América Móvil Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 18, 2023

There are 16 speakers on the call.

Operator

Good morning. My name is Daisy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the America Movil Third Quarter 2023 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Now I will turn the call over to Ms. Daniela La Cuena. To begin, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you so much. Good morning, everyone. We're very Happy to host this call this morning to discuss our Q3 financial and operating results. We have in the room Mr. Daniel Hajj, our CEO Mr.

Speaker 1

Carlos Garcia Moreno, CFO and Mr. Oscar Mucausque, COO.

Speaker 2

Hi, good morning. Thank you, Daniela. Thank you for being in this 3rd quarter financial and operating report. And Carlos is going to make a summary of the results. Okay.

Speaker 3

Thank Thank you, Daniel. Good morning, everyone. Well, both by strong U. S. Economic data, particularly on employment levels and recently also on consumer spending.

Speaker 3

And lingering inflation concerns, 10 year foreign interest rates showed up by approximately 80 basis points over 10 weeks span in the Q3 to 4.6% at the end of September, driving another about of dollar strengthening. By the end of the quarter, there was practically no more hope that interest rates would decline in the latter part of the year And there was instead preoccupation that instead was still not done raising interest rates. As you can see in the market, the rates have to today, and they are about to close to reaching 5% on the 10 year tenure. We added nearly 3,000,000 wireless subscribers in the 3rd quarter, of which 2,000,000 were posted clients, 1,200,000 in Brazil, 406,000 in Austria, which includes IoT device from Avan Digital, 104,000 from Colombia and 93,000 from Mexico. On our prepaid platform, we had net additions of 950,000 clients during the period.

Speaker 3

Eastern Europe led with 210,000 clients followed by Brazil with 193,000 Colombia with 173,000 Argentina with 93,000 and Mexico with 81,000. In the fixed line segment, we gained 223,000 broadband accesses with 65,000 each from Argentina and Brazil. Both lines and pay to the units decreased by 150,000 and 58,000 respectively. At the end of September, our subscriber base totaled 306,000,000 wireless subscribers of which 119,000,000 were posted live. Additionally, we have 73,000,000 fixed line IBUs, which includes 32,000,000 broadband accesses, 13,000,000 peso declines and 29,000,000 landlines.

Speaker 3

Year on year, our postpaid base increased 3.7%, Prepaid 0.7 percent and fixed broadband access 3.2 percent with fixed voice lines falling 2.6%, as you can see in this line. 3rd quarter revenue reached ARS 204,000,000, a 3.3% year on year reduction in Mexican peso terms, with service revenue falling 4.3%. As has been the case throughout several quarters, this figure reflects the appreciation of the Mexican peso all other currencies in our regional operations, reducing the Mexican peso value of our international revenue. At constant exchange rates, Service revenue growth expanded 3.8% and EBITDA 5%, which reflects among other things the effect of towers sales in Mexico and Peru that took place in the period and one off events in Austria. For rating for these, adjusted EBITDA was up 3.9%, just about the same rate of service revenue as you can see on the slide.

Speaker 3

On the fixed end platform, Service revenue remained on trend, increasing 2.2% year on year, having risen from the 0.2% pacing in the second half of last year, where from the mobile platform it grew 4.8%. Brazil attained a positive fixed line service revenue growth or 0.1%. In Mexico and Colombia, fixed line revenue decelerated, remaining stable in Austria and surging in Eastern Europe to 31% and Central America to 5%. In both cases, it was the most rapid pace in at least 1 year. The slowdown in Mexico from 5.6% to 3.6% had to do with corporate network services.

Speaker 3

In fact, Movil revenue actually accelerated to 8.2%, which is its best showing in a decade. In several countries, Brazil, Peru, Colombia and Central America, we had among the highest, if not the highest net brown bear addition in the past 3 years. Others, including Mexico, Australia and Central America, posted the most rapid broadband revenue growth in at least 1 year, as can be seen in the chart, with Brazil and Eastern Europe sustaining strong growth rates. This led to our consolidated broadband revenue spending at the fastest rate in more than 2 years, which was 6.4%. On the mobile platform, Revenue growth decelerated in Mexico from 6.4% to 4.6%, picked up in Central America to 9.5% from 8.8 percent with Brazil adjusting to a normal pace after a hump following the incorporation of 4 mobile clients in the Q2 of 2022.

Speaker 3

This is something that you can see here on the slide. But going back to fixed, it's important to note The revenue from corporate network services has been gaining share within our revenue base. This quarter, it became the 2nd most important revenue line within the fixed line platform of the broadband services with the consolidated TU rising 6.5%. It already accounts for 19% of fixed line services overall, with this year reaching 39% in Austria, 30% in Eastern Europe and 25% in Mexico. Our operating profit We have MXN 42,000,000 in the quarter, a 6.7% year on year reduction in Mexican peso claims, which partly stems from the EBITDA decline mentioned before, But also from a 17% increase in depreciation of rights of use associated with our leases.

