Mauricio Ramos: Overall, Marcelo, it feels like Colombia is now well-understood and under control. Pricing is more stable. We got network and capital synergies, and spectrum renegotiations are behind us. We have the ability to work on network spectrum with Telefonica. So it really is a more positive outlook on Colombia overall.
Michel Morin: Thanks, Marcelo. Next, we’re going to go to Phani Kanumuri at HSBC. Phani, the line is yours.
Phani Kanumuri: Thanks, everyone, for taking my question. So, the first one is on your free cash flow guidance. When we met last time during the quarter conference call, it was announced you had a cumulative guidance of $500 million. Now, you have increased this to almost $700 million. All that — is all the incremental guidance coming from organic growth due to Project Everest or is there some kind of inorganic contribution? And can you also talk about one of the — any one of impacts like the legal case with Telefonica that the recent New York [indiscernible] has given. That’s the first question.
Mauricio Ramos: So as you can imagine, we imagined ourselves that there would be some questions around this revamped guidance. So, we’re going to tackle it three ways to give you a holistic response to you, Phani, and to everyone on the call who surely have the same kind of questions. One is, where each one of the big contributors to equity free cash flow pickup are coming from, and this will be consistent with my prepared remarks. I’ll give you more detail on that. Then, Sheldon will give you a little bit more detail on kind of the P&L items that contribute to this equity free cash flow, and then Maxime will further ratify that with the operational and Everest view on this. So, you get a holistic answer to this and kind of lay all your questions.
So number one, in terms of where we see the equity free cash flow coming from. I already addressed Colombia, so I’m not going to repeat. Colombia is a meaningful contributor to our swinging equity free cash flow for the strategic reasons that I just mentioned, and for the results of the projects that allow Colombia to grow in margins, and have more equity free cash flow productions. I’m not going to repeat those because we’ve addressed them significantly. The second largest contributor is Guatemala. For the last three years, you have seen us invest in the density of the network in order to, quite frankly, defend our market share. We also have had to invest in spectrum in order to be able to have a better network experience and spectrum parity, and we’ve seen pricing pressure as a result of the perceived lack of spectrum or network parity.
That has changed dramatically over the last two quarters because we’ve been able to buy spectrum. With that spectrum, we’re now able to optimize the network. And as a result of that, we’re no longer investing in spectrum and the investments in the networks can be optimized in rational going forward. And as I said in the prepared remarks, we have a more stable, rational pricing environment. So as a result of that, Guatemala is significantly coming back to growth, and you layer on top of that margin expansion as a result of Everest on a revamped way. So in synthesis, Guatemala is also working. So, we’ve really put Colombia under a controlled environment, growing environment, the same with Guatemala and those are our two largest markets. But if you add to that Panama, and if you recall from my prepared remarks, we were not in Panama four years ago.
We’re now Number 1 in Panama and it is our second largest contributor to equity free cash flow in 2024, right next to Guatemala as the Number 1 contributor. So, you put these three contributions, then you add on top of that Everest, and the increased, bolder ambition on Everest, and you get a view for why 2024 is the year of cash flow. And if you look at this holistically, over the last six months, once we were able to strategically start showing the work of the last few years, working out in Colombia, working out in Guatemala, we were able to really focus on Everest and increasing Everest and the methodology, the challenge, and the support, and the execution that Atlas and Maxime brought into the team came at the right perfect timing because the platform changes were now ready for that profitability boost, and that’s why I publicly said thank you because the timing was perfect and the methodology and the execution was really good.
So, that’s an additional element to this free cash flow revamped ambition. But we’ve also, as we’ve also said before, are now in a lower spectrum spend environment. 2022 and 2023, as we always said, were the years in which we would have to renew spectrum in Colombia, buy spectrum. We’ve done that, 5G in Colombia with Telefonica, we bought [indiscernible] in Guatemala. So going forward, we’re looking at more normalized views on spectrum. And of course, we’ve invested heavily on Lati. And as I said earlier, we are now more in the monetization phase of Lati, but that was an investment that happened. When you put it all together, it comes into 2024 being the year of our cash flow. Now, with that sort of big picture, I’ll hand it over to Sheldon to give you details and Maxime to show you the good stuff that we’re doing on margins and efficiencies.
Sheldon Bruha: Sure, Phani. I think your main question is sort of how we — why the increase of guidance kind of from the time period of December until today. Look, I’d say part of this. There probably was some conservatism in what we said in December as we were still, had a lot of these plans in flight, and was trying to [indiscernible] stuff get implemented. I think Maxime mentioned a lot of the things that he sort of brought to bear when he started reviewing and getting involved in sort of the adverse activities. And you can see the upgrade and what we’ve done around the Everest ambition from sort of the $135 million we talked about at Q3 to like the — over $250 million today is really tantamount to all those things we were doing in Q4.
So, I think we were a little bit cautious as we were sitting in December. I think once we had the opportunity to see sort of how all that made itself out in our numbers for financial results for the full year, plus the start we’ve had at the beginning of this year in January, and what we see here in February has given us the confidence to raise that outlook and raise the numbers and provide what we said to you in the results today.
