America Movil SAB de CV (AMX) 2024 Q2 法說會逐字稿

Thank you for joining América Móvil second-quarter 2024 conference call and webcast.

(Operator Instructions)

The call will begin shortly. Thank you.

(Music)

Good morning. My name is Kiki, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil second-quarter 2024 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 Instructions)

Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Daniela?

Thank you. Good morning, everyone, and thank you for joining us today to report our second-quarter results. We have on the line of Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

Thank you, Daniela. Welcome, everyone, to América Móvil second quarter of 2024 financial and operating report. Carlos is going to make a summary of the results.

Thank you, Daniel. Good morning, everyone. Well, the second quarter of the year got started with an important surge in long-dated US Treasury yields with those in the 10-year tenor advancing 50 basis points in April on the back of unexpectedly strong employment figures.

They remained volatile throughout the quarter, closing June at 4.4%, practically the mid-point of the range in which they traded in the period. The Mexican peso, which had withstood well the US interest rate volatility, weakened sharply following the Mexican presidential elections on June 2. After months of appreciating vis-àvis, not only the US dollar, but also practically all the currencies in our region of operation, the Mexican peso was to depreciate against all.

We added in the second quarter 2.4 million subscribers of which 1.8 million were postpaid subscribers with Brazil gaining totally half, Colombia 183,000 and Mexico 99,000. The numbers you see [for Austria also include a dilemma Greenberg]. (technical difficulty) In our prepaid platform, we registered 599,000 net additions with Colombia gaming 251,000 subscribers, followed by Argentina 191,000.

In the fixed line segment we have been 376,000 broadband accesses, including accounted for 148,000 in Mexico and approximately 63,000 each in Argentina and Brazil. Broadlines and better use registered losses in the period and were down 63,000 and 66,000, respectively.

Our postpaid base increased 6% year-on-year with prepaid expanding 1.6% and fixed broadband accesses 4.9%. They were the second more dynamic access line.

Our second quarter revenue, MXN206 billion, was up 1.5% from a year before, with service revenue expanding 3.5% and equipment revenue falling 9.8%. At constant exchange rates service revenue increased 4.7% year-on-year, practically the same pace it had maintained the prior quarter, but with slightly faster mobile revenue growth and somewhat slower fixed line revenue growth.

And that helps to bring about a 6.9% increase in EBITDA. The greater operating leverage stemming from positive revenue growth on both platforms has been the main driver of EBITDA growth. Obviously, coupled with strong cost controls.

Mobile service revenue accelerated to a 5.1% pace from 4.9% the precedent quarter on the back of stronger postpaid revenue growth, as prepaid revenue stayed on pace. On the fixed line platform service revenue growth decelerated to a 4.1% pace from 5.1% the prior quarter basically on account of corporate networks revenue, which had seen a big jump then.

Broadband revenue growth continued to improve, reaching 7.9%, up from 6.4% in the first quarter and corporate networks revenue increased 7.2%.

It is important to note that fixed broadband revenue has come to be nearly 25% higher than the combined PayTV and fixed voice revenue. The prior quarter, it has seen a 13% jump on account of some extraordinary contracts that have been obtained. It is important to note that fixed broadband revenue has come to be nearly 25% higher than the combined PayTV and fixed voice revenue.

EBITDA totaled MXN83.1 billion pesos in the quarter which represented a 5.6% increase in Mexican peso terms from the year-earlier-quarter and 6.9% at constant exchange rates, as seen before. The consolidated EBITDA margin reached 40.4% in the quarter, a 1.5 percentage-points improvement from my year before.

Operating profit came in at MXN46 billion, having risen from 12.9% from the year-earlier quarter, but our comprehensive financing costs reached MXN40 billion on account of foreign exchange losses, resulting mainly from the depreciation of the Mexican pesos. And because of this, we ended up putting a net loss of MXN1.1 billion in the quarter.

Have to say that at the end of May, prior to removing the pesto, the two thirds of our net debt were Mexican pesos based.

In capital terms, our net debt increased by a quarter by MXN14.3 billion and together with MXN57 million in operating cash flow allowed us to cover CapEx totaling MXN56 billion. Share buybacks in the month of MXN12.5 billion and labor obligations for a similar amount. That's in the [six month] June.