Speaker 3

Most of this effect had to do with successful renegotiation a year before or certain lease agreements in Brazil that reduced Clari's obligations throughout our company. Our comprehensive financing cost totaled ARS 30,000,000,000, including an ARS 8,800,000,000 net interest expense, which was 3.9% lower than that registered a year before. On the other financial expenses, there is a MXN 4,700,000,000 charge associated with the partial impairment of our stake in Carrot Chile, our joint venture with Libertad in America pursuant to the fair value of the new JV, switch on the IFRS rules had to be defined within a year after its closing. Finally, our comprehensive financing costs also into a MXN12 1,000,000,000 foreign exchange loss in the quarter, resulting principally from a 3.8% depreciation of the per share of 4 oresense per year. Year to date, our net income totaled Ps.

Speaker 3

58,000,000,000. Through September, Our net income totaled Ps. 58,000,000,000, 2.9% lower than that we stated a year before. Capital expenditures came in at MXN 100,000,000,000 in the 9 months to September, where distribution to shareholders reached ARS34 billion. This includes share buybacks in the amount of ARS7.7 billion and dividends of ARS16 billion We're partly funded by MXN 3,700,000,000 in dividend income.

Speaker 3

To cover all of these expenditures, but also labor obligations in the amount of MXN 10,000,000,000. We resorted to our operating cash flow of MXN 14,000,000,000 and to net financing in the amount of MXN 12,000,000,000 in the quarter in the period with ARS5 1,000,000,000 coming in mostly from the payment of an earn out on this area of platform. As of September, our net debt excluding leases totaled ARS390,000,000,000 and was equivalent to 1.4 times Last of most EBITDA, as you can see on the chart, it was fairly flat in the ratio. It was ARS 8,800,000,000 higher than Q3 at the end of December. Okay.

Speaker 3

Well, thank you. And I will pass the floor back to Daniel for the Q and A session.

Speaker 4

Thank you, Carlos.

Speaker 3

We can start.

Operator

Thank When it is your turn to ask a question, please ensure you are unmuted locally. And if you would like to withdraw your question, please press star followed by 2. Our first question today comes from Vito Tamitha from Goldman Sachs. Mittal, please go ahead. Your line is open.

Speaker 5

Hello, good morning all and thanks for taking our questions. Two questions from our side. The first one is on capital allocation. Given your healthy leverage position and cash flows, even considering your increased CapEx budget, do you have any plans to, In any way further increased cash deployments, so maybe by further increasing CapEx on fiber or by further increasing equity stakes in specific businesses as you did in Austria or by carrying out further M and A or even by increasing buybacks following the recent decline in share prices and seeing that you already Seem to have increased buybacks a bit on the Q3. The second question from our side would be on Corporate Networks.

Speaker 5

You highlighted that there was an increase in relevance of corporate networks in your global revenue mix. Could you give us a bit more color on which types of corporate offerings have been driving that growth? And on what their economics and margin profile is like compared to the more traditional consumer focused telecom offerings. Thank you very

Speaker 3

much. Thank you, Victor. Well, on the Allocation of resources, there's really nothing we're looking at on the M and A front, as we have mentioned before. I think we are not looking at increasing anything more our CapEx to the letter regarding our budget for next year. But as regards the distributions, as you point out, we have Been accelerating our buybacks.

Speaker 3

I've been reiterating on various calls that our free cash flow is very cyclical, And we basically tend to get most of our free cash flow in the last 3, 4 months of the year. So that's typically when we would want to increase our share buybacks. If you look at the distribution of share buyback so far this year, we spent about $100,000,000 in the Q1, dollars 60,000,000 in the 2nd quarter, EUR 272,000,000 in the 3rd quarter. And so far, these months, we've increased an addition of EUR 70,000,000. So basically EUR 350,000,000 between the end of June and so far in October.

Speaker 3

So I have still to go. Obviously, in addition to this, we have already paid USD 100,000,000 of dividends, And we have another payment of the same magnitude that we will be expecting in the middle of November. But so again, we can say something on CapEx budget for next year. I can

Speaker 2

what we discussed and we have been saying in the last year We have a budget of €24,000,000,000 for 3 years. That's 20 3,000,000,000 22,000,000,000,000 and 24,000,000 And so we are on that budget. We increased a little bit the CapEx this year. We haven't finished Our budget for next year, but I think we're going to accomplish with that. So what we increased this year, maybe we're going to reduce that The next year.

Speaker 2

So that's more or less what we're thinking. We don't have anything extra on CapEx for 2024. So we are on budget, and we think we can do that. On the corporate networks, I think that's a segment that we're doing well. We're increasing in all the countries.

Speaker 2

And Oscar can talk a little bit about what are the new products and the products. What we're looking It's to have and to manage the networks of the customers and that's more or less what we're aiming for and Oscar can I'll tell you a little bit more on that.