Maxime Lombardini: Just — I think if you allow me, I can rephrase your question, which is in a way is the cash generation for the company something viable and just to complement the words from Mauricio and Sheldon, I would say there are five good reasons that, I trust, will support the cash generation for the medium and long term. The first one is the way the company works. We are changing the way the company works by simplifying many, many things. And that by simplifying you are saving costs, you are more efficient, more flexible. That is the first item. The second one is the one that we mentioned many times, the cost structure. It will not be the same anymore on many topics. I will not enter into the details that. The third one, which is probably undervalued, is the network optimization.
We started a huge work with the contribution of Atlas on simplifying and optimizing the mobile network and the home network. And on top of that, we will have the benefit of the network sharing in Colombia. That is a huge benefit both on spectrum cost, efficiency coverage, quality, and cost. The fourth one, it is something that is not easy to show, but that is the commercial initiatives that we are launching in all the countries. And I’ve been very impressed by the commercial team of TIGO on both B2C and B2B. They are really top guys and there are many things that we can do with the strong assets that we have. And then the fifth item is something which is very simple and I would say it is pure mathematics. It is the deleverage of the company — deleveraging the company will improve the cash generation.
Mauricio Ramos: Hopefully, Phani, that gives you the strategic, financial, and operational view. And if that is convincing, then just sit tight as we deliver it.
Phani Kanumuri: Sure. Just — so my second question is regarding the pricing environment in Guatemala. You said it was becoming much more stable. So, are you seeing the competitors raising prices, or do you think that your network — better network is helping retain subscribers and increasing your ability to raise prices? Thank you.
Mauricio Ramos: Maxime, do you want to take that one, and provide a fresh view for Guatemala?
Maxime Lombardini: I would say optimistic and cautious. We are back to a situation which is quite nice. As probably Sheldon said before, the compares are not very easy because we had the World Cup effect one year ago, but we increased price. The KPIs are good, we have a good team there. The situation is, I think, after a trouble period, stabilized and now we are with government and everything going well in the country. So I would say reasonably optimistic on the future of Guatemala. And as you can imagine, we are spending a lot of time with the team there to be sure we have the right commercial positioning, the right network at the right place, and that all the investments that needs to be made are made.
Mauricio Ramos: Actually speaking, as you know, we raised prices in September of last year. That created a more rational marketplace. So, those price increases have stuck and we’re doing a little bit more beginning of this year because we believe the environment is a lot more stable with the network parity and the spectrum parity that we now have. So we are — I think, we’ve used the words modestly, cautiously optimistic about Guatemala, but we also have the ability now to rationalize the network which Maxime alluded to. So, Guatemala is now the cash flow producer that we all know it is.
Phani Kanumuri: Perfect. Thanks, everyone.
Michel Morin: Thanks, Phani. All right, next we’re going to go to Soomit Datta at New Street Research. Soomit?
Soomit Datta: Yes. Hi, everybody. Thanks very much for letting me ask a question and congratulations on the performance. A couple of things please. Maybe just sort of pulling the conclusion together on equity free cash flow. It sounds like there’s nothing particularly unusual in the 2024 guidance, and so should we think of the $550 million as a floor number going forward? Doesn’t strike me that we should think anything different, but be interested in your interpretation. Wondered if there was anything unusual in working capital, if spectrum was going to be particularly low, if there was some sort of detail there that isn’t obvious, but otherwise would be interested in your sense looking beyond 2024. That’s the first question. Maybe leave it there and I’ll return to a follow-up, please.
Mauricio Ramos: Soomit, you’re making everyone here very, very, very anxious with your very smart way of asking for future guidance. It’s really good. Michel’s not in the room, but I can hear him just trembling there, right. Let us answer it twofold. One kind of — we’ll provide guidance beyond 2024 at the right time. For now, we’re focusing on cementing at 2024, and I think it’s the right focus for us. But I will say just a little bit to make the team a little bit uncomfortable. It is sustainable and it can be grown because we’ve now on spectrum, reached levels that we think are more noble. As I said before, 2022 and 2023, as we always said were the years of high spectrum spend, and we’ve done that significantly both in Colombia with the renegotiations and Guatemala with the acquisitions.
We now have a joint venture in Colombia that allows us to tackle Colombian spectrum in a much more efficient way. The cost structure changes that Maxime has alluded to has been instrumental in putting in place our long-term cost structure so the platform becomes more profitable, and all of our countries are equity free cash flow positive. Colombia has seen the darkest moments over the last couple of years and we’ve been able to sort it out. Colombia seems on a track to be sorted out. Guatemala already alluded, we defended our market share on the prior question. I was simply going to add our market share remains the same, pricing is stable, we got spectrum parity so Colombia seems on track. And Panama is everything we expected it would be when we acquired those two businesses four years ago.
So, without giving you specifics, we are positive that this is sustainable equity free cash flow levels and growth.
Soomit Datta: Okay, helpful. Thank you. Can I just turn to the top line then? There was a nice lift from the B2B contract in Panama. I think underlying revenue growth is maybe running at 2%, give or take. How do you think about that looking forward, and again, not looking for numbers, but in terms of home, I think we’re maybe sort of flat to down slightly underlying — mobile growing a little bit, B2B is lumpy, but just thinking how you think about the sort of overall revenue mix component, and if you can, on the ability to sort of raise that current run rate of growth looking forward. Thank you.