Now our free cash flow was MXN10 billion greater than that of the first half of 2023, partly because of lower capital expenditures, which were down MXN8 billion. Our share buybacks in the period were 4 times -- year before. We went from MXN3 billion in the first half of 2023 to MXN12.5 billion of share buybacks in the first half of 2024. Our leverage ratio came down to 1.38 times EBITDA from 1.5 times the prior quarter.

That's the summary and I will turn the floor back to Daniela for Q&A. Thank you.

Thank you, Carlos. And can we can start with Q&A.

(Operator Instructions)

Leonardo Olmos, UBS company.

Thank you for taking our questions. So we have two. The first is can you break down the FX losses in this quarter? I know there's are unusual behavior. But consider that what you just said about two thirds of net debt being in peso-based. How should we forecast this line the FX losses in correlation with the Mexican peso? That's the first question.

The second one, completely related. Across last term, we're seeing prepaid decelerating, not only AMX but its competitors as well. Do you expect prepaid revenue to return to growth at some point?

On the FX side, as I said, two-thirds of the exposure of the net exposure in pesos. But the net exposure you get after using derivatives. And the impact of the derivatives is different from the results from the one that you get from the extra FX movements or FX gains or losses on the underlying debt.

So there'll be differences there. We can guide you through them. But it's not easy to predict how those movements can take place. Then there's a portion of our overall debt, which has to do with the inter-company transactions and basically wash all. Then, we retain a certain exposure to raise. And in this quarter, we had the depreciation of the peso of the pace but also declared and that's resulted in this.

But that's basically you have -- there's a little bit of a noise on the results associated with the underlying deposition that's been the only case.

On the second question on the prepaid, this accelerating, I think, the prepaid is related and in each country is a little bit different. But what we can see in all the countries is that some prepaid customers are moving postpaid. So they are getting -- as we are moving to 5G and giving some more data, better handset, so they are moving to be a postpaid customer.

So that's one thing. The second very important is depending on the economy of the country, so prepared is a lot related on how the economies are doing and spending on the people on that. So that's more or less what you have been seeing all around Latin America. People moving to postpaid, from prepaid to postpaid and depending on the economies also, -- we can see if they are going to spend more or not. Also some promotions in some countries that we are seeing all around. So that's more or less.

Just to go back on the on the FX question, there is a very comprehensive inflammation that is sent over to the Mexican wholesalers available to all the analysts and investors and you have all the details of the underlying debt positions and of the underlying derivatives position.

Walter Piecyk, LightShed.

I guess, first question, just in general on ARPU growth. I know I kind of ask this every quarter, but just wanted to check in on it. It seems like it's sustaining. And again, I'm primarily interested, I guess in Mexico, Brazil and Colombia. We look out over 2024 and 2025, do you see the trends of usage? Or perhaps maybe price alterations continuing to sustain that growth in the average revenue per user?

Well, it's we have been seeing that for the last two years, not since we have been putting 5G and the customers are using.

More doing more applications, they are moving to better plan, so that's more or less what the ARPU the ARPU is moving and increasing because two things or the customer is moving to a better plan. So they are a little bit more of the rent with more for more data. But you pay a little bit more and then I give you more. So that's one thing

And the second is, you are saying in your plan, but you are consuming more. And you are consuming more because let's say in Mexico, we have by 10 million -- more than 10 million customers in 5G, we have been developed these networks all around and people is using more data. So that's more or less what we have been seeing. So more things that people is doing online, they are using more the phone and that's what it's happening, I hope, and I think that for 2025 and 2026 or 2024 and 2025, we're going to still see that trend.

I think the average quarterly growth in up in Mexico is 3.3% for the quarter. That's for the last five quarters and still be in the range of 6%.

I'm sorry. Say again that you think it should be in the range of 6% going forward?

What we can find more -- the last five quarters.

Of course. And then just on equipment revenue, alternatively, that didn't look as high. You report churn, so we can see gross ads. And so it doesn't seem like it's gross additions that impact in that and must be just other equipment revenue upgrades or maybe whatever accessories and things that you sell in the stores. But just if you could kind of give us a sense of what you're seeing in terms of phone purchases and do you think, do you think anticipate that may change with the release of the you know the new AI services on the iPhone and Samsung and other devices?

