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America Movil SAB de CV
Earnings Call Analysis
Q2-2023 Analysis
America Movil SAB de CV
In Brazil, the company is capitalizing on a robust distribution network and is experiencing positive growth in broadband, marking several quarters of continuous expansion. This is attributed to sound investments and operational efficiency, establishing a firm position in a market ripe for consolidation. The recent merger announcements in the industry, like Vero and AmericaNet, are seen as beneficial in creating a more concentrated market landscape. On the corporate front, despite the termination of some low-margin cloud contracts, the company is witnessing growth and better performance in the corporate sector.
In Mexico, the company is making strides in the postpaid segment and seeing an increase in active prepaid customers. This indicates a recovering traction, as more customers are recharging their services compared to the previous year. While there has been a slight slowdown in growth, this is tentatively linked to broader economic circumstances, with expectations for a rebound as the economy welcomes new investments and inflation trends downwards.
The company's financial strategy dictates maintaining leverage within a range, with a firm lower bound of 1.2 and an upper limit of 1.5. This disciplined approach, consistent with past investor communications, ensures financial stability and an optimal balance between investment capacity and creditworthiness.
The company has been aggressive in its fiber investment, connecting 73% of its customer base through fiber. Tailoring to market needs, it has launched a 300 megabit symmetrical offer that includes Claro Video and Paramount, at a competitive price. This is in line with the broader goal of enhancing connectivity to provide additional value, including security, cloud solutions, and vertical-specific offerings. The company's success in such value-added propositions is evident across multiple markets, including Mexico, Colombia, and Brazil.
The slowdown in Brazil's mobile revenue growth is largely due to the normalization of revenue post-acquisition of Oi mobile clients. The initial revenue boost from this acquisition has decreased from over 6% to under 1%. This change also affects the average revenue per user (ARPU) which is impacted by the disconnection of some Oi mobile clients. The company is adjusting to these changed circumstances by focusing on service improvements and customer retention.
The company is committed to holding its stake in the Austrian tower company for a minimum of five years, aligning with a strategic long-term investment outlook. However, for the stake in Verizon, there are no such restrictions, and while there are currently no plans to divest, this provides strategic flexibility. Additionally, on the funding side, the company has raised MXN1 billion in debt for the tower company, optimizing the capital structure while Telekom Austria maintains a conservative leverage ratio of approximately 0.5 times net debt to EBITDA, supporting agility for expansion.
Regarding capital expenditure, any variance to date is attributed to seasonality rather than a change in overall strategy. The company is on track with its capital investment plan. Currency appreciation against the dollar has also influenced CapEx requirements, as it reduces the dollar-denominated component of these expenses, providing a natural hedge in some respects.
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Good morning. My name is Nadia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the America Movil Second Quarter 2023 Conference Call and Webcast. [Operator Instructions] Thank you.
Now I will turn the call over to Mr. Daniel Hajj, CEO of America Movil to begin. Thank you.
Thank you, Nadia. Welcome, everyone. Thank you for being in the America Movil second quarter of 2023 financial and operating report. Carlos is going to make a summary of the results. Carlos, please.
Thank you, Daniel. Good morning, everyone. Well, during the second quarter, U.S. dollar interest rates remained as volatile as they have been in the first quarter with inflationary pressures stronger than anticipated earlier in the year with reduction of interest rates by the Fed originally expected to take place in the latter part of 2023 appeared increasingly improbable, giving rise to an upward trend in medium and long-term rates throughout the latter half of the quarter that has continued in July. We added 2.2 million wireless subscribers in the second quarter, including 1.5 million postpaids. Brazil contributed 632,000, Austria 267,000 and Colombia 171,000.
