America Movil SAB de CV
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America Movil SAB de CV
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Good morning. My name is Lauren, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil Third Quarter 2021 Conference Call and Webcast. [Operator Instructions]
Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations.
Thank you. Good morning, everyone. We're very pleased to join us this morning to discuss our third quarter results. We have on the line Mr. Daniel Hajj, Chief Executive Officer; Mr. Carlos Garcia Moreno, Chief Financial Officer; and Mr. Oscar Von Hauske, Chief Operating Officer.
Thank you, Daniela. Thank you, everyone for being in the call. Carlos is going to make a summary of the third quarter results.
Thank you, Daniel. Good morning, everyone. Well, during the third quarter, supply shortages were prevalent in several industries at a global level, helping inflation data continue to surpass estimates in the U.S. and other countries. The market consensus appeared to shift in favor of the Fed and other monetary authorities moving more rapidly than anticipated to ease the expansion of the monetary base and set the base for interest rates to begin to rise.
In this context, 10-year interest yields on U.S. government notes experienced a marked correction just prior to the end of the quarter, helping strengthen the dollar versus most currencies, including the euro and several Latin American ones, closing the quarter, higher vis-a-vis all of them.
As regards the operations in the third quarter, we added 4.2 million wireless subscribers, of which 2.2 million were postpaid clients, ending September with 302 million subscribers, 7% more than a year before. Roughly half the new postpaid clients came from Brazil, with Colombia contributing 313,000 subs and Peru 262,000. Chile and Austria, which contributed 140,000 subscribers, postpaid subscribers.
Mexico led the way in prepaid with 577,000 net adds, followed by Brazil with 307,000 and Argentina 270,000. Colombia, Ecuador, the Central American block and our European operations, each obtained around 200,000 new prepaid clients.
On the fixed-line platform, we had PayTV net disconnections in Brazil that more than offset the net gains we had in the other countries. At the end of the quarter, Brazil's PayTV accesses were down 5% from a year before, whereas Colombia were up 6%. And in the rest of our subsidiaries, they were up 3%. For América Móvil, there was a 2% reduction overall in [indiscernible].
As for broadband accesses, Argentina was up almost 50% year-on-year, followed by Peru and Colombia with approximately 10 percentage. In the aggregate, América Móvil's broadband accesses increased 3% over a year ago.
Our revenue totaled MXN 253 billion in the quarter, that's 2.6% decline in nominal peso terms on account of the appreciation of the Mexican peso versus other currencies in our region relative to a year ago quarter. At constant exchange rates, service revenue increased 4.5% year-on-year, twice as fast as our cost and expenses, leading to a 7.5% increase in EBITDA that totaled MXN 87 billion.
Peru, Eastern Europe, the Dominican Republic and Mexico, where the countries we're having revenue growth, was fastest from 16.6% in Peru to 6.4% in Mexico. Central America, Colombia, Puerto Rico and Austria all delivered growth in the 4% to 5% range.
Mobile service revenue expanded 5.9% with fixed mobile devices and 5G services playing an increasingly important role in some countries, while fixed line service revenues increased 1.6%. In both cases, the mobile and the fixed, it was their best showing in several quarters, if we correct for the low second quarter '20 base that affected the yearly comparison in mobile. In the third quarter, both prepaid and postpaid mobile revenue increased around 60%. The comp that you see in the chart in prepaid has to do with the distortion in the general comparison mentioned before as prepaid hit its lowest point in the second quarter of 2020.
Mexico and Brazil, both increase in mobile service revenue 9%, Peru posting 15.8%. In the Caribbean, Puerto Rico and Dominican saw revenue increases of 14.5% and 7.7%, respectively. Our European operations for their part recorded nearly 11% growth, with Bulgaria, Croatia, and Macedonia and Serbia, all registering better than 10% revenue increases. At nearly 7%, Austria's revenue growth was buoyed by 5G services and fixed-mobile devices.
On the fixed and platform, broadband and corporate network revenue expanded by 5.6% and 4.6%, respectively, and PayTV revenue fell 5.2%, with clients in Brazil continue to revise down the cost per PayTV plans, reflecting a greater share of content coming from streaming services as opposed to the traditional multichannel offerings.