What you've seen, let's say, equipment revenue, the where you see that we have a big decline 14%. And it's really because we are only reducing 5% in units. The rest is that people is buying, let's say, not cheaper phones, so that the phones has been reducing prices and we have we used to have 5G phones at $300, $400 today we have 5G phones at $200.

So people is buying phones cheaper phones with the same that the phone is a very good phone, good camera, a lot of good chips. So people is looking and reviewing a little bit in more detail which phone is buying. So we have 5% decrease in units, but 14% decrease in equipment revenue in Mexico. So that's more or less what the trend and what is happening right now.

People internally, you think that changes their phone and they are down. (Multiple Speakers)

Understood. But by going forward, there's lot of hype interest and what Apple has recently announced. And obviously Samsung has also added some AI features. Do you think that trend you saw this quarter will reverse and do something different at the end of this year and into 2025?

Well, I think AI is going to be very important. It's what Samsung is doing in their phones because they already have, in some phone, the AI application. Still with iPhone, it's only the announcement that they have. But I think that will be about at the end of the day, I think the AI application, in my view is going to have all the phones again..

Not only the high end phones, the mid end phones are going to have also these applications. So that's the trend. Everything starts at the high end and moving to the mid and let's say low. So I think yes, the trend at the beginning will again make people buy more the high end. But that as the applications moving toward the phone, then people is going to choose the best -- price now.

Vitor Tomita, Goldman Sachs.

Hello. Good morning and thanks for taking my questions. I have two main questions from my side. The first one is, if you could give an update on how you're thinking about your share buyback strategy for the second-half of the year, following what we understand, it was an acceleration in the second quarter?

And my second question would be on Chile. If you could give any additional color on the competitive environment there. I noticed you cited in the earnings release that client bases in mobile and fixed have been growing over the last 12 months. So wanted to understand better how you are thinking about the commercial approach and the competition in there?

Where? In Chile? On the buybacks. I'd say, we mentioned repeatedly, typically we pace the buybacks so that they are more closely related with our cash flow. Our cash flow is very cyclical, very seasonal with the first half of the year requiring a lot of working capital, which we get back on the second half of the year. That's why in the second half of the year when we make the payments of dividends.

But that also when you look back over the years, we typically have a great amount of share buybacks in the second half than in the first half. But yes, generally I'd say that the distributions will be matching closely the free cash that the company has to the extent the company does not divert cash to M&A, which is not going to be the case and to the extent that the company does not require any more CapEx, which is not going to be the case.

On Chile, what I think, everybody knows that Chile is a difficult market. It's a very competitive market. And what happened. We start in 2022 with Liberty, and we defined a plan, a three year plan, on synergies, on reducing cost, integrations, better infrastructure. We closed one year ago a good deal with 5G, 4G, 3G, more coverage. We are doing a lot more redundance fiber through all the country. We close a capacity agreement with. We close a capacity agreement with OnNet also to move part of our subscribers to fiber. So we have three year plan. I think we are on target. We still need end of 2025, 2026 to review that. But overall, we are comfortable on that.

On the -- we have put new management since the beginning. We integrate the management. So, we are working hard. So -- but it's not something that is from today for tomorrow, it's a good three year, four year plan that we have been doing. It's the same that we do in Brazil when we integrate the companies and in other countries.

So we're comfortable. It's a very competitive market. And well, it's for players in market. No, -- for players in mobile, maybe more players in big. So what we are comfortable on what we're doing and we think in the next, in the future Chile is going to be a very good country for us. We have the size right now because before doing the merge, we only have more while revenues, not so high. So today, we are more than a MXN1 billion company. I think it's MXN1.2 billion. So we can work on that. We have a precise and I think we're going to be a successful in Chile.

Phani Kanumuri, HSBC.

Thank you for taking my questions. My first question is regarding Mexico mobile revenues. It has decelerated from 5.8% in 1Q to 4% in 2Q. Is there any specific reason for this trend? And how do you expect this to trend going forward?

My second question is regarding a further extension on Chile. Do you have any plans to do any kind of M&A in Chile? You have detained in your Capital Markets Day that you don't have any major M&A plans, but with Chile consolidation, do you see further any plans of M&A in Chile?

