América Móvil Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 12, 2023

There are 11 speakers on the call.

Operator

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Call.

Operator

Thank you. Now I will turn the call over to Mr. Daniel Hash, CEO of America Movil to begin. Thank you.

Speaker 1

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.

Speaker 2

Thank you, Daniel. Good morning, everyone. During the Q2, euro dollar interest rates remained as volatile as they have been in the Q1, Inflationary pressures stronger than anticipated earlier in the year, the reductions 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 2,200,000 wireless subscribers in the 2nd quarter, including 1,500,000 postpaid. Brazil contributed 632,000 Austria 267,000 and Colombia 171,000.

Speaker 2

3 business subscriber additions stood at 787,000 with Brazil and Mexico adding almost 200,000 each and Columbia, 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 2nd consecutive quarter with strong broadband 78,000 in Argentina and 45,000 in Brazil. The growth of our mobile subscriber base Basically on trend with the posted 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 pay TV accesses remained roughly flat. 2nd quarter revenue was down 4.6% year on year to MXN203 billion in Mexican peso ten, with service revenues falling 4.2%.

Speaker 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, savings revenue increased 5.0% at slightly lower pace than that of the prior quarter. EBITDA was down 3.8% in Mexican peso terms to MXN 78,700,000,000 in the quarter, representing a 78.9 percent 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 Latin currencies and the euro disability dollar have recently contributed to this through their impact on costs.

Speaker 2

Service revenue growth continued to advance on the fixed line platform, moving up 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% in 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 copper network services and fixed broadband services in Brazil and Austria by the latter. Importantly, the downward trend of petri revenue appears to be coming to an end.

Speaker 2

In the quarter, they were down 1.3%, the lowest decline in several quarters. The deceleration of mobile service revenue growth from former OE mobile clients acquired by Claro. The uplift in terms of revenue growth provided by former OE 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 year 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%.

Speaker 2

Our operating profit in the quarter, ARS 40,300,000,000 were down 2.9% year on year, where our net profit nearly doubled in the year this quarter to Ps. 26,000,000,000 mostly on account of greater foreign exchange gain. In the 1st 6 months of the year, capital expenditures totaled ARS 64,000,000,000 and distribution to shareholders ARS 3,000,000,000 including share buybacks. In cash flow terms, we reduced our net debt by Ps. 4,000,000,000 in the period.

Speaker 2

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 56,000,000,000 at the end of June, Having come down by MXN 25,800,000,000 from the end of December on the back of the appreciation of the Mexican peso visavis of the currencies, particularly the dollar. It was equivalent to 1.4 times EBITDA. So With this summary of our results, I would pass the floor back to Daniel Hajj for the Q and A session. Thank you all.

Speaker 2

Thank you, Carlos.

Operator

Our first question goes to Vitor Tamita of Goldman Sachs. Vitor, please go ahead. Your line is open.

Speaker 3

Good morning all and thank you very much for your question for letting us 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 We're a source of funding for shareholder remuneration thus far. Also second question from us on M and A.

Speaker 3

Now that you have achieved a more comfortable leverage position and are generating cash consistently, could you provide us an update on your M and A strategy And on which regions could potentially be considered for further acquisitions? Thank you very much.

Speaker 2

Okay. Well, on the share buyback, as we've mentioned in the prior calls, we tend to have them We're all kind of in kind with our cash flow throughout the year. The cash flow, the first half of the year, it's 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 I've mentioned in the prior call, We needed to accommodate the increase in CapEx that we had mentioned to you.

Speaker 2

We had increased the CapEx from SEK 8,000,000,000 In the original budget to €10,500,000,000 more less. And that's basically what we wanted to Cover before we could actually engage in fully share buybacks. I think that now We will be going back to normal. I think that we should expect to receive distributions Very much along with the recovery of our cash flow. In terms of M and A, I think that we are not currently looking at anything anywhere.