On the fixed-line platform, revenue growth was noteworthy in Peru, close to 20%; Colombia, 9.8%; and Eastern Europe, 9.2%, with Bulgaria posting 15% growth, and Belarus and Serbia expanding 20%. Not included in the chart is Argentina, even its high inflation, but its fixed service revenue has risen almost 9% in real terms after inflation.
Our EBITDA margin jumped to 34.6% from 33.2% in the prior year, and this was our highest EBITDA margin in 9 years. Mexico and Central America, the Dominican Republic, Peru, they were all behind this margin expansion, having the first three of them registered 3 percentage points improvement, beginning with Mexico, and Peru's 2.5.
We obtained an operating profit for MXN 47.2 billion in the third quarter. It rose 4.7% in peso terms and 10.4% at constant exchange rates in relation to the prior year as depreciation and amortization charges declined 2.5% in pesos terms.
Our comprehensive financing costs amounted to MXN 25 billion, which was 12% more a year before, mostly driven by an MXN 11 billion foreign exchange loss, which resulted from the appreciation of the dollar in the quarter that we mentioned at the beginning.
Our net interest expense was down 12%, at MXN 15 billion, MXN 15.3 billion. Our net profit were down 16% from the prior -- from the year-earlier quarter. It was equivalent to MXN 0.24 per share and $0.24 per ADR.
In the 9 months to September, our cash flow helped us cover capital expenditures of MXN 91 billion, distribute MXN 37 billion to our shareholders by way of dividends and share buybacks. The latter by way amounted to MXN 22 billion. And just to give you a reference, last year by this time of the year, the share buyback level was about MXN 1.5 billion. So this year, we are having MXN 22 billion. We have -- our cash flow also have to pay down MXN 14.5 billion in labor obligations and we reduced our net debt by MXN 38 billion in cash flow terms.
At the end of the quarter, our net debt stood at MXN 588 billion or MXN 488 billion if we exclude leases. The line amount was equivalent to 1.55x last -- the EBITDA of the last 12 months. This is the EBITDA after leases that I'm talking about. So 1.55x net debt excluding leases compared to EBITDA after leases. Relative to December, the debt in the balance sheet was down MXN 59 billion.
Okay. So with that, I would like to pass the floor back to Daniela and open for Q&A. Thank you very much.
Thank you, Carlos. We can start with the Q&A.
[Operator Instructions] Your first question comes from Marcelo Santos from JPMorgan.
I have actually two questions on broadband. The first is in Mexican broadband, where you put a good number of adds. Could you speak a little bit more on how are these as comprise if those are fiber adds? And second -- still in that question, if you can comment on the Mexican broadband competitive environment?
The second question is on broadband in Brazil, where for the third consecutive quarter, you have been losing subscribers. We saw what you discussed in the Investor Day regarding your network being upgraded and being prepared to offer higher speeds, but how do -- what do you expect to happen with the subscriber trends in Brazil? Do you think you will revert these losses, start growing more with the market or not losing? Could you please make some comments regarding Brazil broadband?
I'm going to start with Brazil, and then I'm going to -- then Oscar can give his comments. But on Brazil, what I just want to tell you is that we have been improving and upgrading our network, our fixed network and our mobile network. And in -- not only in fiber, we have been growing in fiber this year, we're going to be around 2.5 million to 3 million home passes in fiber. Maybe we're going to end with 5 million home passes with fiber.
But in our cable network, we upgrade all our cable network and almost every place in Brazil, we can give 1 gig of capacity. So what I can tell you is that our network -- our cable network is as competitive as fiber in terms of speed. And that's -- so I want to ask Oscar, if he can give his comments on our networks in Brazil and what we're doing with the broadband. Oscar, please.
Sure. Well, Brazil, as we mentioned, we've been investing to getting fiber closer to the customer. And then we believe that we have a network that is fully resilient for the market speed needs. Even it's a very competitive market and has been changed. I mean the traditional telco has been upgraded its networks. As you know, the ISPs start coming outside our network, but now they are getting some cities in our network. So it has become a very, very, very competitive market in speed and in prices.