Thank you.

Well, first in Chile, everybody knows that WOM is in Chapter 11 and there are plans. I don't know if there is going to be M&A or not. We are open to see alternatives, but we don't know exactly what we're going to do. So, as always, we are open, but we're working very strong in the synergies and all the implementations in new infrastructure, fiber, 5G, more capacity, more coverage all around. So that's our focus. But we are open to see what the alternatives are with WOM. So that's first

Second, in Mexico. I think that trend is a growing, the revenue is declining, -- not decline, reducing the growth. I don't know what's going to be the next. But in Mexico, we are doing very good in 5G. I think we are the only company who has a real 5G network with coverage with capacity. In postpaid, with a lot of our subscribers are renew in 5G plan that it gave us good ARPU there.

So Carlos it's saying is 3.3% increase in ARPU. We haven't increase any price in any of the segments that we have. So it's only moving to be a higher planned or people consuming more as we are seeing. So we have also, as in other countries, a lot of competition promotions and we don't know exactly what's going to be on competition and promotion for the future.

But we are ready to compete and we have the strong basis, good distribution network. We have a good customer care people. A lot of centers, a lot of stores, and very good network and a very good coverage and quality.

So we are ready to compete. If there's still a lot of promotion, we can compete on that and the market will be more rational then we can also be more rational. So we are ready to compete in the future in Mexico. We're prepared, let's say, to compete.

Lucca Brendim, Bank of America.

Good morning, everyone. Thank you for taking my questions. I have two from my side here. The first one, in Colombia, we saw some developments from the main competitors in recent quarters. And I wanted to know if this is already reflecting in some way in the competitive environment. If you're already seeing some changes in it? And how do you expect this market to behave going forward?

And then second on Mexico for the fixed business, can you give us more color on how you're seeing competition? You have not raised prices in Telmex, but is there room for price hikes in the future in the coming quarters years? So, if you could give us some color on that as well?

Thank you.

Well, in Colombia, what happened in Colombia. I think in Colombia, two years ago, we have a new entrant. That was WOM. Very aggressive, a very aggressive plans. So everybody has to compete in the market. So this competition reduces their growth and the ARPU that we have been having because people -- if you get more data, then people sometimes prefer to reduce the plan and stay and have more daytime in contrary than increasing plans for more data. So it was a very good aggressive entrance on WOM, but today is a little bit different. WOM is having some problems and we're still competing.

We increased 5G. 5G is giving us in Chile a very good customer in Chile, a very good customer. We have been growing. We grow more than 100,000 customers in postpaid in Chile this quarter in postpaid. So, we're starting to do better and we're confident. We have a very good company, as I told, very good bases also in Chile, good distribution, a lot of stores, good network.

5G, we have the biggest 5G network capacity. And that's what we have seen. So, I think we can see more improvements. I hope we can still this trend of improvements in Colombia for the rest of the year. So that's what we're thinking to have.

And Mexico, in the fixed, Oscar can talk a little bit.

Well we are not planning to increase plan prices at this moment, so we're going to stay with these prices and we're doing good. We are growing in the broadband and in the corporate, and we already do a lot of fiber through Mexico. So we have a good fiber network coverage and we're growing in Mexico.

Carlos de Legarreta, Itau.

Thank you. Good morning. And I have two questions on this side. And the first one is a follow-up in Mexico fixed broadband. I'm wondering if you can talk about the net additions that you're seeing. It's obviously a very good volume, but I'm wondering if it's mostly migration from your copper to your fiber product or you're actually acquiring new customers as well? Perhaps Oscar can talk about that.

And on the second question, just to follow up on Chile. Just to make it clear. The information that you provided is very clear. Obviously the leverage level, but I'm wondering if there's any kind of contribution that you need to make. Obviously, now you will control the company after this conversion. But I was under the impression that the equity injection was actually necessary for that company and it was relatively sizable. Also, I'm just wondering if -- what are the plans in terms of equity or CapEx for the Chilean subsidiary now going forward. Thank you.

Well, Oscar can talk a little bit on Mexico. But just to clarify the 150,000 that we have, our new subscribers. So we have a lot of our subscribers moving from copper to fiber, but 150,000 new subscribers in the networks. So Oscar can talk.

