Feb 11, 2022
Michel Morin
Hello, everyone, and welcome to Millicom's Fourth Quarter 2021 Earnings Call. I'm Michel Morin, Head of Strategy and Investor Relations at Millicom.
And this event is being recorded. Our speakers today will be our CEO, Mauricio Ramos; and our CFO, Tim Pennington.
And after 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 and along with the slides that we will be referencing during today's presentation.
Now please turn to Slide 2 for 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.
We will also be referring to many non-IFRS metrics throughout the presentation, and we define these metrics on Slide 3, and you can find reconciliation tables in the back of our earnings release and on our website. So with those legal disclaimers out of the way, let me turn the call over to Mauricio Ramos, our CEO.
Mauricio?
Mauricio Ramos
Thanks, Michel. Good morning and good afternoon, everyone.
Thank you for joining us today. We had another excellent quarter in Q4 to what was a strong finish to a solid year in 2021.
So let's jump right in with the highlights for the year on Slide 5. First, 2021 was a year of continued strong customer growth across all our business lines and in all our countries, we saw strong demand and robust customer growth throughout the year, and this continued on in Q4.
Second, we were able to convert that healthy customer growth into strong revenue and EBITDA growth of 7%, which gives us good momentum as we enter 2022. Third, in a year when we decided to invest to capture that growth, we delivered strong operating cash flow well ahead of our guidance for the year.
And fourth and finally, we continue to raise the bar on ESG, which we will discuss later today and at more length at our Investor Day this coming Monday. Let's look at the details beginning with our home customer growth on Slide 6.
We now serve more than 4.1 million cable customers. We added a record 415,000 new customer relationship in 2021, and roughly 700,000 in the last 2 years.
This customer growth in our home business over the past 2 years is even more significant when you consider also, and we're seeing better pricing, including charging for installation fees in many countries. Our home ARPU was up 2.5% organically in 2021.
That's our strongest ARPU growth in the last 4 years. And in fact, we have raised prices throughout the year in the vast majority of our markets.
Now turning to Mobile on the next slide. We had our strongest performance in years, adding more than 3 million subscribers, including more than 1 million in postpaid, which is right on the back of our strategy to push postpaid in our markets.
This is mostly due to our record performance in Colombia, but practically, every country had a solid year in postpaid. So our customer base is up 22%.
And finally, we saw steady growth in our B2B customer base throughout 2021, driven primarily by our SME client segment, which grew every quarter and ended the year up 16% year-on-year. On Slide 9, you can see how we've translated our customer position into strong service revenue and EBITDA growth of 6.7%.
And you can see on the right that every country and every business line reported positive growth for the year in 2021 with our home business leading the way with 10.9% growth. Now let's take a look at our performance in our largest countries, beginning on Slide 10 with Guatemala, which had yet another fantastic year.
Guatemala provides a good example of a country where we have consistently invested in our network, in our brand, in our distribution, in our customers and in our team, and the results speak for themselves. Over the past 2 years, we have made strategic spectrum purchases that have allowed us to drive our NPS scores higher and that continue to add customers.
In a country where 80% of our revenues come from mobile, we grew service revenue by 7%, and EBITDA by 10%. And as you can see on the next slide, we closed the year ahead of all the targets we set when we announced the acquisition of our minority partners 45% stake back in November.
Take good note of the numbers on this page, both on the left and on the right, because it is not every day that you see a telecom business with an EBITDA margin of more than 50% and an equity free cash flow margin of 30%, a business that we now own 100% of, and that continued to perform very strongly. Now let's take a look at Colombia on the next slide.
As you can see, our customer intake was very strong and very consistent throughout the year, and we had a monster year in postpaid with 800,000 net adds. It used to be that a good year for us in Colombia was something around 100,000 postpaid net adds.
We got 800,000 in 2021. And you can see on the bottom left that this customer growth is driving our top line, which is clearly reflective driven by mobile.
