Q2 2022 Millicom International Cellular SA Earnings Call
Yeah.
[music].
Hello, everyone. Thanks for taking the time to connect to our second quarter 2022 results Conference call. This event is being recorded.
Yesterday will be our CEO , Mauricio Ramos and our CFO Sheldon Bruha following their prepared remarks, we will have a Q&A session.
By now you should have received a copy of our earnings release, which is available on our website along with the slides that we will be referencing during today's presentation.
If you turn to slide two you can see our safe Harbor disclosure.
We will be making forward looking statements, which involve risks and uncertainties and could have a material impact on our results and will also be referring to many non iff's metrics throughout this presentation. We define these metrics on slide four and you can find reconciliation tables in the back of our earnings release and on our website.
With those disclaimers out of the way, let me turn the call over to our CEO Mauricio Ramos.
Thank you Sarah good morning, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter.
Let's get started right away on slide five.
Earlier this year, we hosted our Investor day.
<unk> been we shared with you our operational and financial plans to create shareholder value over the next several years. This plans are centered around our clear sense of purpose and reflect our commitment to focused ESG initiatives are.
The key message today is simply that we are on track to deliver on our commitments financial and otherwise that we made to you on our Investor day.
Since then of course, the Ukraine has been invaded interest rates have begun to climb inflation has spiked and there are increased risks of a U S recession in the near term.
Needless to say, we don't expect our business to be immune from a global economic slowdown, but and this is a big bump.
So far the impact of these macro disturbances or in our business has been somewhat limited.
One we have is very solid Q2.
Even ahead of our plans.
Two although they're going to use getting tougher for sure and although we may lose some of the offset of new wins that we had hoped to Ohio. As we look ahead. However, we remain very confident that we will deliver organic operating cash flow growth of around 10% on average over the next three years as we said we would earlier this year.
And we also remain very confident the business will generate cumulative 14 equity free cash flow of between $800 million to $1 billion over those same three years like we said at our Investor day earlier this year.
We've also continued to make meaningful progress on our plans to create separate companies for our <unk>, our fintech assets and to carve this out from our core connectivity business in order to help them realize their full potential and for us to harvest the equity value that we have embedded in those businesses today.
In both cases with the towers carve out under <unk>, we expect to begin unlocking and crystallizing. Some of these value with transactions in 2023 again on track with a 12 to 24 month timeframe that we set out earlier this year.
During the second quarter, we also strengthened our balance sheet by completing the rights offering we have designed to help fund the <unk> transaction.
And we also further advanced our ESG agenda with our climate targets now officially validated by the science based vintage now.
Now please turn to slide six to look at some detail.
Service revenue grew a healthy four 5% in the quarter. This is consistent with our medium term plans is in line with our growth in Q1, and once again have been better than we had budgeted internally and for a fourth consecutive quarter now every country and every business unit grew service revenue organically.
The fastest growth came from Colombia, which was up eight 5% and we will talk about Colombia in a bit more detail later.
From a business unit point of view.
We will continue to grow steadily driven by our push into postpaid <unk> to be at a very solid quarter accelerating to five 7% as anticipated and with every country contributing to our strong performance in home grew three 5% slightly below our plans and there are various reasons for this.
First is the shift to broadband on the subscription which brings down our we mentioned is in Q1 and it continued in Q2.
Whereas our rural <unk> compressed the margins on a broadband only product are actually higher thus protecting our profitability.
And our strategy to sell OTT products, and what we called our content supermarket continues to advance quite well.
At this tour exclusive National Soccer rights for many of our tubular sports channels and across our markets and the World Cup, which is coming around the corner, which we have rights and we should see more video items in the second half of the year.
The second reason is simply some more intense price competition, especially in Colombia.
The third reason is that we have ourselves much quite proactively decided to slow down our sales to lower income customer segments, particularly in Colombia, we know from experience that these customers are more likely to churn as the economy slows down. So I wanted to get ahead of that of our list in the Barton, who we sell to and by maintaining our installation fees. We also wanted to focus our fire.
Sure to start selling in the footprint in Bogota, and we will access to going forward and I will talk about that in more detail in a minute.
With this new footprint to sell on our bid activity now ramping up again, we do expect to see renewed momentum in our home business in the second half of this year.
Now please turn to slide seven for a look at our EBITDA, which was up four 6% organically in the quarter Sheldon will give you a little bit more color on these later on but the key message here is that even with all the FX volatility and rising inflation and macro concerns that we're seeing globally and to some extent also in their markets, we actually drove EBITDA.
In dollars, both year on year and sequentially.
Once again as you saw during the pandemic, our ability to preserve and to actually grow cash flow is extremely resilient. It is also important to note that we have been investing in our Columbia mobile and <unk> businesses over the past year. We are now starting to see the service revenue growth pick up massively in Colombia and that growth is dropping to the EBITDA line as well as yours.
So now onto how we're tracking to our operating cash flow goals on slide eight you'll see that the phasing of our Capex spend has been more front ended this year than it was last year. This has been by design. We told you at the Investor day that we see annual Capex normalizing at around $1 billion. So you can see here that we expect to invest a lot less.
In the second half of this year compared to last year as I've said. This is by design and this is meant to drive very strong operating cash flow growth in the second half of the year as you know, we're aiming to grow operating cash flow by about 10% organically on average over the next three years and we're on track for that.
Now, let's turn to slide nine to look at Colombia, where we have now sold for two strategic challenges that are historically handicapped us in that market.
First on the mobile side as you know we were severely handicapped by a lack of low frequency spectrum.
If sold for that fully and now we're growing very rapidly just as we predicted we would rollout.
Mobile service revenue growth is now almost 20% this quarter.
<unk> the main driver of that growth and the shift in mix from prepaid to postpaid drove ARPA growth of about 7% in local currency in this quarter.
And this is good for EBITDA margins, which increased for a third consecutive quarter in Colombia.
