Q2 2020 Millicom International Cellular SA Earnings Call
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Ladies and gentlemen, thank your free standing by and welcome to the Millicom Q2, 20 results conference call.
At this time all participants are in listen only mode. After just bigger presentation, there will be a question and answer recession.
Off trend during his section you will need to press star one on your telephone.
So why did the discount critics being recorded today Thursday July 23, D and old known it down to go in France overdue holes today Michel Morin. Thank you. Please go ahead.
Hi, Good morning, everyone and welcome to our second quarter results conference call as usual, we're going to be referring thing some slides, which are available on our website. So if you would please turn to slide two for our safe Harbor disclosure as usual, we will make some forward looking statements and these involve risks and uncertainties.
And these risks could have a material impact on our results.
On slide three we define the non IRS metrics that we will be referring to throughout the presentation and you can find reconciliation tables in the back of our earnings release as well it's on our website. So with those legal disclaimers out of the way, let me turn the call over to our CEO Maui so balance.
Thank you Michelle good morning, good afternoon to everyone and thanks for joining us today.
As you all know where our living through very difficult and uncharted times and I hope that you on your last one barrels thing healthy and say.
This is the most important message that I had been sharing with all of our people employees or 24000 all of them as you can see at the top of slide five.
I mean did keeping our employees on or customers save has been our top priority since day one over the last five years as you know we have been building me purpose, driven and client centric organization.
One that either trucking I'd burgers in a talented workforce, our core or multiple geography and that is why I'm still very proud today to say that for our third consecutive year. We have been recognized as one of the great places to work in Latin America is he is our highest ranking ever and were now the number one telco or not less.
With that.
But obviously this quarter has been the most challenging or 30 year history no doubt.
The storm hit hard, but as you know we reacted quickly and most importantly, very effectively because we now know that our response using the word human we'll show you why we think it is.
As you know, we set out to sustain our market share leadership as part of our goals based is pandemic. When we have achieved die and a little more than that in some key markets. As we are picking up market share in some of those.
We also problems or sell them to you to remain very focused on the long term.
Keep our course steady through the storm, even the course on sales are up.
We are on track holding back topics on opex easier in order to protect cash flow doing them.
In two ways for them and growth.
Back into our markets.
And Tim will show you a lot more detail and how we're tracking there.
And we have continued to build for the future as we've said we would.
Indeed, we have continued to actively investing our state of the our networks are you will see a minute.
We're also executing with focus and discipline on the detailed integration plans that we prepared last year, our integrations in Panama, Nicaragua are on track and we now expect to exceed or initial synergy expectations. Despite the effects of dependent.
We also set out a hard gold to protect our cash going to use our net debt to independent and we're doing just that our equity free cash flow was up strongly in the quarter on that date came down on our priority remains to accelerate net debt reductions in the second half and you will hear us come from today that we're on track to hit our goal of 1.4 billion.
Who is dollars Clayton Katrina was this year.
And my last Miss such on this slide is that we have seen encouraging signs of improvement in June.
If you will we have gone through the I have this stone don't get me wrong wins are still very strong and we still have our strong sales up but we are now if you like ceiling on the order and the heuer King we are not into sheep activity you have the same destination as we had before.
But just with less shelf for now and we're still making steady progress.
And we remain optimistic as ever about the long term, even though we expect that this would be a very gradual recovery.
We have taken on the right mixtures and they are indeed working.
But we're still dealing with a very severe health crisis and the entire we didn't and pretty much all of the world is now in recession and that's why we will continue to take prudent approach in managing the business.
With all hands on because we have if you will be.
And because of this and before we go to specifics of the quarter I want to give you an update on I'll call. It isn't impacting our markets on slide six.
Many of our countries.
Still trying to contain the virus and new cases are still growing.
We don't think any peak seem to have been clear as useful passed or reached this just yet we hope it's not clear that it has happened yet.
And the situation and handling of the crisis is different in each one of our markets on will speak about the impacted has differentiated between all of our operations.