Mauricio Ramos: I’ll give it a big picture and Maxime can definitely and please add to that. We’re still on?
Michel Morin: Yes. Sorry, our camera went dark.
Maxime Lombardini: Okay. Our camera went dark, so as long as we’re still on. So listen, postpaid on mobile is driving a lot of growth both in terms of additions and in terms of pricing. And you’ve seen that particularly in Colombia and Panama, but prepaid is also coming back, particularly in Guatemala. And we’re also seeing improving trends in Bolivia and mobile. Home, a continuation of what we said in the last couple of quarters, we’re being a lot more price disciplined and maintaining installation fees. It means lower volume as you’ve seen in Colombia and in Bolivia, but it means sustained ARPU and sustained revenue on home. And I think that’s the right approach. And I think Maxime and Atlas and ourselves view eye-to-eye on that.
And B2B as you’ve seen is delivering with both the digital and cloud products, but also new contracts that we are achieving, particularly in Panama. So, we’re focused on the top line in that manner. And Maxime, I can’t really see you on the screen, but if you have anything to add, just shout.
Maxime Lombardini: Yes, I think I am still on the screen, for me at least. I will just add some comments on the home business. The home business was a bit in a flat — flattish situation, and we started working on something quite simple which is to upgrade very significantly the capacities of the HFC networks. We are lucky because the quality of this HFC network in most of the geographies is good and with limited CapEx, we are able to very significantly increase the bandwidth we can deliver. So from time-to-time, we have to deliver also a new CPE to the customer, but that is something that we pushed on all the geographies where there is a need. And together with the revamping of some offers, we are able to be really competitive on the market with a very low CapEx intensity to deliver something which is drastically different from the past.
And that, together with the discipline that Mauricio mentioned, just to avoid to put CapEx in a country or in a situation where the churn is very high, we are monitoring the payback of the investors — of the subscribers, sorry. And I would say we are reasonably optimistic on what we can do with the 14 million households that we have passed in HFC. And on mobile, nothing to add to what Mauricio said. Things are going well in most of the geographies.
Soomit Datta: Got it. Very clear. Thank you.
Michel Morin: Thank you, Soomit. All right, next, and I think this will be our last question, is coming from Eduardo Rubi at UBS. Eduardo?
Eduardo Rubi: Hi. Thanks for taking my question. Two questions from my side. First, in terms of capital allocation, can you please compare how you evaluate allocation between debt repurchase and stock repurchase? And second, given the debt repurchase and current rate and FX environment, what figure should we expect for financial expenses going into 2024? Thank you.
Mauricio Ramos: The first one, Eduardo, I’ll take, and then I’ll hand it over to Sheldon for the second one in a lot more detail. Our capital allocation methodology, as you can imagine, and as we’ve said a number of times is basically highest return oriented with a view toward strategic investments as well, meaning stuff that has long-term return on capital. At this point in time, with our growing cash flow and our leverage coming down to the state of 2.5 times, sooner than we had expected, we continue to view debt reduction as the highest return to our shareholders. So that’s where our current focus is on and that’s all I’ll say on that because I think that is probably the most productive answer we can give you. And on the details on question number two, I’ll hand it over to Sheldon.
Sheldon Bruha: Sure. I would just highlight, yes, we expect sort of finance charge improvements this year, particularly as we deploy sort of the cash flow generation that we’ve highlighted. In terms of debt reduction, I’m not going to give you specific guidance on it, but, I mean, absolutely, we’re going to be looking for improvements there for the year and you can kind of do some math, so you can sort of forecast how that $550 million of equity free cash flow will come through the year and kind of the interest rate savings associated with it.
Eduardo Rubi: That’s okay. Very clear. Thank you very much.
Mauricio Ramos: Gracias, Eduardo.
Michel Morin: Thanks, Eduardo. All right, so that wraps up the Q&A. Mauricio, back to you for any closing remarks.
Mauricio Ramos: Sure. Thanks to Sheldon, Michel, and Maxime for participating and for the entire TIGO team to make this come through. Thank you all for joining us today. As you can see, things are coming together after a lot of work by a lot of people, Colombia is under control and with an improved outlook, Guatemala, indeed, is under control and with an improved, yet cautiously optimistic outlook. Panama is turning out to be what we expected it would be when we bought the asset, and we’ve allocated capital to Guatemala and Panama, and we’re happy we did because those are our two largest cash flow producers. Everest, which is now revamped, increased, broadened, is giving us a cost structure that we think will make our platform a profitable platform, and this is a wording that Maxime and I and the team speak about, a platform and making it profitable.
We’ve now seen the worst of the spectrum renewals and the spectrum costs. So going forward, we’re looking at more normalized spectrum spend as we anticipated and we’re looking forward to Lati and our ability to monetize some of that. When you put it all together in a cost structure that we think can give us increased margins and sustainable profitability, all of that leads to 2024 being, as we’ve often said before, the year of our cash flow. And thank you.