The second challenge, we have historically faced in Colombia is access to the fixed broadband market in the city of Bogota, the largest city in the country.
Or it was virtually impossible for us to build a citywide network, particularly in the most attractive neighborhoods for botox.
That's why we are so pleased to have announced a few days ago that we have signed deals with both iterate on booking at that will allow us to use the open fiber networks to provide <unk> branded home services in Bogota on a combined basis. These yields more than double our footprint in the city and give us access to sell an additional one 5 million homes in bulk.
With that without us having to deploy any capex upfront.
We actually look forward to serving more home customers in Bogota in the near future and we would also expect that these will help sustain the very sleek performance, we now see in Colombia.
Now, let's talk about <unk> business on slide 10.
We refocused our <unk> strategy just before the pandemic. So he decided now to see the results begin to come in.
<unk> services revenue accelerated to more than 5% in the quarter every country is contributing to our success. This is because the strategies from the region.
This strategy as you know focuses on one adding SME customers, which is a key growth segment for us now on going forward.
Two deploying advanced digital and cloud services to our corporate clients as you can see on this slide the new strategic design is working extremely well and making us continue to be very bullish for the outlook for <unk> going forward.
Now, let me give you a peek update on our progress to carve out a tower on our T gold mining businesses, beginning with the powers on slide 11.
By now most of you know that our portfolio of more than 10000 hours is already the fifth largest in the region.
And then we're planning to build more than 1000 towers per year going forward. So there is significant growth potential for these assets just from the towers coming from US entity would also start out from a very low tenancy ratio. So there is further opportunity for value creation in that regard as well.
Several months, we have completed most of the corporate structure planning and preparation and over the next several weeks, we will be dropping decreased funding MLS.
Expect to start transferring powers later this year and into the early part of 2023 and.
And we are on track to execute a transaction next year as we indicated during our Investor day.
As you know we aim to bring in a partner to provide growth capital for the tower business.
Wanted to allow this business to reach its maximum potential because we want to own a part of this team.
In properly to create value for medical.
For now we're keeping our options open in terms of whether we will sell a majority or minority stake.
I don't know, whether we will grow with us financial or strategic Investor, We will cross that bridge when we get there.
As for Tivo money on Slide 12, we're also progressing very nicely. We have largely completed the initial software development that we needed to rollout timber money to do this will allow us to consolidate the three platforms in five countries into a single scalable platform across all of our countries. We're also rolling out our merchant platform as planned on.
<unk> is on track.
Two weeks ago, we started to pilot our lending activity.
As you know to your currently serves approximately 50 million mobile and residential customers. So we have a wealth of knowledge about their spending habits, which will be very helpful. As we gradually to expand in this area.
And finally, we continue to work with our financial advisors to prepare the company to bring in an investor who can provide growth capital and some relevant fintech experience.
And as we said during our Investor day were targeted at transaction in early 2023.
Finally on slide 13.
Q2 was an important quarter in terms of advancing our agenda is on Hagen positive change in the region.
We joined the Whitehouse partnership for Central America, and we actively participated in the summit of the Americas in late just a more personal level.
On the right hand side of the page you will see that the SB Gi recently validated our emissions reduction targets. So we're on track on this green, Venezuela, and we're pleased to already be executing on our plans to deliver against those now Sheldon will go over the financials for the quarter.
Thank you Mauricio let me now take you through the Q numbers beginning on slide 15.
Service revenue was $1 3 billion in the quarter, that's up 39% year on year due to the <unk> acquisition.
Excluding the acquisition organic growth was four 5%, which is about the same as our Q1 and consistent with our medium term target of mid single digit organic growth.
Our mobile business grew almost 5% and contributed more than half of the overall growth in the quarter.
And the majority of this mobile growth came from postpaid, which continues to perform strongly and grew 9% year on year.
We continue to reap the benefits of the additional investments we've made in some of our mobile businesses over the past couple of years, especially in Colombia.
Finally, Forex detracted from reported growth this quarter, largely due to the Colombian peso, which depreciated by 5% on average compared to a year ago.
Like most currencies globally, the Colombian peso continued to weaken compared to the U S. Dollar since the end of the quarter, but many of our other currencies like the Guatemalan Quetzal has remained very stable.
Drilling down further on slide 16 to service revenue by country.
Once again every country showed positive growth with Colombia, leading the pack was eight 5% growth fueled by the mobile business, which was up almost 18%. Thanks to our very robust growth in postpaid as Mauricio mentioned.
The shift in the mix towards postpaid is also Mr <unk>, which increased nearly 7% year on year in Colombia.
Elsewhere, we saw El Salvador, and Nicaragua maintained their strong momentum with growth of about 7% in the quarter with solid growth in all three business lines.
Panama and Bolivia grew more than 2% as did Paraguay net of a negative one off for that business in Q2 of last year.
All three countries are showing good momentum on a sequential basis with revenues higher in Q2 compared to Q1 in almost every business line.
Guatemala grew 1% in Q2. This is similar to the growth we reported in our Q1 and in line with our plans for the year.
There are also some positive signs in Guatemala at this quarter, our handset sales grew more than 20%. So consumer spending is in good shape and.
And we saw good growth in both our mobile and home businesses on a sequential basis compared to Q1, as we continued to solidify our competitive position in the market.
Okay, turning to EBITDA on slide 17.
EBITA of $577 million was up 68% year on year due to the consolidation of Guatemala, but organically EBITDA grew four 6% in line with our service revenue growth and a meaningful acceleration compared to Q1, which was flat.
You'll recall that we are beginning to lap the investments we've been making in consumer acquisition in Colombia and in our take our money fintech business over the past year.
Also impacting the year on year comparison, it was about a $10 million higher level of bad debt in the quarter versus prior year.
Most of this was related to a lower than usual levels of bad debt provisions in Q2 of 2021 as we adjusted to payment trends from Covid.
And this has now reverted back to more normal levels in 2022.
