América Móvil, S.A.B. de C.V. (AMX) on Q1 2022 Results - Earnings Call Transcript
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: 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: Thank you, Daniela. Good morning, everyone. Thank you for being in the call. Carlos is going to make a summary of the first quarter financial results.
Carlos Garcia Moreno: Thank you, Daniel. Good morning, everyone. Well, the first quarter of 2022 was marked by sharp increases in interest rates very much across the board with five-year U.S. inflation rates nearly doubling and ten-year rates rising from 151 to nearly 250 as concerns of our growth inflation rates led investors to revise or projections regarding future monetary policy moves by the Fed and other Central banks. These moves happened even in the face of the Russia invasion of the Ukraine, which initially causing inflation to come down as investors looked for a safe haven. Notwithstanding these increases in rates, the main Latin American currencies actually appreciated vis-à-vis the U.S. dollar in the period, partly as a result of interest rates going up even more rapidly in Gulf countries. We added 3.2 million wireless subscribers in the quarter, of which 1.9 million were post paid subscribers with over half of them coming from Brazil, nearly 300,000 from Colombia and 217,000 from Austria. As regards to 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. On 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 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 one has leveled off, while the latter one 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 with 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 very much the same pace as in the preceding quarter and substantially higher than that seen a year before, 1.2%. On the fixed-line platform service revenue declined 1.1% in the first quarter after increasing 0.5% the prior one, mostly on account of faster declines in both revenue growth, down 5.8% annually compared to minus 3.6% in the preceding quarter. Year before fixed-line service revenues had been practically flat year-on-year at 0.1%. Colombia and Peru experienced charter deceleration relative to pay we had in sales in year-earlier quarter. Both prepaid and postpaid revenues maintained the rough pace at 8% and 5.2% respectively on a sequential basis, much higher than the 1.4% and 1.0% rate posted the year-earlier quarter. Brazil, led the way me weigh 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 decline in the rates of growth with Colombia being nearly flat and Chile is extending the decline to minus 8%. Corporate networks was the fastest growing business line in the fixed line platform, with 4.9% in the quarter, with broadband revenues coming 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% whereas fixed voice revenues were down 5.8%, both of them in line with the rates seen a year before. Broadband service revenue expanded faster in the Dominican Republic 15%, Peru 11% and Eastern Europe 8%, while Corporate network revenues rose more rapidly in Eastern Europe 23%, Brazil 16% and Colombia and the Dominican Republic 12% each. Corporate network revenues grew more rapidly in Eastern Europe, 23% . Our EBITDA rose 4.2% year-on-year to MXN81.1 billion, it was 4.3% at constant exchange rates, with EBITDA margin expanding to 38.4% from 37.8% a year before. That's a 0.6 percentage points margin expansion year-on-year. Dominican Republic, Eastern Europe, Central America exhibited the highest annual EBITDA increases at 10%, 8.9% and 7.6%. All countries except for Chile and Peru posted EBITDA increases in the quarter from a year before. Most concrete with Peru and Chile, the main exceptions increased actually their EBITDA margins. The expansion in EBITDA recovering about 6.1% increase in our operating profit, which totaled MXN39.8 billion. Our operating profit and our net comprehensive financing income in the amount of MXN7.3 billion, helped bring about our 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 came about as a result of foreign exchange gains in the amount of MXN22.6 billion extending from the appreciation of the Mexican peso, versus 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 us covering MXN28.6 billion in capital expenditures, MXN9.2 billion in share buybacks. Drive as much as a year before, MXN6 billion in labor obligations. It is of note that the first quarter of this year cost for a seasonal increase in working capital as accounts payable on 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. These seasonal requirements for working capital is reversed in later quarters, it did not manifest itself in the first quarter 2021 because of the significant reduction in capital expenditures and asset purchases implemented in 2020, particularly the second half on account of the pandemic, you can see in the chart. I think it's a very telling how stable and how 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 month 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, so that's $2 billion in all. While both were arranged by América Móvil, they will become obligations of Sitios Latinoamerica upon its spinoff from América Móvil expected to take place in the third quarter. The proceeds will be fully applied to the reduction of América Móvil debt. So with that, I would like to pass the floor back to Daniel for the Q&A session. Thank you all.
Daniel Hajj: Thank you, Carlos. We can start. Please.
Operator: Thank you. Our first question comes from Leonardo Olmos from UBS. Leonardo, please go ahead.
Leonardo Olmos: Hi, good morning everyone. So my first question is related to Colombia, can you discuss a bit both the mobile and the fixed segment? We noticed that churn reduced, but still it is ARPU is going down. Net adds decelerated by a bit. Can you discuss if competition has changed? Should we expect the same dynamic for the rest of 2022?