Speaker 3

Yes. Thank you, Anil. As you say, the first step is how do we manage the network of the customers. And there is SD WAN technology that allow us to do this in an easiest way. So when we move the customer to SD WAN, we're trying to bring security, cloud services as well, bundle in the services.

Speaker 3

And as well, we are offering what we call horizontal solutions. We are selling data lake as a services. We are selling Yes, yes, and services in our cloud. We developed what we call cloud broker, but we are agnostic at the type of cloud that Customer wants. If the customer wants hyperscaler or want to work cloud, they have a dashboard that could manage both Cloud in an easy way.

Speaker 3

And as well, we are getting into the private wireless network. I'm talking about vertical solutions for mining, for retail, for manufacturing and has been we received in the market. We see a big opportunity in this segment because it improves the efficiency of the customers, brings productivity. And we are all on digital transformation, and these products support that evolution. However, We see that market has a very good trend in the near future.

Speaker 3

So all overall, on summary, we're not offering only The classic

Speaker 2

and connectivity products that is broadband or fixed or wireless or prepaid or pipettes or We're offering all these new services to all the B2B customers.

Speaker 3

Another reason we are fully convergent. So in our offering, we offer as well mobile and fixed altogether to the customers.

Speaker 5

Very clear. Thank you very much.

Speaker 3

Okay. Thank you.

Operator

Thank you. Our next question is from Eduardo Ruby from UBS. Eduardo, please go ahead. Your line is open.

Speaker 6

Hi, everyone. Thank you very much for taking our question. I would like to know if you could provide an update on Mexican regulatory environment, discuss the proponents revision and if there is an additional regulatory risk for and Max, particularly on the concession given what happened in airports. And another one, if you could discuss also spectrum prices, if you see any additional risk there too. Thank you very much.

Speaker 3

Well, on the regulatory side,

Speaker 2

I think to make a little history, we have been having 10 years of having these regulatory measures. 10 years Accomplish all the measures that the EBITDA has been putting us. And Not too much to say. Only I think that we expect and we think that these regulatory measures should relax in the future. At the end of the day, what the markets need is investment And what the customer wants is quality, price, The coverage that you attend the customer in a good way, so all these things you cannot put measures on that.

Speaker 2

So that's what is happening in the last 10 years. And I think in Mexico, In a lot of our products, we have the preference of our customers. And we hope that the Ifetel take a very deep revision What is happening on the market and relax the measures that we have. So that's more or less, we don't know nothing more on that, but we hope that We have that.

Speaker 6

Sure. That's clear. Thank you very much.

Speaker 7

Thank you.

Operator

Thank you. Our next question is from Walter Piecyk from LightShed. Walter, please go ahead. Your line is open.

Speaker 8

Thanks. Hey, Daniel. And if I look at Mexico, obviously, you had good unit growth and ARPU was So very strong in 2021 2022. Obviously, maybe somehow the pandemic had some impact on that. But This quarter there shows a little moderation there.

Speaker 8

Is that just kind of coming out of the pandemic? Or is there economic Issues that we need to think about in terms of Mexico. Obviously, ARPU is still growing, and service revenue is still growing, wireless service revenue specifically. I'm just curious kind of what are your thoughts on some of the moderation of that growth and How we should think about that going into future quarters?

Speaker 2

Well, I think what you're saying is right. It's moderation. We're still growing Yes. Our revenues in Mexico, I think the moderation is more on the prepaid than on the postpaid. So maybe it has to be a little bit with the disaffiliation of the economy.

Speaker 2

I don't know. We don't know Exactly. What we'll be, Bob, I can tell you that we have very good 5 gs network, Good coverage. We're working very hard on a controlled cost platform all around. And I think also could be a little bit on the market.

Speaker 2

Our competitors could be doing some promotion. So I still feel very comfortable on what we're doing in the Mobile Products. And by far, we have The best perception to the customers in terms of coverage, quality and price, Attendance Digitalization. So all these things will help us a lot on how the customer is taking the decision. As I said, the moderation that we're having is more on the prepaid side on the postpaid side.

Speaker 2

So that's what we have been seeing. On the peak side,

Speaker 3

Just to add something, Roger, it's the ARPU growth in Mexico was 1.5% Year on year. And but if you look at postpaid, it was actually stronger. It was at 3.1%. So This is what Amir said. The moderation was a little bit more on the prepaid side and reported it remains quite firm, not very different from what we have seen in prior quarters.

Speaker 9

And you said also

Speaker 8

And you think that and Daniel, I apologize. You said that would that's do you think on the if you just looked at prepaid, you think that might be more The promotions of the competitors may be impacting prepaid and necessarily some sign of the economy reducing the usage of some of those, yes?

Speaker 2

Yes, I think so. That's what I think. Yes.

Speaker 10

Okay.

Speaker 8

Just a similar question. If you look at the equipment revenue line, that actually looked Stronger, meaning like if you do the math on it, it looks like maybe people in Mexico are buying more expensive phones. Is there anything you can tell? I mean, because That would suggest that the economy is pretty good, that people are buying or upgrading phones. So just curious on any thoughts you have on your equipment revenue And why that might show some decent growth?