However, a smaller portion was related to a middle lower level of collections in the current quarter, which we are actively managing and monitoring in light of the current economic environment.
Finally, given the backdrop of rising inflation and the strong dollar we are seeing some pressures on energy labor and programming costs.
That said, our EBITDA margin for the group was just shy of 40% for the quarter roughly unchanged from both the prior quarter and the prior year, demonstrating our ability to offset these pressures with savings elsewhere.
Now look more closely at EBITDA performance by country on slide 18.
Once again El Salvador led the group with EBITDA growth of more than 10%.
With margins improving year on year.
In both Colombia, and Panama EBITDA grew by more than 8% after adjusting for one offs largely offset each other.
In both countries the strong performance in mobile lifting margins in Colombia. This is the third consecutive quarter of margin improvement while in Panama margins are approaching the 45% level.
Olivia performance improved noticeably in Q2 with EBITDA up more than 7%, although thats against an easier comparison.
Nicaragua also performed well on the EBITDA, but this was against a very robust Q2 last year, which is why growth was only one 5% this quarter.
Paraguay EBITDA grew 4%, but this was down two 5% after adjusting for last year's one off.
This decline was due to the phasing of some of the selling and marketing costs, which included a new campaigns to support our tico money business.
Our <unk> was down 1% year on year, but the business continues to generate very healthy cash flow and returns on capital and $65 million is the strongest EBITDA received from Honduras since Q2 of last year.
Moving to slide 19, you can see how our operating cash flow that as EBITDA less capex compares to the previous year.
<unk> more than doubled to $322 million in Q2 due to the consolidation of Guatemala.
Organically it was down less than 1% and thats because of phasing of our capex for the year as Mauricio discussed earlier.
We expect to see strong OCI growth in the second half as EBITDA is growing again and Capex spend is not expected to increased too much from the first half to the second half of this year as compared to the record Capex. We spent in the second half of last year and in Q4 in particular.
The key message here is that we are on track with our plans for the year in fact, our service revenue EBITDA and <unk> were all slightly ahead of budget in Q2.
And we expect organic OCI growth for the full year of 2022 to land at around 10% right in line with the plans we laid out at the Investor day.
The next few slides I'll cover capital structure and capital allocation beginning on slide 20.
During the quarter, we completed the rights offering aimed at funding a portion of the Guatemala transaction and.
And we used the proceeds to repay the remaining $450 million of the bridge loan.
During the quarter, we were informed by our former partners in Panama that they plan to divest our 20% stake, which we then acquired at the end of June for about $290 million as per the terms of the initial transaction back in 2018.
Panama has become an important contributor for the group cash flow and we are happy to now own 100% of this cash generating asset.
And on Slide 21, we summarize some of the highlights on the Panama business.
Number one in mobile and in fixed.
And with very solid EBITDA and OCI margins.
And investment grade in Dollarized economy, and a much improved industry structure with the recent exit of digital from the market as well as the merger of Liberty and <unk> businesses from an industry that is in the process of becoming a two player market.
Finally, let me close on a leveraged situations on slide 22.
A lot of moving parts here. So let me try to summarize the movements during the first half of the year.
Equity free cash flow, excluding Africa was negative $62 million.
This is in line with our plans and consistent with the usual seasonal patterns, which primarily reflect the first half weighting of annual cash payments for income taxes frequency and software licenses.
Variable compensation and for higher levels of Capex booked in Q4, but paid in Q1.
As a result, most of the equity free cash flow for the year typically comes in during Q4.
This negative equity for cash levels offset by $88 million benefit from the Forex translation on a local currency debt.
Then we have the rights offering that we already talked about and finally, the African exit, which basically offset the purchase of the 20% minority in Panama.
So we ended Q2 with just shy of $6 $1 billion of net debt that's down about $730 million since the start of the year, reflecting the rights offering.
And net debt to EBITDA after leases was 3.04 times.
If we include the leases have just over $1 billion. Our leverage was 314 times at the end of Q2 versus 346 times at the end of Q1, a 32 basis point improvement.
And our plan is to use the equity free cash flow, we will generate in the second half to pay down gross debt and reduce our leverage and.
And we expect our leverage to be around three times at year end slightly higher than our previous guidance given the buyout of our 20% partner in Panama.
So with that I'll turn the call back over to Mauricio to wrap up.
Thank you sell them because we can see we had a solid Q2 slightly ahead of our plans for the year now.
Now we are very aware that macro conditions have gotten tougher and there are challenges ahead, but we haven't quite foreseen at the beginning of this year.
But we also know and you know this.
That we have the ability as we demonstrated during the pandemic.
To drive and grow our operating cash flow and our equity free cash flow even in the most difficult circumstances.
As a day, which shows a very cash release Chilean business.
And that is why we are confident despite the more difficult circumstances, we will be able to deliver on all the commitments. We made to you earlier. This year. The cleamons are laid out on this page.
We remain confident in committing to delivering on all of them and that is why the board and my colleagues subscribed to the rights offering that we just finalized a month or so ago.
It's a sign of the confidence we have in our business and the sign of the confidence we have that we will be able to drive shareholder value for you going forward with that we'll take your questions now.
Thank you Mauricio and Sheldon <unk> remarks, we will now begin the Q&A session. As a reminder, if you would like to ask a question. Please let us know by E mailing us at investors at Millicom Dot Com and we will adhere to kill.
When I announce your name please <unk> your line and make sure that your device and camera are turned on.
Please limit yourself to one question and one follow up so that we can give everyone an opportunity to excavate.
Finally, please on your line after you back to your question.
Our first question today will come from class Danielson.
Your line is open.
Yes. Thank you very much so Margaret Sue gentlemen, thank you for taking my question. So.
A couple from my side for sure so.
Starting on the cash flow side, I mean, it's clearly a strong outlook that you're giving for edge too on the wholesale side there.
What kind of growth from the level seen in each one of them I think.
Looking at equity free cash flow, that's still lagging a bit. So my question is do you expect the kind of incremental.
