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Good morning. My name is Elliot and I will be your conference operator today. At this time, I would like to welcome everyone to the America Movil First Quarter 2023 Conference Call and Webcast. [Operator Instructions] Now I'll turn the call over to Ms. Daniela Lecuona, Head of Investor Relations.
Thank you. Good morning, everyone. Thank you for joining us today to discuss our first quarter financial and operating results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.
Thank you, Daniela. Thank you, everyone, for hosting the first quarter '23 financial and operating report, and Carlos is going to make a summary of the results. Hi Carlos.
Hello, everyone. Thank you, Daniel. Good morning. Well, throughout the first quarter, dollar interest rates remained volatile, hovering between 3.4% and 4%, as sentiment in the U.S. alternated between relief that inflation seemingly had come under control; anguish from the potential inflationary consequences of what appeared to be an increasingly hot labor market; and fear of contagion stemming from the fall of important banks in the U.S. and Europe. The value of our operating currencies vis-a-vis the U.S. dollar reflected this volatility, although they all ended up appreciating versus the dollar in the period, the Argentinean peso being the only exception, the Mexican peso appreciated 2.5%; the Brazilian real, 4%; the Colombian peso, 4.7%; and the euro, 1.2%. In the first quarter, we added 1.1 million wireless subscribers, of which 1.9 million were postpaid clients. Almost half of the new postpaid subs, 944,000, came from Brazil, 285,000 from Austria, 154,000 from Colombia and 128,000 from Peru. On our prepaid platform, we had net disconnections of 754,000 clients as Brazil disconnected 1.4 million including 1.6 million former old subs that were not generating traffic. Organically, we had solid growth including Colombia with 354,000 and Brazil and Argentina with approximately 200,000 each. On the fixed-line segment, we obtained 313,000 broadband accesses including 139,000 in Mexico, 74,000 in Argentina and 47,000 in Brazil. In some of these countries, Mexico and Brazil, these were the best numbers that we have had in fixed-line access growth in broadband for a long time. We ended March with 301 million wireless subscribers of which 116 million were postpaid clients and 73 million fixed-line RGUs including 31 million broadband accesses and 13 million PayTV clients. We have seen certain acceleration in access growth, particularly in mobile, with our postpaid base increasing 8.7% year-on-year and prepaid 5.6%. On the fixed-line platform, broadband accesses were up 2.6% and PayTV was practically flat, having recovered from the 2% decline of sales a year before. First quarter revenue was up 1.7% to MXN 209 billion with service revenue declining 2% in Mexican peso terms on account of the appreciation of the Mexican peso versus substantially all of our operating currencies, which reduced the peso value of our international revenue. EBITDA totaled MXN 83 billion in the quarter. It was up 3.2% in Mexican peso terms. Correcting for foreign exchange effects, service revenue was up 6.3%, a slightly faster pace than in the prior quarter and the same as the prior one, vis-a-vis, the top rates of growth that we have seen in a long time as well, driven more than a year at 6.3% service revenue growth which brings about an EBITDA growth of 5.8% after adjusting for profits obtained from the sale of telecom towers in the Dominican Republic and Peru. So as you can see on the slide, the trends have been very good in service revenue growth and EBITDA and in both counts, we are exceeding the forecast that we had given back in our Investor Day in October of 2021. On the fixed-line platform service revenue growth came in at 1.8% at constant exchange rates. It's the best performance in over a year on the back of a strong expansion of broadband revenue, 9.6%. On the mobile platform, revenue grew 9.3%. Mobile service revenue accounted for 62% of total service revenue. So we do see a slight deceleration in mobile revenue growth, but an important upswing in fixed line revenue growth. And the aggregate of the 2 service revenue growth was 6.3%, one of the best rates, better than the first quarter -- than the fourth quarter of last year and in fact the third quarter of last year. The improvement of fixed line service revenue growth was driven mostly by Mexico, Brazil and Colombia jumping to 4.1% from minus 1.3% the prior quarter in Mexico, to minus 1.4% from minus 3.5% in Brazil and to close 4.2% from minus 3.6% in Colombia. Broadband revenue was up 9.6% in the quarter at constant exchange rates while corporate network revenue increased 12%. With respect to mobile service revenue, Brazil led the way with 21.5%, followed