And that is starting to lift our EBITDA as the incremental revenue is now beginning to offset the higher customer acquisition costs that we have been in currency since Q2 of this year. And that sets us up for a solid 2022 in Colombia.
Now let's look at Panama. You all know the story here.
We bought 2 leading businesses and our team did a hard work of combining and integrating them throughout the pandemic. And we have emerged as a clear leader in the Panamanian telecom market with every part of our business growing along with an economy that is now recovering strongly.
So as you can see, our 3 largest countries performed very well in 2021, and we have entered 2022 with excellent momentum. Now let's shift gears a little bit to look at our operating cash.
We told you at the very beginning to 2021 that we saw an opportunity to invest more than usual this past year in order to capture some additional growth that we saw in the market. And we did just that.
We invest -- we added record numbers of home and postpaid customers, and we sustain mid-single-digit service revenue growth, consistent with the long-term growth ambition that we had outlined before the pandemic. And we've also told you that we would deliver at least $1.4 billion, and we have comped well ahead of that, even as we invested heavily to support our customer acquisition and as near completion in some important mobile network projects that have been going for a while.
These investments now position us to sustain our strong momentum into 2022. Finally, 2021 was a watershed year for ESG agenda, and we continue to raise the bar in this area.
We take our role as agents with positive change in the region very, very seriously. And we want to raise the bar even further.
So come next Monday, during our Investor Day, we're going to talk a lot more about the commitments we're making for the long term in our ESG agenda for the region. Now let me turn it over to Tim to provide the financials for the quarter.
Timothy Pennington
Thank you, Mauricio. Let me take you through the Q4 numbers, the balance sheet situation and how we intend to report in 2022.
So starting on Slide 16. This is just our usual bridge from the reported IFRS numbers for the quarter to the underlying numbers for LatAm service revenue and EBITDA, which better reflects the way we manage the group.
With the consolidation of Guatemala, which took place midway through Q4, this will be the last time we report like this. In future, we will focus our attention on our IFRS results.
But for this quarter, we will continue to discuss our performance for the LatAm segment as we've done in the past several quarters. So let's go to Slide 17.
We reported positive year-on-year growth in every quarter of 2021. In Q4, we saw 5.7% organic growth.
It was supported by a stable macro, remittances from the U.S. continued to be exceptionally strong and improved vaccination rates, which are now above 50% in several countries.
Now as you can see from the slide, performance was driven by the home business up 10% on last year, sustained by record net customer additions, improved penetration, which was up 200 basis points in HFC and stable ARPUs. There was another good performance from our consumer mobile business, maintaining a very healthy 4.2% year-on-year growth, driven by subscriber growth.
We're now just under 45 million customers and a more stable ARPU environment. As a reminder, our consumer mobile business has already returned to pre-COVID levels.
So the 4.2% growth we reported in Q4 of this year is against the most challenging comparison of last year. This should give you a better sense of the strong momentum we saw during Q4.
Thanks in large part to the additional investments we've made in our mobile networks over the last couple of years. And finally, B2B delivered positive momentum, 3.3% up on a year ago as the majority of our countries saw performance improvements.
Now drilling down further on Slide 18 to service revenue performance by country. Once again, every country performed better in Q4, than they did a year ago.
Standout performances were from El Salvador and Panama, whilst Colombia accelerated. El Salvador continues to sustain a very strong performance with all 3 business lines performing well.
Whilst in Panama, this was the third consecutive quarter we've grown. Mobile has been particularly strong over the last couple of quarters, and we saw double-digit growth in B2B, which is a very strong sign that our B2B business is beginning to return to precoded leverage.
In Colombia, our consumer mobile business accelerated to almost 13% year-on-year, driven by growth in postpaid mobile. We're now approaching 2.5 million postpaid customers in Colombia.
And we're starting to see this drive our ARPU higher. It increased sequentially for a second consecutive quarter.