Prepaid net subscriber additions stood at 787,000 with Brazil and Mexico adding almost 200,000 each, and Colombia 185,000. On the fixed-line segment, we obtained 331,000 broadband accesses including 140,000 in Mexico, practically identical to the figures in the prior quarter, which makes it the second consecutive quarter with strong broadband net additions, 78,000 in Argentina and 45,000 in Brazil. The growth of our mobile subscriber base stayed basically on trend with the postpaid base expanding 8.3% and the prepaid one 5.3%. On the fixed-line platform, broadband access growth picked up a bit to 3% while PayTV accesses remained roughly flat. Second quarter revenue was down 4.6% year-on-year to MXN 203 billion in Mexican peso terms with service revenues falling 4.2%. As in the prior quarter, this reflected the appreciation of the Mexican peso versus other operating currencies in the period. Correcting for foreign exchange effects, service revenue increased 5.0%, a slightly slower pace than that observed the prior quarter. EBITDA was down 3.8% in Mexican peso terms to MXN 78.7 billion in the quarter, representing a 38.9% EBITDA margin.
At constant exchange rates, it expanded 5.6% in the period, reflecting the greater operating leverage of the company. With EBITDA growing faster than revenue, the reduction in inflation rates we have seen in most countries as well as the appreciation of most LATAM currencies and the euro vis-a-vis the dollar have recently contributed to this through their impact on costs. Service revenue growth continued to advance on the fixed-line platform, moving up to 2.3% at constant exchange rates from 1.8% in the prior quarter. On the mobile platform, it slowed down to 6.7% from 9.3% the prior quarter. The improvement of fixed-line service revenue growth was observed in 3 of our 4 principal markets, Mexico, Brazil and Austria.
In Mexico, it was driven by both corporate networks services and fixed broadband services, in Brazil and Austria, by the latter. Importantly, the downward trend of PayTV revenue appears to be coming to an end. In the quarter, they were down 1.3%, the lowest decline in several quarters. The deceleration of mobile service revenue growth stems principally from the normalization of mobile revenue in Brazil exactly a year after the integration of revenue from former Oi mobile clients acquired by Claro.
The uplift in terms of revenue growth provided by former Oi clients has come down to 0.8% from 6.4% a year ago. In addition to the above, we also had somewhat slower growth in Mexico and Colombia. EBITDA yearly increases were in the neighborhood of 9% in Brazil, Eastern Europe, Peru and Ecuador, followed by Mexico at 5.1% and Austria at 4.3%. Our operating profit in the quarter, MXN 40.3 billion was down 2.9% (sic) [ 2.8% ] year-on-year with our net profit nearly doubled from the year-earlier quarter to MXN 26 billion, mostly on account of greater foreign exchange gains. In the first 6 months of the year, capital expenditures totaled MXN 64 billion and distributions to shareholders MXN 3 billion (sic) [ MXN 5 billion ], including share buybacks. In cash flow terms, we reduced our net debt by MXN 4 billion in the period. All the above was funded by our operating cash flow and by proceeds from the sale of certain shares and a payment received of the sale to -- sale of our interest in platform.
Our net debt excluding leases totaled MXN 356 billion (sic) [ MXN 358 billion ] at the end of June, having come down by MXN 25.8 billion (sic) [ MXN 23.9 billion ] from the end of December on the back of the appreciation of the Mexican peso vis-a-vis other currencies, particularly the dollar. It was equivalent to 1.4x -- 1.43x EBITDA.
So with this summary of our results, I would pass the floor back to Daniel Hajj for the Q&A session. Thank you, all.
Thank you, Carlos.
[Operator Instructions] Our first question goes to Vitor Tomita of Goldman Sachs.
Thank you very much for your question -- for allowing us to have some questions. The first question from our side would be on share buybacks. If you could give us an update on how you are thinking about buybacks for the second half of the year, especially considering that we noticed the slower pace of buybacks year-to-date? And on how further buybacks will be funded given that you mentioned that dividends from Verizon and KPN were a source of funding for shareholder remuneration thus far? Also second question from us on M&A. Now that you have achieved a more comfortable leverage position and are generating cash consistently, could you provide us an update on your M&A strategy and on which regions could potentially be considered for further acquisitions?
Okay. Well, on the share buybacks, as we've mentioned in prior calls, we tend to have them all kind of with our cash flow throughout the year. The cash flow in the first half of the year is seasonally weak because we need a lot of working capital and then we usually get it back in the second half of the year. So that's where we have a bit more liquidity that we can engage in more shareholder distribution. In the case of -- so beyond the issue of the seasonality, that's been there always, I think that this year we -- as mentioned in the prior calls, we needed to accommodate the increase in CapEx that we had mentioned to you. We had increased the CapEx from MXN 8 billion in the original budget to MXN 8.5 billion more or less. And that's basically what we wanted to cover before we could actually engage in pulling share buybacks.