by Eastern Europe and Mexico at 9.2% and 8.1% respectively. Deceleration in consolidated mobile revenue growth reflects the slowdown observed in Colombia and Austria with the pace of growth being reduced to 2.2% from 4.7% the present quarter in Colombia and to 3% from 4.9% in Austria. Brazil and Eastern Europe also led the way in EBITDA growth at 13.7% and 9.7% respectively. They were followed by Ecuador and Mexico at approximately 6% each. We turned an operating profit of MXN 44 billion in the quarter, up 9.7% year-on-year, which helped bring about a MXN 30 billion net profit in the quarter, slightly down, 2% -- 2.1% from the year earlier quarter. The decline in net income has to do with a reduction in foreign exchange gains, down from MXN 22 billion in the first quarter of 2022 to MXN 13.7 billion in the first quarter of this year. So we had a significant reduction in foreign exchange gains and that's what explains that operating profit was practically -- that net income was practically flat to slightly down as compared to an increase of nearly 10% in operating profit. Capital expenditures totaled MXN 29 billion in the quarter with share buybacks amounting to MXN 1.9 billion. These items were funded by our operating cash flow and by net borrowings of MXN 2.4 billion and by the freeing up of MXN 5.9 billion in assets formerly invested in our pension fund. Our operating cash flow was supported by the sale of towers in the Dominican Republic and Peru that provided MXN 6.4 billion and by dividend income of MXN 0.7 billion coming from that item. Our net debt excluding leases totaled MXN 365 billion at the end of March having come down by MXN 16 billion from the end of December. It was equivalent to 1.39x last 12 months EBITDA. So with this, I will pass the floor back to Daniel and we will start the Q&A session. Thank you, all.
Thank you, Carlos. We can start with the Q&A.
[Operator Instructions] Our first question comes from Walter Piecyk from LightShed.
Carlos, I guess the first question is on it's kind of a weird specific one, so I apologize. I usually ask larger macro, but if you look at Mexico, your equipment revenue grew year-on-year, but if you look at the subscriber growth, net adds I think were lower and churn rate was lower. So are you just selling more expensive phones in Mexico driving that higher equipment sales?
I think what is happening in Mexico, we have the fourth quarter that is Christmas. In Christmas last year, we sell a lot of equipment and we had some disconnections, because people only changed the equipment, they bring the SIM in the new equipment and that's why you were seeing higher sales and changing the SIM. So you don't see too many new subscribers. I think we're doing good in selling equipment. We have a good profit, good revenue there. And all overall, I think we're doing very well on new subscribers. Also in Mexico, you see the postpaid is starting to grow again. We have around 85,000 postpaid new subscribers. So I think our 5G network is doing good. We're putting a lot of customers in this network. We are bringing also 5G in prepaid in those days. So all overall, I think we're doing good in equipment and net adds in Mexico.
Daniel, just an overall question, I guess. In the U.S., the replacement cycle is lengthening. People are holding on to their phones longer and I think that's kind of what I was trying to understand is, I understand that in your markets, there's a lot of SIM cards that are connected to gross adds and net adds. I'm just curious, though, given the investments you've made in 5G, how are overall phone sales in general across the markets, whether it's just Mexico or Brazil in general, are they -- are people holding their phones longer? Are you seeing more upgrades in your markets because of your network investments? Can you give us a sense of what that market looks like?
Well, our ARPU is growing in Mexico. So you're seeing people is using more in prepaid and also in postpaid people is upgrading their plans to a better plan for 5G. I think 5G is working very good. Also we are doing good financing in the handsets. We're also financing in the prepaid market. So we're financing postpaid, yes, for a long time and we're starting to do a little of financing in the prepaid. And it's bringing good sales and good customers. So that's doing good. In this cycle, I think it's reducing -- it's getting a little bit longer. The people, everybody is thinking a little bit what is happening, interest rates and everything in the economy. So people, is trying to hold a little bit more for a long -- a little bit more time their phone. But we're not seeing the big, big changes right now in Mexico and Latin America. Let's see what is happen in the next quarters.
And if I just -- if you don't mind, one more, just on the capital -- I'm sorry. Go ahead, Carlos.
