America Movil SAB de CV

BMV:AMXB

Earnings Call Transcript 2021-Q1

[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.

[Operator Instructions] Thank you. Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead.

[Daniela Lecuona, executive]

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 Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

[Daniel Hajj Aboumrad, executive]

Thank you, Daniela. Good morning, everyone. Carlos is going to make a summary of the first quarter financial and operating results.

[Carlos Jose Garcia Moreno Elizondo, executive]

Thank you, Daniel. Good morning, everyone. Well, the strong economic expansion in the United States that have 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, thought of a new infrastructure program and solid progress on vaccination. U.S. economic growth forecast for 2021 were upgraded and initially led to an appreciation of the U.S. dollar versus most of the currencies on the back of rapid increases in medium and long-term dollar interest rate.

Those 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 marched to 6 million wireless subscriber additions, which was totally 1/3 more than a year before. 3.3 million, a little bit more than half of the net adds were postpaid subscribers, most of them are 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, who we have the disconnections 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 MXN 248 billion were 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 have mostly to do with the sharp depreciation with Brazilian real vis-à-vis the Mexican peso, which was rough -- fully 20.4%. The expansion of service revenues were 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 near that of postpaid, which slowed down in Brazil, Colombia and Austria. Prepaid revenues for their part, maintained a peso growth at 2.4% for the third quarter in a row. Prepaid revenue growth showed a marked improvement relative to the year earlier quarter, except for Mexico, Brazil and Colombia.

In these countries, economies appear to have been more affected by the pandemic in the first quarter of this year.

Fixed service revenue growth turned positive 0.1% after several quarters of negative growth on the back continued strong performance of fixed-broadband services, which became our most important revenue line in the quarter. Maintaining its nearly 8% annual pace. 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 dipped into positive territory in the overall expansion of fixed-line revenues. Fixed-broadband revenue growth has accelerated sharply in some countries including Peru, 42%, Colombia 21%, the Dominican Republic and Ecuador, between 15% and 20%, with revenue growth staying on trend at around 7% to 8% in Chile, Brazil and Central America.

EBITDA rose 5.2% to MXN 81.7 billion. At constant exchange rates, it was up 8.1%, with EBITDA margin expanding almost 2 percentage points to 32.9%, supported by strict cost controls, lower selling and marketing expenses, again, having to do with restrictions on mobility and new consignment. And reduced bad loan provisions.

We have had a very good year collecting our invoices. Most countries registered strong EBITDA growth 59% in the U.S., 47% in Puerto Rico, 36% in Peru, 15% in Dominican, with Colombia and Central America expanding approximately 10 percentage. EBITDA margins rose across the board, increasing almost 7 points in Peru, 5 in the Caribbean, both Puerto Rico and the Dominican, 4 in Central America, followed by Mexico, Brazil and Argentina with 2.6.

With our operating profit increasing 5.7% to MXN 40.1 billion, and our comprehensive financing cost coming down by 55% year-on-year to MXN 35.9 billion. We were able to post a net profit of MXN 1.8 billion, reversing the MXN 29 billion loss register a year before on account of 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 in the amount of MXN 25 billion, and to buy back shares worth of 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, this chart is interesting. Our free cash flow, this is looking at EBITDA minus Capex, has executed a solid path of growth over the last 5 years.

Even in the midst of the pandemic. So the free cash flow has gone from $5.6 billion in the year 2016 to $9.4 billion in the year 2020 and cash kept on rising in the 12 months to March to $9.6 billion. So even in spite of this deceleration in sales and revenue that we have had, we have seen continued strong performance on 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. At this time, it was equivalent to 1.77x the EBITDA for the last 12 months.

So with that, I would like to pass the call back to Daniel, and we continue the Q&A session. Thank you.

[Daniel Hajj Aboumrad, executive]

Thank you, Carlos. We can start with the first question.

[Operator]

[Operator Instructions]

Our first question comes from the line of Marcelo Santos with JPMorgan.

[Marcelo Santos, analyst]

I have 2. The first is if you could provide an update on the tower spinoff operation that you're planning for América Móvil in Latin America. And the second, if you could compete, if you could comment on the competitive environment in Colombia, now that 1 has officially launched their mobile brand, mobile operations?

[Daniel Hajj Aboumrad, executive]

Well, talking about the towers as the -- we're currently implementing the structure within the América Móvil group to separate locally the towers and obtain the required approvals in the different countries prior to the final step, the spin-off at the América Móvil level.

