America Movil SAB de CV

BMV:AMXB

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Lauren, and I'll 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. [Operator Instructions] Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Daniela, please go ahead.

[Daniela Lecuona, executive]

Thank you. Good morning, everyone, and 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 Aboumrad, executive]

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 Jose Garcia Moreno Elizondo, executive]

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 5-year U.S. Treasury rates nearly doubling and 10-year rates rising from 1.51% to nearly 2.50% as concerns about rising intention rates led investors to revise their projections regarding future monetary policy moves by the Fed and other central banks. These moves happened even in the face of the Russian invasion of Ukraine, which initially caused interest rates to come down as investors looked for a safe haven. Notwithstanding these increases in rates, the main Latin American currencies actually appreciated vis-a-vis the U.S. dollar in the period, partly as a result of interest rates going up even more rapidly in those 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.

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 290 million clients.

On the fixed line segment, we ended up with 74.5 million RGUs 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 PayTV continue to register declines. The former one has leveled off while the latter one has remained stable.

Our first quarter revenues reached MXN 211 billion, up 2.4%, with service revenues rising 3.3%. There were no major differences in revenue growth between nominal peso revenues and those at constant exchange rates -- the latter excluding Argentina given the very high inflation rates 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 Argentinian peso and most notably against the Brazilian real, 12.1%.

Mobile service revenues expanded 6.3% year-on-year, very much at 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 voice revenue growth, down 5.8% annually compared to minus 3.6% in the preceding quarter. A year before, fixed line service revenues have been practically flat year-on-year at 0.1%. Colombia and Peru experienced the sharpest deceleration relative to the pace they had observed in the year-earlier quarter. Both prepaid and postpaid revenues maintained a growth pace at 8% and 5.2%, respectively, on a sequential basis, much higher than the 1.4% and 1.0% rates posted 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 a decline in their rates of growth, with Colombia being nearly flat and Chile's extending their 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. PayTV revenues continued to decline at a rate of 6%, whereas fixed-voice revenues were down 5.8%, both of them in line with the rate seen a year before.

Broadband service revenues expanded faster in the Dominican Republic, 16%; Peru, 11% and Eastern Europe, 8%, while corporate network revenues rose more rapidly in Eastern Europe, 23%; in Brazil, 16%, and Colombia and the Dominican Republic, 12% each.

Corporate network revenues rose more rapidly in Eastern Europe, 23%, and [ -- I already said that. ]

Our EBITDA rose 4.2% year-on-year to MXN 81.1 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 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%. All countries except for Chile and Peru posted EBITDA increases in the quarter from a year before. Most countries -- with Peru and Chile the main exceptions -- increased actually their EBITDA margin.

The expansion in EBITDA helped bring about a 6.1% increase in our operating profit, which totaled MXN 39.8 billion.

Our operating profit and a net comprehensive financing income in the amount of MXN 7.3 billion helped bring about a net profit of MXN 30.8 billion in the quarter, which compares to a net profit of MXN 1.8 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 MXN 22.6 billion extending from the appreciation of the Mexican peso versus the U.S. dollar and the euro, in particular, during the period.

We raised MXN 28.9 billion in net financing in the quarter, which helped us cover MXN 28.6 billion in capital expenditures; MXN 9.2 billion in share buybacks, twice as much as the year before; and MXN 6 billion in labor obligations. It is of note that the first quarter of this year calls 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. This seasonal requirement for working capital is reversed in later quarters. It did not manifest itself in the first quarter of 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 very telling how stable and how well defined our working capital requirements are.

Our net debt excluding leases ended March at MXN 425 billion, having increased by MXN 17.4 billion relative to December. It was equivalent to 1.33x last 12 month's EBITDA -- EBITDAaL. We disposed of TracFone in November 2021 and the impact on our consolidated EBITDA is already reflected in the last 4 months.

This net debt follows 2 major financings arranged in March, one a 5-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 Latinoamérica 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's debt.