Pardon My particular stands out as these things a very difficult to moment.
Despite this more severe lockdowns are being partially gradually east, albeit on a slow and cautious rate and some of that may be prolonged.
So, whereas we do see increase mobility and we do see encouraging more about consumption. We also do expect the population was we would mean cautiously off the street.
Anything other than necessities until the health crisis subsides and this will remain a dragon economic activity on our business.
On the chart on the right you can see the magnitude of we pulled what weve a hot to deal with in our markets. During Q2 as people were either forced to stay at home or chose to take home to protect their families.
As you would see in a few minutes. This big dropping ability was the key factors that impacted our performance in Q2, particularly in Bolivia, Panama and Buddha.
He was highlighted by our delayed ability to build and click in Bolivia in particular, but also you know Salvador.
Now the Lockdowns are being installed gradually and those are encouraging signs.
We have now also being able to put in place billing and collection that conditions in all markets and that has had a positive impact on as of June.
So we need to remain vigilant cautiously optimistic.
All hands on back to continue to weather the storm as successfully as we've been able to do the Q2 without let me turn its team took over the financial highlights for the quarter and I'll come back later for more loss.
Thank you much him.
And as much has said Q2 was challenging quarter.
But certainly towards the end of quarter, we could see improvement to some of our capex, particularly prepaid which has started to show some signs of recovery.
Subscription business stabilized, but b to B will take longer and we expect it may get worse before it gets better, especially for small business customers.
So let's review the quarter starting on slide eight.
Q2 organic service revenue for the last time business was down 6.8% until the rectal that reported revenue was down 6.4% similar to organic revenue impact as that has adversely.
Thanks.
Hi conclusion, if M&A.
EBITDA was down 8.1% health and wellness basically on lower revenue and also due to a bad debt charge was roughly tableau quarterly charge.
We were able to offset some of this that cost reductions I'll leave it came onto an increased by 50 basis points to reach 40% unintentionally operating.
Cash flow was $354 million was sustained inline with last year, when we generated a very healthy margin of 26%.
On slide nine and it shows how cold it impacted the business along the lines in which had to set tops.
And the lesson sides of the slide you can see that in the countries with the greatest restrictions on mobility and outside Bolivia on Georgeson panel. We also saw the biggest revenue impact.
No the rights on slide you can see it has the greatest impact was in the mobile business on more particularly in prepaid.
Now on the on the pesticide, Guatemala, Paraguayan Nicaragua proved motion.
On the home business has continued to post positive revenue growth.
Slide 10, he can say this impact will clearly again left on site.
Three countries with the strictest lump them accounted for nearly two thirds of all revenue decline.
The revenue impact and full divesting the business was much less of it.
On the right on site you can also he see here that name is almost difficult month, but we did start to see improvements into some of these slowdowns east any of the prepaid business Stoneridge me Bob.
How do you see the impact on the next slide slide 11.
[noise] head on the left hand side than the chart that shows on mobile subscriber base and we sold 1.7 million deduction in the mobile base.
Most of this was in prepaid spend into breakup bumps you can see that our prepaid top ups has started to improve from from the April low we've still got away to go to add to fully with couple of thought wishing positive sentiment.
Now on the right alongside all home customer relationships based fell by 95000, that's helpful domain HSBC.
Just a breakout bulk Sasha is most of this occurred in all of it inside the cutting may and since then we've managed to get all the countries on to lifeline products, which preserves our customer relationship and on a plane customers.
Note that these customers are not included in our customer base anymore.
Now we expect a recovering in subscription us both post paid on home, we expect it to be slow.
For us are now largely open but the overall level of commercial activity is still low compared to January and February.
Okay. So let's look at how this affected and each country in Q2 on slide 12.
Once again, it's quite clear from here that Bolivia onto our son, Panama recorded double digit revenue impacts, perhaps more encouragingly, our two largest markets walked them all on Colombia, which represent round about 50%. If you ask him service revenue were much less impacted we displayed stronger organic revenue trends.