So we think and we expect that this implementation will occur in this year, end of this year, is what we have right now. On the Colombia one and the competition. Well, I think they already launched their plans at the beginning of April, mid of April, they were very aggressive plans, but I think we are well prepared to compete in Colombia. There is not only price in Colombia.

I think we have a very good coverage, we have fourth place, so we have a lot of our customers in convergence. So in a 4 play offer, but it's very important, reduce a lot our churn.

We have one of the best qualities in Colombia in terms of -- in mobile and in fix also. Good distribution, we have a very good distribution all around Colombia. Good image, Net Promoter Score very high and very good image. And very good service. So I think it's not only price. We are prepared to compete in price, but also, we are prepared to compete in all these sorts of things.

So we have a strong competition. Their plans were aggressive. We know that they are coming very aggressive these plans, and we prepare for that. So we are competing.

So I don't have any news. It's only 10 or 20 days of competition. This competition is going to take all these years. So we are prepared to compete. So that's what I can say.

[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 Aboumrad, executive]

We haven't decided anything at -- until right now. So we don't know if it's going to be on Mexico, it's going to be also -- or Mexico and the U.S. So we still don't -- we're not -- we need to make that definition, let's stay in the next months.

[Operator]

Our next question comes from the line of Alejandro Gallostra from BBVA.

[Alejandro Gallostra de Arnedo, analyst]

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 a common reason behind that expansion across the board. And how much margin expansion you expect going forward at a consolidated level? And second, could you comment about your FTTH deployment strategy in Mexico? And how much of your network is currently FTTH, and how you're expanding your FTTH footprint, given the aggressive investment plans of your competitors?

[Daniel Hajj Aboumrad, executive]

Well, as Carlos said in previously, I think part of the margin or the EBITDA growth that we had is controlling costs and expenses. But we have been having the last 2, 3 years digital transformation that is allowing us to reduce cost.

And that's mainly one of the reasons why we are reducing costs because everything that we're doing, we're trying to do digital, saving people and reducing cost in a lot -- with a lot of parts of the companies, okay?

So in every country is different, in every country, the bad debt is different than in the other countries. The expenses, the commercial expenses are going to be different because we have different competition, let's say, in Colombia, we are putting more efforts in the commercial side. In other places, it's more on the administration or in the network, we're saving a lot with new technologies in the networks.

We're going to start to roll out 5G so we are already virtualize all the network that we have in all the countries we're virtualizing all the networks.

So it's a program cost, expenses, technology, digital that we have been having for the last 2, 3 years, and it's not ending this year. It's going to go for the next 5 years. So it's a big program that we're having and is what we're doing. In the revenues, as Carlos said, we -- in constant exchange rates, we grow a little bit on revenues. But as he said, there's a new wave of COVID in the south of Latin America and is -- we have more stores close and our commercial has been hit a little bit.

But I think as the economy gets better in all these countries, I think we're going to return with the revenue. So that's more or less. In the FTTH, Oscar can tell us a little bit on, tell them what we have been doing.

[Oscar Von Hauske Solís, executive]

We will be operating a network to access FTTH in Mexico. We have around [indiscernible], we are the leaders in the market with the Internet connection, with the [indiscernible]. So we have 4.4 million connection with fiber. And we're still growing every month to improve the network to FTTH and to migrate customers from copper to FTTH.

[Carlos Jose Garcia Moreno Elizondo, executive]

So adding a little bit to what Daniel was mentioning, to give you a little bit more color. The cost of service stayed in line with service revenues. But selling and marketing expenses were down 6% at constant exchange rates. And administrative expenses were down 14%. So we did have very major reductions as a lot of that came, as Daniel was saying, out of the digitalization that have been implemented in the company.

[Operator]

Our next question comes from the line of Andres Coello with Scotiabank.

[Andres Coello, analyst]

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 $500 million in additional payment.

[Daniela Lecuona, executive]

Well, talking first Tracfone, okay? So I think the regulatory approval process for the sale Tracfone is ongoing. It's going well. We're working very closely with Verizon and the regulatory authorities to get clearance on that transaction. And we think and we believe that this transaction will be closed in the third quarter of this year.