You're totally right. Migration, it doesn't count as net adds. So all the net adds are new customers, the migration, we don't count as net add.

And we have been moving a lot of copper to fiber.

Yeah, 84% of customer base is already in fiber.

So people is okay, we have a good brand and we have also very good quality and support. And I think what we're aiming and trying to do is to recuperate part of the market that we used to have. So we are working on that.

Yeah. Another thing just to add is that, we've been working in the bundles of streaming video -- with the customers and has been very well received in the market. So, we include the different add-ons like Netflix, HBO, et cetera, in the bundled program, it has been working pretty well

And on Chile, let me explain to you. Since the beginning, when we do the merge, we make a plan. I mean that plan we incorporate some cash in the company. So, we need to put cash -- to put equity in the company. Of course, the company needs equity. And in that plan, we think that's why we do the agreement with liberty to put cash for CapEx and part of the debt that we put in the beginning also to be contribute as equity in Chile. That's what we decided to do since the beginning.

And well, liberty has the right to catch up all this what we -- all this plan. Let's say, all this plan and importantly, they done -- they don't catch up. They decide not to do it, and that's what we are.

And we are comfortable with the equity the way financially the company is going to end. I am I doing at the end of this year, right. I think financially, the company is going to be a growth and the operations that it's something that it's very important. And the operation CapEx investments and new networks, I think are under the plan that we decide.

I think that going forward, Carlos, we don't expect any major cash injections into Chile. I think the CapEx is going to be almost fully funded by their own EBITDA. So, it's going to be practically self-sufficient next year or the year. So the equity contributions have basically taken place. Maybe over the next couple of years, we will be having a company that's fully self-sufficient.

I think what you could see is this agreement to capitalize the company. I think at the end of 2024, we're going to have the company fully capitalized. And with all the investments in place to do and to have a very strong infrastructure, capacity, coverage, quality company then with a very good team in place.

(Operator Instructions)

Daniel Federle, Bradesco BBI.

The first one is a follow up on Mexico broadband business. RGU net additions were good in the second quarter, but significantly lower versus the first quarter. So, my question is what has changed in the market from the first quarter to the second? Which level is like the sustainable level going forward?

And the second question is related to Brazil. Brazil was a very strong region, especially in the mobile front. The company has been presenting like an acceleration in mobile services revenue growth. My question is, do you see room for further acceleration in the upcoming quarters?

And I was wondering if maybe like growth in the second quarter could have been helped by any kind of mismatch in terms of the timing of price increases. I don't know, if you are like increasing prices earlier this year versus last year -- helping out. That's my question.

Sorry, the first question was on the fixed broadband in Mexico in Telmex. But the second question, which country you are talking? We didn't hear you very well.

The first question is regarding Mexico RGUs that were good, but lower than in the first quarter. What has changed from one quarter to the next. And the second quarter is related to Brazil because mobile service revenue growth has been accelerating. So I'm asking if do you see room for further acceleration?

And if second quarter could have been helped by any kind mismatch in terms of the timing of price increases like increasing prices earlier this year than last year? Those are my questions.

I'm going to start on Brazil, I think, in Brazil, we have a very good quarter in terms of revenue, in terms of mobile revenue. Also in terms of fixed revenue, we have been increasing. I think, we increased the revenue in Brazil. So it's been a good increasing revenue in peak.

So we start to see, yeah, like a couple of quarters, increasing broadband and growing net adds and decreasing less in TV and peaks. So that's what we're seeing in Brazil. Also, in mobile, we have good increases, but there's still a lot of competition.

So Brazil is very weak. So you can see in some states, some places very strong promotions in other ones, less promotions. But all overall, in Brazil, it's not only price. I think we have been also controlling cost a lot. You see that the EBITDA is growing and more than the revenue.

So all the synergies, investments, systems, digitalized, everything that we have been doing is giving us a good results in terms of costs. Still in Brazil, inflation is at 4%, 5%. So, you have to increase in some, we have some cost to increase every year since that inflation. So we have been able to control that. And we are growing also in market share in mobile, and that is giving us these growth. So, I think in mobile, the growth that we have been having will be great if we can sustain that and maintain that level of growth in Brazil.

