Research Solutions, Inc. (RSSS) Q4 2022 Earnings Conference Call February 10, 2023 8:00 AM ET
Company Participants
Sarah Inmon – Investor Relations
Mauricio Ramos – Chief Executive Officer
Sheldon Bruha – Chief Financial Officer
Conference Call Participants
Stefan Gauffin – DNB
Sarah Inmon
Hello everyone and welcome to our Fourth Quarter 2022 Results Conference Call.
Before we begin, please take a moment to review the safe harbor disclosure on Slide 2 of the presentation, which is available on our website, along with the earnings release. Now during the presentation, we will be referencing non-IFRS measures, and we define these on Slide 3, and we provide reconciliation tables to the nearest IFRS metric in the earnings release and on our website.
I will now turn the call over to our CEO, Mauricio Ramos.
Mauricio Ramos
Good morning and good afternoon, everyone. Thank you for joining us today. Let’s go straight to the highlights for the year, starting on Slide 5. I — on the left, you will recognize the value creation framework that we presented at our Investor Day almost 1 year ago today. Back then, the global economy was bouncing back strongly from the pandemic and the economic outlook was quite positive. That changed quickly after Russia invaded Ukraine, energy prices spiked and inflation and interest rates moved up sharply. Despite this abrupt change, we have stayed the course and continue to execute on our plans. We’re actually quite used to executing and delivering through uncertain times. And that’s what we did in 2022. We delivered on our objectives with a good outturn for the year, as you will see during today’s presentation.
Operationally, we focused even more on our customers, and we invested further in our networks, high into our people. All of this produced strong financial results. Organic OCF growth was a strong 8.4% and equity free cash flow all-in was $171 million. All of this is consistent with our plans. And as we said we would, we used that cash flow to reduce leverage. Our leverage was down to 3x at year-end. We also made very significant progress in our plans to carve out our tower portfolio and remain on track for a transaction later this year. Tigo Money continued to execute on its own plans to accelerate growth, which we expect will generate interest among potential investors who can bring expertise and capital to help the business flourish and get to the next level on its own.
And finally, 2022 was a big year for us on ESG. Our science-based targets were validated formally, and we also made important commitments towards diversity and inclusion. These and many other actions have further strengthened our SangreTigo culture and are helping us cement our position as an employer of choice in the region. In 2022, we ranked number 2 in Latin America and number 5 in the world in the — great Place to Work survey, alongside all the global household names like DHL, Lonson Salesforce. So we’re entering 2023 from a position of strength and with great confidence on the strategic plans we laid out a year ago. So let’s get to some detail. Please turn to Slide 6 for a look at service revenue in 2022. Service revenue grew 2.3% during the fourth quarter and 3.5% for the full year.
As expected, growth slowed in the second half with the change in macroeconomic conditions. When you look at the full year picture on this page, you can appreciate how strong our business is with every business line and almost every country growing despite a much more challenging macro environment. As I mentioned last quarter, there are some shifts in the way we’re achieving our growth, and this is consistent with the general trends in our markets. with slower growth in home, offset by stronger growth in mobile. And we believe this is at least partly related to increased mobility and less dependence on home broadband as kids have gone back to in-person learning and parents have returned to their offices. And this is happening in the context of a weaker economy where consumers are having to cut some of their spending. And yet, meanwhile, B2B continues to perform very, very well, as you can see in more detail on the next slide.
Service revenue from our B2B business grew more than 5% in 2022, accelerating from only 1% in 2021. As a reminder, we revamped our B2B team, our strategy and refocus our product offerings for Tigo businesses just a few years ago. And with endemic now behind us, this is paying off with stronger customer growth, especially in the SME area and very rapid revenue growth, with about 40% coming from high-end digital services that make up close to 20% of our overall B2B business now. This part of our business has continued to perform strongly in the second half of the year. We have created a strong pipeline of new projects, which gives me a lot of confidence that we can continue to drive solid growth in B2B going forward.
Now let’s look at our mobile business on Slide 8. As I mentioned earlier, our consumer mobile business grew more than 3% for the year, and postpaid has been the main driver of this growth. We added 0.25 million new postpaid subscribers during last year, and this drove 9% service revenue growth for the year. About half of these customers are migrations from our prepaid base. We do this with selective segmentation and basin consumption relos and payment histories, and we will continue to increasingly use data to drive our personalized offerings to drive our postpaid penetration. Note that postpaid accounts for only 16% of our overall mobile customer base, but it now contributes 35% to our mobile service revenue and 20% to our overall total service revenue.