I think that now we will be going back to normal. I think that we should expect to resume distributions very much along with the recovery of our cash flow. In terms of our M&A, I think that we are not currently looking at anything anywhere. I think that we have a lot of growth, organic growth to develop, and we have been saying in some of the numbers, some of the fixed-line operations are developing very nicely and we are continuing to have good growth on mobile. So it's not that we need to buy growth anywhere, I think that there is plenty to develop organically.
Overly out of regulatory concerns, there's a few entities that one could acquire, certainly in Latin America, that's the case. And in Eastern Europe, I think that it's also the case, there's not many more assets to buy. So I don't think that we are looking really today at anything outside our footprint and within our footprint respectively no entities that we could buy.
And just to add on what Carlos said is, I think the additional CapEx that we're putting, we're seeing good opportunities in Latin America, growth opportunities, and that's what we're looking for. So I think this year, we can put more fiber or other investments in some countries that I think we're going to get good growth. And on M&A, as Carlos is saying, but we are open to see other opportunities, but right now, we're not looking to anything.
The next question goes to Lucas Chaves of UBS.
This is Leonardo actually. A couple of questions in Brazil. The first one, if you could comment on the reduction on the B2B revenue, on the corporate revenue, which sounded like a one-off, but if you could talk a little bit about that? We're seeing very strong growth in other regions in Brazil in the past quarters. And my second one, we saw yesterday the deal of Vero and AmericaNet forming one of the largest ISPs in Brazil in fixed broadband. We also see news of [ Felix ] talking with V.tal from BTG. So overall, I just want to double click on Vitor's question on M&A. And if you could talk about either M&A or partnership, what type of opportunities are you looking at specifically in the fixed market in Brazil?
Well, I'm going to talk a little bit about Brazil. I think in Brazil, we are doing good. We finalized all the synergies that we have with Oi. I think we have all the subscribers in our platform, I think we have the savings that we think that we're going to have. So we do and execute very good on the purchase of Oi. We're growing very good. We have a very good distribution network all around Brazil. We're starting to grow again in fixed, in broadband. So it's very good news. We have 2 quarters or 3 quarters growing again in broadband. So things are looking for us is good that the market consolidate. There is a lot of players in Brazil. So it's good. We are not seeing any consolidation right now, but we're open also to see what opportunities we can have. I think the news today is or the -- I don't know if it's a news or not, but what they said is that Vero and AmericaNet are merging is what I hear this morning. So it's good that everybody -- that the companies -- these companies need to consolidate and I think it's good for the market, it's good for us.
So we are in a very good position. We have been doing good investments. We have been operating well. So we're in a very good position in Brazil. In the corporate market, I think what is happening, I need to go more deeply on the corporate side. But I think we canceled some contracts, cloud contracts that we don't have any margins there. So we canceled some of them. But we're doing good and we're growing in the corporate market. And what we want is to have clients -- want to have profitable clients in this segment. So that's what we are looking for. So I don't know, Oscar, if you want to say something else on Brazil?
No, as you say, in corporate, as you mentioned, we canceled some cloud contracts. When you look at the rest of the digital solutions, we are growing double-digit in all of them, in network management, in IoT. So we feel that the path of growth will continue. And as you mentioned in fixed broadband, we are still growing the last 3 quarters. We were in negative before. So we operate the network and we are changing all the customer satisfaction, installation in time to prepare. So I think we have a very good product in the marketplace.
And I think where we have network, our network is upgraded. We have a very good speed. And we are doing good. We're gaining market share where we have network. Then there's other places where we need to invest and that other companies are investing. But where we are, I think we have a very good top of mind, very good network, very good customer service and we're doing very good.
Yes. And we could offer 1 gigabit in all the network, right?
Also, we can. Yes. I don't know...
Great. Cannot disagree on that. Very good performance.
The next question goes to Walter Piecyk of LightShed Partners.
