Millicom International Cellular S.A. Q1 2023 Earnings Call

Speaker 1: Hello everyone, thanks for taking the time to connect toward first quarter of 2023 Results Conference call. This event is being recorded. Our speakers today will be our CEO Maudi Surahalus and our CEO Bo Sheldon Gruha. Following their prepared remarks, we will have a Q&A session.

Speaker 1: 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.

Speaker 1: If you please turn to slide 2, you can see our safe harbor disposal. We will be making forward-looking statements which involve risks and uncertainties and could have a material impact on our results. We will also be referring to the non-I of risk metrics throughout this presentation. We defined these metrics on slide 3, and you can find a reconciliation of these in the back of our earnings release and on our website.

Speaker 1: With those disclaimers out of the way, let me turn the call over to our CEO , Mauricio.

Speaker 2: Good morning and good afternoon everyone. Thank you for joining us. Today is the International Day for Girls in Communications and Technology. As a member of the ITU UNESCO Broadband Commission for Sustainable Development, I would like to celebrate this day and highlight the importance of empowering young women to pursue careers in ICT.

Speaker 2: In that spirit, we're also celebrating today the anniversary of our own Connectadas digital platform. As you just saw in the short video, this program offers free training for women who want to acquire digital skills and apply those skills to their lives, their businesses, and in their communities. To date, more than 745,000 women have been trained since the launch of this program.

Speaker 2: Let's focus on the highlights for the quarter on slide 5.

Speaker 2: Let's start with the office. We're navigating through challenging macro and political environments in the countries we operate in, particularly Bolivia and Colombia. But we continue to execute very well during the quarter. Service revenue grew 2.2% during the quarter, with a number of bright spots that position us for faster growth as economic and competitive conditions.

Speaker 2: will improve. Two of those very bright spots are B2B which continues to accelerate and Post-Pit Mobile which continues to show strong momentum. I will talk about both of these businesses later. And finally, during the quarter we made important strides in improving our operational efficiency as we began implementing Project Everest.

Speaker 2: our new cost savings and operational efficiency program. As you know, Project Everest is an important pillar of our financial plan for the next two years. And it is also one important reason why we remain confident that we will achieve our medium-term financial targets. Please turn to slide 6 for a look at service revenue in Q1.

Speaker 2: Service revenue grew 2.2% during the first quarter driven by growth across all business units. As I have mentioned before, there are some shifts in the way we are achieving our growth, and this is consistent with the general trends we see in our markets. Home base did see our growth, but mobile, particularly post-print and B2B, continue to see very strong growth.

Speaker 2: country, but the key point on this slide is that we continue to see positive growth across the vast majority of our countries, demonstrating the strength and residency of our business. Let's go in detail on B2B on slide 7.

Speaker 2: Service revenue or B2B accelerated to 6% in Q1, up from 5% in 2022. Our revamped SQL business strategy continues to handsomely pay off, with digital service revenue growing by 28% in Q1. Our digital services include cybersecurity, managed multi-cloud and SQL SD1.

Speaker 2: These services now make up 19% of our total B2B revenue and they continue to grow in importance. They keep to our success in B2B, these are holistic strategies. With clear customer secrination, well-trained sales teams and keep partnerships with global leaders, including Microsoft, Amazon and VMware.

Speaker 2: These partnerships added to the quality of our infrastructure allow us to deliver high-end B2B solutions to all our clients. In line with this, we recently launched Cloud 360. This is our new flexible offer for private and public clouds powered by our partner VMware. As a result of these efforts, today we serve well over 340,000 SME clients around the region.

Speaker 2: along with thousands of meat and large-sized corporations as well. Our B2B revenues are now well over $800 million per year, and yet they make up only 16% of our total service revenue.

Speaker 2: We have a strong pipeline of projects to sustain solid B2B revenue growth point forward. So I have challenged the team to soon make this $8 billion B2B revenue of business. Now let's look at our post-paid mobile business on slide 8. Our post-paid subscriber base increased by 160,000 net ads during a quarter.

Speaker 2: drive higher RPA. This strong subscriber growth has translated into sustained post-bait service revenue growth over the last two years. In Q1, service revenue from post-bait grew almost 9% and the business remains one of our most important growth drivers.

Speaker 2: Now let's talk a bit more about home on slide 9. As I have mentioned in previous quarters, we have seen a slowdown in our business over the past year, and this quarter saw continuation of these trends. This slowdown is largely focused on Colombia and Bolivia as the center of America on business continues to grow. The slowdown is the result of the natural ev of demand after the pandemic, the more difficult macro-candemic conditions, particularly in Colombia and Bolivia, and continued competitive pressures in those markets.

Speaker 2: We have also taken ourselves a very measured and long-term approach, maintaining strong price discipline and sustaining installation costs to make sure that new customers are profitable. And we have also rationalized our investments in those markets to adjust for the slowdown. We continue to believe this slowdown is temporary and that there is significant and our potential to keep strong demand in our markets. And thus, we stand ready to renew our investment pace once conditions do improve.

Speaker 2: Now let's turn our attention to Tigo Money on slide 10. I am excited as ever on the prospects for mobile money and for Tigo Money in particular in our region. Our Tigo Money team is pumped and dragged its entrepreneurial spirit into the new hub-based Tigo Money products that we're launching.