Daniel Hajj: Yes. What we have been seeing in Colombia is as we know and as we have been talking for the last year, the new competitor on the market with more promotions, more – new plans with more mega and more data but all overall, this quarter we grow around 300,000 new net adds in postpaid and it was a very good growth. What is happening and it’s true and you can see that is that our ARPU is declining. And the reason why is declining is because as you give more data in your plans then people decide to read those to amount that they pay. So that’s really what happens and when you give those promotions. But the trend piece is still we are growing. And it’s very important that I want to mention and we have been seeing that for all this year as that we have a very good network a strong network and it’s very good. Our brand people is preferring our brand. We have a very good NPS and I’m glad all is very strong there. We have excellent customer care and very good distribution. So all overall people is still preferring our network. Even though that the competitors are doing more and higher promotions that what we have been doing. That’s all we are the market, no doubt. The market is very competitive, both I think what we have been doing is that these last quarter, I think it’s good, it’s still growing in postpaid and postpaid very good growth, 300,000 also growing in prepaid and it’s been good on beyond the Skype I’m talking about peak I think on the peaks – on the peak side, we grow 20,000 in broadband one-off, and it’s very important. We’re giving quadruple play as the convergence. And that’s also helping us. We are the company that is giving full foreplay and to our customers and I can tell you, may be 60% of our customers, they already have the – our combo our convergent plan and it’s doing very good. So that’s where we are and I don’t know what’s everyone want to talk a little bit about the peaks in Colombia.
Oscar Von Hauske: All mentioned we have here this year. That complementary offering market.
Daniel Hajj: And we do 37,000 in TV that it’s also a good growth in TV saw all overall I think 67,000 and 70,000 in big slide, so all overall I think we are doing. Okay. There is not only new. There is also a lot of fiber competition there. We’re putting also fiber and you are giving a good speeds to our customers. So Colombia is in a very high competitive environment, but we are doing good in the other side and something that we’re doing also good is in the corporate customers. Please Oscar.
Oscar Von Hauske: Now in the corporate market, we think offering new value-added services. Now we have got a very peace in ordering cloud broker relating data sequence relatively data science there as well as growing pretty nicely. Where we focus on small business not only with positivity with value-added with the segment of the market volume. I think all overall, we are doing okay in Colombia, of course it’s under a very highly competitive with a lot of competition both there. We feel that brand distribution network combos the comparison the corporate market. Everything I think we have been over there and we’re doing okay.
Carlos Garcia Moreno: And you are the just one comment on the reduction the ARPU Daniel mentioned. Yes, it is almost identical on a year-on-year basis. So what we saw in the prior quarter and quarter before that. So the effect of our natural reduction really happened a more or less a year ago, and it has been remained stable since then.
Leonardo Olmos: Okay. Great. Okay, thank you. Thank you very much for the to comment me on what my question, good thing that you mentioned corporate. In the end, Oscar. Can you please comment on you Daniel on what you expected for B2B for corporate in the remaining 2022 for example the performance was incredible in first quarter, was there any type of seasonality, or should we expect this type of growth for the remaining year.
Daniel Hajj: No, I think I’m going to talk, not only in Colombia. I think in the corporate side, we are focusing a lot in América Móvil. We have a very good people. Now let’s training people and we have good products all. Overall, we are focusing there and we have very good results specifically in Colombia. Oscar.
Oscar Von Hauske: In Colombia, we have a very large data center tier-311 of the best in class. We have – it makes us. Not only that we are complementing that connectivity we expanded our – value I mentioned Cloud, machine learning, artificial intelligence and some vertical solution for retail in finance has been taking very well in the marketplace. Let me tell you that these are long negotiation. I mean it’s a process that has to the customers more have been driver telling that let’s stick concerning but we already prepare the people that’s has done very well with the customers we have in each of the that we have from house other ones that I’m looking at the market, which are there. So because it makes sense to look to the market. So I think we are due to progress on the B2B business.
Leonardo Olmos: Okay. Thank you very much, gentlemen. Have a good day.
Daniel Hajj: Thank you.
Carlos Garcia Moreno: Thank you.
Operator: Our next question comes from Marcelo Santos from JP Morgan. Marcelo, please go ahead.
Marcelo Santos: Hi, good morning to all. Thanks for taking my questions. I have two, the first if you could provide some details on expectations for the OE Mobile assets acquired like but what kind of margins is asset would have any information would be interesting. The second, if you could provide an update on the fiber operations in Mexico. How much of your network is already covered with fiber if there is a relevant ARPU difference between the clients with fiber and without fiber. Any color there would be helpful. Thank you.