So that's the first step. Second, the earnouts that we have. I'm sure since the beginning that nothing changed with the performance of the company, but the indicators that we put, I'm sure that we're going to comply with that, and we're going to take the earnouts of what we agree in the transaction to around $500 million. And I think that we're going to get that. It's more or less that amount of money. I don't remember if it's $500 million or $700 million, but we are sure that we're going to get or the 100% or a big part of that earnout.

On the Telmex negotiation, we're still negotiations, nothing else to say. So we are still negotiating with them. And we hope we can get on an agreement with the unions, okay? So that's mainly what I can tell.

[Operator]

And our next question comes from the line of Arturo Langa with Itaú BBA.

[Arturo Langa, analyst]

I apologize if this was already answered, I had some trouble in my line. But 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 then 2 other questions, if I may, but also similarly, when can we expect the acquisition of -- or sorry, the sale of U.S. operations to be excluded from your reporting files? And lastly, if there's any color regarding the PayTV license request in Mexico? That would be useful.

[Daniel Hajj Aboumrad, executive]

Well, on Oi, the approval process before KAVI and Anatel in Brazil is advancing accordingly with its different stages. All parties are committed to cooperate with authorities during this process. And we think that we can close this transaction this year also. So we hope that this year, we can consolidate Oi in our financials. So that's the first one. The second one, I don't hear you very well. Can you repeat it, please?

[Arturo Langa, analyst]

Yes. Sorry, Daniel. With regards to the sale of Tracfone to Verizon, when do you expect to discontinue the U.S. operations or stop reporting the U.S. operations in your results.

[Daniel Hajj Aboumrad, executive]

When it's closed, and I think we are thinking that this transaction is going to be closed in the third quarter of this year. So that's our expectations. And the PayTV license, we hope that we can get a PayTV license. We're working to get the PayTV license. And -- well, nothing to say only we're hoping to really get the PayTV license. So that's a lot of time working on that.

[Operator]

Our next question comes from the line of Carlos Legarreta from GBM.

[Carlos de Legarreta Diaz, analyst]

I have 2 questions, please. The first one, in Mexico, you're mentioning a negative effect from the chip shortage from handset sales. However, it doesn't seem to have affected most of the other operations at all. So can you give us some color on whether this is an isolated effect in Mexico? Or can we expect any problems like this in any other countries on the road? That's the first one.

And then secondly, in your financial statement for 2020, you saw a significant revaluation of -- since your tower portfolio. Can we take this figure as a proxy for the value unlocking associated with tower transaction?

[Daniel Hajj Aboumrad, executive]

So I think it's not a secret that there's no chips for the handsets and not only for the handsets for set-top boxes and for even cars, I read that there's some shortage in the chips for cars. So there's a shortage in the chip of all around the world, and it's getting worse. I think all the operations, we have been having some problems getting the handsets that -- and the brands and the -- in the segments that we need. So -- and also, we have been having some shortage in the set-top boxes and broadband boxes.

So all around, we're having some problems, but I hope -- and I don't think it's going to get fixed immediately. But we have been placing orders for some time ago, and it's been helping us to have the amount of equipment that we need. So that's where we are. Carlos can talk a little bit about the revaluation.

[Carlos Jose Garcia Moreno Elizondo, executive]

So, Carlos, as you point out, there was a process for devaluing the towers. As you know, under IFRS 16, you can choose whether you keep your assets or second capital you profits at cost of you having that -- at market.

We had a valuation on the towers, and then we kind of capped these valuation based on impairment terms that we have to come up for various operations. But net-net what we have it's a first proxy or particularly for quarterly value, mostly the value in Latin America, okay?

It is all of the full category of towers have been revalued. But as you know, we have not yet determined anything regarding towers in Telekom Austria. So it's -- but nonetheless, we have to bring all the category of towers within our consolidated results, and we had a certain revaluation, okay? So that's 50 days for this spin of eventually.

[Carlos de Legarreta Diaz, analyst]

Right. But this will be incremental value over the book value you have over towers, right?

[Carlos Jose Garcia Moreno Elizondo, executive]

Yes, that's correct. That's correct. We have already affected the increment in value as of the end of December, which was when we changed the accounting policy to be able to adopt the new policy of booking towers based not on cost, but on market value.

[Operator]

Our next question comes from the line of Leonardo Olmos from UBS.

[Leonardo Olmos, analyst]

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 for the regions and what are the other content or over-the-top strategies that you'll have waiting for -- to be launched in 2021?