Speaker 2: The app is out now in our five existing Tiva Money markets, and it is driving digital adoption. Our digital or app-based user base has doubled over the past year. We have also launched a new and digital merchant platform to which we're adding merchants across all countries on a daily basis. We have relaunched in Guatemala where we just signed our first and crucial banking interpretability agreement.

Speaker 2: more news and positive developments as we go forward.

Speaker 2: Now please turn to slide 11 to talk about LATI, our developing tower business. We continue to make strong progress on LATI as well. The next important step will be the transfer of towers to new legal entities in each country. Simply said, this step will now keep us on track for a transaction later this year.

Speaker 2: we expect to launch the formal sell process in the second half of this year as planned. And as we have said often, we remain open-minded about the financial structure that we will ultimately choose, although we continue to have a slight preference for the option of selling a majority stake to a financial investor.

Speaker 2: Let's move to slide 12 to reduce some contour highlights, beginning with what the matter.

Speaker 2: A road for our business in Guatemala this quarter was flat. Home, B2B and post-fade however all continued to grow very well, well into the mid-single digital area, with the competitive challenge concentrated in prepay. As we recall, roughly one year ago, we responded to our competitors' aggressive commercial strategy and base had an immediate impact on reload activity. Since then, we have been very successful in stabilizing customer activity levels and in protecting our market leadership.

Speaker 2: Our customer base and market share positions have been preserved. No further pressure or ocean has ensued and we're now seeing reload activity picking up again. So our investments both in the networks and in our commercial distribution channels, how paid off, even if they have been costly to even the DA, as you see this quarter. The prepaid segment remains competitive, but pricing is now stable. And we expect our performance to gradually improve from here.

Speaker 2: because reloads are pitching up and because comparisons would get easier in the second half of the year. We're also benefiting from having recently paired the 700 MHz spectrum that we acquired three years ago. This will allow us to maintain our edge in terms of network coverage and our consumers are already benefiting from that.

Speaker 2: Finally, I should point out that S&P recently upgraded its rating for Guatemala, very much in line with our expectations as a country remains as ever very stable.

Speaker 2: Now, please turn to Site 13 to discuss Columbia. As you can see on the left, our post-bit customer base in Columbia continues to grow rapidly and now represents almost a third of our total customer base. Our strong post-bit performance is driving our mobile service revenue growth, which grew by 8% during the quarter, as you can see on the right. And this is now largely coming from higher R bits.

Speaker 2: As we have said in prior quarters, Harpo is lowly recomposing in Colombia. This simply means that a recent investment in spectrum, networks and commercial distribution are all paying off. Meanwhile, bitter being in Colombia out of very strong water, growing high single digits, by far our best performance since the pandemic. And this more than enough sets the challenges we face in our own business in Colombia, which I discussed earlier.

Speaker 2: Finally, we are in the last stages of negotiating the renewal of our spectrum in the 1900 MHz bank which we think is key to maintaining our strong momentum in mobile in Colombia.

Speaker 2: The outcome of this renegotiation we expect will be as we have planned.

Speaker 2: Finally, let's move to slide 14 on Panama. In 2019, we entered Panama with the acquisition of Cableonda, the leading cable operator in the country.

Speaker 2: We added Molval in 2019, we then rebranded everything to Tigo in 2020, and we subsequently introduced Tigo Business, and we launched Tigo Sports last year. Today our brand is well established and we are the leading telecom provider in the market. And Tigo Money is coming later this year.

Speaker 2: These was our table, the table table for panning. As for our acquisition plan, Post-Map Mobile has been the main driver of our growth in time, as evidenced by the chart on the left, we have sustained consistent customer growth every quarter for the past 10 years, as we migrate customers from pre-paid to post-paid.

Speaker 2: and as the market consolidates around the two market leaders. Today, our Panama business generates over $650 million in revenue, almost $300 million in BDA, and he has become a very important contributor to our cash, all the $1, with that we'll be turning it over to show.

Speaker 2: Thank you, Erucio. Before we review the financials, let me recap the macro context on slide 16. We continue to monitor the macroeconomic situation in our countries. On the left, you can see our inflation has been tracking over the past quarter, falling to 6.9% in March from 8% in December . All countries are declining except for Colombia, or inflation increased slightly to over 13%. We continue to monitor the macroeconomic situation in our countries.

Speaker 2: The IMF is expecting a decline in growth in Colombia and Bolivia, and we are monitoring the macroeconomic situation in these countries closely and are calibrating our cap-ex spend there accordingly, which I will touch on shortly.

Speaker 2: Now let's look at our Q1 performance beginning on slide 17.

Speaker 2: Our service revenue was negatively impacted by adverse FX trends this quarter. Primarily due to the Colombian peso was depreciated 17% on average during the quarter compared to a year ago, as well as the very worrying Gerani was depreciated by 4%. It's going to be impact of FX organic growth was 2.2%.

Speaker 2: Our mobile business grew 2.4% and contributed about two-thirds of the overall growth in the quarter. And for the third consecutive quarter, all of this mobile growth came from post-paid, which grew at 8.8%.

Speaker 2: The investments we made in some of our mobile businesses and the networks in recent years, especially in Colombia, continue to yield positive results for us.

Speaker 2: Going down further on slide 18 to the service revenue by country, RICEO has already talked about Guatemala, Colombia, and Panama, so I won't cover those again.

Speaker 2: Elsewhere, our performance in most of the other markets was solid.

Speaker 2: Her way had one of the best quarters in recent history, growing 6%. This growth was driven by robust performance across all business units.