Speaker 2

Yes. I think on the equipment revenue, we're doing good. What is happening is not only Telcel, the ones, I think we have been having a lot of imports of handsets. And this has been decelerating a little bit. Some brands does not like, Like, let's say, Samsung does not like that Samsung phones will came not through their office in Mexico, through other countries.

Speaker 2

So I think that's a little bit on that. And I think they are cutting and reducing This import, so that's why you are seeing that there is more sales on equipment this month.

Speaker 8

Got it. And then just one final question. There's a line on the cash flow statement, that I believe you call payments of lease Liabilities. This is where some of the payments, I think, primarily to tower companies, exist. I'm just curious How we should think about that going forward?

Speaker 8

Are there normal escalators that should take that number? For this quarter, I think the number was 9,700,000,000 pesos. So I'm just curious if that line item on the cash flow statement, Is that something that should grow at a similar rate that it has in recent years? I think it's about 10%. Or is there any opportunity to moderate as you've kind of completed A lot of the 5 gs deployment in a lot of these markets.

Speaker 2

Yes. I think you are right. As you I don't think in 5 We're going to need the same amount of towers that we need in 3 or 4 gs. The new towers should be more on coverage than on capacity, And that's more or less what we have been seeing. So I think that will moderate in the future.

Speaker 8

Great. Thank you very

Speaker 7

much. Thank you. Thanks.

Operator

Thank you. Our next question today comes from Marcelo Santos from JPMorgan. Marcelo, please go ahead. Your line is open.

Speaker 4

Hi, good morning. Thanks for taking my questions. I have 2. The first question is about Colombia. If you could please comment on the competitive environment on the fixed market.

Speaker 4

We saw that you started adding broadband subscribers again, so it was a very strong result. So a comment there would be very helpful. And the second question is, if you could provide us an update on the joint venture with Liberty Latin America in Chile and the outlook on potential capital injections that operation Mike Needham. Thank you very much.

Speaker 3

Yes, Paul. As you mentioned, in Colombia program, on the third quarter, we did it Pretty good. And what we did is that we really changed the way that we go to the market. We did a rigid regionalization focus in the areas that we have a lot of competition. So So we start to winning share on both areas.

Speaker 3

We upgrade the network. And as you know, we are building fiber as well in Colombia. So we believe the 3rd quarter is the trend that we are going to see in the next Quadrant Fixed Broadband. And as well, we improved all the quality of services to the customers, time to delivery, time to repair. So we're really focused on the 3rd quarter to really change all the structure to go to market for fixed broadband in Colombia.

Speaker 3

And on Chile, well, I think Chile is

Speaker 2

a very important market for us. And We have a program, a synergy program since we get together with Liberty, and we're doing well. We're advancing. Our synergies and our Revenues and sales are going much better. So we think that we're going to Really focus on creating value on Chile.

Speaker 2

And that's more or less. We still think that Liberty will be our partner in the future. We hope so. It's a very good partner. And we're focusing to really get Everything, all the cost control, reducing expenses and moving in the market, we're Also putting more coverage, better quality, and we're really focusing in making Chile A much stronger company for the future.

Speaker 2

So that's more or less What we're doing there?

Speaker 4

So could we say that it's on track? You think it's on track or it's above expectations Versus what you hoped to do.

Speaker 2

No, I think we are on track. We don't have a synergy program for 6 months. I think we have a synergy program for 2 years, very strong, very focused. And we are on track, and we're doing very well. We are Happy the way the company is evolving.

Speaker 2

We're growing we have been losing some customers in peaks. In the last quarter, we're growing as customer. So we are improving and improving and improving every day.

Speaker 4

Great. Thank you very much.

Speaker 7

Thank you.

Operator

Thank you. Our next question is from John He from Mizuho. John, please go ahead. Your line is open.

Speaker 11

Hey, good morning and thank you for taking my question. Just to get further clarification on the previous question regarding the joint venture in Chile. Have you has America Movil contributed any more capital during Q3 for the Chile operations? And then one thing to note, the joint venture partner Liberty did admit on its 2Q call That America Movil has been making most of the contributions to date. Are we to expect that going forward?

Speaker 11

And more from The perspective of America Movil's plans. Right now, I know you mentioned in the that your previous statements are that you said the JV is fifty-fifty and you like Liberty. But Considering America Movil has been making most of the contributions and what you've been doing, would you Look to assume control in the future, would that be a possibility? And lastly, would it be possible to get the Chilean JVs management maybe increased communication regarding what's going on there because since for bondholders. Since the JV has been closed last October, the communication has been very low.

Speaker 11

So we'd like to see an increase, if there's if we can get it, if possible. Thank you.

