Regarding the ARPU reduction Daniel mentioned, it's important to note that this is largely stable year-on-year. What we observed in the previous quarter remains relatively unchanged since the major reduction happened more than a year ago.

Leonardo Olmos, Analyst

Thank you for the insights into Colombia. Also, could you comment on what you expect from the B2B corporate segment for the remainder of 2022? The performance in the first quarter was excellent; is there any seasonality we should consider?

Daniel Hajj, CEO

I think overall on the corporate side, we are focusing heavily on América Móvil. We have a committed team, and we're offering good products. Overall, we have achieved strong results, particularly in Colombia. Oscar?

Oscar Von Hauske, COO

In Colombia, we have established a leading data center, which positions us excellently in the market. We are not only complementing connectivity; we are also expanding our cloud and data solutions. The retail and finance sectors have positively received these solutions. This is a lengthy negotiation process that we are well-prepared for, and we are seeing strong performance in these areas.

Leonardo Olmos, Analyst

Thank you very much, gentlemen. Have a good day.

Daniel Hajj, CEO

Thank you.

Carlos Garcia Moreno, CFO

Thank you.

Marcelo Santos, Analyst

Hi, good morning to all. Thanks for taking my questions. I have two. First, could you provide details on expectations for the OE Mobile assets acquired? What kind of margins do you expect from this asset? The second question is for an update on the fiber operations in Mexico. How much of your network is already fiber, and is there a relevant ARPU difference between clients with fiber and those without?

Daniel Hajj, CEO

Regarding OE, we finally closed the transaction. We have around 12 million customers, almost 5 million in postpaid and the rest in prepaid. BRL2 billion is what I can tell you. We’ve been preparing our network for their integration and expect good synergies; around 74% to 75% of the revenues will contribute to EBITDA. We anticipate having six months to complete the network integration and about a year for the IT systems. That’s our plan, and we are ready for this.

Carlos Garcia Moreno, CFO

Currently, 54% of Telmex's customer base is already connected with fiber. We are actively expanding our fiber network this year. We anticipate around 2.5 million new fiber customers this year, compared to 1.8 million last year. Our fiber service is performing well in the market, and we see significant growth opportunities.

Marcelo Santos, Analyst

Perfect. Thank you very much.

Daniel Hajj, CEO

Thank you.

David Joyce, Analyst

Thank you. Could you describe your rollout process with 5G that you just recently launched? What metrics should we be looking for?

Oscar Von Hauske, COO

The 5G launch process varies by country. In Mexico, we have been rolling out 5G in major cities, with plans to expand coverage to 100 by the end of the year. This rollout is aimed at improving ARPU among our postpaid customers, and we believe demand for 5G connections will be strong.

David Joyce, Analyst

Thank you very much.

Carlos Legarreta, Analyst

Thank you for taking the question. On the 5G topic, can you comment on Mexico's pricing strategy for 5G plans? How does it differ from other markets?

Daniel Hajj, CEO

In Mexico, we are offering 5G plans within our existing postpaid structure, allowing customers to upgrade for additional data. This strategy aligns with what we implemented in Austria and in other markets with strong demand for 5G. We aim to migrate our existing customers from 4G or 3G to 5G using a ‘more for more’ approach.

Carlos Legarreta, Analyst

Thank you for the clarification.

Alejandro Chavelas, Analyst

Hi, thanks for taking my question. Congratulations on the results. Regarding the LatAm spin-off, can you share updates on the timeline and any impact from the ICMS tax resolution in Brazil?

Daniel Hajj, CEO

Regarding the spin-off of CTO, we are basically ready to move forward. We will finalize some major financings in international markets and expect to finalize the transaction shortly. We are awaiting final clearance from the tax authorities, which we believe will happen in the next few weeks, and beyond that, we are prepared to proceed.

Alejandro Chavelas, Analyst

Understood. Thank you very much.

Walter Piecyk, Analyst

Thank you, Daniel. Are you still on track for your $8 billion CapEx for the year?

Carlos Garcia Moreno, CFO

Yes, we are on track for the $8 billion CapEx this year. We see great opportunities ahead in 5G, broadband expansion, and servicing corporate customers. We believe this investment will provide solid returns.

Walter Piecyk, Analyst

Thank you. Regarding inflation, how do you see it impacting your ability to increase prices and what steps can you take if inflation worsens significantly?

Carlos Garcia Moreno, CFO

Inflation is already a factor in some countries. However, the appreciation of local currencies is helping with dollar-related costs. We are focusing on market management and cost control. Depending on market dynamics, we can adjust our pricing strategies as needed. We have the flexibility to adapt as necessary.

Daniel Hajj, CEO

Demand for telecom services has remained strong in recent weeks, despite challenges in other segments.

Walter Piecyk, Analyst

Thank you. Lastly, regarding your capital return policy, is there any changes in light of recent developments?

Daniel Hajj, CEO

Our view on capital return remains consistent since our Investor Day. CapEx remains stable, and we are not seeing significant changes from an M&A perspective. We are focused on maintaining our leverage objectives as previously communicated.

Walter Piecyk, Analyst

Thank you.

Operator, Operator

We currently have no further questions. I will now hand you back to you, Daniel Hajj, for closing remarks.

Daniel Hajj, CEO

Thank you for being on the call.

Carlos Garcia Moreno, CFO

Thank you very much. Thank you all, goodbye.

Operator, Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.