Speaker 2: Nicaragua maintained their strong momentum with growth of over 6%. Similarly, El Salvador continued its momentum and was up 3% in the quarter when every business line contributed.

Speaker 2: Olivia was down 1.5% as we again felt the impact of a change in regulation on mobile data overdrage to win into effect last August . We will laugh these are taxing Q3 of this year.

Speaker 2: Finally, Honduras, which we don't consolidate, had a strong start to the year, growing almost 6%, continuing the strong performance seen in the second half of last year.

Speaker 2: Finally, under us, we don't consolidate, at a strong start to the year, growing almost 6%, continuing the stroke performance, seen in the second half last year. Okay, turning to EBITDA OSLINE 19.

Speaker 2: even the a $507 million was down from $564 million from a year earlier.

Speaker 2: Forex impacts, particularly in Colombia and Paraguay, are a big driver of this and represented about half of the recorded dollar-based decline. But there were a number of unusual items that I want to unpick that affected the results this quarter, in addition to investments that we are making in the business.

Speaker 2: Firstly, as I mentioned last quarter, we kicked off the implementation of our cost efficiency program which we call Project Everest.

Speaker 2: During the quarter, we spent about $15 million related to restructuring costs, primary employee severance costs, across our headquarters function, as well as several of our operations. I will go into more detail as project later in the presentation. This was a significant one-time hit that will lead to savings further on. Secondly, related to the take private discussions that we are ongoing.

Speaker 2: We incurred costs during the quarter in the low single digit million dollars on legal, advisory, and other third party fees. Finally, our share price increased more than 50% in the quarter, impacting the booking of our share base compensation, which is a non-cash item, resulting in an incremental impact to keep a DA in the mid-single digit million dollar range.

Speaker 2: This is an unusual item affecting 2023, with the impact spread evenly in each quarter of the year.

Speaker 2: We have also continued to actively invest in our businesses to support our growth and strategic vision. During the quarter, we had additional investments in content, including in FICS, which we launched the second half last year. Additionally, we continue to support TigaMani and our tower of business Latte.

Speaker 2: During the quarter, we had additional investments of mid-single-digit million dollars in these items in excess of the spend incurred in Q1 2022. Excluding FX, the unusual items, and investments, our EPD-A would have declined around 1% during the quarter, reflecting declines in Guatemala and Bolivia, partially offset by growth in Q1 2022.

Speaker 2: in our other countries, which I'll review on the next slide.

Speaker 2: So looking more closely at EBITDA performance by country on slide 20, as I mentioned on the previous slide, restructuring costs impacted our largest esport not only at a consolidated basis, but also at a country level.

Speaker 2: Colombian, animal, and paragway all saw restructuries during the quarter and excluding the impacts of the severance each of these countries would have grown.

Speaker 2: Herroly was also impacted by the timing of our credit note payments, which negatively impacted the margins in the quarter. El Salvador grew 1.6% and Nicaragua saw a very strong growth of almost 9%, with margins increasing over 200 basis points to almost 45%.

Speaker 2: Automotive declined 6%, reflecting increased commercial intensity to straighten our prepaid offering.

Speaker 2: This span is having the desired effect, with prepaid reloads returning to levels from last summer. Additionally, as Mauricio explained earlier, in Guatemala our subscription businesses, including B2B, have continued to perform well, but the margins associated with these businesses are lower than the high margins of the prepaid and incoming international revenues they're replacing.

Speaker 2: which impacts our margins. We are confident that the efforts that we are taking in Guatemala are solidifying our market-leading position and will provide the foundation for the operation to return to EBITDA growth. Olivia EBITDA declined over 5% as we saw the full quarter impact of the regulatory change from August to October .

Speaker 2: 2022, which dropped straight to the Baki Bati ally. Finally, Honduras, which we do not consolidate, had a strong growth of 4%, reflecting the approved revenue transfer in the quarter. I want to spend a moment reviewing our efficiency program Project Everest, where I'm pleased to report we made significant progress this quarter. Our team has been hard at work on several key projects that will drive greater efficiency and agility.

Speaker 2: 6. Fix mobile convergent efforts to reduce commercial impacts.

Speaker 2: Trembl row optimizations in order to reduce spend.

Speaker 2: And finally, power saving initiatives such as improved data and analytics and alternative cooling methods.

Speaker 2: These initiatives will enable us to achieve our goal of a longer $100 million in annual run-rate savings by the end of 2024.

Speaker 2: with more than $50 million of these run rate savings expected by the end of 2023.

Speaker 2: I mentioned previously that we incurred implementation costs in Q1 of approximately $15 million. We will continue to incur some implementation costs into Q2, but we anticipate this will be a much smaller amount, after which the bulk of the restructuring and implementation costs will leave behind us. We will continue to incur some implementation costs into Q1 of approximately $15 million.

Speaker 2: As a result of all of this, we anticipate we will have material net savings within the year 2023.

Speaker 2: our mobile business and expanding our footprint and connecting new customers on the home side.

Speaker 2: Our investment in the businesses ongoing, and we remain committed to ensuring that we provide the best possible service to our customers on the best network in the region.

Speaker 2: Second, we have the ability to adjust our CapEx as needed. As we saw during the pandemic in 2020, our CapEx spent declined to below average levels.

Speaker 2: we were able to pick back up the rate of build and connections and quickly return to above average CapEx spent.