[Daniel Hajj Aboumrad, executive]

I think we launched Claro Box in Brazil, and we are thinking to launch that Claro Box all around Latin America, in all the other countries. And I think it's a good idea that Oscar can talk a little bit what's the Claro Box and -- please, Oscar.

[Oscar Von Hauske Solís, executive]

But as you know, the PayTV provisional business has been moving. There is a lot of streaming offers in the market. So we did like -- analyze how the market is moving on. And I think Claro Box in Brazil. There is a full IP technology as well as a new seasonality like box from [indiscernible], Catch up TV, remote TV app, but the good commercial proposition in the market is that you couldn't start with basic packages, and then you could add on different streams that is more related to what the customer content like. So you could add on, in the case of Brazil Global Play or you could add on Netflix or Telecine or Paramount or sports.

So you could bundle your services given the profile of the customer. So we feel that this with the happened is more cost-efficient because it doesn't require installation. Is sales store by the customer.

And as I mentioned before, is the full IP flag post to manage better traffic in the network. So I think there is a unique proposition in the market. We will start in Brazil.

And as Daniel mentioned, we are ready to open in all the properties with the same content. And I think we are adapting great trends that is happening in the PayTV. And let me add that this isn't only PayTV, we see this as an entertainment hub.

So we do go add on a music as well. We could have Facebook Watch and another add on that are in the market. And to sellout like a hub, like ecosystem of entertainment that we are offering in the market.

[Operator]

Our next question comes from the line of Maria Azevedo with Banco Santander.

[Maria Azevedo, analyst]

My first question is on the CapEx. Can you comment a little bit on the CapEx outlook for the next year? You have a very strong metric. So 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 Aboumrad, executive]

No. I -- we already give you the color of what's going to be the CapEx of this year. And I don't think even for this year or for the next years, we are not going to have an increase -- substantial increase of CapEx for 5G. So as we said in previous calls, we have been working to implement 5G, virtualizing networks, put on fiber in the towers, putting the photonics in the backbone. So a lot of things we have been doing.

So we are ready to launch 5G in many countries. And we are not thinking to put more money because we are going to launch 5G. So it's in our numbers, 5G is included in this CapEx and in the future CapEx that we have. So no substantial CapEx for next years.

[Maria Tereza Azevedo, analyst]

Perfect. This is very positive. And my second question is on the competitive environment. In Brazil and Mexico for mobile. If you can comment a little bit on how the offers are, if you see any opportunities for price and ARPU increases? And if you can also comment on Claro Pay that would be very helpful.

[Daniel Hajj Aboumrad, executive]

Well, let's talk first on Brazil. I think Brazil well-being gaining good market share, giving good subscribers on cost base and also in prepaid. Our what we said -- what Carlos said at the beginning, the new wave of COVID is slowing down a little bit, Brazil, but I think it's slowing down for everybody, for all the companies. We have, at this moment, some store closes.

So our commercial activities is slowing down a little bit. Also that helps in money that the government is giving to the people it's reducing so also reduce a little bit the amount of money in the people in prepaid that they are spending.

But all overall, I can tell you that we have a very good network, very good proposal. We're doing and making our combos in -- with fixed broadband and TV also with wireless.

So we have a very good proposal for the customers, good quality. So we are very competitive in Brazil at this moment in prepaid and in postpaid. And in Mexico, well, Mexico, we're seeing that a lot of subscribers, not a lot, but some subscribers are moving and wants to be more careful and moving from postpaid to prepaid, but they are starting to consume a little bit more.

So overall, we are also competitive in Mexico, and I think we're doing good in both countries in the wireless side, in the prepaid and postpaid side. On Claro Pay, we are advancing, we are advancing in all the countries. We are doing Claro Pay in Colombia, Brazil, Mexico and putting Claro Pay in other ones.

And well, that's going to be a new offer that we're going to do, and we're working on that. Nothing else to say right now.

[Operator]

[Operator Instructions]

Our next question comes from the line of Walter Piecyk with LightShed.

[Walter Piecyk, analyst]

Daniel, I just wanted to talk about the share repurchase. I think like you -- if I have it right, you did in pesos, I think it was MXN 6 billion last April, you upped it again another MXN 6 billion. So you probably should have a couple of hundred million left, then you added MXN 25 billion.

I think historically, you have utilized whatever you've been authorized to do over the course of the year. Is there any reason we should think about that differently as we look over the next 4 quarters when you get to next April. When you kind of look at your regular reauthorization plan?