So with that, I would like to pass the floor back to Daniel for the Q&A session. Thank you all.

[Daniel Hajj Aboumrad, executive]

Thank you, Carlos. And we can start, please.

[Operator]

[Operator Instructions] Our first question comes from Leonardo Olmos from UBS.

[Leonardo Olmos, analyst]

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 Aboumrad, executive]

Yes. What we have been seeing in Colombia is as we know and as we have been talking for the last year, a new competitor and the market with more promotions, more new plans with more megas 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 it's declining is because 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 give those promotions.

But the trend 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, 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 Claro 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 than what we have been doing that. So we are -- the market, no doubt, the market is very competitive. But I think what we have been doing this last quarter, I think it's good. It's still growing in postpaid. In postpaid, very good growth, 300,000. Also growing in prepaid, and it's been good.

On the other side, I'm talking about fixed. I think on the fixed side, we grow 20,000 in broadband. One of -- and it's very important, we're giving a quadruple-play, the convergence. And that's also helping us. We are the company that is giving a full four-play and -- to our customers. And I can tell you, maybe 60% of our customers, they already have the combo, a convergent plan, and it's doing very good. So that's where we are. And I don't know Oscar, if you want to talk a little bit about the peaks in Colombia.

[Oscar Von Hauske Solís, executive]

No, I think what you mentioned, we are -- the [ compass ] [indiscernible] as well this year in order to complement the offering to the market.

[Daniel Hajj Aboumrad, executive]

Yes. And we do 37,000 in TV. That is also a good growth in TV. So all overall, I think...

[Oscar Von Hauske Solís, executive]

And 70,000 in fixed line.

[Daniel Hajj Aboumrad, executive]

And 70,000 in fixed line. So all overall, I think we are doing okay. There is not only -- there's also a lot of fiber competition there. We're putting also fiber and we're giving 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 Solís, executive]

In the corporate market, we've been offering these new value-added services. So we have a very [indiscernible] we are having [indiscernible] as well, and it's growing pretty nicely. And as well, we'll focus on small business with not only with connectivity, with value-added as the segment of the market [ on the spot business ] in Colombia.

[Daniel Hajj Aboumrad, executive]

I think all overall, we are doing okay in Colombia. Of course, it's under a very highly competitive -- with a lot of competition, but we feel that brand distribution network, combos, convergence, corporate market, everything I think we have the lead over there, and we're doing okay.

[Carlos Jose Garcia Moreno Elizondo, executive]

And just one comment on the reduction of ARPU that Daniel mentioned. Yes, it is almost identical on a year-on-year basis to what we saw in the prior quarter and the quarter before that. So the effect of -- on ARPU reduction really happened more or less a year ago, and it has been -- remained stable since then.

[Leonardo Olmos, analyst]

Okay. Great. Okay. Thank you. Thank you very much for the 3 to comment on my questions. Good thing that you mentioned corporate in the end, Oscar. Can you please comment, or you, Daniel, on what do you expect for B2B for corporate in the remaining 2022? For example, the performance was incredible in the first quarter. Was there any type of seasonality? Or should we expect this type of growth for the remaining year?

[Daniel Hajj Aboumrad, executive]

So 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 very good people, knowledge, training people, and we have good products. So all overall, we are focusing there. And we have very good results, specifically in Colombia, Oscar?

[Oscar Von Hauske Solís, executive]

In Colombia, we have a very large data center. It is Tier 3, [indiscernible]. We are selling the data center products. But not only that, we are complementing the connectivity with value-added services. I mentioned cloud, machine learning, artificial intelligence and some vertical solution for, let's say, retail, finance -- and have been taken very well in the marketplace.

Let me tell you that these have long negotiations. I mean, it's a process that has to go many times with the customers. It's more a business driver, selling the technical service, but we already prepared the people to have that [indiscernible] with the customers. We have in each of the countries that we count a product house. They are the ones that are looking at the market, which are the vertical that makes sense to go to the market. So I think we are well in progress on the B2B business.