So for me, Brazil and not only Brazil, I think operational, all over all in all the countries we have been doing good in America Movil, Carlos has been showing book. We have been growing more than what we said and also grow with reducing cost, doing synergies and increasing our EBITDA, mainly in all the markets.

In Mexico, Oscar, it's difficult to explain why we have been having more than 300,000 net adds in first-quarter and then 150,000. But in my view, we're going to still grow. And we are already with the good fiber capacity and coverage, and we're going to still grow in the broadband in the next month.

So we cannot say quarter-by-quarter exactly how much work we are going to grow, but the trend is to grow in Mexico in the broadband market. Oscar?

I totally agree what you say. On the second quarter, we have a decrease in the productivity on installation issue because the climate was really bad at that time, so we decreased the productivity on installation.

Second, we saw in May and June a little bit of increases in churn in on-collections. So we believe that will solved on the third quarter for us. But as Daniel said, we see a good trend of the adding net adds of the next quarter. So because we have had this fiber already deployed, we will have very unique product in the market that has been very well received. So we will catch up the productivity installation on the next quarter.

And the way we see, although the way I see things is we don't want to see quarter-by-quarter. I think maybe year, if you see year '23 against year '24, I think '24, all overall, the year is going to be much better than 2023. So maybe one quarter or the other one will be different. But all overall, the trends of the year is going to be good in Telmex.

Alejandro Lavín, Santander.

Good morning, everyone, and thank you for taking my question. I have a couple of quick questions. First of all, on M&A, I mean, you mentioned that you're in general open to opportunities. So I'm wondering what kind of geographies or assets would you be looking at?

Number two, it's more of a longer term question. I mean, we hear a lot about, you know, artificial intelligence and all the possibilities that this might enable. So what are your thoughts on this megatrend? And how you think América Móvil can position to benefit from this megatrend? Thank you.

I mean, I think that what we have said is we don't expect any M&A to take place this year, exclusive in our Investor Day. I think there was a recent question on whether the new environment in Chilewould called for that. We only know that there is this issue with Chapter 11, which WOM have been placed into. But it's not -- and as Daniel said, I think there are always open to listening to things. But there is going to be expectation that we have had this, we wouldn't go into any M&A so far.

And the second question is on the trends. Can you repeat the second question? The mega trends is on --

So thinking about artificial intelligence, I mean, how does management think about positioning to take advantage of this megatrend? I guess this trend for the next 10 years or so, how can América Móvil participate in this front?

I think it's very important. I think artificial intelligence is something that we have already, but it's going to take some time to implement in the company. We're working on that. The first thing that we do is we are digitalizing everything, everything internally in the company.

And we are working very hard on all the data, but there is going to be a lot of AI coming to be more efficient, to no more the customer, to reduce cost to save energy to do a lot of things. And we're working on that to take all this megatrend that will be more efficient and productive company.

So there's a lot of things in the AI that are coming to make us more efficient, more productive and to know more our customers. And we're working on and saving also cost in call centers, data centers. There is a lot of things that AI is coming and América Móvil, of course, is working on that. And but it's not something that you're going to see for tomorrow, but we are working on all these trends to put the company in a very good opportunity on saving cost and all of what I'm saying.

Juan Cruz, Morgan Stanley.

Thank you, and good morning. And I apologize if this was already answered. I joined late, so my apologies. Going back to the Chilean JV, I just wanted to know now that América Móvil is assuming ClaroVTR, if there's going to be disclosure on the operations and financials of the JV going forward? That's number one.

And number two, given that VTR had bonds outstanding, what are the plans with those bonds? What is the company going to do with those, if anything as a result of the also the JV being consolidated? That's it. Thank you.

I think that when we consolidate the company, there's going to be the same information for Chile that we have for all the other countries. That's what we're going to do.

Once we consolidate, the bonds will remain outstanding as they have been, and they will be serviced as any other debt of América Móvil.

Okay. Got you. But there is no plan to either refinance those for the time being or do anything with them?

No plans.

Thank you. We currently have no further questions. So, I will hand back to Mr. Daniel Hajj for final remarks.

I just want to thank everyone for being in the call. And Carlos, Oscar, and Daniela, thank you very much. Bye bye.

This concludes today's conference call. You may now disconnect.