And on a reported basis, so I could do keep in mind at Columbia risk carrying impact self the weak currency on average during Q2 and this kind of initial impact on all which had reported results for this quarter.
Now looking at EBITDA on Slide 13, and this shows the organic because that is the like for like if you take performance by operation.
As much has said the swift actions on costs.
So the revenue impact it fluctuates, we they PA.
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As you can say onto ours, Panama Balicki, our again old I significantly affected.
I think the lithium in particular and also in El Salvador, why we were unable to put lifeline products and until we ended the quarter. We also incurred a fairly significant about challenge in both countries.
Annotations on disconnection play through to the collections.
We still smaller declines in Guatemala in Paraguay, again, reflecting commercial activity, which has remained largely stable had in Colombia, we had a 6.9% increase.
Did reflect a one off charge in the prior yet, but even excluding the benefit of that he still posted growth, reflecting good cost control.
[noise] actually seen so far the health and economic crisis had a big impact not performance. This quarter I'm on slide 14, you can see the financial targets that we presented on Q1 coal which are aimed at helping us navigate this crisis and as a reminder, that we're aiming to reduce our costs by at least 100 million could use capex light.
Two to 300 million on both actions combined the range of sustaining that maintaining.
Flock in absolute dollar terms for the year, but about 1.4 billion.
Well, we're also using looking to use cash flow generation and asset disposals to reduce our net debt.
So let's take a look at the progress against these goals on slide 16.
On the left hand side, you see that we've already reduced cost by about $66 million in the quarter after adjusting for acquisitions and FX and about 41 million of one offs from last year.
Some of this decline reflects natural reductions related to low levels of commercial activity, but you can also see a significant reduction in gionee and employee cost during the quarter in part driven by digital.
On the rice inside you can see the Capex run rate, which was about 15% for $34 million below the same quarter last year.
And this reduction was achieved even though we thought it to mobile operations.
As much here will show, we all continue continuing to invest strategically.
Network infrastructure.
Now turning to the cash flow on slide 16, how do you recall from Q1 pad that we could the decision to REO and take the business to preserve liquidity and cash flow in response to this crisis.
So despite that significant impact can you showed on the top line, we have sustained the operating cash flow run rates for the last on business right in line with all revised goal for 2020 of keeping it flat at 1.4 billion and that was by moving quickly to manage the cost base once we've gone to reduce non essential investments.
And finally looking at change isn't all that bench and the headline here is that we reduced underlying that debt by $82 million since the start of the it and in fact, we've reduced it by $166 million in Q2.
Well as spending much more than usual on spectrum.
He can say on the slide the starting point is we generated $170 million of underlying equity free cash flow in the first half.
All of this came in Q2 in five can where we did in fact, we did have a 200 million in Q2.
So this compares to $75 million in Q2 last year, you can get a sense from that wants to how resilience on cash flow can be even during a global pandemic session.
And finally during the course that we disposed the boss, taking Julia family sold to potions off stake in hideous tell us.
Which together generated proceeds of about $90 million I'm tools, our underlying net debt down below the low $5.8 billion.
So a proportional leverage ended the quarter at 3.24 times, including leases for 3.07 times exclusive excluding leases, which is practically unchanged from where we wanted to start to be it.
So with that let me turn back too much here to talk about how we're preparing for the future.
Thank you Tim.
It's important for us to emphasize that Q2 was a tough quarter and we'd expect a challenging second half.
But we've made it through the eye of the storm, we think and now we need to continue to pull crews on the future.
To continue with this of the on the analogy you know our ship is not making water. We have remained on course and as a result or that we remain very this year and very focused on building our networks on capabilities for our long term journey.
Remains very promising and one that we still have those are guiding north.
Let's start with Dod and very very important basis on slide 19.
At a time when most of your listening to this call you're doing so from home on your likely planning to work mostly hold for the next six or 12 months.
But the reality in our markets is the only about a third of the homes or access to a fixed internet connection at home.