[Daniel Hajj Aboumrad, executive]

Well, let's wait until that time. But we -- let's say, in February, we asked for an extra fund, and we use it. In this assembly, we do MXN 25 billion on Fund. So we're thinking to expand it. We think that share is at very good price, and we're thinking to spend all the fund that we have. So if in the future, we use that and we need more, then we're going to do another one and ask for another fund. So that's what we're thinking. We are increasing in first quarter, we do a good buyback. And we think that we're going to do more or less the same in -- for the rest of the year. So that's mainly what I can tell you.

[Walter Piecyk, analyst]

More or less, the same meaning, basically at the run rate you did in Q1. And then on dividends, at the April meeting, was there any discussion of kind of the dividend policy? I know that you kind of do this in the second half of the year, you've been kind of around MXN 0.19, MXN 0.20 per share. Should we think about a similar dividend policy going forward? Or is -- are you shifting more of your capital to share repurchase?

[Daniel Hajj Aboumrad, executive]

What we discussed in this assembly was dividend for this year that is going to be MXN 0.40 and it's going to be like last year in, I think, in July and November. And you are asking me for next year and what we're going to do, I really don't know. First, we need to sell what we need to sell to close all the transactions that we have, and then we're going to decide what to do.

So that's more or less. We have a lot of things, we have Oi transaction, we have Tracfone transaction, and then we have the towers transaction. All of these we're working hard and try to close everything this year. So depending on that is what decision we're going to take.

[Walter Piecyk, analyst]

And then just 1 last question, if you don't mind. In Mexico, I think there were some press reports very recently about the -- maybe the struggle that Altán Redes has had to sign up subscribers and maybe hit some of their coverage targets. Has there been any discussion within Mexico about whether that spectrum is better utilized by yourself or AT&T in Mexico?

[Daniel Hajj Aboumrad, executive]

No, no discussions with us. What you're telling me, I just read it in the press as you. And I don't have any discussions with nobody about the spectrum or about the company. So no, I don't know nothing about that.

[Operator]

Our next question comes from the line of Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

Just a quick follow-up on the towers. Have you decided yet whether you will list the company in the U.S. market or only in Mexico?

[Daniel Hajj Aboumrad, executive]

No, they ask us at the beginning of the call. We don't know still if it's going to be a Mexico only or it's going to be in Mexico and in the U.S. So still we are deciding. And we're deciding also if it's going to be only the LatAm towers and the European, we're still deciding when they are going to be. So it's still, we're working and having all the authorizations on the spin-off of all the towers, not that we're going get sell -- a lot of work to do still.

[Operator]

Our next question comes from the line of Arturo Langa with Itaú BBA.

[Arturo Langa, analyst]

Just a follow-up. And it's maybe more of a strategic question, but we're seeing a lot of telecom groups around the world sort of reduce their footprint, for example, Telefónica, Purina, LatAm or Vodafone out of India, you guys sort of the U.S. is there any read-through for your footprint?

I mean, for example, looking at Europe, is there a possibility you could be reducing or selling assets going forward. Is there any consideration regarding that?

[Daniel Hajj Aboumrad, executive]

No. I think we're very happy with Telekom Austria. It's a very good performance, the company is doing very good. We're growing in North Eastern Europe also. So no, we haven't think of doing something like that.

I think we're really, really happy with the performance of the company being -- we're partnered with the government so that's much. What we already do is Tracfone and what you're saying in Tracfone on, yes, we decide to sell Tracfone and that's -- and MVNO in the U.S., so it's a little bit different. So yes, we are looking what's the best for América Móvil, we know where we are and the expectations, the future expectations of the companies where we are is import.

[Arturo Langa, analyst]

Okay. And maybe just on that, for example, regions like Chile, or Argentina, which continue to consume cash. Could there be a possibility maybe of reducing your pricing events?

[Daniel Hajj Aboumrad, executive]

Argentina is not consuming cash. Argentina is a very profitable company. I think giving very good cash flow, and Chile also is doing very good. So both companies are doing good. So no, we haven't think also in doing something in Argentina, Chile or in other places.

[Operator]

And 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 Aboumrad, executive]

I just thank everyone for being in the call and Daniela, Carlos and Oscar. Thank you very much.

[Carlos Jose Garcia Moreno Elizondo, executive]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.