Just want to make it clear to everybody that hasn't focused on this. Equipment revenues were growing nearly twice as fast in Mexico as service revenue. Okay? And that's -- basically a lot of what -- a lot of these has to do with our [indiscernible] work experience. There is a lot of our equipment financing that we're providing today with insurance and that has proven to be a very good combination. We are getting a good margin out of the sales and we are getting good margin out of the financing itself. So that's something probably that some people do not have in the picture.
And I'm going to add another thing that's -- other thing on that is, I think last year, the increase of importing handsets in the market has been growing and with interest rates getting higher, I think the importing handsets has been reduced. So give us opportunity to sell more through that. I don't think the market is growing, but I think the cell is growing selling more and more handset. This is what is happening right now.
Can I assume that if you're financing a phone to a prepaid customer that if that customer is not going to recharge their phone each month that you'll require full payment of the phone or can they continue to have -- make their finance their lease payments or their finance payments on their phone and not recharge on the prepaid, because obviously that will be something that could help your churn rate in the prepaid side of things as well?
No, we're starting to finance. It is not a big operation, but what we're seeing is that we have -- we can lock the phone. If they don't pay, then we can lock the phone that they cannot use the phone. So people are starting to pay again. So it's been -- the bad debt is not -- it's lower than what we're thinking and we're going to do that smoothly, slowly to see that it's a good business for us. Means good business is good new subscribers, more they charge more. And we have profit selling these handsets. So those are the 3 things that we're selling -- that we're seeing.
And if you don't mind, can you just comment on the...
As I said in postpaid, we have been financing for 5, 7 years. So we have been doing that for a long time and it's been very good. The overlap…
And if you don't mind just updating us on -- yes, the other question was just on target leverage, because I noticed that your share repurchase was a bit lower in the first quarter. Have you changed your kind of view on target leverage, given the kind of rate environment that exists?
We have probably about $100 million equivalent less share buyback in the first quarter. Typically, we've said in other calls -- our cash flow is very seasonal, and that's hardly why we have less buybacks in the first quarter always. I think another thing that we are taking into consideration, I think that we'll be expanding it, but if it has to do a little bit CapEx.
Yes, what we're seeing is that we have like a target of MXN 8 billion, a little bit more or less for the next 3 years in CapEx. And we're seeing that if we put a little bit more fiber, that brings more connectivity to houses, to businesses, long enterprises, datacenters and give more fiber for 5G. It's been a good -- it's a good opportunity. And we are thinking to increase a little bit our CapEx as to this year to bring forward some of the CapEx. It's a good opportunity in some countries to do that for around maybe 4% to 5% more than what we had this year. And we're looking that it will bring us good subscribers, better ARPUs, more penetration in broadband, in corporates, in a lot of things. So that's what we are reviewing and seeing to do in some countries of the world.
Our next question comes from Leonardo Olmos from UBS.
So I've got a couple of ones. The first one is, can you please discuss the Telmex separation that is been requested by our competitors? And if there is a risk of IFT doing something about it or may be directly [indiscernible] government? That's the first one.
Well, what you have been seeing is a lot of noise from the competitors in the press, but our position is that we do believe that there is a substantial evidence supporting the need of a deregulation in the telecom sector. I think the upcoming revision process with IFT will bring a good opportunity for relaxing the regulation in Mexico. The only thing that I want to add is let's wait for August to see what are going to be the comments of the IFT and see what is happening, both in our -- the point is that Mexico needs deregulation in the telecom sector. More investment, less regulation is what all the countries in all the world wants.
Crystal clear. And the second one, we noticed some cost pressures, still relevant in a few countries, especially Colombia and Mexico that have higher OpEx than we estimated here in UBS. Can you discuss what happened and your expectations for the remaining 2023?
Well, I'll analyze -- I saw your note and you're saying EBITDA margins in Mexico came down by 100 bps. One big point if you compare it to total revenues and that has to do with equipment sales that we discussed in the prior question growing nearly twice as fast as service revenue from mobile. So we do have -- if you look at the EBITDA margin relative to service revenue, there is a slight reduction, but it's something like 30 basis points to 40 basis points and not 100 basis point that you mentioned. And this reduction is practically all having to do with a new legal framework that we are now obliged to consider a premium applications and [indiscernible] supposing we need to account for that earlier. So there's a little bit of an impact of that in the first quarter. Okay? So over than that, it is basically not a change in this cost -- of the year, but, yes change in the way how we account for it throughout the year. That's the only thing that we have -- that we can say was relative to be in Mexico. In the other countries, we don't really have anything to do, maybe in some cases mostly provisions. It's really not something that we are seeing in cash terms, some of the pressures eating up margins, certainly not the case in Colombia.