<unk> kind of fully dropped through to the equity free cash flow level or are there any kind of other dynamics affecting in there.
So I'll give you clouds and thank you for joining today.
A quick overlook and I'm sure show, then well give you a little more color.
I think the key message today, the word that I would.
Continue to emphasize is that we are on track to the metrics and the goals that we set out during investor day and.
And that means that we're confident we're going to deliver that CF growth, 10% on average over the next three years.
And that if you work through the math.
We will get you to the equity free cash flow of 800 to a billion dollars not three years on a commodity basis, we had set as a target.
We're on track for that.
What we wanted to highlight today is Ms. Hopefully, we did that quite well during the call is that the nature of the any multiyear.
Weighted or back ended towards the second half and Thats why <unk> begun to see this quarter as we anticipated it would that EBITDA has begun to accelerate on the back office services revenue growth that we know currently.
And we expect those who have with accelerated significantly during the second half yet it has to be able to deliver on those targets that we have set out.
Sheldon over to you if you want to add.
Yeah sure thanks ratio.
<unk>.
I made a few comments on this in the prepared remarks in the presentation, but we do have a higher level of cash outflows in the first half of the year versus the second half of the year and there are several reasons for that.
A lot of our a lot of our income taxes essentially go out in the first half of the year once we complete the financial returns.
We do prepay a lot of frequency in software licenses in the first half of the year for for the full year.
Variable comp goes out as well as we had a high spending high booking of Capex late last year as we finished Nevada projects the cash payments for those spilled over into this year. So those are kind of working capital dynamics of our of our group so higher cash outflows first half and sort of recovers during the second half and that's the dynamic played out.
Years past and what's playing out a bit this year as well so.
It'll be easier I think once we sort of lap this.
This first year here to be able to show your equity free cash on a rolling 12 months basis for the moment you are kind of looking at it on a six month basis.
So you kind of just youre seeing that dynamic, but only a partial picture of that.
But look we expect equity free cash flow to be a strong strong number certainly.
Very material positive number this year and in line with.
The trend line of what we're looking to get over the next three years of $800 billion to $1 billion. So.
<unk>.
Yes.
How much to say on that.
Okay, just give maybe a little bit more color because I imagine cloud this is super important.
Colombia and.
The delivery of what we said we were doing in Colombia is helping a lot margins are expanding on EBITDA. We're lapping the investments that we had made before we're adding subscribers services revenue is increasing EBITDA margins are growing OCI that is expanding so that is helping tremendously Guatemala remains.
The equity free cash flow producer that we were very happy to buy that's helping on that level quite significantly as well and the investments we made in panama's with shield from the resolves are giving us one of our highest dose you have growers and as a result of strong contributor to negative free cash flow. So things are coming into place as we hoped and anticipated.
Wood.
Fantastic fantastic and as to kind of follow up lots of question as Harold plywood asked let's try to limit myself to one question I guess so.
Just on the kind of higher level on the Capex side I mean, it's clearly been the case for the last few years, where you've been focusing on the <unk> side and Thats kind of put.
Pulling back a bit I mean, I did notice this quarter I think both you and in America.
American <unk> launched five kind of stay let us more scarce in Guatemala.
And I think looking at have there.
Do you still see the kind of investment cycle in <unk> being a few years away from now or how you're kind of envisioning that side from here.
Great question Claus and thank you for bringing it up because of course as we say these things publicly to you our investor base.
Also in mid two waves of in the way things are playing out politically in each one of our markets and I think the Guatemala example.
He is a perfect example of what we said earlier during Investor day. So just to answer your question Holistically. We said back then and we totally are beginning to see that to be the case that there's really no yes.
Yes moment here in terms of like topics spike because of <unk>, our fiber investments as you recall and we said that we expected our.
Capex spend to be right around $1 billion per year on Capex and you've just seen as you reiterate that and as a result of that consistently say, we're going to deliver on our <unk> and as a result of that on our equity free cash flow targets. So nothing really has changed we also said back then that part of the reason we have laid out is very key.
Paul the plans is because we already own a tire autonomous spectrum and Guatemala is a perfect example of that we launched Guatemala, allowing the backhaul.
$3 five spectrum that we already had.
And although there are no other plan.
<unk> five G auctions politically there's always the momentum discussion between president and other just awareness should or shouldn't happen.
But when you look at what the way what their mother worked out is exactly what we said would happen.
It is not a big gotcha moment.
No disruption in the marketplace as a result of this it is a non stand alone <unk> network. As a result of that it can be done has been done and will be done within this capex envelope of about $1 billion that we described and it's just one more operational delivery that we have done.
And as a result of that.
The loss ratio there.
Yep.
Okay.
Well look I think all of them.
Like I'm, just trying to follow up there I mean I think.
We've had these highlighted.
We still.
I'll give you a brief out youre just dropped off for a second.
Okay.
Okay.
Did you not hear everything I said yesterday, we just missed the last 30 seconds.
Okay, well basically said I think that the punchline was.
David the Guatemala launches a perfect example of the concept that <unk> four.
For us will be done within the $1 billion Capex, we just launched <unk> game, Guatemala largest market no big Gotcha moment for you it's done it's out in the market.
<unk> no disruption with needed on a non standalone <unk> technology as you would expect we would we did it on the spectrum that we already own and we're doing it within the Capex envelope. So we're not changing the $1 billion per year, because there's no gotcha moment, it's going to be done not on top of but as a part of that $1 billion.
And thank you Sheldon for letting me know that the pipeline has now been hurt.
That's how successful can I ask one last quick question.
Sure.
Great.
And I guess lastly kind of.
It was I guess some commotion on you know think that you've received a subpoena from the Doj earlier this year within the rights issue process could you kind of update us on that has there been any developments or anything to comments around that.
Outside.
I think you're going to hate my answer on how boring it is.
Probably going to be developed no news for you. We did receive a subpoena in April of this year basically what <unk> is it's a request for information. The only difference is that you have to provide the information.