So what we've been doing is that we have the network ready to deliver the speed that the markets need. Even we launched, as Daniel mentioned, 1 gigabit speed across all the network. But we believe the speed, of course, is a fact, but not only speed, our new proposal has WiFi mesh included in the product with 2 hotspots that the customers could do the right architecture to distribute the speed across the houses. And we have the best NPS in years that we've been implementing a lot of processes to improve the quality of services in the network and in the services.
So it's a very competitive market. We believe that with these new products, we will get the gain in the next quarters. So I think we are ready with the quality, with the network. We reshape the organization in order to be in a more competitive market. So we believe that we could get new -- net new adds in the next quarters.
To add a little bit more on Brazil, just -- we're growing in the broadband revenues in Brazil around 5%. So we're still growing, and I think we're doing good. We're going to talk a little bit more on the PayTV business, where we have in Brazil, a lot of piracy. But in the broadband business, there's -- the competition in Brazil is changing, it's getting more competitive on this environment, but we feel that we have a very good network. We can compete. We can do bundles. And we have a very good network to compete there, no?
Yes, totally.
And in Mexico?
And in Mexico, we reshaped our offering in the market. Even we launched recently 1 gigabit speed as well in Mexico. And we mentioned that the bundles with the streaming providers has been working pretty good. So I think we reshape as well the commercial organization. We are doing a strong migration of customers from copper to fiber. So we will continue to do that, and we will adapt to the market conditions of our market -- our products. So I think it was a good quarter, and we believe that we could continue to do the effort in the next quarters.
We are also improving our network distribution, our own stores and focusing...
Our digital.
Our digital platforms, and we're focusing more on the sales of all this fiber that we have. So that's more or less what is happening in Mexico.
Our next question comes from Leonardo Olmos from UBS.
We will take the next question. So our next question comes from Fred Mendes from Bank of America.
I have two questions as well. The first one, just a follow-up from the answers you guys just mentioned. You mentioned that broadband in Brazil is growing at 5%. I just wonder if there is a big difference between the FTTH and the cable growth. I understand is that on the new projects you guys are going with FTTH. So just wondering if there is a big difference there? That will be the first question.
And then the second question, also in Brazil, when you look at the mobile segment, ARPU was flat quarter-over-quarter. So just if you see room for further ARPU increase? Or we are starting to see a little bit more of a competition, so it's more about market share instead of ARPU?
I think the mobile market is a little bit different than the broadband market. In Brazil, the mobile market is where the four comparators that we have today and in the broadband market, there's a lot of people putting fiber. And so it's a little different market. But I think in the mobile, we're doing very good. We have been gaining. We're growing 8% to 10% revenue per year. In mobile, increasing postpaid, doing bundles. And I think in the mobile, we're doing good. We have been doing good for the last 2 years and still doing good for this quarter, and I hope that the next ones and the next year, we can do better.
And in the broadband, as Oscar said, there's a lot more competition. And we're seeing more competition. You -- as Oscar mentioned, we're launching today 1 gig of speed in all the networks. So if it's fiber or if it's cable, we don't have any difference. We have been improving our network in Brazil. We have been putting a lot of technology to give 1 gig to any of the customers. So of course, we are growing a little bit more in the new areas where we're putting fiber. So we're growing in fiber because we're putting new areas, new places, new cities. And -- but we are also where we have cable, we're also growing with new customers. We're losing some, growing in the other ones. So well, that's the competition that we have today in Brazil, no? I don't know, Oscar, if you want to add some?
Our next question comes from Chelsea Colón from Aegon.
We will go on to the next question. Our next question comes from Carlos Legarreta from GBM.
My question is regarding handset sales, particularly in Mexico and Brazil, we saw a double-digit decline year-over-year. I'm just wondering if there's -- is it due to an easy comparison base or perhaps this is affected by the semiconductor shortage?