Daniel Hajj: However, the first question on OE. I think we finally close OE, we have around 12 million customers, almost 5 million in postpaid and the rest in 18 in prepaid BRL2 billion and what I can tell you is that we have been working on preparing our network and we are ready to take all these customers and of course we’re going to have very good synergies. And at the end of the day, maybe 74% to 75% of these revenues will go-to-EBITDA is more or less what we think. And it’s makes a lot of sense, makes a lot of synergies and we’re working to have that. So we have I think six months to change the cost to merge to our network. And then we have like one year to change the cost to make to our IT system. So that’s more or less what we have and we are ready, we have been working for some time to prepare our networks and our systems to receive these customers. And on Mexico, can you repeat, Mexico.
Marcelo Santos: And update on fiber operations in Mexico, whatever color you could give, how much of your subscribers are already fiber. How is that evolving fiber plans that you might have.
Carlos Garcia Moreno: Yes. If you look at the customer base of Telmex 54% of the customer base is already connected with fiber I would have the pure ADSL is live and 8% in the new. We have DSL as well, we continue with very high speed that BSL and we have a very aggressive program and finder. Hence it goes for this year. So we are pushing growth construction of the fiber and the variation of the customer for VDSL or VDSL for fiber is working pretty nicely to be honest. So we respect the quarter around 2.5 million this year in fiber. So that’s over, front. Last year we did 1.8 million. So we are focused on the market. I don’t know. The accounting is that service that we offer in the market. In my opinion not unique when you combine a very good quality you overrun streaming video accounts. I think it’s already a very, very that has been working pretty well.
Marcelo Santos: Perfect. Thank you very much.
Daniel Hajj: Thank you.
Operator: Our next question comes from David Joyce from Barclays. David, please go ahead.
David Joyce: Thank you. Could you please describe your rollout process with 5G that you just recently launched? What metrics in terms of how much of the market you plan to pass and what are the milestones we should be looking for there? Thank you.
Oscar Von Hauske: I think it’s very different in each country, we already launched, let’s say, Mexico, Dominican Republic we have something in Peru. Well, and in some countries we are rolling out and what we have been doing in Austria, of course, Austria. We have or maybe one year already, and it is doing good. I think 5G is going to give us a better ARPU to our postpaid customers, I think we’re going to have more customers and that ARPU in 5G saw very still in some countries that we need to, that we have provide some frequencies hope they do what soon bought in the countries where we already have a Spectrum. We are rolling out the network and making plans and these plans are more focusing on in giving more for more giving more data more 5G data to but with paying a little bit more increasing ARPU saw that more or less the strategy that we have. It’s going to be a little bit different in each country depending the competition depending, a lot of other things, call that about let’s say, Mexico. I think, Mexico, where we’ve gone end this year with. We start with 18 of the bigger cities and we are going to high-end with around 100 of end of the year and people is lighting. We have a very good quality very good speed and people is moving to 5G. Okay. So that’s more or less what I can tell you.
David Joyce: Thank you very much.
Operator: Our next question comes from Carlos Legarreta from GBM. Carlos, please go ahead.
Carlos Legarreta: Thank you, good morning, thanks for taking the question. To continue on the 5G topic, I understand. Obviously, the strategy will change growth countries. But if you can talk about Daniel in Mexico in particular I think I wasn’t surprised and perhaps I was not the only one you see that there was different pricing for 5G plans and they understand that you’re saying it’s more for more. But just, it is different than what we’ve seen in other geographies in other countries. Even in Austria with Telekom Austria. So if you could talk about why are you pursuing this strategy. And just to get a sense to why is strategy that will be great. Thank you.
Daniel Hajj: No, I think, now, I think when we launch Austria. We have a new plans for Austria, maybe could be a little bit confusion when you have the peaks wireless than the postpaid wireless. I don’t know if you see different plans there, but in Mexico, what we have been doing it in there we’re dealing in the postpaid, not higher in the mid-plans of postpaid we are giving 5G. And then you can upgrade to all those plans fees what we do in Mexico, and I think it was what we do in Austria and in other country and also is what we have been seeing that. It’s happening in let’s say in U.S. no in U.S. They also have plans for 5G at higher ARPU giving more. So, we can check on more detail, but I don’t think it’s any difference between Mexico and the other countries are could be a little bit different depending on the competition but our overall what the strategy on 5G is give more for more and I’m to try to upgrade our 4G or 3G customers to 5G and that’s more or less what we have. But of course, we can sit down, you can sit down with Daniel and review on detail but it’s very that to review that.
Carlos Legarreta: No. Thank you so much for the color and talking about coverage. I mean you guys cover around 50 million people or so. Currently, obviously there is going to be an increase in the coverage, but do you have any timeline for, when do you expect that this will cover?