Speaker 2

I think that we have a lot of Growth organic growth to develop as we have been saying in some of the numbers, some of the fixed line operations are developing very nicely. We are continuing to have a good growth on mobile. So it's not that we need to buy growth Anywhere, I think that is plenty to develop organically. Overly, out of regulatory concerns, there's So I don't think that we are looking really today at anything outside our footprint and within our footprint, respectively, no

Speaker 1

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 forward. 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 and A, as Carlos is saying, but we're open to see other opportunities. But right now, we're not looking to anything.

Speaker 3

Very, very clear. Thank you very much.

Speaker 4

Thank you. Thank you.

Operator

The next question goes to Lucas Chavez of UBS. Lucas, please go ahead. Your line is open.

Speaker 4

Hi, good morning, everyone. This is Leonardo, actually. Thank you for taking the question. A couple of questions in Brazil. The first one, if you could comment on the reduction on the B2B revenue, of Corporate revenue, which sounded like a one off, but if you could talk a little bit about that.

Speaker 4

We're seeing a very strong growth in other regions and in Brazil in the past quarters. And my second one, we saw yesterday the deal of Vero and Americanet Forming

Speaker 5

1 of

Speaker 4

the largest ISPs in Brazil in fixed broadband. We also see news of Alex Talking with, Vittal from BTG. So overall, I just want to double click on Vitor's question on M and A. And if you could talk about either M and A or partnership, what type of opportunities are you looking at specifically in the fixed market in Brazil. Thank you.

Speaker 1

I'm going to talk a little bit about Brazil. I think in Brazil, we're 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.

Speaker 1

We have a very good distribution network all around Brazil. We're starting to grow again in peaks, in broadband. So it's very good news. We have 2 or 3 quarters growing again in broadband. So Things are looking for us.

Speaker 1

It's good that the market consolidates. There's 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 the news or not, but What they said is that the Vero and American Net are emerging is what I hear this morning.

Speaker 1

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 are in a very good position in Brazil.

Speaker 1

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 a client spot to have profitable clients in this segment.

Speaker 1

So That's what we are looking for. So what I don't know, Oscar, if you want to say something else on Brazil.

Speaker 6

What you say, incorporate, as you mentioned, we can see some cloud contracts. When you look at the rest of the digital solution, 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 three quarters. We were in negative before.

Speaker 6

So we upgrade the network and we are changing all the Customer satisfaction, installation, in time to prepare. So I think we have very good outlook in the marketplace.

Speaker 1

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.

Speaker 6

Yes. And we could offer 1 gigabit in all the network, right?

Speaker 1

And also we can, yes. I don't know if you

Speaker 2

can Great.

Speaker 4

Cannot disagree on that. Very good performance. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. The next question go to Walter Bicic of LightShed Partners. Walter, please go ahead. Your line is open.

Speaker 7

Conference.

Speaker 8

Thanks. 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.

Speaker 8

Is that I mean, can you just comment on that a little bit? Is there any is that a reflection of the economy? I know inflation, I think, has been coming down in Mexico. I think you're maybe at 5% now and the trend has been down. So just kind of if you could comment 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?

Speaker 1

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're saying. In prepaid, we have more customers, More active customers.

Speaker 1

So we can see the customers that recharge, let's say, June last year And June this year, and we have lots more customers recharging this. So what we're seeing, yes, the growth has been slowing down on 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.

Speaker 1

I think Mexico is having a lot of new investments. So I think that will go Again, hi. So my expectation is that on prepaid, again, people start to recharge a little bit more In the future.

Speaker 8

Okay. And then on equipment sales, I've noticed that in past years In the Q2, 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?

Speaker 1

It's Mother's Day. Mother's Day is something very important. It's on May. So that's why always in second quarter, They increased the equipment revenue, yes.

Speaker 8

So for this year, I guess, what I noticed is because in past years, it's And this year, I guess it was a little bit more flat, I guess. People weren't buying their mothers from replacement phones as much this year.

Speaker 1

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 Seeing 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 Pagitos That we're financing to some customers a prepaid phone, and it's been successful.

Speaker 1

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.

Speaker 1

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 being developing.

Speaker 9

Okay.

Speaker 8

And then just one last one for Carlos, if you don't mind, Carlos. 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 ratios as it relates to capital return?