Speaker 2: We're able to be flexible because much of our CapEx is variable and dependent on demand, which allows us to adjust our spending based on market conditions.

Speaker 2: As we were said discussed earlier, we are seeing a slow down and home demand and are seeing some macro challenges at Columbia and Bolivia in particular. We are lottery our build as a result and are also experiencing lower-exnection cap X as well.

Speaker 2: Additionally, as we are focused on efficiencies, we have been able to secure multi-year agreements with our key mobile vendors, which will lower our cap expense, while still allowing us to expand capacity and coverage of our networks as we planned. This combination of factors means that our 2023 capital intensity is expected to continue to cater to and lower towards our long-term target.

Speaker 2: lot of seasonality are cash flows with Q1 being a big negative order for us. In the center of quarter we have a high level prepayments for items such as annual IT licenses, regulatory fees, sports soccer content, sponsorships and insurance.

Speaker 2: announced with the negative equity free cash flow of $133 million compared to outflow of $63 million in the prior year.

Speaker 2: A few additional cash flow items hit us since you won this year. A semiannual coupon paid to the quarter on the Guatemala bond issued in January of last year.

Speaker 2: The outflow of $20 million from working capital related to a tax amnesty in Q4 last year, the first tag of this claimant, flowed out in Q4 last year.

Speaker 2: Timing of spectrum purchases, Q1 had higher spectrum costs this year primarily related to the acquisition of AWS spectrum in Panama for $20 million.

Speaker 2: It is important to note that all of these items were accounted for in our budget and are related to timing.

Speaker 2: As a result, these do not affect our confidence in achieving our three regulatory cash flow targets of $800 million to $1 billion.

Speaker 2: Now please turn to slide 24 for our usual net debt bridge.

Speaker 2: Net debt with SoundCloud's derivatives is up $184 million, mostly due to seasonal cash flows during the quarter.

Speaker 2: We also had a 4x impact from the translation of local currency debt as a Colombian peso at March 31 strengthened from the level at December 31. And as I reviewed earlier, EBITDA's order was impacted from one-off costs from, among other things, implementation costs from Project Everest.

Speaker 2: and non-cash share-based compensation from a higher share price, all of which are having short-term impacts on our debt DBA DA leverage ratio. We ended Q1 at almost $6 billion in net debt and net debt DBA DA after leases of 3.18 times. If we include lease obligations of just over $1 billion,

Speaker 2: Thank you, Sheldon. At our investor day just over one year ago, we outlined a value creation strategy centered around our clear purpose to build digital highways.

Speaker 2: The two key financial targets of that strategy are 1. To drop organic operating cash flow growth of around 10% on average between 2022 and 2024 and 2. To generate cumulative equity financial growth all in in dollars of $800 million to $1 billion during that same period.

Speaker 2: Lack of conditions sure remain challenged in today, but one, we're harvesting the benefits of investments that were made in recent years to strengthen our networks and our brand. Two, we're implementing project efforts to increase operational efficiency. Three, we're putting through prize increases to mitigate the effects of higher than expected inflation.

Speaker 2: and four, we're adjusting investments to a slower short-term demand for our own product. As a result, we remain on track and we confirm those mid-term financial targets.

Speaker 2: We also remain focused on unlocking shareholder value from our value-building infrastructure and theme-tech assets. As you heard earlier today, which seems strong operational and financial momentum on TIPO money, while our tower co-exist on track for potential transaction later this year. Finally, we're also on track to be the important external ESG commitments that we have made. Today, we're pleased to report that we have maintained our MSCI ESG reading.

Speaker 2: AA. This rating continues to place us above the industry average.

Speaker 1: With that, we're ready for your questions. Thank you, Mauricio and Sheldon, for your remarks. We will now begin the Q&A session. As you are aware, we published a press release on January 25th in which we confirmed that we are having discussions with Apollo Global Management and the Clouday Group about a potential acquisition of all outstanding shares in Millicom and that there is no certainty that a transaction will materialize north to the terms, timing, or form of any potential transaction.

Speaker 1: We have no new updates on this topic, and for legal reasons, we cannot and will not take any questions on this topic today. As a reminder, if you would like to ask a question, please let us know by emailing us at investors at millicom.com, and we will add you to the queue. Our first question today will come from Andres Coelho at Scotiabank. Andres, the floor is yours. Thank you. Good morning, everyone. Thank you for letting me make the quip.

Speaker 3: I'm wondering if it's not a good time to start thinking about possible strategic alternatives for Colombia, perhaps including market consolidation in Colombia. And so I'm just wondering if this is something that the company is currently reviewing, if there are ongoing possible discussions with telephonic.

Speaker 2: Before I kind of...

Speaker 2: address the organic part of it. I, you know, Columbia, he's a marketing which within co-gannity.

Speaker 2: We've made all the right moves. You're very well aware of those. But the spectrum built the network, increased the commercial distribution, put in play, post-paid strategy, gaining a lot of traction. And it is the one market where we're clearly making headway organically, particularly on mobile.

Speaker 2: the fixed is a little slower than it had been in the past.

Speaker 2: Obviously, normally we wouldn't comment on any specific M&A transaction and I'm not going to do that, so my comments are going to be very generic, more to the market. I think we've often said that the Colombian mobile market in particular requires not just the organic weeds that we've been having.

Speaker 2: but inorganic solutions, where it's really networks that come together and become more efficient, be that be mobile or fixed or whether it be actual.