I got knocked off the call briefly, so I apologize if this question was asked. But Daniel, in Mexico, when I look at the service revenue, obviously growth, but a little bit slower than what you've been doing in prior quarters. Certainly, the sub growth is -- it looks fine. So maybe a little bit less recharge in the June quarter. Is that -- I mean can you just comment on that a little bit? Is there any -- is that a reflection of economy? I know inflation I think has been coming down in Mexico. I think they're maybe at 5% now and the trend has been down. So just kind of if you could comment on the use or the -- I guess the ARPU and specifically the service revenue growth in Mexico, and is it -- should we expect some moderation here?
On Mexico, we're gaining traction again in postpaid. So in postpaid, we're doing better than what we used to be last year. So we're, again, gaining traction. And it's exactly what you were saying, in prepaid, we have more customers, more active customers. So we can see the customers that recharge, let's say, June last year and June this year, and we have lot more customers recharging this. So what we're seeing, yes, the growth has been slowing down a little bit, and it's I think that people is recharging a little bit less. It's maybe something on the economy, a little bit on the economy. Inflation is going down. I think Mexico is having a lot of new investments. So I think that will go again high. So my expectation is that on prepaid, again, people start to recharge a little bit more in the future.
Okay. And then on equipment sales, I noticed that in past years, in the second quarter that equipment revenue in Mexico tends to go up. I'm not sure why that is. Are people buying more expensive phones or is that a cycle when...
It's Mother's Day. Mother's Day is something very important and it's on May. So that's why always in second quarter, there is increase in equipment revenue, yes.
So for this year, I guess, when I noticed it, because in past years, it's been up and this year, I guess it was a little bit more flat. I guess people weren't buying their mothers some replacement phones that is fresh this year?
Yes. I think people is starting to wait a little bit more to replace the phone. I think it's more or less the same thing as you see in prepaid, people wait a little bit to recharge again the phone. And here, they wait a little bit to buy a new phone. What we're doing and being successful is we have a new platform called Amigo Paguitos that we're financing to some customers a prepaid phone, and it's been successful, it's growing. We are being a little bit cautious with that. But as we finance in the postpaid segment, we are starting to finance also in the prepaid segment. Good -- I think it's good for the people, it's good for us and it's been taking traction. We have been putting this platform in America -- in Telcel. I think we're going to do that all around America Movil if it works, and we're happy the way it's been developing.
Okay. And then just one last one for Carlos, if you don't mind, Carlos.
Sure.
With, I guess, inflation kind of moderating, maybe the outlook seems a little bit better. Just curious if there's any -- it's a question I always ask you, I guess, target leverage ratios, any change in how you're thinking about leverage ratio as it relates to capital return?
Well, we are looking at our leverage ratio. We want to keep it at not less than 1.2 and not more than 1.5. I think that would be the open range that we will be looking at. And that overly is an answer to your question in terms of the return on capital, Walter. I think it's -- so there is -- we will not allow it to go below 1.2. That's the idea and that's consistent with what we outlined in our Investor Day a year and a half ago.
The next question goes to Fred Mendes of Bank of America.
I have 2 questions as well. The first one is with Telmex. Once again, very strong net adds for Telmex. So just wondering if that's coming mainly from gross adds? Are you basically reducing your churn, right? Basically, what we're trying to understand is if you're gaining clients from the competition or let's say you stopped bleeding in terms now that you have more fiber in your network. That would be the first question. And then the second question is more like a reconciliation. When I look at your results in Brazil for the mobile business, the ARPU increased by 6.5%, net adds on postpaid by 1%, prepaid, you had some net losses, but the mobile service revenue was like 12% organically. So just wondering if I missed something here or maybe a mix here? Anyways just trying to reconcile it here.
Well, let me tell you, as we mentioned before, we've been doing very aggressive investment in fiber. Now 73% of the customer base is already connected with fiber, as well as we mentioned, we've been working on the commercial activity. We improved the installation processes as well. And we have a better retention of the customers. So we reduced the churn a little bit. So all of them impacting this net gain that we've been having. And we launched a new proposition in the market that we believe that is very unique in the market and very adequate to the market. Recently, 2 weeks ago, we launched 300 megabit symmetrical, including Claro Video and Paramount with a very good price. We believe that is going to be taken in the market [indiscernible]. So that's it.