And many of these connections arts needs of less than 10 Megabits per second.
This will need to grow on crude to support to reward work almost cool and video streaming and overall car activity.
It's endemic has made it very clear that having a reliable broadband connection or not home and not the office has become a basic necessities everywhere and for everyone.
Meeting that Gordon needed is a question for us.
And our networks available.
For the markets to reach the affordability to buy those services.
Now for the past few years.
Building around a million homes per year, and we have seems very strong customer takeup.
During 2019, we added more than 400000 broadband subscribers to our network and you can see on this slide that we are up about 10% year on year.
Even after the impact of quoted in Q2.
And as the leading going provider of broadband in most of our markets, we are ready to capture dart growth.
When we get passed as Chris I know when definitive portability comes Proctor markets and they began growth.
Krombach strong.
That is the long term opportunity that we remain focused on we will cover over 60 million homes passed or instead of the our new routes within our horizon, we really grow our broadband subscriber base and another one to 2 million additional subscriber homes in our horizon.
What we're focused on.
Slide 20, you can see on the left.
Are you did priority has been a seamless ability.
One protect our employees by keeping and save the date and motivated to our customer base with say protocols and sustained connectivity and by holding or growing market share.
Financials by sustaining our strong cost rule on reducing the debt.
Now with the ship is from shape now we have continued very activity so to build the leading telecom spectrum in the region for the future. So that's what because this starting on slide 21, because it's very important.
There's a lot vehicle on this page that is precisely the point that are clear brine started doing every one of many come knows what it is you know what it is this clean and found a now more than ever vary it for the future.
Condition of that strategies, our network infrastructure, we now have over 7% population coverage on board.
Solid very solid spectrum position, we've increased over the last six months and we continue to build fiber cable to lay the foundations for big smaller converged in future and we continue to invest in the IP infrastructure to make sure we extend our leadership as visa adoption accelerates you've seen admit that our investment already paying off.
Underpinning this is a very strong culture uniquely entrepreneurialism and highly committed we do watch our pace.
Chris Me divers I'm inclusive.
Hi view, our culture as one of our competitive advantages you know that we call it under the table.
We are recognized where the best Oak, who worked toward in the region and you'll see that we are able to react we did Q2 precisely because of that permit approval.
Now we have been turning our market leadership into consumer centric market leadership as we have moved from a transaction to this business to a subscription driven business that uses net promoter score to support our decision, making and reward our leaders.
Lastly, this is our Latin Americans Dr. books, we have effectively taking pepper alcobra, we continue to do that even this quarter and we are redeploying. This capital Latin America rounds are fixed mobile convergence capabilities and to improve industry structure.
We're doing all of this world class governance framework, and a growing to our Rick or bidding wars posted teams in the countries, we belong to where will upgrade where these kind of leadership so badly needed, particularly now.
So, let's turn to slide 22 for some specific examples of infrastructure investments, we continue to make during the condemn.
In Colombia finally, after over 15 years of being quite frankly handicap, we now have low frequency spectrum, and we have a very well balanced spectrum position allows us to optimize admitted to include the customer experiences while also lowering our costs.
We no longer how her hands tied behind our box and we are moving rapidly to maximize this new capability about a FIP of the new network has been built in just a past few months I need already carries over 10% or truck and 25% of our customers has already been on this new unit remember it gives enhanced indoor coverage as much as it doesn't give.
Was enhanced.
Coverage geographically.
Hi.
We have quietly and very quickly increased our capacity after acquiring a double your spectrum of the end of last year. Our 800, new out sides are up we're almost finished with a new build liquitime. This is a game changer for us and we're seeing this pay off in the marketplace congestion is down traffic is up and customers are happier.
Nicaraguan Panama, we acquired two mobile networks that we're in good shape to manage the constructed we bought this assets would intend to maintain and even expand our market leadership in these countries.
So were been modernizing the networks I didn't book capacity and coverage.
Also improving energy efficiency lowering our future operating costs.