Well, if we'll compare third quarter last year and this third quarter of this year, I think in third quarter of last year, we start to sell a lot. So what we don't do in the second quarter, I think in the third one, people as pandemic and COVID lockdowns start to open, then people start to buy. So it's a difficult comparison. But all overall, I think in all the world, in all Latin America and includes Mexico and Brazil, there is lack of handsets. Maybe it's for chips but also for other components, logistics and -- but there is no doubt that we are suffering a little bit of lack of handsets right now.
Okay. And for the follow-up, Daniel, if you could talk about the wireless environment in Mexico? I mean, obviously, you have some very good results with the ARPU at that level and that growth. It seems encouraging. So if you can give us more details, that would be great?
Well, I think the network that we have in Mexico is superior to all the other networks that we have here. And people is moving to the best network. So we're putting a lot -- a big effort in quality, in coverage, in 4.5G speed, and that's what people is choosing. So that's really what is happening in Mexico. We have competition. We have two competitors.
We are already -- we do everything to be ready for 5G. So we still know exactly when we're going to launch 5G, but we are ready to launch also 5G in Mexico. So we have a good network plus -- also very important is we have a very good customer experience. We have the NPS in Mexico, good -- high, good distribution networks. We have 400 more or less owned stores plus the retails plus distributors. So we are really focused on all of those things. So Mexico, we feel that we are strong in -- also in the distribution of all our products.
Our next question comes from Gilberto Garcia from Barclays.
I had a follow-up question on the Mexican result, very strong margins. Can you comment if there were any particular drivers for the improvement? And related to that, just to confirm, with the bundles with -- from OTT providers, do you recognize as revenue only your commission from the sale? And on wireless, another follow-up. The performance in postpaid was a contrast to strong performance in prepaid. Was this related to the lack of handsets?
Well, I don't know if that in wireless will be totally to the lack of handsets. It could be some, the lack of handsets. But what we're seeing is that people in Mexico does not to get a compromising postpaid, but they are moving some of them to prepaid. And we feel also comfortable they are recharging often and the ARPU is doing well.
So I still think that in Mexico, people is a little bit worried about the pandemic and maybe they don't want to have like a contract for 18 months with a rent or something like that. And -- but they are moving to the prepaid, and we are doing good. So that's what we're seeing. What I understand is that, no, it's only the commission that we're putting on the bundles with OTTs, we're only putting the commission. We're not putting all the revenue.
We now have a question from Chelsea Colón from Aegon.
I was wondering if you could just put a little more context around your recent M&A announcements in both Panama and Chile. I'm just wondering from a strategic perspective what your thoughts were behind on one hand, selling the Panamanian business but then entering into a JV and keeping your involvement in Chile. What makes Chile a more attractive environment to you than Panama in the longer term is really where I'm trying to get?
In Panama, I think we were the third competitor. But in the last years, our competition, Millicom and Tigo consolidated as a cable company and then Liberty also buy and they are [indiscernible] so it's not a very big country so it's not that big its space for us to grow. And that's really the reason why we decided to sell the company in Panama. So that's going to take us a lot of years and a lot of money to improve and gain market share and put a fixed network. So that's really the rationale and the reason why we decided.
In the other side, in Chile, Chile is a much bigger country. We're very interested to be in Chile. And we are strong in mobile, work from incorporate. Liberty is strong in TV and broadband. I think the merge make a lot of sense. They put us in a good position in the market as the size as the other two. So that's the rationale we are interested in Chile make a lot of sense, the synergies are going to be very good. And that's the rationale why we do the 50-50 joint venture in Chile.
And do you have any concern over the regulatory approvals in Chile?
No. No, we -- as I said, we're going to be at the size as the other two. We're not going to be bigger than the other ones. And no, I think we need to give all the information to the authorities there. We already submit that information. And I think there's not going to be any problem.
[Operator Instructions] Our next question comes from Leonardo Olmos from UBS.
Okay, a quick one. A quick one, everyone. I want to discuss about broad financial position that you have. If you could discuss the large -- behind the breakdown of buybacks and cash dividends, what has been the logic from these first 9 months and what's going to be the logic in the future?
If you -- well, we've been providing an ordinary dividend that grows every year, sometimes somewhere between 5% and 10% per year. What we have done consistently over the years is that we have distributed quite excess cash we have by way of share buybacks so as to remain at the desired leverage target that we wanted.