See, and a little bit in Colombia, what's happening a little bit, I think there is more pressure, a lot of competition. And we're starting to grow again in the broadband. So I think that's more or less what is happening. The exchange rate goes a little bit high. So some costs related to peso-dollar, Colombian peso to dollar, but all overall, I think Colombia is also doing good. Still, we have a very good margin in Colombia, and we're going to compete in Colombia and we're going to take opportunity of the market. So that's what we're going to do.
Our next question comes from Froylan Mendez from JPMorgan.
So what is the timing and the goal to surpass 80% FTTH penetration in Mexico? And second question, in Brazil, we have seen that you've been accelerating FTTH too. Is there a new mindset regarding fiber overlay?
Yes, the actual FTTH penetration in Mexico is 69.8%. We already reached 70%. 80%, I think we will have next year, of penetration. So we are doing a big effort to do the migration from copper to fiber. We've been building a lot of fiber-to-the-home. So if I remember, last quarter we mentioned 62% of penetration. Now we've moved to almost 70%. So I think next year, we will reach 80%. And the next question on Brazil, can you repeat that please?
Sure. We have seen that you've been accelerating FTTH also in Brazil. Just wondering if there is a new mindset regarding fiber overlay? Is there a goal as ambitious as now in Mexico, some color there on the fiber overly in Brazil?
Well, as you know, in Brazil, we have a cable. We have FTTH cable. And all the network is already prepared with DOCSIS 3.1. So we could deliver 1 gigabit speed in all of the network. But as you mentioned, we've been building fiber-to-the-home since 3 or 4 years ago. Now we have around 9.5 million home passes with fiber. We expect to end with 11.1 million home passes with fiber. So I think that's why you see the figures that we are getting net gain in Brazil because we've been improving the speeds in cable and in fiber-to-the-home, both -- as well in Brazil we've been working a lot on customer experience. So all the time on installation, time to repair, customer satisfaction, we've been really working on putting a lot of effort as well in customer retention. So we will end with that, with all the cable network with DOCSIS 3.1 and with the 11.1 million fiber-to-the-home by the end of the year.
Our next question comes from Andres Coello from Scotiabank.
I mean, in the last couple of months, we have seen news regarding new technologies that can connect satellites directly to unmodified mobile phones, especially to areas where there are no towers currently. I think in Latin America, some of your competitors already have agreements with 8 new satellite company such as Starlink or such as SpaceMobile. I was wondering what are your thoughts on these new technologies. And if you can provide any color on what percentage of your CapEx goes into covering rural or distant areas?
Well, I think, and Oscar can comment a little bit more deeply on that, but I think these satellite are like a complement also for our technology, because a lot of our cell sites towers that are far that are very expensive to connect with fiber or to connect with the wireless -- say microwave we connect to -- with satellite. So we have our own satellite business Star One and we connect that. But there is opportunity also with other satellite businesses that we also connect with other satellite business. So it's a complement. I think it's going to be difficult that the short-term to connect every people in Latin America in every place. I think in the long run, we are going to do it. But satellite can help to cover that. I don't think -- it's a competition, but it's also a complement to do that. To do it with satellite, it's more expensive for the customer, it's more expensive in costs. So we can do more and more wireless. I think it's going to be better for the people. But Oscar, I don't know if you...
No, as you mentioned. We've been working with Star One for many years on the company. Of course, it's a LEO satellite, the new constellation that is coming the LEO satellite has Starlink, ASP. But we have relation with different satellite providers. We've been using for mobile backhaul, I think in all the countries, to reach rural areas. I think this new offering that is the LEO satellites will do more economical and feasible to reach another location, rural location. And we are working with these companies to complement our interest in rural areas. So I think it's a good technology to reach rural areas, most cost-effective way. And we are working with those companies to bring it together to the market.
Our next question comes from Phani Kanumuri from HSBC.