Speaker 2: industry consolidation with players coming together because today effectively the market is market of one and all the other smaller operators including ourselves we started to make actually turn to be very clear on that.

Speaker 2: And as a result of that, there is indeed a

Speaker 2: And as a result of that, there is indeed a need for...

Speaker 2: reconstruction of the industry, whether it be the air conservation or whether it be the air super-consumeration of the external mobile networks.

Speaker 2: or two, so you would know the entire industry is renewing spectrum licenses. So there's a lot of pressure on the cash flows from those two stores. Those renew all of the spectrum licenses.

Speaker 2: So you would know the entire industry is renewing spectrum licenses. So there's a lot of pressure on the cash flows from those two stores who renew all of the spectrum licenses. And that is applicable to everyone.

Speaker 2: So something's got to change and it's got to change soon because it doesn't work for all the players but one. So if your question is, is market ready now for inorganic solutions, whatever the spectrum of those are, and I'm not pointing to a single one because there are multiple ways in which those inorganic solutions could come about, the answer is yes. The answer is not yes, but it is now. Part of your question was whether we're actively working on all such possible improvements and solutions. Yes, not only now, we've been working on them for a little while. Do we think something may happen?

Speaker 2: Possibly, it should, it needs to. Can we hand it up or for this exactly which one of the options or guarantee that any of them will come about? No. But, quite clearly, if there was a market in which the opportunity exists, is this, and quite clearly, the opportunity is now.

Speaker 2: How about that? We're not answering an emanate question.

Speaker 2: How about that for not answering an M&A question? You're on mute, Andres.

Speaker 3: That was very useful. Thank you very much, Mariusz. That's good guidance. Thank you.

Speaker 2: Thanks, Andrés. We'll take the next question now from Marcelo Santos at JP Morgan. Hi, good morning. Thanks for taking the question. I wanted to understand a bit better, which of the unusual items and investments that you discussed, such as Project Everest, which of them should persist in the coming quarters? Like how should we see these items affect?

Speaker 4: I picked them kind of sequentially, but you know we had some largely our one-off items this quarter or unusual items were related to the project Everest implementation. You know this is going to be the heaviest quarter for us on that. You know I would expect you know some additional uh some additional implementation costs here in Q2 and then largely those are going to be behind us.

Speaker 4: doing our awards to employees. That's essentially going to be approved sort of over the quarter. So that'll be kind of flat and, you know, expect to see a similar impact there in future quarters this year as we saw it this quarter.

Speaker 4: That's essentially going to be a crude over the quarter. So that'll be flat and expect to see a similar impact there as in future quarters this year as we saw this quarter.

Speaker 4: Then I think I mentioned some of the investments that we're making, perhaps some of the content investments in VIX and otherwise. Look, those should be more pronounced here in the early half of this year, but once we sort of ramp up our activities in those levels, the negative impact of those startup costs are going to be behind us. So it's more of a first half this year impact. Second half of this year, we shouldn't be seeing some of the drag from that.

Speaker 4: And then of course, I think the last item I called out, it's a bit unpredictable, you know, about how it'll continue to impact some of the costs for occurring on the discussions with regard to sort of the, you know, the take private. So there's a bit of an overhang on that, you know, depending on how that goes, you know, there could be some continuing costs for occurring there.

Speaker 2: to on the prepared remarks, our strategy in Panama, if you were to look at our acquisition plan Marcelo, it is one of those cases in which everything other than the pandemic

Speaker 2: that was not in the acquisition plan, has happened as we expected, and very much as the playbook or the acquisition plan indicated. But not largely was.

Speaker 2: in summary, sustain and hold

Speaker 2: on the home part of the business because when we bought the asset we had 70% mobile else sorry home market share which we still do so that was never for us to be the source of growth but that was the base soup on which we could tell a lot of mobile by cross selling to that home base and that's exactly what you have seen you've been selling basically mobile to that home base and today you know a mobile market share is in the high 40s

Speaker 2: when we started out it was in the mid 30s. So that was the acquisition plan. My point being that the fixed market in Panama, for us it was always meant to be simply a steady cost for producers.

Speaker 2: Which is what it has been you're not supposed to see a lot of net games coming from Panama You're not supposed to see a lot of our pick up coming from Panama because it's meant to be Just basically the static actual producer that it has been and it remains that way Interestingly, I was in Panama just last week and I walked the fixed networks

Speaker 2: both the fiber that we're deploying in some areas in Panama and the lowest economic areas where we used to have, but still have a lot of MDS. And I was surprised at the demand for products still at home in Panama, particularly in the areas where we are upgrading all the MDS network to fiber.

Speaker 2: I was surprised for the pull of the product and I was also surprised by the impact of the content that we've been buying and its relevance to...

Speaker 2: the subscriber base there. All of that simply to say pretty steady. There's some room there for improvement as we build a little bit more footprint. But it's not meant to be the source of our growth. The source of our growth in Panama is to continue to be a mobile pick up.

Speaker 2: People business in Panama while I were on Panama is really making you know what it should be doing It's a new brand, but it's beginning to really pick up speed in

Speaker 2: in Panama and obviously Tico Money which we will be launching later this year in Panama. So those are the things in the places that are still coming in Panama. It will be much more and the Tico business part and then Tico Money.

Speaker 1: Thank you. Thank you very much. Great. Thank you, Marcelo. Our next question today will be coming from Sunit Datta at New Street Research.