I think we're very happy the way Telmex is developing. And what Oscar is saying exactly, it's not only churn or not only -- it's everything. It's less churn because we have a lot more fiber and people is -- where consumers are...
Better installation speeds.
Better installation speeds, less churn and good promotions.
And new products, right?
Yes. So we're...
And on the slowdown of the mobile revenue growth in Brazil, it basically has to do with the normalization of the revenue growth a year after we had factored in the first revenue from Oi mobile clients. And that means that the uplift that we were getting from the Oi clients has come down from over 6% a year ago to a bit less than 1% today. I think that's basically what explains the slowdown, okay. So it'd be a change in the base that's just for the reference for the comparison. The other thing in terms of the ARPU growth in Brazil in spite of this is partly to do with disconnections of Oi mobile clients that took effect towards the end of the prior quarter, and that's basically what is helping the ARPU numbers in Brazil.
Perfect. Thanks, Daniel, Carlos, Oscar. If I just may, just a follow-up here. It's 73% of the clients or 73% of the homes passed already the fiber in Mexico for Telmex?
73% of the clients.
The next question goes to Phani Kanumuri of HSBC.
So my question is related to monetization of assets. Are there any assets that you are trying to monetize whether it's Verizon stake that you have or the new tower company that is being formed in [ Australia ]? Are there any plans to monetize them in the next couple of years? That's my first question. I'll follow-up -- I have a follow-up question later.
Can you repeat a little bit slowly? We don't understand the question, please.
It's -- I'm trying to understand if you have any monetization plans for the Verizon stake or the new tower company that is being formed in Austria. So you have some stake in that tower company, are you planning to monetize that in the next couple of years?
Okay.
The tower company in Austria as you point out is still in the process of being spun off. We expect this will happen sometime in the third quarter, before the end of the third quarter. And in fact, this tower company has already raised the financing that it needs to be fully funded from day 1. In this particular case, as opposed to Sitios and as opposed to TeleSites before them, we, America Movil, will continue to control and consolidate the company. And we have, in fact, a commitment to maintain our stake at least for a period of 5 years in the tower company, okay? So at least for this period of time, the Austrian tower company is going to be called the EuroTeleSites will be controlled and consolidated by America Movil. So we will be seeing as...
And regarding Verizon stake? Sorry, please continue.
Regarding the...
Verizon stake, any change this time, Verizon stake that you have?
Verizon stake. Yes. What I would say is that the stake we have in the company, 51%, we have a commitment not to sell for a period of at least 5 years.
Okay. Okay. Sure. So the second question I have is regarding the enterprise segment revenues in Mexico. They have been growing significantly in the last few years. Do you think that they can maintain the double-digit growth rates going forward, the corporate segment revenues?
I think we're doing very good on the corporate segment in Mexico. Oscar can talk a little bit about our propositions and what we're doing there. But we have a very good distribution, people, propositions, and -- but, Oscar, please.
Yes, as we start to work 3 years or 4 years ago, we had a focus in the enterprise market. And we've been very successful on next-generation network which is called SD-WAN. So we will move into that. And we are adding to the connectivity value-added. One is security, second is cloud, and third is vertical solutions for different vertical business as finance, retail. So we need some alliance with the experts on the field, and we jointly go to the market to offer the whole package to enterprise. It has been working pretty nicely. So we developed our core business that is connectivity, but with aggregate value to the connectivity through security, cloud and vertical solutions. It has been working very well not only in Mexico, if you look at Colombia, if you look at other countries, we are doing the same in Brazil as well. So we believe that we need to convert not just connectivity, also bring value to the connectivity with these new propositions.
[Operator Instructions]
Okay. Phani, I'd just like to clarify something because it just has come to our attention. In the case of the Austrian tower company, as I mentioned before, we have a commitment not to sell the stake in 5 years. I understand that the question may have been about the stake that we have on -- in Verizon. And in that particular case, there is no limitations. So we don't really have any kind of limitations in terms of when we can sell. We do not have at present any plans to sell the stake.
Great. The next question goes to Carlos de Legarreta of Itau.