Speaker 3

Well, thank you. Let me begin with the last part of your comments or questions. I think we've heard some of these comments to the effect that maybe the company should improve a little bit its visibility that it provides to the market. We are already talking to the partners so that together we can see to it that from here now on, We can provide a bit more color than is strictly necessarily from the perspective of the guidelines of the bonds, But we can provide a bit more color on the operations themselves, okay? So I think we will be attending to your comments and those of all investors to Make sure that you have a clear view of the developments of the Chilean operation, okay, which I think

Speaker 11

We would appreciate that and I thank you for that.

Speaker 3

So I would expect that probably before the end of this month, we can providing financial statements for the through September and that in the context of this release that we can provide also more color and more information on the actual operations. In terms of the I think it's very important What Daniel mentioned to the effect that this is a fifty-fifty joint venture and the partners needed to agree on our business plan, okay, which would be the beginning of the year. The business plan, as You mentioned it's not for a year. It's a medium term business plan, and we are focused on executing on it. I think the execution has been fine.

Speaker 3

As Daniel mentioned, On the operational side, it's very clear. We are beginning to get some of the synergies that we expected. 1st quarter or even first half of the year, there were Some one offs because of when you get these companies together, there's always one off expenses. There's people that leave the company, etcetera. But we don't have many most of that I mean, most of that is really behind us.

Speaker 3

So I'd say that in agreeing business plan. We have also agreed on what it takes to execute this business plan and that requires also Funding. So we have put in place the appropriate mechanism that should see to it that the company gets the funding that it needs in the time that it's required. And that's basically what we have, okay? At this time, it's only mechanisms that provide for this for financing throughout the period.

Speaker 3

At some point, we at some point at this point have not envisioned any change in stakeholders, And there has not been any change as of today on any of the stakeholders. So that's all what we can say on this year.

Speaker 2

And one more thing. On Chile, I think I haven't mentioned that, but we're already put We're very happy in America Movil with the management that we have there. As Carlos said, we have to structure and to take out some people and put other ones. But right now, we feel that the management that we have there It's in place working and focusing on executing that. So that's also something that We are happy on that.

Speaker 11

Has there been any other further capital in the 3Q results for America Movil to VTR I mean to the joint venture?

Speaker 3

There hasn't been any capital raised at the level of DTR, so there hasn't been any equity provided. And as I said, and I don't think we can go beyond that, I think there's been financing mechanisms that have been put in place to ensure that The company has the funding is required to execute its business plan. That's it. At this point, we're not envisioning any capital contributions as such.

Speaker 10

Okay. Thank

Speaker 7

you. Thank you.

Operator

Thank you. Our next question is from Sumit Datta from New Street Research. Sumit, please go ahead. Your line is open.

Speaker 12

Yes. Hi, guys. A couple for me, please. One, just on the group prospects for service revenue. And in EBITDA, your medium term guidance or your 2022, 2024 guidance has seen EBITDA running ahead of service revenues.

Speaker 12

The guide, I think, is 4% to 6% versus 2.5% to 4%. So Service revenues and EBITDA run rate is similar today. I just wondered, do you still see the opportunity essentially for margin expansion? Do you see the opportunity for EBITDA run rate to come in ahead of service revenues as we look forward? That's the first question, please.

Speaker 12

And then the second one, if I

Speaker 9

could, on

Speaker 12

Mexico. I think you have been resistant to increasing prices over the last few quarters. I just wondered how you're looking into 2024. Do you still think that's the right strategy?

Speaker 2

Or is there room to

Speaker 12

and consider lifting prices? Or do market conditions not allow for that? Thank you very much.

Speaker 2

On the first question, I think the revenues that we're having, the service revenues that we're having I'm running, as Carlos says, 3.9% 3.8%, and the EBITDA is going and increasing 3.9%, taking all that one offs and everything. So I think we have A very good platform. We're very focused on controlling costs and expenses. In every country, it's a little bit different. In every country, You have managed to increase a little bit and pass through The inflation to some prices, to some segments and other ones, no.

Speaker 2

We can't We haven't done that. And but in every country, we have a big platform controlling cost, Controlling expenses and digitalize more, reducing people. So we have a very focused Controlling Cost strategy on the company. So that's something on that. And in countries where Competition allow us to do that, then we can pass through a little bit on that.

Speaker 2

The second question, can you repeat that?

Speaker 12

It was a question on Mexico and on the similar theme price increases. I just wondered how you're looking at the outlook for potential price increases. On the fixed side, we know your competitors have moved up prices And you have not. I just wondered broadly across wireless and fixed, do you see the opportunity to increase prices at all in Mexico?

Speaker 2

Well, we still don't know. At this time, we are not thinking to increase prices At this moment, we are focusing. We're putting a lot of fiber. I think we've had 16,000,000 home prices on fiber and giving to all our customers the chance to move from copper to fiber and have new customers with fiber. So we are we have 76 Percent of our customers connected with fiber, and we're going to follow that.

Speaker 2

So I don't know and I cannot tell you what we're going to do in 2024, But until the end of this year, we haven't had any Please for the fixed. We haven't increased any price all this year.