Speaker 5: Yeah, hi, guys. Thanks very much for letting me ask a couple of questions. The first one, please, on Alex.

Speaker 5: So you've talked about easing off on some of the investments this year and capex coming in perhaps 100 million lower.

Speaker 5: Should we sort of be thinking about this as a new run rate going forward, other things equal? Or is this really quite temporary given some of the software macro conditions in a couple of the markets? I guess particularly thinking through the equity free cash flow guidance period. So.

Speaker 5: through to the end of 2024 is that you know it's had 100 million saves that 200 million save would be would be Interesting. Thank you and then the second one please on Guatemala would just like what would be great if you could maybe Mauricio just kind of Remind us of the cadence as to how everything has played out there and it sounds like pricing has stable

Speaker 6: We.

Speaker 2: So let me start with Guatemala and I'll give Sheldon a little bit of time to...

Speaker 2: figure out how to answer their math question that you are so very practically putting in front of him. So Guatemala, as you saw from the charge, is delivering quite well on the home part of the business which is growing. It's actually one of the countries where home is got a lot of potential going forward.

The tickle business in Guatemala, as I've said often, is also an area in which we now, with us owning 100%, it's easier to deploy the entire strategy, including Guatemala and even the relative size of Guatemala in Central America. It's an area that is growing quite well and we expect to continue to grow.

to grow well. And so, so is post-paid and we've already talked about Tiga money being relaunched in Guatemala. So, the challenge has been concentrated in prepay as all the other subscription businesses continue to grow. And as you recall, maybe about a year or so ago, it was a pick-up in prepaid competition basically, a competitor significantly to our selected process.

And we responded, if you recall, with a strategy that we believe has paid off handsomely, which is to defend by strengthening the network, which we have done. We also were able to head a 700 MHz spectrum earlier this year. And I can tell you, because I was in Guatemala earlier this month, that it makes a big difference to consumers. That was the dominant some.

And we mostly we responded by strengthening the commercial distribution channels. That's what we mean by investments in the commercial distribution and that's why you see it hitting only the DA. And that has worked extremely well because it has been allowed us to defend.

the long-term health of the business, the pricing levels, if you will, while continuing to sustain our market leadership, market share, and our number of subs. So if you look at the top line on pre-paid, the volume part of it has held.

to the business, the pricing levels, if you will, while continuing to sustain our market leadership, market share, and our number of subs. So if you look at the top line on prepaid, the volume part of it has held precisely.

We still have the same market share, we still have the number of better subscribers, we don't have subscribers, etc. And what we're beginning to see now, because this is important, we haven't seen any

increased price erosion. Our competitor hasn't doubled down or continued. As a result of that we believe that we've stabilized the market and our strategy paid off correctly. It doesn't mean that it didn't have an impact as I alluded. It has been the right strategy to defend our volume or market share.

and the pricing levels, the money has gone into the commercial distribution networks. So we're actually very pleased with having made these investments. Today they look at the way the right investments to make. Totally get the facts from it that it means our Q1 EBITDA.

looks awful in Guatemala, totally get it. But I realized that, you know, accounting geography is what it is, but we view it as a very good investment.

for sustaining our leadership in Guatemala. And because reloads are now picking up and our subscriber has remained the same, we're actually quite positive towards, you know, the comeback of our prepaid revenue in Guatemala in the second half of this year.

There's also going to be just to be clear, so mathematical effect, right? We're going to allow this competition kind of into the second half of the year, so that's going to help out a little bit.

So I'm just adding the math to the actual color on the market. Hopefully that's pretty consistent and pretty...

pretty detailed for you. And Sheldon, hopefully you got the calculator out. And you're assuming the specific yearly targets for airplane productivity. Hey, Sumit, good morning or good afternoon for you. Yes, on the CAPEX side, I think we're trying to talk about we do have

flexibility and how they're going to just cat-backs what have as needed in the business. I think we've demonstrated that kind of historically as a company. But if I kind of went on tick the $100 million sort of reduction that I've pointed towards in my preparedness, it's kind of really in three buckets. The first bucket is kind of we're recalibrating our home bills, predominantly in Bolivia and Columbia. That's really sort of, you know,

macroeconomic driven and sort of you know competitive overseeing from a competitive perspective driven uh that's discretionary right so that's something you know we'll continue to evaluate uh next year and the following years and if you know we see things you know differently than what we see them today you know that can that can come back um the second bucket i would say in it's about a third of that of that total reduction again is is more it's really activity based uh it's sort of you know some of the lower activity on homes

the home connections. Now that's largely market driven, but some of that is self-imposed and I would say kind of discretionary as well. I mean, we're being a bit more, you know, kind of selective around additions right now, given the current environment. We're keeping maintaining connectivity costs for customers on home just to make sure we're kind of managing the customer base we're bringing in. So that's going to be a bit variable and you know, we can kind of pull some levers there.

future periods as well. So, um, um, so I've kind of go with break it down sort of in that, uh, you know, in that fashion, you can understand a little bit how, you know, how that could evolve for future periods.

I'm going to add a couple of things to those. One is a reiteration of the last point that Sheldon made, which is not small. Earlier this year, we went to all of our vendors with three-year plans.

capacity needs. We negotiated deals for the long term, allowing us then to get pretty decent pricing, which is part of the quote-unquote savings that you're seeing in Capex. So we're being able to do the same or more with less dollars.