I have 2 quick questions here. The first one on CapEx. I know you mentioned that you are still planning to the slightly larger allocation this year, but looking at the data year-to-date, your CapEx was actually down 2%. Just wondering if that's just the base or seasonality this year? And secondly going back to the tower company in Europe. So you [Technical Difficulty]...
Hello?
[indiscernible] going to be the entire. Hi. Can you hear me?
Yes, on the tower, can you please repeat the tower question?
Sure. Sure, sure, sure. Just you've raised MXN 1 billion in debt. I just want to know if that's going to be the entire amount of this company? And I read in the European press that it has around EUR 200 million in EBITDA -- EUR 200 million or so. Are these numbers more or less correct?
Okay. On the debt of the tower company, yes, the amount that has been raised was MXN 1 billion. And this amount will basically be new debt at the tower company and less debt in the Telekom -- in the Telekom Austria. Telekom Austria will have a leverage of approximately 0.5 times net debt to EBITDA. So it will be free to go a bit faster. The numbers you mentioned on EBITDA, I think they are probably more or less right, around EUR 200 million. So that we can confirm to you and we can send you some information, okay?
And on the CapEx, it's only seasonality. We do the CapEx and we are, I think on target, on plan on this, all the CapEx that we're going to put. Always remember that we always have like 5% more or less depending in country places and...
And Carlos, one thing that is important to take into account is that the currencies have appreciated vis-a-vis the dollar in many of the places and CapEx has a lower dollar component.
That changed a little bit.
No, that's a good point. Thank you, Carlos. And thank you both Carlos and Daniel. Just broadly -- more broadly, I guess, I guess the strong appreciation of the Mexican peso against basically all currencies. I just wanted to understand how are you managing that? Is that a net positive for AMX or not necessarily?
It's a net positive to the extent that we are seeing a lot of FX gains, obviously, on the one hand, we had a lot of debt that was non-pesos, and this debt is -- this exposure is now less. I was looking, for instance, at interest cost -- net interest cost, America Movil have come down in peso terms year-on-year, and that is partly reflective of this appreciation of the pesos. So that is a net positive, no doubt, on the financial part. I would say on the operations part, there is a number of OpEx that are linked to dollars, most of maintenance expenses for networks are dollar-based, most of the IT-related expenses are dollar-based. So in all of those accounts, we are getting some relief from the appreciation of the -- certainly of the peso but not only the peso. We are seeing the dollar declining vis-a-vis almost all of the currencies in Latin America this year.
The next question goes to Chelsea Colon of Aegon.
I see that -- I was wondering if you could comment on your strategy in Central America? I see that you had good top line growth, but your EBITDA margin has come down a bit. Can you just comment on the underlying factors may be the main countries driving that and what your strategy is there from a competitive standpoint?
Well, I think, Central America is an important place area for America Movil. And in Latin America, it's a lot. We have companies, places, cities or countries like Guatemala or Salvador that -- and even Nicaragua that we have the company for a long time. We have fixed for a long time. In other ones like Honduras, Costa Rica, we don't have -- we have the -- we start there. We have the mobile starting and we are doing the fixed. And in Latin America, we are -- in Central America, we're changing and putting a little bit more fiber as we said, is one of the places where we're going to invest more. And it's important I think we're looking to grow to change more to fiber all our customers and to -- I think it's doing more 4G, more coverage. The penetration in broadband is not high. So we have more opportunities on doing more on broadband penetration. So it's an area where we are looking to develop more and see good opportunities.
From -- are you also -- is there a region where you find the need to offer discounts to gain market share? Like is that a goal to gain market share in this region or are you pretty comfortable with where you are?
Well, we're looking to operate good propositions to increase our coverage. So I don't know if it's gaining market share from the other ones or gaining market share by developing the country. So what we're looking is to cover more to increase the broadband penetration, to move more customers from 3G for 4G to have more and more that they can use more data, that they can use more the phone. So it's -- we're going to do more on the corporate side, the data centers more and cloud and all these services. It's an area that we want to develop more of those, not necessarily taking from the other ones, it's more developing these countries.
Thank you. We have no further questions. I'll now hand back to Mr. Daniel Hajj for any closing comments.
I just want to thank you, everyone, for being in the call, and thank also Carlos, Oscar and Daniela being here. Thank you very much.
Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.