My first question is regarding Colombia fixed competition. There seems to be a much better trend this quarter in the fixed broadband revenues compared to last quarter. So just wanted to understand the competitive dynamics there, whether you're seeing the competition easing in Colombia? My second question is regarding your pension inflows and outflows. This quarter you had almost MXN 5.9 billion that was freed up from your pension assets. How do you see the trend going forward? Do you see further freeing up of assets from the pension funds and considering that in the last few years, you have invested or put money into the pension funds, how do you see the trend going forward?
Well, I think in Colombia as we're doing in all the countries, we are putting more fiber, FTTH.
Similar to Brazil.
Similar to Brazil, similar to Mexico, similar to almost all the countries and it's bringing us to grow more in the broadband. So it's doing very good. Also, one of the segments that we're doing very good is in the corporate side. So fiber that brings to the houses also brings to the small and medium businesses and it's -- we're growing very good the revenues in the corporate side. So that's more or less what is happening in Colombia and that's the reason why we're thinking and trying to do a little bit more CapEx and a little bit more fiber to see some opportunities that bring us more revenue in the future to bring forward a little bit of our CapEx and to cover more some places. So that's what we're doing. It's -- as Carlos said, the broadband is one of the best quarters that we're doing. It's something that we do last year that bring us more customers this year and that's what we want to advance a little bit on that. And I don't know, Oscar, if you want to do -- comment something more on Colombia?
No, the same thing, we already upgraded the network, the cable network to deliver higher speeds. We've been building fiber-to-the-home since 4 years ago. And we have a very aggressive plan to do fiber-to-the-home this year. So I think we are very well-positioned in the market. But there is a lot of competition, that's true, in Colombia.
And secondly on the pension funds, I think it's important to understand that we have to manage the funds and we have to determine how much of the pension in each year should be funded directly out of Telmex's fund or should be funded from the pension fund itself. And this is something that we are faced based on whether we consider that at given moment it's better to keep monitoring the pension funds or it's better to take profits, so to speak, from the pension fund or to take out some cash. It also has to do with the tax deductions from the pension payments made directly by Telmex to the extent that they can utilize them, there's some value there. So those are -- there's many, many things in this exercise that we need to take into account. Okay? So that's why we don't have a strict rules saying every single year it has to be the same proportion of funding coming from Telmex and from the pension fund. It changes and it does reflect our views and our opportunities in terms of tax reductions.
So just a quick follow-up on the corporate network -- on the corporate revenues that you have. What percentage of your corporate revenues comes from connectivity versus IT solutions? And considering that this quarter looked very strong in terms of the corporate revenue growth, do you think that this will continue or is there some seasonal component to this revenues?
It's difficult to -- because we do connectivity to the enterprises. So we do connectivity and brings everything, IT, cloud, wireless phones, some applications. So there's a lot of things that we sell. So it's difficult to share the revenue on that, but corporate has been growing for the last 3 years and I think it's going to still grow for the next year. So Oscar, I don't know...
No, no, I agree what you said and mainly what we've been -- since we've been always in connectivity. So we've been adding value to that connectivity. We see that is growing this as you mentioned cloud services, software-as-a-services, infrastructure-as-a-services and we've been doing well in some -- in verticals. So we are offering to the customer with Alliance different vertical solutions, in mining, in agriculture, that's the one that is -- which is not the revenues.
Yes. And just to give you an approximation, the political consider data which incorporates corporate networks connectivity. And I think both on the mass market that is approaching 25% of our service revenues on a consolidated level and of that amount nearly 1/3 of that could all be corporate networks. Okay. So that will...
Corporate price MPLS and SD-WAN network.
Yes.
Yes.
Our next question comes from Soomit Datta from New Street Research.
2 or 3 questions please. One just on CapEx. Interesting to hear you're may be spending a little bit more in the near term. I guess just conceptually, we've seen some nice strength in the Mexican peso versus the dollar in the last few weeks and months. So in theory should we be seeing -- getting more efficiency from your CapEx or do you think maybe the overall $24 billion CapEx envelope could come down given the moves in the currencies? That's the first question, please. I'll come back to the next one.