Final point I want to make on mobile is that we continue to implement price increases in most of our markets to catch up with inflation, and we’re encouraged by the competitive response so far. We’re starting to see this translate into our improvements in some countries. ARPU improvements indeed will be a very important area for our focus in 2023. Now let’s talk a bit more about home on Slide 9. As I said earlier, the softer net adds that we saw in Q3 continued in Q4. This was caused by: one, the postpandemic shift in demand from home back to the office, as I described earlier; two, the more difficult macroeconomic environment, importantly, including civil strikes in Polymia during the quarter and throughout the year; and three, we’re choosing to remain disciplined on price.
We continue to implement price increases and to charge installation fees even if some competitors do not. This dampens net adds in the short term, but builds a much better and stronger business for the long run, which is what we’re all about because we remain very optimistic about the long-term growth potential for residential broadband in our markets. And that’s why we continue to invest to expand our network and to strengthen our content effort. As you can see on this page, this year, we accelerated our home build to add more than 800,000 homes passed and about 40% of those were FTTH.
On the content side, we told you last quarter about a deal with Vic, which gives us access to Spanish legal sports content. We’re very satisfied by the early results we’re seeing, particularly now that the World Cup is over and our customers focused shift back to the local and international Socar lakes.
Now let’s look at 2 of our largest markets. Starting with Guatemala on the left, we continue to invest in sales, marketing, content and our network to maintain our market share, especially in the prepaid market, where competition picked up some intensity last year. We’re very pleased with our results. Our prepaid market share remained unchanged from a quarter ago. And meanwhile, all of our subscription businesses, postpaid Home and B2B continued to perform very well, showing acceleration in the quarter compared to Q3, and we also had some positive help from the World Cup this quarter. So overall, another year of solid performance from our largest operation with very robust and sustained market share positions and strong free cash flow generation.
In Colombia, the story hasn’t changed much since Q3. We continued to gain share in band, especially in postpaid. The shift in mix to postpaid is driving ARPU higher. And the good news is that ARPU for our prepaid segment is now also growing nicely and contributing to the 15% mobile service revenue growth we’re now seeing in Colombia. As we saw in Q3, the growth in mobile more than offset the softer trends in Home, as we discussed previously. And overall, service revenue growth was almost 7% for the year in Colombia, a strong performance considering the challenging macro environment we have been facing.
Now please turn to Slide 11 for a summary of our network investment in 2022 and the recent years. On the left, you can see that we have now upgraded and modernized all of our mobile networks that all of our markets are now 5G and SA ready. And in fact, we already launched Virgin Guatemala during the year. Because of this, as we have said before, launching 5G NSA in our markets when that happens, will be within our existing CapEx envelope as we just stated in Ratimara over the past year. On the fixed side, our network is very new and fiber deep and increasingly so. We now have over 12 million home passes with HFC, already including 730,000 whose passed with FTTH across 6 of our markets. And last week, we announced the completion of a new fiber network that connects Paraguay and Bolivia.
Importantly, this provides a new key fiber route linked in the Pacific and Atlantic oceans. This is a combination of a multiyear project that will improve quality and lower the cost of connectivity in South America. All of this investment has been undertaken within our stated CapEx embed of about EUR1 billion per year, which translates into the CapEx to sales ratio of around 18% on average over the last 3 years.
Now look at Tyco money on Slide 12. 2022 was a breakthrough year for this business. Over the past 2 years, we’ve invested in the business, first, by building a strong team, bringing new and expert in tech talent. During the past year, the team was very busy redesigning, rebuilding a new, more robust digital data can fully scale. We launched a new app and have been rolling it out across the footprint to drive adoption, and we’re now starting to see the results. Digital users, that is those people who transact online using the new app almost tripled. And we’re monetizing that growth. Revenue from these detailed users more than double. It is still early days, and our digital user base is still small, but we’re very satisfied by the early take. Meanwhile, we’re also working on driving increased engagement with our digital user base, rolling out our new mercury platform. And in the last several months, we have signed up about 45,000 new merchants. That’s up from close to 0 1 year ago and expect to add a lower merchant in 2023, leveraging our TV business relationships.
Over the last several months, we have been piloting our new lending business, originating more than $100,000 in annual loans. The average loan size is about $40 to $50 and the average maturity is only about 20 days. Clearly, there’s a big opportunity for us in this area, and we’re using this pilot to fine-tune our algorithms before being this out more broadly later this year. And finally, we also signed an alliance with Visa given TigoMoney customers access to the Chipone Visa card, allowing them to use their TiVo wallet balances anywhere we size accept.