Speaker 2

Well, we are looking at leverage ratio. We want to Keep it at not less than 1.2 and not more than 1.5. I think that will be the open range that we will be looking at. And that really is an answer to your question in terms of the return on capital, Walter, I think it's So 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.

Speaker 8

Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. The next question go to Fred Mendez of Bank of America. Fred, please go ahead. Your line is open.

Speaker 5

Hello. Good morning, everyone. I have two questions as well. The first one is with Telmex. Once again, very So just wondering if that's coming mainly from gross adds or you basically reducing your churn, Right.

Speaker 5

Basically, what we're trying to understand is if you're gaining clients from the competition or let's say, stop bleeding in terms now that you have more fiber in in your network? That will 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 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.

Speaker 5

Anyway, just trying to consolidate here. Thank you very much.

Speaker 6

Well, about that, let me tell you that as we mentioned before, we've been doing a very aggressive Investment in fiber. Now 73% of the customer base is already collected with fiber. As well as you mentioned, we've been working on the commercial activity. We improved the installation processes as well, And we have a very retained retention of the customers. So we reduced the churn a little bit.

Speaker 6

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 market, recently 2 weeks ago, we launched 300 megabits symmetrical, including Claro Video and Paramount with a very good price. We believe that it's going to be taking the market very good. So that's

Speaker 1

I think we're very happy the way Telmex is developing. And what Oscar is saying exactly is not only Churn or not only say it's everything. It's less churn because we have a lot more fiber and people eat where customers are Better installation speeds. Better installation speeds, less churn and good promotion.

Speaker 2

Yes. So we're And on the Slowdown of the mobile revenue growth in Brazil. Basically, it has to do with The normalization of revenue growth a year after we had factored in the first Revenue from oil mobile clients and that means that the uplift that we were getting from the oil 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's just changing the base that's just for the reference for the comparison. The order in terms of the ARPU growth in Brazil in spite of this is partly to do with disconnections of All mobile clients took effect towards the end of the prior quarter and that's basically what is helping the ARPU numbers in

Speaker 5

Perfect. Thank you. 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 in fiber in Mexico for Tomax?

Speaker 6

73% of the clients.

Speaker 5

Perfect. Perfect. Thanks very much, Oscar.

Operator

Thank you. The next question goes to Fani Kanyamori of HSBC. BC. Fanny, please go ahead. Your line is open.

Speaker 7

So my question is related to monetization of assets. Are there any assets that you're trying to monetize, whether it's your Vergiz own stake that you have 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 have a follow-up question later.

Speaker 1

Can you repeat a little bit slowly? We don't understand the question, please.

Speaker 7

It's I'm trying to understand if you have any monetization plans for the reserve 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?

Speaker 2

Okay. The tower company in Austria, as you've gone out, is saying because of being spun off, We expect this will happen sometime in the Q3, before the end of Q3. And in fact, our company has already The financing that it needs to be fully funded from day 1. In this particular case, as opposed to CTOS and as opposed to Teletide before then. 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?

Speaker 2

So at least for this period of time, the Austrian Our company, I think it's going to be called the Eurotelersite, will be controlled and consolidated by America Movil. We will be seeing a

Speaker 7

Regarding Verizon's stake?

Speaker 2

Regarding

Speaker 7

Where is your stake? Any change in stance? Where is your stake that you have?

Speaker 2

Your own stake? Yes. What I was saying is that the state we have in the company, 51%, we have a commitment not to sell for a period of at least 30 years.

Speaker 7

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

Speaker 1

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 about to Oscar, please. Yes.

Speaker 6

We started to work 3 or 4 years ago about focus on the enterprise market. We've been very successful on net generation network, which is called SD WAN. So we will move into that. And we are adding to the connectivity value added. 1 is security, second is cloud and third is vertical solutions for Different vertical business as finance, retail.

Speaker 6

So we did some alliance with the experts on the field And we jointly go to the market to offer the whole package to the enterprise has been working pretty nicely. So We developed our core business that is connectivity, but we aggregate value to the connectivity through security, cloud and vertical solutions has been working very well, not only Mexico, if you look at Colombia, if you look at other countries, We are doing the same Brazil as well. So we believe that we need to convert not just connectivity, Bring value to the continuity with these new propositions.