There's really not a lot more that I can tell you or anything that really happened in terms of Thailand timeline or content with regards to that.
We actually don't know what the Doj is effectively investigating what I'd tell you is that we are cooperating.
Therefore, this and when I say that full list I'm in the fullest with the Doj.
Because we simply want to be and continue to be that agent a positive change in the markets and as you very well know since we self reported some years ago.
Have the comment made significant investments to become what I deem to be the gold standard in compliance in the region.
So there is a part of me that is.
Mt's yesterday about showing that side of us to the Doj, even if it's in the context of a subpoena.
<unk> was not in the script that part was not in Egypt legal but it gives you an idea of the fact that we really want to showcase to them that we are really very compliant.
Okay.
Plastic merit so children thorough everybody. Thank you very much for taking my questions.
Again, a little bit of I get a little bit of help from the lawyers on that last point that that is what I feel.
Okay.
Thank you Klas analysis yourself.
Question will be coming from Stefan <unk> from Dnb.
Yes Hello.
So.
Colombia.
It's progressing really well.
Right now with what we're seeing.
It's a high inflation really large currency movements.
Yeah.
And now you also mentioned increased cable competition.
In Colombia so.
Can you elaborate a little bit about this.
Impact.
How we are seeing that you can.
Handle this issue.
Especially I think that the pay TV margin can be impacted by the currency movements.
Awesome.
So Colombia.
Let me start with your Cds Stefan a very holistic question. So let me approach it in a very holistic manner, because there was a lot of moving pieces in Colombia.
Number one the results are nothing short of us.
Certainly.
Below.
Then by mobile and with margins.
<unk> expansion and OCI of expansion, so pretty happy with the performance of Colombia.
The macro outlook and political outlook keeps you will despite the spike in currency is actually turning out to be less dramatic than we had ourselves prepared for an anticipated.
When you look at all the cabinet members that the Petro administration has put in place.
All of them have been a part of prior administrations. So there's things that you get is this is not a radical change. This is a continuity in the political and made that has been managing the country. So we take some significant relief from that at the macro and political level now.
Now.
The operating level.
I will speak a little about mobile on your question kind of.
Belies our underneath it is the notion that we really are working well now and mobile all the questions before whereabout mobile on today, we're growing almost 20% of mobile and adding postpaid subscribers every quarter consistently.
On the home business, which which I think is your point here I want to point your attention to some of the things that are in the market and some of the things that we ourselves have been driving so earlier this year as I alluded, we made the call to move away from selling and some of the lower socioeconomic segments. Because we didn't think were getting a return.
On capital there and we thought we should be doing far better focusing our efforts on the highest fish economic sectors of the country and that already is beginning to work well and youll see that come through later on in the year and into next year.
Obviously, the transition period means that you have to reshape your sales on your distribution to new areas and that causes a big so that's part of what's going on in there.
There is increased competition as we mentioned in I think America mobile mentioned in there.
We're actually quite.
Confident that we're going to regain it quite a bit of growth on Colombia.
Cause of the new sales strategy that is going to be less churn longer lifetime cycle value of our customers a little bit better our pool, but also for a number of other reasons, which I think are a very important number one the world Cup is coming up.
That's going to put up put a big push on sales.
Number two I think there's a little bit of just the ebb and flow of the pandemic and I think that will wash out and you start to receive some growth going forward. So that's more of a short term effect and most importantly, this will be I think relatively important.
We now have the ability to sell into one 5 million homes that we didn't have access to before.
I mean, no <unk> whatsoever. So this is one 5 million homes and bandwidth that they come as a result of the open fiber deals that we start with looking at and more importantly, with that today, which will allow millicom Tivo, Colombia to finally sales to that subscriber base in Colombia, and Thats important because if you recall two years ago, we barely had.
Mobile access to work with that because our network could not penetrate high density high rise buildings, because we work just basically on high frequency spectrum.
Today, we will be able to search services lower top 30% to 40% of nation's GDP with both.
A mobile product, which is winning in the marketplace on a home or broadband product, which is really really important in that marketplace and we will be able to do that second part on a capex light or variable cost versus SaaS, driven model, which we're very eager to test in Colombia and particularly.
Because of course, given that this is an area that already has some penetration of cable television we would rather come mentioned, we're not going to be that new entrants. There we would rather come in with a success driven model. So we're very happy of achieves. This model. So I think you can expect a lot more of Colombia on the fixed side of the business going forward and while I'm on it.
It will be in Colombia as elsewhere is beginning to become a real engine of growth. It really grew at around five 5% this quarter and with these we see nothing but continued growth there. So holistically, Colombia had an operation of our financial level is becoming a better place for us.
And I mean this significantly the results are good we're winning on mobile we're bullish that we now have access to sell on cable we've rejigged our strategy through the better part of the social economic.
Period, and we now have the ability to sell to board with that so.
Yes, there's more competition.
But when you look at the whole picture, we are far better in Colombia strategically, adding to the longer term fixed business and we have ever been in the past for the.
The reasons that I just mentioned.
Yeah.
Can I just ask one question around the delay of BR.
So you changed the commercial strategy, which resulted in lost prepaid subscribers can get can you just describe what you are doing and what you're seeing in that market.
Simple.
These were.
What's the what's the what's that Sheldon you may need to help me out here with the ride Wordings with.
This we're not good subscribers all right. So this is not a clean now this is not this.
This is basically very low or almost no <unk> that we were spending a lot of money trying to service and care.
So we basically with the local team agreed on the fact that hey that Kpis and I'm Gonna look good for a quarter or two but you know what what ultimately matters here is ocs and equity free cash flow. So just go ahead and shut them and we'll be happy to not leave with those subscribers. Even if we are to answer your question or two on the matter and we'll keep the good ones and as a risk.
Out of that Youll see that the service revenue in Bolivia on mobile I'm talking to services revenue in Bolivia. Despite the competition from Intel is stable.