Daniel Hajj: No, I think since we start on February maybe end of the year, we're going to have double number of cell sites with 5G with more cities and more cover that's more than repetition in mid city and that's more or less what we are going to do in the rest of the contract. We can move, it's very interesting as we can move more customers from 4G to 5G or 3G to 5G then the CapEx should be more in 5G because we have more customers there and take out some CapEx on 4G to put it in 5G. So I don't think it's going to be more CapEx for doing 5G, it's the CapEx that we do in 5G. We do it the last years on the fiber-to-the-node on virtualization and all of these things that we have to do to have 5G. And today in terms of capacity if we grow faster, than we put more on 5G, if we grow at slower pace than we still are going to put more on 4G. So that's more or less, but it's not more CapEx to do 5G in the rest of the Latin America accounts.
Carlos Legarreta: That’s it. Thank you.
Operator: Thank you. Our next question comes from Alejandro Chavelas from Credit Suisse. Alejandro. Please go ahead.
Alejandro Chavelas: Hi, thanks for taking my question. Congratulations on the results. I had just a couple of things. First one on LatAm if I got it correctly, it has been delayed to third quarter, the closing of the transaction, if I'm not mistaken. If you can share anything on that front on what's happening there that we should be useful. On the second one is about the ICMS tax resolution by the Supreme Court in Brazil, do you have any view of what the potential impact on the business could be from this resolution and when we could see any effect from it. Thanks.
Daniel Hajj: See well on the spin-off of CTO. I think that we are basically ready to go. As we mentioned with the report, we are going to be a couple of major financings in international markets and commercial banks and then going to be, that would be moving onto CTO starting its well-defined. Today, we are looking at spending of 31,000 towers in 14 countries. I think we are only awaiting the last, let's say clearance on the transaction from the tax authorities up to should be. We expect – we see the next few weeks but other than that I think that we are really ready to go with the towers. And the other question was on the SMS and Colombia and SMS, I don't have this information, maybe we can check but within later. But for our, but I don't think the floor .
Alejandro Chavelas: Understood. Thank you very much.
Operator: Our final question comes from Walter Piecyk from Lightshed Partners. Walter, please go ahead.
Walter Piecyk: Thank you, Daniel. CapEx for the year, I know you talked earlier about 5G, 4G mix, but just are you still on track for 8 billion for the year.
Carlos Garcia Moreno: Yes. It's, we are on track and we think we can do the 8 billion. CapEx, I think it's a great opportunity for América Móvil. There is still a lot of opportunities in the first in 5G in to growth ARPU. Second on the peak side in more broadband in some countries that still some countries we have a low penetration in broadband. Showing the market, we still see a good opportunity and to also part of the CapEx is on the corporate customers that we're doing very well. So we're on track and I think it's a good opportunity to invest that I think it will give good return.
Walter Piecyk: And then just a second question, I guess on inflation for you, Daniel or perhaps Carlos. It's got some obviously legacy experience in the cyber stuff. I mean, what if inflation kind of kicks in everywhere, how do you think that plays out in terms of what happens in your markets usage ability to increase price. And what kind of pivots or steps can you take as a reaction to if inflation gets materially worse?
Carlos Garcia Moreno: Well if we have inflations are not if inflation. And so I think we have inflation in some countries and we're going to see what we see right now I think something that is helping us in Latin America is the appreciation of all the currencies. So with all the, there is a lot of costs related to dollar and that is helping us there. So, still we are focusing in the market and doing that we are working a lot in cost control. So we are working very, very strong on cost controls and well, of course, we can besides in each country, what to do, if we want to give new plans or take out promotions or put more control on the cost. So we – that's something that we can decide depending the market, depending the competition, depending the currencies, depending a lot of things. So but of course we have the availability of doing a lot of things no.
Daniel Hajj: Well, the demand for telecom services is more in the last weeks and producing in other segments but there is always potential for some, the distribution of the wallet now, the expenditures of the consumer’s over time.
Walter Piecyk: Thank you. And then just last question related. I mean does any of this in terms of kind of how you're, I mean obviously you haven't changed CapEx for the year does anything change kind of your view on your capital return policy or is it kind of the same that you've laid out pretty consistently over the last several quarters.
Daniel Hajj: So I think – I don't think there's anything more to add since we came out with our medium term outlook in our Investor Day back in October. I think not to the CapEx, is very stable. We're not seeing anything major in the M&A front of event. But that we have already said we – and the leverage, I always say the leadership objective is already set in our role, so nothing more to add there but….
Walter Piecyk: Thank you.
Operator: We currently have no further questions. So I'll now hand you back over to you Daniel Hajj for closing remarks.
Daniel Hajj: Well, thank you for being in the call.
Carlos Garcia Moreno: Okay. Thank you very much. Thank you all. Good bye.
Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