Speaker 2

Yes. Thank

Speaker 7

you, everyone.

Speaker 2

Thank you.

Operator

Thank you.

Speaker 2

Yes, Nel, I'd just like to clarify something because it just has come to our attention. In the case of the Austrian Power Company. As I mentioned before, we have a commitment not to sell this stake in 5 years. I understand that the question may have been about the state that we have on in Verizon. And in that particular case, there's no limitations.

Speaker 2

So we have 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 this space.

Operator

Great. Thank you. The next question goes to Carlos de Leggaretta of ITAU. Carlos, please go ahead. Your line is open.

Speaker 9

Hi, thank you. Good morning. I have two quick questions here. The first one on CapEx. I know you mentioned that you that you are still planning to the slightly larger allocation this year.

Speaker 9

So looking at the data year to date, your CapEx was actually down 2%. Just wondering if that's just the pace or seasonality this year. And secondly, Going back to the tower company in Europe. So you Hello? The entire

Speaker 4

Hi, can you hear me?

Speaker 2

Yes. On the tower, can you please repeat the tower question?

Speaker 9

Sure. Sure. Sure. Sure. Just you raised $1,000,000,000 in debt.

Speaker 9

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 200,000,000 in EBITDA EUR 200,000,000 or so. Are these numbers more or less correct?

Speaker 2

Okay. On the debt of the tower company, yes, the amount of housing growth was €1,000,000,000 And this amount will basically be new debt at the tower company and less debt In the telco, the telco most of it will be will have a leverage of approximately 0.5 times Debt to EBITDA, so it will be free to go EBITDA faster. The numbers you mentioned on EBITDA, I think they are probably Right, about EUR 200,000,000. So but we can confirm to you and we can send you some information,

Speaker 1

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 and In countries, places and

Speaker 2

And Carlo, 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 lot of progress. Yes. That changed a little bit.

Speaker 9

No, that's a good point. Thank you, Carlos. And thank you both Carlos and Daniel. Just broadly more broadly, I guess the strong appreciation of the Mexican peso against basically all currencies. I just want to understand how are you managing that?

Speaker 9

Is that a net positive for AMX or not necessarily?

Speaker 2

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 costs, net interest costs America Movil have come down in peso terms year on year and that is partly reflective of this appreciation of the peso. That is a net positive, no doubt, on the financial part. I would say on the operations part, there's A number of OpEx that are linked to dollars, most of maintenance expenses for networks are dollar based.

Speaker 2

Most of the IT related expenses are dollar based. So in all of those We are getting some relief from the appreciation of the secondly of the peso, but not only the peso. We are seeing

Speaker 9

conference. Right. No, thank you for that, Carlos. That's very useful.

Speaker 2

Thank you, Craig.

Operator

Thank you. The next question will go to Chelsea Collin of Aegon. Chelsea, please go ahead. Your line is open.

Speaker 10

Hi, and thank you for taking the questions. 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, maybe the main countries driving that and what your strategy is there from a competitive standpoint?

Speaker 1

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 El Salvador that I mean, even Nicaragua that we have the company for a long time, we have peaked for a long time. In other ones like Honduras, Costa Rica, we don't have we have we start there. We have the mobile starting and we're doing the fix.

Speaker 1

And In Latin America, we are in Central America, we're changing and putting a little bit more fiber. As we said, it's 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 4 gs, 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.

Speaker 10

Are you also is it in 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?

Speaker 2

Well, we're

Speaker 1

looking to operate good to 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 3 gs for 4 gs 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, data centers, more in For its size, data centers, more and cloud and all these services, It's an area that we want to develop more. It's not necessarily taking from the other ones.

Speaker 1

It's more developing of these countries.

Speaker 10

Understood. Thank you.

Speaker 2

Thank you very much.

Operator

Thank you. We have no further questions. I'll now hand back to Mr. Daniel Hash for any closing comments.

Speaker 1

I just want to thank you, everyone, for being

Speaker 2

in the

Speaker 1

call and thank also Carlos, Oscar and Daniela

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Earnings Conference Call
América Móvil Q2 2023
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