So the strong mobile performance was the main factor driving the overall acceleration to 6.4% in this quarter. Guatemala by standards had a quieter quarter.
Q4 last year was exceptionally strong, so this is always going to be a tough act to follow. So if you look at Guatemala for the full year, it's grown by 7.3% overall.
Okay, I want to turn now to EBITDA on Slide 19. LatAm EBITDA of $617 million was down 2.7%, largely on cost impacts.
Direct costs were up mostly because of bad debt return to a more normal run rate compared to a year ago. Recall that bad debt charges last year were distorted by the impact of COVID.
So our bad debt was $20 million higher this year. With respect to OpEx, ratio showed the very strong customer growth, but this comes at a cost, largely reflected by higher commissions with also costs linked to subscribers like content costs, network costs.
In total, this added around $20 million to OpEx compared to last year. We also incurred an additional $8 million of corporate costs to support our Tigo Money investment.
Now we see this level increasing to around $10 million per quarter in 2022, which will be largely reflected in corporate costs. Now looking more closely at EBITDA performance by country on Slide 20.
A mixed picture here, as the factors I've just explained on the previous slide had differing impacts at the country level. Starting with Panama, I'm very pleased to report a very strong result, up 19%, revenue driven, but also with strong cost control, especially in the second half of the year.
Elsewhere, Guatemala, Bolivia, Honduras and Colombia were affected by the bad debt normalization I referred to earlier, whilst additionally, Colombia was also affected by higher network maintenance costs. Guatemala was also impacted by lower margins on handsets, which were more expensive due to the global chip shortage.
This is the one market where we sell a lot of handsets. In addition, the growth in customers did put pressure on our network costs.
In Honduras, we had very strong subscriber growth in the fourth quarter. This contributed to higher sales and marketing costs.
It was also affected by higher electricity costs, dampening the EBITDA performance. And then finally, Paraguay, where we saw a decrease driven by higher costs on commercial activity, particularly a new exclusive soccer contract and also in MFS.
Now moving to Slide 21, you can see how our operating cash flow, that's our EBITDA less CapEx compared to the previous year. You can see that we added $129 million to our EBITDA, but as Mauricio has already explained, we decided to invest our EBITDA growth into higher CapEx, largely a catch up on the lower investments in 2020 and to take advantage of the opportunities that Mauricio outlined.
And as a result, OCF was 2.6% lower at just over $1.45 billion, but this was still well ahead of the guidance we gave. Finally, let me close on the leverage situation.
The major transaction in the quarter was, of course, the acquisition of the remaining 45% in Guatemala for $2.2 billion. This is the reason net debt is $1.7 billion higher than it was a year ago, closing the year with just over $7 billion in net debt and $8.3 billion if we include leases.
You have also seen we've been very active in the debt markets, rebalancing our maturity profile with the consol bond announced on the 28th of January. So we've now largely concluded the refinancing of the bridge loan.
This gives us a proportionate net debt to EBITDA of 3.36x at the year-end, which pro forma for the up and coming $750 million rights issue would releverage a fraction over 3x. That's lower than 3.1x we indicated at the time of the deal.
And talking of rights issue. At this point, we would normally give our outlook for the year.
But because of the rights issue, we have some legal constraints and can't comment specifically on 2022. What I can share with you is that we are targeting organic OCF growth of around 10% on average over the next 3 years.
And we will be giving you more detail about our medium-term plans in the Capital Markets Day on Monday. So with that, let me pass it back to Mauricio to wrap up.
Mauricio Ramos
Thank you, Tim. Before we take your questions, let me recap the key highlights of the year.
We had one of our best years ever in terms of customer into. We added more than 3 million mobile subscribers, 1 million of them on postpaid and 415,000 net additions to our home cable fiber business.
Service revenue and EBITDA grew strongly with both up 7% and in a year in which we chose to invest in the business, operating cash flow came in well ahead of our target. And finally, we completed the acquisition of our minority partner in Guatemala in a transaction that was immediately accretive to our cash flow and to our net income and that will make it easier for us and for you to model and value our business, as you will see beginning with our Q1 reporting in April.