It's been about one year since we made this store positions. So let me share some of our accomplishments starting with Nicaragua on slide 23.
We bought the number one mobile catering or to pay market.
And since then we have solidified our market share leadership in mobile.
Just completed our rebranding right on the one year anniversary of the acquisition and we landed our regional plan. This will help drive cross selling synergies as we continue to strongly grow our home business, there, which now has the larger Brian to operate under.
And you can see that we continue to expand our home business very rapidly. Meanwhile, our integration is on track on I want to come directly teams in goal now we still have a lot of work to do integrate system or we now expect to exceed our initial synergy expectations on the punch line here is simple talking about capital reallocation, our new mobile Bill.
And as you look at our last contributed more than $45 million equity cost grew over the last 12 months.
We have achieved this even though GDP fell 4% last year in the last several loans have been impacted by different them and we believe we're still scratching the surface on synergies there you're all good at mass on led to workout the returns on that.
Now, let's look at Panama on Slide 24, as you know, we're now that market leader in telecom environment.
In our first nine months of ownership of the mobile business, we have solidified our leadership of the mobile market, there and we're probably picked up depending a little bit of market share there and we have done this while integrating the businesses ended up taking our eye off the ball on the table side as you can see on the right on this slide you have successfully defended our cable market share very soon.
Yes for the so we have continued to grow our customer base, especially in broadband where we added 7000 customers in Q2 17000 in the first half of the year clearly we are not counted on a global pandemic under severe recession and put them as in particularly impacted as you know.
Even in this challenging times and considering also the investments made to upgrade our networks in Panama.
The comment about mobile business contributed more than 40 million to our equity free cash flow since the acquisition.
As you can see we're just getting started on the synergies and where we know there's a lot more potential in Panama as we continue.
Ramp up for cross selling opportunities in our market.
Now please turn to slide 25 to summarize our expectation for synergies have changed since we announced this acquisition.
2019.
As you consume their ride were not more optimistic about the potential to extract cost and capex images basically we've been finding synergies in places, where we did not expect to find them, particularly procurement.
Meanwhile, expectations for revenue synergies are practically unchanged, but if you can see it also the impact with the condemn weekend. The recession you can see that we're progressing nicely on the revenue from too as I said before it's about cross selling into mobile in Panama and cross selling into table in Nicaragua.
When you bring this forward at present value. This equates to a 10% increase relative to our initial forecast not bought in the middle of this crisis.
The last topic I want to discuss talking about how we're building for the future.
Either digital first strategy.
When you take a transaction focus business used to be starter bold new converted into a subscription based business you need to invest in new tools to manage and support the growth of the subscription base business. While those same time driving efficiencies. So you can protect the movie of the transactional business.
These slides tells you where we are in our long term digital strategy and it provides you with our strategic framework and you can see that we have already built the cool customer would need to interact with us exclusively via digital channels through other journey has to go do did or customer.
The next slides shows you how we are doing in this lead phase of our long term digital journey, we're making progress in driving adoption of this digital tools.
On the left you can see that we nonalcoholic about 35% of our subscription revenue from digital tunnel, that's a 30% increase from Q1.
7% until a couple ups and we're using lessons learned during the permit to make sure that we continue to build on these programs long of the condemning hotspot and all of this is important because customers who interact without using digital to others are more loyal on churn less.
Generally how higher Apple.
Most importantly, the coast served them and acquire them is significantly lower.
And all of this is also to about our to go money business, which is one of the largest payment got firms in the region. We have been quietly building our capabilities in this area.
And we're beginning to see to go on potential time out last quarter, our customers generated more than 40 million payment transactions in our people moneycard from almost double what we saw in Q1, we had great momentum here and we know that we're building a growing invaluable in business and how to people and.
And of course, we're actively exploring ways to coupled this growth in order to unlock shareholder value into the future.
Now, let me wrap up with a recap of the key messages for year today first I don't want to minimize the severity of what we're going to not at all.