Well, I think, yes, we are seeing in some markets, the trends have been appreciating, not in all. But probably the trend will be for that to happen, more generally throughout the year as interest rates remain high, certain the Latin American countries, also Europe. So -- but I think that the type of things that we are looking at doing, which has been said, it's a lot of deployment of fiber optic, that includes a lot of local currency expenses because it's not only equipment, but it's basically building and putting the fiber in the ground. So I cannot say that from that perspective we are looking to have these kind of efficiencies. If you look at the aggregate CapEx, probably the split is more or less half FX-related and half local costs, more or less.
But the way to see that we're going to invest a little bit more is that we see opportunities in the market, so in some markets. And that's the reason. Opportunity means more revenue and more customers and better ARPUs, more penetration. So those are the things that we are also looking to -- and the reason why we want to bring forward part of the CapEx this year.
Okay. Makes a lot of sense. And just next kind of -- or final question just on Mexico wireless speeds on Telcel, obviously the business continues to perform well, but I think you haven't actually lifted prices, it seems perhaps 2021. So I was just curious, what are your thoughts on the potential to move up prices in that market?
Yes, at this moment, we're not thinking to increase prices in Mexico. I think we're doing well. People is consuming and people is jumping to better plans. They are -- ARPU is growing and we're not thinking to increase prices in Mexico at this moment, so.
Our next question comes from Carlos Legarreta from Itau.
Just 2 quick ones, please. The first one going back to buybacks, please. It caught my attention that the share buyback fund that you approved this year is lower in both absolute and relative terms as compared to the past couple of years. Just wondering what's behind that. And secondly, if you could provide an update on the timing of the towers being up in Europe, that'll be fantastic.
I think I have explained -- this is Carlos, in a previous question. What I said is on the one hand, the first quarter is one when we have a seasonal more -- less cash flow because basically we pay handsets in the first quarter, we sold in the last quarter of the prior years. Typically all of the handsets sold in the last quarter of a given year are actually paid in the first quarter of the next year. So that's a big draw on working capital. And there is a lot of the CapEx, which obviously has -- was not depending in '22 and '21. So the latter part of the year, the CapEx that was approved -- was received, let's say, was accepted towards the second half of the year, it's actually paid in the first quarter. So this is something that has a seasonal impact. The other thing is what Daniel was mentioning regarding CapEx. To the extent that we are looking at increasing our CapEx for the year between 4% to 5% relative to our initial project and continuously in line with the $8 billion per year plan that we mentioned in our Investor Day for 3 years, they'll basically moving -- bringing forward part of our next year's CapEx to this year so that we can go -- move faster with various issues having to do with connectivity and that has to do a lot with putting fiber in the ground.
And on the towers spinoff in Austria and the timing?
I think we're shooting for the third quarter. I think it's going to be towards the end of August. That's what we are aiming for. I think that we have already received, practically with one exception, all of the necessary approvals. And we are already working on the financing, which by the way, I can say that will be [indiscernible] investment grade ratings. So we are going to be bringing this to market in the next few weeks.
Our next question comes from [ Luca Brendon ] from Bank of America.
Also 2 questions here from my side related to Mexican broadband. Looking at the fourth quarter, you had disconnections in broadband and now you had very strong connections. So I just wanted to know if there was some sort of adjustment on a quarter-over-quarter basis? Or if those were just regular connections and if this is a trend that should continue going forward? And then my second question is also related to Mexican broadband, but on pricing. How are you seeing the dynamics for the year? If there is space to high prices, especially now considering that most of the base is being -- is now going to fiber and you're always expanding your fiber penetration within the base?
Yes. Well, the first one is that we've been putting a lot of resources in customer retention. So we've been reducing the churn. And secondly, we launched a new offering in the marketplace. It's a great, great product. It's up to 200 megabit symmetrical with fiber, at very, very good price. So that help us on the first quarter. And I think that we will continue in the next quarters because we will be focusing on customer retention, improve the installation process and improve the repair processes across all the company. So -- and we have a new offering as well. We are bundled one of the largest streaming platforms in our broadband at a very good price and this platform is a base in advertising revenues. So the price of the streaming is very good and I think we will get a good penetration of those products in the market.
This concludes our Q&A. I'll now hand back to Mr. Daniel Hajj for any closing remarks.
Yes. Well, just want to thank you, everybody, for being in the call. And Daniela, Carlos and Oscar, thank you very much.
Thank you.
Thank you.
Bye-bye.
This concludes today's conference call. You may now disconnect.