In the last 5 years, we were higher than our leverage target, and that meant that we didn't really have any excess cash. We had to reduce our debt, but now we are in a position, as you have seen in the report, where our net debt has come down to 1.5x. And that means that we have now the capacity is already not even the end of the year. We have still not completed the transaction of the sale of Tracfone. You know that we have also the spin-off of the towers ahead of us.
So these two transactions alone would represent a further deleveraging of about $8 billion between the two. So we are in a comfortable position at this time to do some share buybacks. So that's -- I think that we would commit going forward that we would remain in the leverage target that we mentioned in our Investor Day 2 weeks ago, which is remain in a band of 1.2x and 1.35x net debt to EBITDA. And basically, whatever excess cash we have, if it's not required for M&A, whatever, then it should be available for distributions.
We now have a question from Walter Piecyk from LightShed Partners.
Okay. Our next question. We now have a follow-up question from Marcelo Santos from JPMorgan.
I just wonder if you could comment a bit on the PayTV behavior that you mentioned in the release that is taking place in Brazil. I believe people downgrading their plans as they migrate more to streaming. Is this something that you see more on net services or in DTH? And are you seeing this behavior in other countries besides Brazil?
Yes. Well, as Daniel mentioned, we -- the trend of the, let's say, traditional PayTV has been moving to streaming. And that's why we're launched in Brazil Claro Box. That is -- we believe there is a trend that includes the traditional TV and the on-demand TV in a while simple set-top box and has been very well accepted in the market. Of course, not enough to set up the decline of the legacy. And this is affecting satellite and cable. It was your question.
Well, another one is what Daniel mentioned around the piracy in Brazil. We've been seeing that since we, the operators, start to launch IPTV. It's opened up the possibility to increase the piracy in a level that we've been seeing that 3x or 4x that we had 2 years ago. So a big part of the market is using this kind of services in Brazil. And this is a very sophisticated operation. They hack all the content through Internet or different sources. And they deliver to the customers through a set-top box or through a smart TV, and they have a way to collection with PayPal and other sources. So that's what we've been seeing in the PayTV market. If you see the decline in the PayTV market in total year-over-year has declined around 8% in subscribers and we are declining as well, 8% in subscribers. So that's what I could tell you.
And just a follow-up on this question. Is this piracy issue only is restricted to Brazil? Or is it something you're seeing across other countries?
Well, mainly in Brazil, we've been seen something in Central America. But I think it's all over the place but in Brazil, it's very, very important.
But what we're seeing -- what we have said in the report is that we are indeed seeing that in some plans, where we are providing certain bundles with streaming services, those are probably not including the same number of multichannels that we used to have in the previous offers, okay? So those are -- there's some movement in that regard with some people basically reducing the content that they are having from the established channels that we have and moving more towards the type of bundle that we have in -- sometimes in broadband with streaming.
Your next question comes from Walter Piecyk from LightShed Partners.
Sorry about that earlier. Is the Tracfone transaction still expected to close by year-end? Or is there some additional FCC items there?
No, we think we can close the Tracfone transaction before year-end as they were in target, and I hope we can do it before year-end. Yes, we are okay with it.
And Daniel, is there other -- what's kind of going on in that business? I think a lot of times when companies are bought or sold, maybe there are some distractions at the company. And at the same time in the U.S., I think it sounds like MVNO rates from the operators are getting more aggressive, meaning that like AT&T is offering better rates to get DISH or maybe Verizon is offering aggressive rates. So I'm just curious if there's been changes in the market because I also noticed that Straight Talk lost subs this quarter. That's not typical. I don't think -- I can't recall the last time if ever that Straight Talk last subs. So I wonder if you could give us any color? I know you're selling this asset so I apologize if it's not something that you're going to deal with. But if you can give us any color on what you see happening in that business in the prepaid market in the U.S., I'd appreciate it?