With that, we're ready for your questions.
A - Michel Morin
Thanks, Mauricio. So we'll now proceed with the Q&A session.
If you'd like to ask a question, please e-mail us at [email protected], and we will add you to the queue. You may also e-mail us your question and we will answer it at live.
We'll now go to Diego Aragao from Goldman Sachs. Diego?
Just give it 1 second to team up.
Diego Aragao
Yes. So look, my first question is on the leverage.
This should be at around 3x EBITDA adjusted for the future right offering, as mentioned by team. So just wondering, if you can comment on your expectation for the leverage, for instance, what will be a sustainable level for your business?
And how long it will take for you to get there?
Mauricio Ramos
Diego, that's a great question. And I have the luxury of having 2 CFOs.
And so one thing I'm not going to do is take the leverage question today, Diego. Let them figure out who's going to take it.
With that, I just want to make sure everybody meet Sheldon to my left. He is a new guy in town.
You will see a lot of him on Monday, because they see the ground running, and he can answer just about any question that you can throw at him. So he's only getting Tim's help today, just because he's on apprentice seat for a little while.
So you got to figure out, who's going to taking the leverage question.
Timothy Pennington
Okay. I'll start because then Sheldon can sort of disabuse anything that I say in the .
And look -- but no, look, I mean, we've been very focused on leverage. And very pleased that on a pro forma basis, where with just a fraction above 3% at the year-end.
And we said that we're going to be below 3% by the end of 2022. And in fact, on Monday streaming we're going to target 2.5x by 2025.
We should be in that ballpark. But Diego, I don't want you to misunderstand.
We're still targeting that 2x that leverage target within that is the right operating level for us.
Diego Aragao
Great. I guess maybe the second question and first, nice to meet you.
Looking forward to see you in person. So the second question is regarding Colombia, versa performance side that market despite a growing competition, right?
So I just want to get your views on the outlook actually for the market, especially because theoretically speaking, I think the competition should continue to be tough in that market considering recent transaction from KKR with Telefonica recent, let's say, comments from America Moto about their expectations for Colombia. So I think it will be good to hear from you about that market in particular.
Mauricio Ramos
Yes. So, thank you, Deigo for that.
You'll see a lot more on Monday, but we like the decision we're in Colombia for the long term. We got the spectrum.
We're the largest holder of 700 gigahertz spectrum, not strategically very relevant. We're putting in to use with a network that today for the second year in a row have been externally evaluated as the best network on just about every category in the country.
Now on the back of that, we've increased distribution and service layers through the organization. We've invested heavily in our commercial capacities.
And we've also continued to deploy our fiber cable network in Colombia, very successful, which gives us on mobile, the ability to offload, put WiFi to . So when you look at the strategic picture in Colombia, and yes, it's competitive.
And yes, Telefonica has made a partnership with KKR, where we sit strategically is 1 million months better than where we were 2 years ago. It's a very strong position.
Now the thing that has to change, because I've been saying this now for a few quarters, right? The thing that has change is that before, I was saying, listen, it's common.
We're going to win. Today, you now have a few several quarters in which the numbers are really coming our way.
It's 1 million postpaid net adds almost that we have in Colombia 800,000. Our market share has picked up 200, 300 basis points just this year.
And in the context of the mobile market that is indeed competitive and which has seen prices come down, our revenue. The overall competition on price and quantity is actually up.
And as we anticipated and are going to know the orders, there would be an inflection point was in Colombia. And I said it's just coming out of what is going to be Q4, Q1 -- there's not capping last time around.
You already see it in Q4, clearly picking up revenue, clearly affecting the EBITDA, and because a lot of the network buildup half of that, 2/3 of that is behind us, then OCF is also picking up in Colombia. For the first time ever, we have market share of mobile that's in the