In Bolivia.
By the way.
Colombia, Please don't Miss.
Our poll stabilization.
Improvement that you've seen this last quarter.
I probably missed the most important thing on Colombia, sorry, dwell box Stefan but.
My mind lost store.
There.
So I believe yeah.
The issue is just as I described and we're happy that Bolivia difficulties that we're having is showing.
Mid single digit growth in home, we continue to build quite a bit but believe it is a matter of fact, it would be growing more than <unk> done in the first half of this year. If we had not had some delays in the building Bolivia quite honestly, we were a little bit delayed in Bolivia, eight months or so and that causes some delay in our ability to grow on home in Bolivia, but we're back on track.
<unk> is also growing in Bolivia so.
Olivia is really really improving and you'll see that on the EBITDA, which is up this quarter, 7% or so.
Okay perfect. Thank you.
Thank you Stefan.
As a reminder, if you would like to ask a question. Please email investors at Millicom Dot com and we will adhere to queue. Our next question will be from the dark meat <unk> from Goldman Sachs.
I think you're still on <unk> sorry.
Good morning, everyone and thanks for taking our questions first one would be regarding the acceleration in vitro B you mentioned briefly the performance in Colombia, and Bolivia could you give us some more color on which countries and on which types of digital services have been the main drivers there that would be our first question.
Yes. So the answer is very straightforward and I will be cashed in Sweden.
Elaborate a little bit of as I always like to do so the first part of the question is broad based it's across.
Cross all the countries some more than others, but across the country. So Panama is doing well in Colombia has done really well Paraguay is doing with what <unk> is doing really well. So it's all countries some more than others.
Simple.
The second part of the question is what about digital it's basically cloud services.
Okay.
Sorry, we lost ratio hopefully to reconnect your existing quick second one.
Just expanding on what he was saying around there around the digital. So these are these are cloud services. This is this is going to be hosting and security of our strongest degree.
And so we just lost you there for about 20 seconds again.
Alright, so you've got the part on the digital services or later.
Yes, that's correct to cloud services, yes.
So it's cloud cyber security and SD Wan.
Now there is to really segment that are working very well for us and remember this is a strategy that we put in place before the pandemic during the pandemic.
The time to continue to implement it and developed by these I mean changing the product line changing the distribution training the sales forces being a lot more focus on what we do and the two segments that are really growing behind of this is the SMB sector.
You know what that is that is growing 8%, 9% and that is straight up weird.
Added to that sector.
It would be 30 to 40000 I could be off on the right numbers here just in the last year. So significant additions there and the second sector Thats working really really well is the SMB the corporates.
That's on the back of the digital services that I've, just described which encompasses <unk> that I just described and.
And the growth there is volume driven we've added some.
10000 accounts that give or take.
But significantly our part driven because these services are really demanded for so it's allowing us to have Nigel volume, but most significantly ARPA growth.
In corporate and we do expect to be this to be very resilient going forward by the way.
Thank you and just as a follow up question to that.
His cloud continues to be.
Main driver for <unk> growth do you believe that to have any implications farm.
Thinking about the margins our capex given that this can be more of a capex light segment, but might also require some infrastructure on the other hand.
Yeah.
Yeah.
It's early days for us.
As we began to analyze all of these almost contract by contract.
We quite frankly, we love the returns on this.
Because they are.
I wouldn't say immediate but theyre very tangible returns that can be analyzed very very efficiently. So we will be happy to take that.
Equation Sheldon I know you've been looking at this quite a bit so feel free to jump in.
I think youre right. If you look at the.
Sure.
What we're contemplating here around around this expansion and growth on <unk> once again easily.
Accommodated within sort of our Capex envelope and we do look at these sort of on a project by project basis as well for the for these larger ones.
And certainly all of these are meeting our return thresholds as we move through this as we move through this migration and growth in our.
In our <unk> segment.
Very clear thank you both very much.
There's also a part of me that loves the idea of building a significant data center business as we are on the back of all of this and you already know that we own 30% of those are all tier three it keep building and then also there is a part of me that likes the notion that this is helping us drive drive the creation of.
Basically our data center business.
I'll stop there because I know what the next question is am I really don't want to answer about next question.
Yes.
Thank you very much.
Hey, John .
Our next question will be from Marcellus Center at J P. Morgan.
Hi, Thank you for taking the question I would like to ask a little bit more comment on the secret service environment to Paraguay, especially I think the piracy issue that you mentioned.
Yep.
Yeah.
Ah.
Got it.
Alright, so thats it.
Yeah.
Pedro seen Latin Americas, Juno Marcello has always been an issue.
<unk> always been in Asia, and sometimes the grass is I like to say it starts to become a little bit too.
And then the time comps or severe cut down of the crops. We do that every year and Paraguay was getting a little bit out of control and piracy.
Yes, I'll just I'll just step in here again looks like Disconnections.
The challenge, but but no look we've.
We've worked with the authorities there we're able to sort of identify in a particular large abuser on on piracy in that country.
We're able to work with the yards to shut that went down and.
Okay.
Youre back when we lost you there for about 10 seconds again ratio keep going keep going so I was just mentioning.
We're able to work with the authorities are shut down quite a large piracy operation there in the country.
I think what they see is almost over $200000 worth of equipment.
As part of that.
I think importantly, as you know hopefully that that's that remedies have been of that activity. I think it also sends a strong message I think to two other participants or other players in that in that arena within the country.
But look I don't think I think we do recognize it also does not mean a bit part of the.
Part of that.
The industry that would kind of play in and some ratio sort of said you know this stuff will continue to pop up we will continue to be aggressive and try to work with work with authorities quite frankly work with the content providers as well and trying to trying to crack down on this end.
And preserve sort of R. R.
<unk> activities as we do so.
So to comment on these things that I saw there were significant ourselves number one.
The sheer focused involvement of the authorities and part of why it is actually larger more more enthusiastic more more professional than I have ever seen and number two as a result of it in the media display that we put on it.