I think the only color that I can give you is that in Tracfone as in a lot of the other countries, we're seeing a little bit problem of handsets. So we don't have enough handsets to sell. There's handsets but remember that the handsets that we're selling in the prepaid business are lower-end handsets. So really, the problem in the handset business is more on the low-end or mid-end segment of prices on those handsets done in the high-end prices. So that's what we're facing a little bit in Tracfone, and not only in Tracfone, in all the other countries also. So in the low and mid end, we're facing some challenge to have enough handsets to sell.
Okay. Great. And then kind of just a question for Carlos. Just the Investor Day was helpful and these new targets for the debt leverage, 1.2x to 1.35x. Your business is very diversified. It's recurring revenue. You're generating very good free cash flow. I don't think there's a major CapEx cycle. You've given very good commentary on kind of M&A opportunities or lack thereof. Why with this low interest rate environment, would you take leverage that low? Why not set your leverage targets at 1.5x or 2x or even 2.5x, which investment-grade companies can sustain still -- and you can still borrow at a very low rate and then use that excess cash to buy stock back?
So well, we have always had a conservative financial policy, as you are well aware of. I think that 1.5x, today, we have a part of our -- what we will consider to be cash is basically marketable securities in the form of KPN stock, and we would eventually have a Verizon stock, okay? So I think since that is not exactly cash, although it does provide a nice return, I think it is more prudent for us at this stage, at least until such stakes are not monetized to remain below the 1.5x that we have set for ourselves before.
On the other hand, most of our operations, as you know, it's in Latin America, and we know that in certain cycles, particularly when there's increases in interest rates involved globally, that can lead to some kind of financial volatility. So we think it's hard to navigate with lighter loads of debt whenever we are expecting that would be from potential -- might be financial turbulence, no? So we believe that there's a clear period ahead of us, where there will be increases in interest rates. And I think that the way we have defined it for ourselves, we are going to be able to sell through these turmoil in a very comfortable fashion and there is securitizing.
[Operator Instructions] Our next question comes from Alejandro Gallostra from BBVA.
I have a question regarding margins. You have been posting a great performance here for several quarters in most of the operations. And I want to know how far you think you can go from here? And what would be the main drivers? And I also like to know if you think that if the telecom industry overall, internationally speaking, you think if the telecom industry is poised to reach new [indiscernible] in terms of digitalization of the operations?
Well, as you said, I think we have been doing that for some years, but last year with this lockdown, we decided to increase very hard all the digitalization of the company, and that is helping us to cost control. And we are really focusing on being very efficient and focusing on cost control.
As also, as we said in our Investor Day, we still see a lot of growth in the region. We think that we can grow with more broadband, more house connected, more 5G, increase in our [ 0.5G ], increased wireless -- fixed wireless broadband, fixed wireless. And I think it's important, and I think in the region, still we have room to grow. We cannot talk all overall because I think in different countries, we're going to face different things. By an example, a little bit in Brazil, we're facing some inflation right now, and we don't know exactly we're going to -- how we're going to increase and when we can increase prices because of the competition, but still some growth in Brazil with more broadband that we are putting. So in Colombia, we're facing a new competition also there.
So all overall, in different countries we're facing different challenges. But what I can tell you is that in América Móvil, we have been doing all the investments the last years to be ahead of our competition and to have the best net good distribution channels, good digital platforms. We're strong in corporate and a good alliances in the corporate to sell more IT products. So that will give us more market, that will give us more revenue. And I hope that, that will be more profit. So that's what I can tell you.
One thing that is interesting, if I might add to what Daniel has said, is that we are now having practically all of the operations, certainly, with only one exception: they are all delivering growth in both the mobile and the fixed-line platform. They are all delivering growth on both platforms. And this was not the case in past. In the past, it was either -- we were going with mobile, but not on both our platforms. Today, we are practically every part is going on both platforms, and that is [indiscernible] of the capital from the point of view of EBITDA margin expansion.
We currently have no further questions. I'll now hand you back over to Mr. Daniel Hajj for any final remarks.
I just want to thank everybody for being in the call and also Carlos, Oscar and Daniela. Thank you very much.
This concludes today's call. Thank you for joining, and I hope you have a lovely rest of your day. You may now disconnect your lines.