[Operator]

Our next question comes from Marcelo Santos from JPMorgan.

[Marcelo Santos, analyst]

I have 2. The first, if you could provide some details on expectations for the Oi mobile assets acquired, like what kind of margins this 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.

[Daniel Hajj Aboumrad, executive]

About the first question on Oi. I think we finally closed Oi. We have around 12 million customers, 4 point -- almost 5 million in postpaid and the rest in -- 18, in prepaid. BRL 2 billion. And what I can tell you is that we have been working and 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 70% to 75% of this revenue will go to EBITDA.

It's more or less what we think -- and it makes a lot of sense, makes a lot of synergies, and we're working to have that. So we have, I think, 6 months to change the customers to our network and then we have like 1 year to change the customers 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, analyst]

Update on fiber operations in Mexico, whatever color you could give, how much of your subscribers are already in fiber? How is that evolving? Fiber plans that you might have?

[Oscar Von Hauske Solís, executive]

Yes. Well, if you look at the customer base of Telmex, 54% of the customer base is already connected to fiber. I would say the pure ADSL is less than 8%. In the middle, we have VDSL as now we can deliver higher-speed than the previous DSL. And we have a very, very aggressive program from fiber in Mexico for this year. So we are pushing to grow the construction of the fibers and the migration of the customers from CDSL or ADSL to fiber and it's working pretty nicely, to be honest. So we expect to cover around 2.5 million home passes this year with fiber. So that's our plan. Last year, we did 1.8 million. So we are focused on the market.

And another thing is that the bundles that Telmex has been offering in the market, in my opinion, are unique when you combine a very good quality of broadband and streaming video platforms, I think it's a very, very, very -- and combos and packages with broadband, and streamers and music, that has been working pretty nicely in Telmex.

[Operator]

Our next question comes from David Joyce from Barclays.

[David Joyce, analyst]

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?

[Daniel Hajj Aboumrad, executive]

I think it's very different in each country. We already launched, let's say, Mexico, Dominican Republic; we have something in Peru. Well, in some countries, we are rolling out. And what we have been doing in Austria, of course, Austria we have maybe for 1 year already. And it's doing good. I think it's -- 5G is going to give us a better ARPU to our postpaid customers. I think we're going to have more customers and better ARPU in 5G.

So there is still in some countries that we need to -- we have to buy some frequencies. Hope they do it soon, but in the -- 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 giving more for more. Giving more data, more 5G data to -- but with paying a little bit more, increasing ARPU. So that is 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 -- coverage. But let's say, in Mexico, I think Mexico, we're going to end this year with -- we start with 18 of the biggest cities and we're going to end with around 100 end of the year. And people is liking -- we have very good quality, very good speed. And people is moving to 5G, okay? So that's more or less what I can tell you.

[Operator]

[Operator Instructions] Our next question comes from Carlos Legarreta from GBM.

[Carlos de Legarreta Diaz, analyst]

To continue on the 5G topic, I understand, obviously, the strategy will change across countries, but if you can talk about, Daniel, in Mexico, in particular, I think I was surprised and perhaps I was not the only one to see that there was different pricing for 5G plans, and I understand that you're saying it's more for more. But just -- it seems 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 are pursuing this strategy? And just to get a sense as to why it's the best strategy. That would be great.

[Daniel Hajj Aboumrad, executive]

No, I think no. I think when we launched Austria, we have new plans for Austria. Maybe it could be a little bit confusion when you have the fixed wireless band, the postpaid wireless, I don't know if you see different plans there. But in Mexico, what we have been doing is we're giving in the postpaid higher -- not higher, in the mid plans of postpaid, we're giving 5G, and then you can upgrade to all those plans is what we do in Mexico. And I think it's what we do in Austria and in other countries.