We had robust business continuity plans and this gives the ability to focus on the business by establishing a handful of career principles that guide our decision, making and as we alluded to today it is working.
Second the steam and I pointed out the month of June was better than they had April we're hopeful that Q3 in Q4, maybe better though Q2.
We think you will be a challenging second half the difference is ready prepared for that minimum products lifetime products on the plan that you're very familiar with.
And finally take a step back for a minute and think about the fact that we are zip premier provider of broadband in our markets on our services have become more important than ever.
Customers know that we know that we've been building the networks to satisfy the demand ones are portability comes back I.
I don't know when there will be a time.
When everyone has water and electricity with wholesale how broadband internet in our markets and people will be there as it premium provider to provide that service with that we're ready for your questions.
Sure.
Sure.
Bernard if you can open up for questions. Please.
Cherry, Sir you, ladies and gentlemen, who will now begin to question and answer recession for you to ask question. Please press star one on your telephone.
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Okay.
Your first question on the line no Johanna all convinced from FCB. Please ask your question.
Okay.
Okay.
Okay.
Okay.
Okay, and then offense.
John Your line is open.
China. Please ask your question your line is no offense.
Yes.
Let me.
Thanks.
[noise], Yeah, I think it's you okay, that's about a tiny yeah. Okay.
Okay fantastic Okay.
Okay. That's your question for me the first one.
Relates to it it seems like stood at the main uncertainty.
Going for the this study to be business. So I'm, just wondering sort of how you plan going forward.
Do you expect sort of the b to B to gets worse. However, at the middle vine sort of consumer business to to improve low continued cmco I've had some statement that you stated that July lets seems like that's the restart that didn't than June.
And is that sort of the trend that you're seeing and ahead for this year and then the second question relates to the bad debt.
You taken some in this quarter and I'm just wondering how you look upon.
That's ahead. This this sort of the level of a lumpy. So in this call Chris that's what we should expect also thought for a second house and then the question at full year team.
Texas and financial masked what we should expect point for the certainly gave an indication would be great. Thank you.
[music].
Thank you Johanna presenting a fan for your questions why don't we go backwards.
With that about that impacts on then I'll talk a little bit about b to b.
Yeah sure Okay.
Then protection is at Texas, one little bit up and this quarter I think you just look at them over the past they will lessen line not paying out basis.
We didn't do a restructuring in powerglide, which will give rise to a slightly higher withholding taxes this year compared to.
Last year [noise].
But it will give us lower withholding tax thankful, which.
So you know kind of we have made any real changes to our tax timing kind of estimates for the full year.
It with the withholding tax in Paraguay will add another $10 million to $20 million to that so we'll be talking.
Kind of.
Hi, two hundreds to kind of them at least three hundreds.
Pretty much the line.
On the fact that tell you cannot be.
You know kind of a we it was very concentrated actually it was like concentrates can Bolivian El Salvador, what we didnt have lifeline products.
We didnt have the ability to disconnects people, we had very large levels of non payment and now we have seen that rectifying don't collection levels now are pretty much in line with why they were pretty convinced I was not it's comforting [noise].
I think the way that I've touched nine works, albeit a little bit of a lag effect. So on an underlying basis. I think 10-Q, two is the worst event for the bad debt charge that we we've had to Intel.
Cynthiana cavium will be to be sure. So great question Johannes because I'm did this is one of the areas that how do you.
The last visibility from from what I've seen.
And you're right in the sense that this is b to B is one of the reasons why we want to remain.
Cautiously optimistic about the future and I'll give you some color as to why we say that.
It is one of the reasons I thought we want to be cautious because we want to see what the impact of the recession.
And the Lockdowns in particular has being on the different segments of the B to B. So let's kick in by segments to give you a little bit of color.
Let's start with small office, he and the small medium enterprises those have suffered the most as we expected from day one of the thinks the last call I said one of my biggest concerns in did is what's going to happen to this small businesses under sohos. If the Lockdowns continue for a long period of time directly correlated total markdowns.
Okay.