Speaker 3

Okay. Thank you.

Speaker 7

Thank you.

Speaker 2

Another question?

Speaker 3

Hello?

Operator

Apologies, I was muted. We have a question from Cesar Medina from Morgan Stanley. Cesar, please go ahead. Your line is open.

Speaker 13

Great. Thank you so much for taking my question. I have 2 related questions. The first one is, what is your read on the stock performance Today after the print, it's down 6%. And then related to that, if I hear all the commentary around, it seems the following: service revenue is going well, you have room for margin expansion, CapEx is on a positive trend, it's not lower.

Speaker 13

So is there room to increase or like to start a discussion of increase in shareholder remuneration given that 2 year yields are like north of 5%? Thank you.

Speaker 3

Okay. Cesar, you're asking for a question of what we think more about And I'll tell you what I think. I think there's a lot of stress today in the market. As you see, 10 year interest rates have been climbing sharply the last day, the last couple of days. They are now Last time I saw it, dollars 4.90, that's the highest level they've been in since all of these special So they are now close to 5%.

Speaker 3

This in spite of the Fed having Been saying that they probably didn't need to raise rates once again because the market is doing the work for them. So my read is that there's a lot of stress in the market. That means that it's a risk off. And when people want to go to the risk, often they sell for quite this liquid. And I don't think that sometimes America Movil is utilized as a proxy for other things given the liquidity.

Speaker 3

That's my take. I think it has less to do with the actual results. It has more to do with the move to the risk given in

Speaker 2

the market. In my view, I think as Carlos said, he gave his view, my view is that the results were consistent with what the market thinks. And I think the fundamentals are okay. And the business in America Movil is growing, and it's okay. So That's my view.

Speaker 13

No, no, no. I'm with you. So this is why I was just flagging, If you look at margin trends, revenue trends, is there scope for you to evaluate perhaps increasing shareholder remuneration?

Speaker 3

So again, that takes us back to one of the prior questions. As I said, we were saying, We typically tend to pace with share buybacks, which materializes mostly the last third of the year. I had already said that since July, we have had a significant deployment of resources in share buybacks. We have got since the end of June, till today, dollars 350,000,000 in share buybacks, And we're still not done. And obviously, we still have another big payment of dividends, euros 800,000,000 Or less than in U.

Speaker 3

S. That will be made in November. But certainly, share buybacks, we can continue with them because this is time when we can get Funding deleverage is what we want it to be and the cash flow is coming in as we expect it to.

Speaker 13

Thank you.

Speaker 3

Thank you.

Operator

Thank you. Our next question is from Andreas Ulrich from BTG. Andreas, please go ahead. Your line is open.

Speaker 7

Hello. Thank you for taking my question. I would like to ask a Question related to margins in Mexico. Last year, we saw good expansions across the year, And this year has been quite volatile with the Q1 posting a margin quite large margin contraction and happening again this quarter. So what's your view on the level, sustainable level of margins in Mexico going forward?

Speaker 7

That will be my first question. Thank you.

Speaker 3

We're checking a little bit. I mean, I have here the I have the adjusted margins. I think that maybe you have to look at the adjusted margins because we have done from time to time some tower sales. So that has had an impact on the margin. So if you look at adjusted margins, In 3Q 2022, it was 41.0%.

Speaker 3

In 2nd quarter of 23% by 40.9%. And we did have a reduction from 40.9% to 40.0% in this quarter. But they've been I don't see a lot of volatility. I think margins have stayed in the 40% to 41 represent Rancher, Joseph Maril for the last 5 quarters.

Speaker 2

Yes. And the growth is 5.9 2nd quarter, 5.1% and this quarter, 3.6%. So it's more or less the growth is there. And It's not I don't think it's volatile. It's more or less following the increase on revenues.

Speaker 7

Understood. And what should we think going forward given the possible increase in minimum wage or gain of 20% On your labor costs and the possibility to see the labor week reduced by one day, How should we could we could this impact the operations in Mexico?

Speaker 2

Well, we already have that increase at the beginning of the year. So it's part of the cost that we're having. And as I told you, we have been focusing a lot on taking care about the cost to have a very good cost control in all the operations. So it's not only in Mexico the increase In salaries, it's all around Latin America, and we're focusing on that, being more efficient, being more digital. Our I see this number, I think, in America Movil in 2019.

Speaker 2

In 12/19, we have 190 let me tell you, We have 94,000 people in 2,186, In 2021, 181,000 in 2022, 178,000 and in August, we have 176 1,000 people saw the reduction. We're not hiring people. We're being more efficient, and we're training more our people. So all of that is giving us that control of the costs. So the reduction on retraining the people has been for the last 4 years, no?

Speaker 3

And I would like to stress again that regarding Mexico and sometimes other countries, it's important to normalized from the effect of extraordinary things like the sales towers, okay? Because they have been important In Mexico, last year, we think important this year. And I think you have to correct for that because the volatility in the margins you're referring to has to do

Speaker 7

Understood. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. Our next question is from Alejandro Azar from GBM. And hand over, please go ahead. Your line is open.