The spirits Ive actually said publicly they're going to get out of business. They don't want to lose their investment as they help lost marijuana. They don't want to look at fines or imprisonment.
On your.
One question.
The base is growing the base continues to grow.
There is in Paraguay some of that migration.
<unk>.
Bundled if you will to broadband only.
Piracy was a part of that of course right of course, because you can pirate the content and pay only for the broadband connection. So this will help in that.
Our continued push into selling what we call the content supermarket I E selling more OTT.
And I don't service will continue to work because that's additional add ons that are sold on nobody can add and into the second half of this year remember the Paraguayan Shawcor will begin in the second half of this year, so that will drive.
Hold those rights on of course is the World Cup.
That will drive so theres some momentum that should restart in the second half of this year.
Actually that's part of why in pay TV and broadband start.
Perfect. Thank you very clear.
And by the way why we're on in Paraguay is back on growth just led not that'd be unnoticed.
Service revenue of subscribers across the board et cetera.
Very clear thank you.
Thank you Marcello our next question will come from <unk> <unk> at.
At Scotiabank.
Yes, Hello, guys good morning.
To get clean numbers for equity free cash flow and I was wondering if you can please help me clarify.
Extra opex and Capex and West Houston.
In there to support your initiatives scene.
Infrastructure and also in the Fintech business, how much money you are using to make this a reality next year.
In terms of Opex and Capex.
And a second question.
On what the MLR I would like to know when do you expect that demand to go back to growth.
How long that's going to take you.
Because of weakness in <unk> in recent quarters. Thank you.
You bet, so I'll take the Guatemala question.
And perhaps give you the first one to you Sheldon on equity free cash flow and the only thing I'll say on equity free cash flow before I hand, it over to Sheldon is.
Fintech is basically.
Counting.
Yes.
Okay.
Okay.
Why don't you why don't I, just pick up a little bit on your questions.
I'm trying to give you some color on those two investments we've made.
Sorry, <unk> you were cutting out, but I will just I was just picking up perhaps on on some of the numbers you would ask just sort of the investment I think we've highlighted earlier in the year.
The title of annual spend we're looking to incremental spend we're spending on fintech. This year, it's in the order of $40 million.
On the on a full year basis and start ramping up very late last year and kind of seeing sort of a full year of that now. This year now most of that is going to be opex there'll be a portion of that is capex, but with from an annualized basis. You should you should plan on about $40 million of investment there for the full year.
For that activity.
And look and I think that's what's important to highlight is where we have been commenting about our equity free cash flow growth I'm, sorry, our operating cash flow growth of 10% on an organic basis.
That is growth after absorbing about $40 million of incremental spend for <unk> for for MFS as we as we invest in that growth opportunity. So so thats MFS. We haven't commented specifically on infrastructure investment I'm, sorry on the towers investment for that carve out I will say, though there will be some costs ramping up on that you probably see that.
Coming through our corporate cost a little bit as we as we move through the year as.
As we stand up sort of you know that that entity and start investing.
Well in any of the aspects to be able to be able to transact with that as we've highlighted in 2023, which is our objective. So.
Don't think where guidance specifically on the number but just expect some interim incremental corporate costs as we as we roll through the year to standup the standup that that amounts.
Thank you very clear.
And to add to that in dresses are seem to be back on on <unk> money and I'm looking beyond this year.
We were all including like the U S.
Perhaps not as buttoned up on you know what would be the cost of ramping up launching tivo might be and the reality is it's demonstrating and proving to be less than we had anticipated.
So we're happy with the fact that the business launch enhancement, Panama et cetera, particularly into next year is going to be less expensive. It's a real that we had anticipated so from my point of view.
Im happy that is not a investment that important as it is a strategically youre going to continue to have meaningful impact on dragging our cost go down I'll stop right, there because I'm going to make some guys in the finance group really really already been shelved them kind of ready to push the stop button.
On what amount of that which is a great question.
Because it allows us to now share with you a little bit more what our plan is and what it was on Guatemala. So let me begin with emphasizing that what <unk> is doing exactly what we expected it to do which is to be a solid and steady grower with massive cash flow generation.
And it's on track to do that for this year.
Engine of cash flow.
Just what it's supposed to do for us in terms of growth.
Rather than answering your question directly.
Because then I will make everybody on the call very uncomfortable in the finance group I would point you to the difference between what the Merrell and some of the other businesses what they might have continued to grow during the pandemic, we gained market share in.
In stopped in revenue, we increased margins. So what you're seeing now is just tougher comparisons in the rest of the group so.
No you're very good at Madame Dresser, you'll do that understand that if you average out what Tamara remains steady grower.
Now when you look at what the model is going to do going forward not just in terms of cash from what's best for the portfolio, but in terms of growth, which was your question think of mobile for US is we having cemented our leadership during the pandemic.
Although we took some market share we know that we now aim to stabilize that market and that we're not growing on postpaid. So thats, what we aim to do drive growth on mobile on postpaid.
Now I can look at the other business lines.
Okay.
Yeah.
Yes.
That's how we got here.
Frozen again look I think it was highlighted we have cemented our leadership here on the mobile side.
And throughout the pandemic and what Youre seeing now I think quite frankly, where our growth with in Guatemala is really coming from is on the home and the <unk> side, where sort of you know, we're actually now leveraging that leading market position.
And high market share position on the mobile piece.
And really into some of the other segments.
Just an overall and generally quite frankly this is a great business. That's you know, it's really starting to benefit from the high margins and cash flow generation from our scale that we've created there.
That's.
It continues to be extremely strong cash generating asset for us.
And it's generally benefiting from all of the progress we've made over the last couple of years there.
Yeah. So I'll just I'm back on and I want to explain why we keep coming back on and off in a manner just to complain with everybody.
Actually quite quite bullish on Guatemala for all the reasons that I've just explained but remember this is a.