And the second point is simply to highlight the notion that we've consistently talked about a long-term, topics in terms of erasure to be around 15%. So since you've surprised anybody that although there may be some ups and downs in quarters and even years, that's where we think the business will trend towards.

Great. Thanks, Sumit. Our next question will come from Lucas Chavez at UBS.

Thanks for having my question. So continue on the previous question. I have two on my side here. So I would like to know on the free cash flow, but to accurate it now. So what do we expect to the remaining of the year and considering out the cumulative target that you have for the next three years, what do you expect to achieve?

So I'll start a little bit on the Eccrypica flow and then handle the produce to shell them for those.

The two financial targets that we've set out for this three year period are

quite interrelated. Our operating cash flow growth, and it's also related to the CAPEX question, is on track for an average of around 10% organic per year for this community period, and that's the driver behind getting to that equity free cash flow number.

which as we've said repeatedly, it's back-ended. So you can expect that next year there's gonna be an increased pickup on our equity-free cash flow.

And our long-term targets for leverage remain the same, 2.5 by 2025. So I'm basically reiterating what we have consistently said, reiterating the notion that we're on our way there. Any color, Sheldon, you want to add to any of that?

increased a bit here, but it's a combination of a number of factors. One is the seasonality of our cash flows, which I think we've been pretty clear about that, I think, and what you've probably seen in the way we reported. So there's a bit of a cash outflow here in Q1, which has led to the uptick in leverage.

And we had some FX translation issues this quarter. You know, the COP, the Colombian peso appreciated about 5% from year-end levels, which meant, you know, negatively impacted the amount of debt we booked on dollar basis. But then on the same time, you know, the average rate depreciated year over year about 17%, which meant, uh, it negatively impacted our LTM EBITDA.

kind of an unusual combination for, you normally see the movements kind of move in similar directions here, they're kind of moved in opposite directions. And also I think there's some unusual items as I talked about hitting EBITDA, you know, the Everest implementation costs and some of the higher share-based comp, you know, we will eventually lap those in our LTM EBITDA calculations. So, look, several of the factors I've been highlighting here kind of short-term in nature.

in already part of our planning. So, by seeing through it all, you know, I remain sort of confident in terms of where we can get leverage, you know, in the medium term. But there will be some items here that we're going to have to sort of work our way through and kind of go through the system here kind of in the short term, you know, from our overall leverage ratio. I'm just going to add a little bit there.

payback on that as well within the year and certainly to the future year. So squarely for us investments.

Investments in content and Tivo money and Lati, they're also very good investments regardless of the fact that geographically they hit it with DA. And as I was responding earlier to the question by Sumit, even investing in the commercial distribution network in Guatemala we see as investment into the long term sustainability and profitability of that business.

So I'm just adding that to the conversation so that you get a feel for how we see this Q1 as being really an investment in the long term health part of the business.

That was very clear. Thank you. Thank you very much. Great. Thank you, Lukas. Our next question today will come from Frederick Whistle at Handel's Lincoln.

Thank you very much. Thank you for taking my questions as well. I have maybe two if we could come back to Colombia a little bit. In 2022 you partnered up with a third party to be able to access more homes passed and I was curious to see how you're progressing with that if you're connecting anything or if it's early on and the status of that and maybe also if you could.

on your broader geographical scope talk about homes connected. I can see that you talked about homes past coming down.

How do you work with the homes connected and how do you feel that that is progressing as well in more general terms? And then if we stay with Colombia, the spectrum auction, there is a spectrum auction coming up, right? So it would be interesting to hear the timeline. And also if you would use the last spectrum auction you had in Colombia as a blueprint.

how would payments for the upcoming look like? I'm not sure if it's similar, if the rules are already set or something like that would be interesting to hear. Thank you. Thank you, Fredrik.

Very good question. So the first one I'll kind of bundle the Columbia with the rest. So on our home business as we said earlier we're seeing softer the man that and we had seen before part of it is is basically the the ebb

The first one, I'll kind of bundle the Columbia with the rest. So on our home business, as we said earlier, we're seeing softer demand than we had seen before. Part of it is basically the ebb coming out of the market.

the pandemic, the aftermath of the pandemic, there was a lot of demand during the pandemic. People are back into the offices, residential broadband demand is slowing down and as a result of that there's a natural head. It doesn't change our long-term outlook for the business, but we're cognizant of the fact that it is lower. And there's also the macroeconomics that are weighing down on demand and those are related to the two countries.

And this is where I answer the Columbia, as we said, where we're seeing softer demand. And those are really Bolivia and Colombia. The rest of the geographies in terms of homes connected and demand remain pretty healthy.

So Central America continues to grow and even Paraguay, as you have seen from the results, is back to growth both on mobile and even on fixed. And you can expect fixed to even get better as we go into the year. So it's really all about Colombia and Bolivia, which have that effect of softer demand and a lot of macroeconomic turmoil and uncertainty associated with that demand.

And that explains to you why we are only softly selling in Bogota. Sticking with Colombia then on the spectrum, I should clarify that there is no option in Colombia currently underway. What we have in Colombia is the renewal of our license.

We've begun and are kind of on the end part of the process of renewing our 1900 MHz license. That's a renewal.

I think the terms are almost final. And as I said on my prepared remarks, they're coming in as expected. That doesn't mean that the cost of spectrum in Columbia does not remain high, it does, but you're coming in as we had expected. It is in final and that's why you send in my tone some.

you know, some parenthesis there. And as you know, all the ministers in Colombia changed yesterday, so we need to be cautious that this may take a few more months than we had anticipated.