Speaker 14

Hi. Good morning, Daniel, Carlos. I'm sorry I joined a little bit late, But I was wondering if you guys mentioned something about the Verizon earn out that I believed the deadline was September of this year. Could you give us some color on that if it's possible? Thank you.

Speaker 3

We did get a payment for the earnout. It was ARS 3,500,000,000 ARS 3,300,000,000 in the quarter as part of the ARS 5,500,000,000 that we mentioned here in the QAIS. So there was a slide We will be happy to provide you with the light.

Speaker 14

Thank you.

Speaker 3

Thank you.

Speaker 13

Thank you.

Operator

Thank you. Our next question is from Fani Kanamuri from HSBC. Fani, please go ahead. Your line is open.

Speaker 9

Thanks everyone for taking my question. My first question is on Brazil. It seems that you're growing very

Speaker 2

Can you speak a little bit louder?

Speaker 9

We don't hear you, please.

Speaker 2

Yes, maybe

Speaker 3

it's louder.

Speaker 15

Can you hear me

Speaker 2

now? Yes.

Speaker 9

Okay. My first question is regarding Brazil. It seems that you're doing really well in Brazil and your mobile ARPU is up Nearly 12% year on year in the Q3. Is it driven more by price increases or more by volume increases? And how do you expect this trend

Speaker 2

to go going forward? That's my first question. Well, I think on Brazil, we're doing well in market share. We're doing well. As Oscar has mentioned and Carlos mentioned also, we are starting to grow in broadband again, Reducing the losses in TV, improving like 1.1 1,000,000 subscribers in postpaid.

Speaker 2

So we are doing very well in Brazil. The synergies that we have and the control cost that we have, also we have a pass through on part, not on all our products, but in part of our products, I think at the mid of beginning or mid of this year. So in Brazil, we are doing okay, improving, growing revenues and controlling costs. So that's

Speaker 9

Thank you.

Speaker 2

So the second question that I had is

Speaker 9

on the Mexico Corporate segment. The revenue growth has deteriorated this quarter. Is it because it's more of a lumpy quarter? Or What is driving that revenue growth decision in the corporate segment and export?

Speaker 3

Yes. Well, as I mentioned before, in Mexico, we are doing exactly the same, selling those products SD WAN security, outsourcing of the networks, cloud services, Vertical Solutions. So we are doing pretty well in Mexico addressing those markets. And it's growing around 12%, the revenues in corporate. So when you look at Mexico, corporate is growing.

Speaker 3

Broadband as well is growing 8.5%. So I think we are doing well in Mexico, and we feel that we continue with that. We have the base of the network. We did the right investments in the network, not only in fiber. We reskill the people to sell This new set of products, so we bring people with experience in cloud services, in vertical solution.

Speaker 3

So I think we see this market trend pretty optimistic.

Speaker 9

Thanks for answering my question.

Speaker 3

One question, one comment on the impact, what Cas said, because the issue with our corporate networks revenue, which We mentioned it's in gaming shares. It's only more important in most operations. But it can be sometimes volatile. Yes, sometimes we get a new contract and you book all the revenues at once. But if you look At the full 9 months of this year, so to raise also the volatility, you have The increase in revenue is 10.3%.

Speaker 3

So the year 2 September, Corporate Medical in Mexico is 10.3% larger than the prior year.

Speaker 9

Yes. Thanks, everyone.

Speaker 3

Thank you.

Operator

Thank you. Our next question is from Andres Cordona from Citi. Andres, please go ahead. Your line is open.

Speaker 9

Good morning, Daniela. Good morning, Carlos. Thanks for the preliminary comments about 2024 CapEx program. Let me ask you about 2023 net working capital. If you can comment about What do you expect for the full year?

Speaker 9

And if there was any event that explained

Speaker 15

slower reversion on the Q3.

Speaker 2

Thanks a lot.

Speaker 1

Working capital.

Speaker 2

Working capital. This is a reversion on working capital. Can you explain again? We don't hear We don't understand.

Speaker 3

Andres, I don't know if this is the question. But basically, what we've been Saying for a long time is that our cash flow is very cyclical because of working capital. So the 1st several months of the year, We require a lot of working capital, and then we get it back to the last third of the year, let's say. So typically, when we have a we begin having a reverse in working capital, we're beginning to get back the working capital that we contributed in the first half of the year.

Operator

Thank you. Our next question is from Till Moers from Schroders. Phil, please go ahead. Your line is open.

Speaker 10

Hello, and thanks for taking my question. It's about Guatemala. You've been fighting to get to more balanced market share there. And I was wondering where you stand currently in the process, How long do you think the remainder is going to take? And what additional measures, if any, should we expect?

Speaker 2

I think in Guatemala, we're doing well. We are investing. We just get the 700 frequencies. We have a little bit lack of coverage in some in wireless and with the 700 frequencies, I think we can get a little bit more coverage on that. We can give better quality and attend more customers there.