Healthily manage macro economic country, all the numbers in Guatemala are good I think Sheldon was alluding to that the industry structure is really good is not just a two player market, but it's a marketing which both players make money both of them are fairly rational.
As we both see our cost structures pressured by inflation I think there'll be a lot of rationale that would go into that market. So that's the that's the storyline around Guatemala, and hopefully that gives you a lot of good color.
Now you all may be wondering what's going on with our connection.
It happened to be in Africa, and the middle of this setting guilty.
And.
And I'm actually on a <unk> connection, but I just wanted to make sure everybody understands that we're not looking for opportunities in Africa, we're done and happy with that and that explains why some of the connectivity issues, we're having today.
Okay.
Yeah.
Thanks, Andre we have time for one more question from Matthew at Barclays Matthew.
Okay.
Can you hear me.
Yes.
Hi, Good morning, Thank you for taking the question so Laurie.
Three remarks.
You mentioned the tough macro environment.
That context I was wondering if you could.
Give a little bit of color in terms of the impacts.
Just deteriorated environment first in terms of energy.
Mind us update us on what kind of hedging.
Energy costs this year and next year and then looking at the side of the coin in terms of pricing power.
I realize that in some markets its quite console.
Yes.
Is it pricing.
Price increases were more for more initiatives.
Countries overall, thank you.
Thank you Matthew.
So it's a good question.
As I said on the initial remarks, it's difficult to imagine that we would be absolutely immune to a global recession.
We're certainly are no superhero group here, but.
But.
<unk> show that we can be very very adept.
Making our osha, if an equity free cash flow very resilient in the context of difficult macroeconomic crisis now.
Now.
This will sound a little bit strange, but as you see on the Q2 results is having little to no effect.
Little to no effect.
Now going forward, that's not the view, we're taking and that's why in my remarks, we're more balanced we remained convinced that we're going to hit our targets.
But we're putting extra work to get there because we knew this recession as everybody should have was a possibility as a result of that theres two sides to the equation. One is the cost effect and how we would be able to mitigate that some costs are indeed going up like energy.
Labor in particular.
But energy is only a fraction of our cost 2% or so labor is a little bit more importance from countries like Paraguay, and Colombia have seen wage increases.
Yeah.
Okay.
Fully already mitigated those impacts throughout this year. This wage increases were actually made at the very early part of this year and we've been able to manage through those by making savings elsewhere and a result of that you'll see our EBITDA margins not only have remained flat.
Consistent with prior quarters and our prior year in particular.
We started working as we always do everything to do with driving efficiency into the operations.
Just about every quarter since we've been around with driven <unk> margins.
EBITDA margin.
And this last quarter was no exception and we will continue to do that on the back of efficiency programs that we put in place earlier this year in a very disciplined manner. They will be largely digital driven going forward, but they're happening as we speak because this is a consistent drive to get efficiency.
So that's on the cost side.
Now on the revenue side, our ability to pass on some of this inflation and remember in some countries. It's only 5% of Guatemala, and other is a little bit more like Paraguay and Colombia.
How long when inflation lost your bet is as good as mine my personal view is that it won't be very long because you've already begun to see that peak in some of our countries.
But the ability to pass on some of that to our subscribers has already been tested we've been doing a little bit of that already in some markets more than others the industry structures and our markets are very good.
Five out of our all our countries is a two player market in many of those we compete against.
Companies that are not only rational but it also facing the exact same issues. So everybody's on the same boat.
So we will have better industry structures and more incentives as an industry to pass on that the HOPPS.
Operators in other markets may have.
And the last bit of this because the ability to pass on is not just a function of the industry structure. It's also a function of the available money in the pockets of consumers and I would only point you to something that you already know market, which is remittances and to point out we make there they've remained high and growing.
Up until last month June which is the last numbers, we have they continue to grow 20% and this is on the back of really big numbers and some of our markets are $20 25 billion.
<unk> in particular is beginning to see higher remittances, which we're adding before and what they might allow Nicaragua. All continue to receive high levels ongoing levels of remittances and as you likely know in times of crisis remittance is actually tend to grow and this gives us given our history in this market.
An important level of competence remittances from the U S and a stronger dollar on inflation in the U S. Obviously would only help the absolute number. So those are the reasons why we think we stand a fairly decent in terms of being able to pass on some of the subscriber base.
So you can imagine how we're gonna play, which we're going to pay these on the cost sites with very clear goals on maintaining sustaining our margins growing that EBITDA margin continuously in that OS yet driving yet to about 10% of operating cash flow growth, but doing that by continuing to drive our OCM margins with Johnson, our radio at 22%, we have a pretty decent track record.
In doing that and on the revenue side on top of everything that I have just said.
Very cognizant that in times like this.
Volume remains our long term objectives, our business Spanish volume, driven bringing more customer base to a fixed cost great size and scale in our markets in underpenetrated markets, but throughout the shorter team a lot of focus on <unk>.
Is what helps when the date joined this moments and that is why we're so focused on defending our this inflationary times and I've already outlined how we aim to do that.
Yeah.
Great. Thank you very much.
You bet.
Thanks, Matthew that was our last call. So our last question from Alex I don't know if you want to make any closing remarks.
Well, thank you for joining us today, we like the results we put out today, we believe we're delivering everything we said we were going to deliver and we're happy about that we have renewed confidence despite the macro headwinds that we will deliver on.
Okay.
Sorry look I'd just maybe just finished here from recent we're looking like I said I think were very young.
Very happy with the quarter I'm very happy with the performance and we continue to see the you know the.
The broad based revenue growth that we've achieved.
Across the business.
And as well as you know as well as the momentum we're starting to see on the on the EBITDA side year over year. So.
With that.
So I guess your background, but I think what that word.
Thanks for your thanks for your time until look forward to speaking to you next quarter.
Thank you probably did a phenomenal job in shelves on the key message is we're on track and we're going to deliver in that three year plan that we promised earlier this year. Thanks for joining today.
Yeah.
[music].