It's coming out as we planned. And then we also alluded to the fact that we will begin the discussions around the renewal of our AWS spectrum in Colombia. So those are renewals.

is coming out as we planned. And then we also alluded to the fact that we will begin the discussions around the renewal of our AWS spectrum in Colombia. So those are renewals.

There are no other stated options in our region, and I'll make one exception. Of course, all governments talk about 5G, but as I've said often, that would likely be a

slow burning process in most markets. As you already know, in some of those markets we already have some 5G spectrum and some of those have already launched like Guatemala.

In Guatemala, importantly, and this would be very positive news, later in this year the government is working towards a auctioning of the 26.

100-megarex spectra. And that for us would be, or the 2.6 really, that for us would be a very, very important and valuable development for the industry as a whole in Guatemala.

But it's still in process, so there's nothing there to be specific about. I'm going to add, maybe just to live it on the Columbia spectrum, you would have seen or you may see in our results that we actually did put that renewal onto our balance sheet this quarter, about $250 million in aggregate. Now what Reece has sort of highlighted is what's still kind of undetermined is the payment terms related to that.

And that's for a 20-year license.

Yeah. All right. That's very clear. Thank you very much. Great. Thank you so much, Frederic. We will hand over the last question to Fanny Kanemuri from HSBC.

Thank you for taking my question. So the first one is related to the project Everest.

coming geographically? Is it something similar to the restructuring cost that we've seen? It's measured to the cost coming from Colombia. That would be my first question. My second question is in B2B. You've seen a strong growth from B2B. Again, which markets are you seeing the highest growth? I think it's a good question. I think it's a good question. I think it's a good question.

very, very clear distribution channels and a lot of work with our partners. So not surprisingly then, the areas that are having the most growth are what we call digital services, cloud services, service security, HD1s, right? That basically give perfect connection to our connectivity products. So we provide the digital services, the connectivity, and we have great partners. That coupled with good distribution, well-trained sales forces is giving basically what we call digital services, the ability to become the engine of growth. And that's why we see a very, very clear distribution

sustain growth to that B2B business. In terms of geographies, it's very broad-based, very broad-based. And you can imagine that the countries in which our B2B businesses were bigger, in relative terms, like Colombia and Panama, and this is where we're seeing quite a bit of traction as well. But also given our size, Guatemala. And I also believe that Paraguay is right in line to start showing some growth their own B2B.

So those are the answers on B2B. It's paying off. Strategy is now paying off and we're very, very happy to see. As I said often on B2B, as a telco we were underweight on B2B and in our markets there was a clear opportunity to put connectivity, partnerships, product segmentation, digital services, the data centers that we have been building all together into a product that caters to the business community.

right, is sort of changing sort of our approach in terms of how we're managing the business, you know, centralizing activities that make sense to do so, you know, across the organization and, you know, proving our kind of our operational efficiencies and how we manage businesses locally. So it's going to be impacting sort of all countries, you know, I think what you're kind of seeing so far is some of mostly the

it's going to be very, very broad based. But once again, just looking at the progress of what we're making this year, I did indicate that we're on target to exceed the $100 million of savings by the end of 2024. We're on target to exceed 50% of that, or $50 million of run rate savings by the end of 2023.

And if you're, you know, and I mentioned, you know, we're incurred bulk of our, of our implementation costs here in Q1, there'll be a bit more to come, but 2023 and aggregate's going to see, you know, immaterially positive sort of that impact sort of within the year, you know, even taking into account those, those one-off costs. So you know, some really good progress on Everest and you know, and, and we're well on our, on our tracks delivering that. And so we'll be seeing benefits, particularly in the second half and then really into 2024. Okay. Thanks. Thanks.

I think your other question is just around CapEx, which I think we largely addressed in my comments to Sumit just a second ago in terms of, you know, we're seeing about $100 million, you know, CapEx lower this year than last year.

across those kind of three buckets. And how that plays out in future years, I think is some of it's in our control. Some of this will be sort of just managing as we sort of see the activity based and then we see the environment. And some of that's gonna be much more sort of longer term or permanent as we talk about some of the pricing benefits we're able to achieve with our key vendors. Perfect, very clear, thank you. Great, thanks Danny. I'll hand the call back over to Nodecio for some closing remarks. Thanks everybody for joining today and for the great session and questions. Just to finish off, I repeat number one, we realize that Q1 may spook a little bit on the ABDA, but don't be. Those are all largely, if not all of them investments that.

confirmed here. As you all know, it's back-ended. We've always said that. So look out for 2022, sorry for 2024 to be the year when that really takes off. Number two, in terms of value drivers and things to keep an eye out on, by year end, we will be unlocking the value of our tower infrastructure. Get loaded tomorrow for test PHD Check airport Trip

that is meaningful at all levels and you know the math on that and how that will help create your older value and make the business a more focused business. Number three, there's also keeping value in our data center portfolios and outside on our fintech business. As I said earlier, we're very happy with the way Tigo Money is playing out. It's delivering on all my expectations and the possibility of future value. And number four, which I have just added given the question earlier on.

There is upside here in some inorganic improvement to Colombia, whatever the flavor of that may turn out to be. So hopefully with that you get a clear picture of what we're focused on and where we see the value levers for the business coming from. Thank you for joining today. hook

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