Speaker 2

In the fix, we are putting more fiber. We're changing a little bit more copper For fiber, giving more speeds to the customers. So we are doing there. We are not being so Aggressive. We're not reducing prices.

Speaker 2

And just the only thing that we're doing in Guatemala is we are being more focus on quality, better service, more speeds in the fixed and changing our fiber to our copper to fiber and do the convergence. Also in the corporate side, we are doing also good. So we are improving our operations in Guatemala.

Speaker 3

On the fixed line side, We have been improving on the service revenue growth. It has been negative and now we are in positive. It's been an improvement quarter, it's been a call for the last 5 quarters that we can see.

Speaker 10

Okay. Thank you. Another question, if I may. In Mexico City, Mega Cabo is increasing its penetration. And I was wondering what do you think does it mean for the competitive landscape there?

Speaker 3

Yes, America Movil, they are building fiber in Mexico. Some of them is overlapping the cable networks. Some of them is a greenfield. But to be honest, we have a great platform in Mexico. We have 15,000,000 home passes with fiber.

Speaker 3

As Anel mentioned, we have 76% of the customers already connected with fiber. Let me add that we've been doing very well to bundles with streaming platforms as HBO, Netflix, Claro Video. So we bundled the broadband with this streaming and has been very well receptive in the market. So I agree. America is growing with fiber, but I think we have the right network to compete.

Speaker 3

So we already have fiber. So I think we have a good proposition in the market to compete with the other competitors, not only with Mega Calvary.

Speaker 10

All right. Thank you.

Speaker 2

Thank

Operator

you. Thank you. Our next question is from Jesus Romo from Global Data. Jesus, please go ahead.

Speaker 9

Good morning. Thank you for taking my questions. I have a

Speaker 2

quick question regarding domestic operation. I wonder if you could provide additional color on the deceleration in Mexico for corporate and mobile services. I'll give you a color on what's happening there or

Speaker 9

some context. And what's guiding

Speaker 2

The broadband revenue given that you mentioned this quarter, what's wrong with the revenue over there? And the second question is for wireless. Just a bit of color of what's guiding phosphate net adds in Mexico and ARPU growth in Mexico? Thank you. Well, I'm going to start with wireless.

Speaker 2

I think what wireless is driving a little bit better ARPU And growth is our 5 gs network. I think we have more coverage, better quality. And we are really the only one that has been investing in in Mexico in 5 gs. So customers are using that network, using more data and sometimes upgrading their plan to have more data. So that's more or less what we're seeing there.

Speaker 2

And In the fixed side, in corporate?

Speaker 3

Well, as you know, the corporate market, it's a totally different market than the mass market. The negotiations takes many months to really get the projects. In some quarters, we won very large projects, And in other quarters, we don't. But what we see is that we have a great pipeline in place. So This kind of selling is a different approach.

Speaker 3

You need to go to the customer to show a business case of the efficiency, the cost reduction, the productivity. And it takes a while to convince the customer. Sometimes we won a very large project and some quarters we don't. But what we have is a very good pipeline that we are followed. So that's why we are optimistic on those on this market.

Speaker 3

Just to repeat what we said before, if you look at the 9 months to September, Corporate network revenue in Mexico increased 10.4% year on year. Okay. So it's When you look at long enough periods and you can make a favorable appeal. Yes. What is important is to have a good pipeline opportunities, right?

Speaker 2

Thank you. Thank you.

Operator

Thank you. Our last question is from Alejandro Lavin from Santander. Alejandro, please go ahead. Your line is open.

Speaker 2

Hi, good morning. Thank you all for taking the questions. Thank you for the call. I just have a quick question on Argentina. You're seeing good growth there.

Speaker 2

So could you please expand on what kind of opportunities you're seeing there over the medium term? And how do you balance that versus the current macro environment and FX depreciation? Thank you. Yes. We know What is happening in Argentina with the Maestro environment?

Speaker 2

So but where we're seeing good opportunities is in the fixed line. We have been Running the wireless for a long time. We have a decent market share. We're growing. We're doing well.

Speaker 2

And we start maybe 4 years ago in putting fiber, and it's Given very good returns this fiber. So we've had like 1,200,000 drivers in Argentina right now, and that's where we see Good opportunities in all the fixed platforms as well.

Speaker 3

Pay TV.

Speaker 2

All fixed. Pay TV, fixed and broadband is where we've seen them.

Speaker 3

Okay. Thank you.

Speaker 2

Thank you. Thank you very much.

Operator

Thank you. This is all the time we have for the Q and A session today. So I'd like to hand back to management for any closing remarks.

Speaker 2

No, just thank you all of you for being in the call.

Speaker 7

Thank you.

Operator

Thank you everyone for joining today's call. You may now disconnect your lines and have a lovely day.

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Earnings Conference Call
América Móvil Q3 2023
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