And also is what we have been seeing what is happening in, let's say, in U.S., 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. So could be a little bit different depending on the competition, but all overall, what the strategy on 5G is give more for more and 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 see down with Daniela and review in detail, but it's very easy to review that.

[Carlos de Legarreta Diaz, analyst]

And talking about coverage, I mean, you guys cover around 50 million people or so currently. Obviously, there's going to be an increase in the coverage, but do you have any time line for when do you expect to reach full coverage?

[Daniel Hajj Aboumrad, executive]

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 coverage, more densification in each 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 customer 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, then we put more on 5G, it will grow at a slower pace then 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 Latin American countries.

[Operator]

Our next question comes from Alejandro Chavelas from Credit Suisse.

[Alejandro Chavelas, analyst]

Congratulations on the results. Perhaps just a couple of things. First one on Sitios LatAM, if I got it correctly, it has been delayed to the 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 could be super useful. And 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?

[Carlos Jose Garcia Moreno Elizondo, executive]

Well, on the spinoff of Sitios, I think that we're basically ready to go. As we mentioned in the report, we already did a couple of major financings in international markets, international banks. That is going to be debt that will be moving on to Sitios. I think it's well defined today. We are looking at spinning off 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 that should be -- we expect to receive it in 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...

[Alejandro Chavelas, analyst]

ICMS.

[Carlos Jose Garcia Moreno Elizondo, executive]

On the ICMS, I don't have this information. Maybe we can check back with Daniela later. But I don't think that for us it's a [indiscernible].

[Operator]

[Operator Instructions] Our final question comes from Walter Piecyk from LightShed Partners.

[Walter Piecyk, analyst]

Daniel, CapEx for the year, I know you talked earlier about 5G, 4G mix, but just are you still on track for MXN 8 billion for the year?

[Daniel Hajj Aboumrad, executive]

Yes, yes, it's -- we're on track, and we think we can do the MXN 8 billion. CapEx, I think it's a great opportunity for América Móvil. There's still a lot of opportunities in the in the -- first, in 5G into growth ARPU. Second, on the fixed size in more broadband in some countries, still some countries we have a low penetration in broadband. So in the mass market, we still see good opportunity. And to also part of the CapEx is on the corporate customers that we are doing very well. So we are on track. And I think it's a good opportunity to invest. I think it will give good returns.

[Walter Piecyk, analyst]

And then just a second question, I guess, on inflation for you, Daniel, or perhaps Carlos has got some obviously legacy experience in this type of 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?

[Daniel Hajj Aboumrad, executive]

Well, if -- we have inflation, so not if inflation. So I think we have inflation in some countries. And we're going to see what we -- right now, I think, something that is helping us in Latin America is the appreciation of all the currencies. So with all the -- there's 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 decide in each country what to do if we want to give new plans or takeout 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 on a lot of things. So of course, we have the availability of doing a lot of things.

[Carlos Jose Garcia Moreno Elizondo, executive]

Walter, as you know, the demand for telecom services is more inelastic than what you see in other segments. So there's always potential for some redistribution of the -- or the wallet or the expenditures of the consumers over time.

[Walter Piecyk, analyst]

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?

[Carlos Jose Garcia Moreno Elizondo, executive]

I think -- I don't think there's anything more to add since we came out with our medium-term outlook in the -- in our Investor Day back in October. I think the CapEx is very stable. We're not seeing anything in the M&A front other than what we have already, say with Oi. And the leverage, obviously, the leverage objective is already set in our [ hole. ] So nothing more to add there but [indiscernible].

[Operator]

We currently have no further questions, so I'll now hand you back over to Daniel Hajj for closing remarks.

[Daniel Hajj Aboumrad, executive]

Well, thank you for being in the call.

[Carlos Jose Garcia Moreno Elizondo, executive]

Thank you very much. Thank you all.

[Oscar Von Hauske Solís, executive]

Thank you all.

[Carlos Jose Garcia Moreno Elizondo, executive]

Goodbye.

[Operator]

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