Now please turn to Slide 13 to review the progress of our tower company carve-out. By now, you all know the reasons why are doing this can create a lot of shareholder value. We’ve made a ton of progress over the past year, and the key message here is that we’re on track with the timetable we shared with you 1 year ago. We continue to expect the transaction towards the end of this year. The project and the company now has a name as it’s coming to life. It’s late, which will see the light of day very soon.
Last but not least, I want to take a moment to comment on the important progress we made on the ESG front during 2022, as you can see on Slide 14. On societal programs, we continue to focus on providing tools for employment in the digital economy, training key socioeconomic sectors such as women, sheldren and teachers.
On the environmental side, we validated and announced our science-based targets, committing to reducing Scope 1 and 2 greenhouse gas emissions by 50% by 2030 and to achieve net 0 over the long term. arisen in 2022 were made possible through the dedication and the effort of our 20,000 employees. And I have no doubt that the continued hardware will contribute to even more success for our business in 2023.
And with that, I will turn it over to Sheldon.
Sheldon Bruha
Thank you, Mauricio. Before we review the financials, let’s recap the macro context on Slide 16. We continue to closely monitor the macroeconomic situation in our countries.
On the left, you can see how inflation has been tracking over the past year or so. It peaked at 8.5% in July and has fallen to about 8% in December. And on the right, you can see the latest GDP growth forecast from the World Bank. Our markets on average are expected to grow about 3%, with all of our largest cash generative markets in excess of 3%. The — this is faster than regional peers like Mexico and Brazil, which are expected to grow less than 1%, which I think speaks to the resiliency of our markets in the face of a potential global recession.
Now let’s look at our Q4 performance, beginning on Slide 17. Service revenue was $1.3 billion in the quarter. That’s up nearly 11% year-on-year due to the Guatemala acquisition. Excluding the acquisition and the impact of FX, organic growth was 2.3%. Our mobile business grew just over 2.5% and contributed about 2/3 of the overall growth in the quarter. And for a second consecutive quarter, all of the mobile growth came from postpaid, which has had its best performance of the year, growing at 9.6%. The investments we’ve made in some of our mobile businesses and networks in recent years, especially in Colombia continued to yield positive results. Adverse FX trends impacted our revenue growth negatively this quarter and largely due to the Colombian peso, which depreciated 18% on average during the quarter compared to a year ago as well as the Paraguayan Peroni, which depreciated about 5%.
Drilling down further on Slide 18 to service revenue by country. Mauricio already talked about Colombia and Guataala, so I will cover those again. Elsewhere, our performance in most of our other markets was solid. El Salvador continued its strong performance during 2022 and was up 7.5% in the quarter, with every business line contributing to this growth. Nicaragua also maintained their strong momentum with growth of about 5%. Paraguay grew for a seventh consecutive quarter and was up 4% with solid performance in mobile and B2B. Panama had flat growth against a tough comparison due to some large B2B contracts in Q4 of last year. Bolivia was down 4.5% as we felt the impact of a change in regulation on mobile overage rates that went into effect in August as well as a strike in Santa Cruz region, which impacted economic activity and our install capabilities during the quarter. Honduras, which we don’t consolidate, had its strongest quarter of the year, growing almost 5% with growth across all business units.
Turning to EBITDA on Slide 19. EBITDA of $548 million was up 19% year-on-year due to the consolidation of Guatemala. Organically, EBITDA was up 1.8% as revenue growth was partially offset by the net effect of higher direct costs and lower OpEx. We Direct costs increased due to the higher content costs related to items such as soccer rights, both our new agreements with VIX and the World Cup. And we also saw our bad debt expense increase over the past year as this largely reflects growth in our postpaid and B2B subscription businesses. Operating expenses declined due to lower selling and marketing spend, which offset the impact of inflation on our energy and labor costs.
Now looking more closely at EBITDA performance by country on Slide 20. El Savador and Nicaragua both had very strong EBITDA growth from operating leverage, and we saw margins expand roughly 200 basis points over the past year. Paraguay returned to positive growth this quarter, posting an almost 7% growth. As Mauricio mentioned previously, Guatemala had a stronger Q4 with EBITDA growth of 2.6%, although revenue from the World Cup contributed to some of the sequential improvement. Colombia was up 4% and margins were just shy of 31%, which is our highest level since the entrance of the new competitor in Q2 of 2021. We remain very focused on improving profitability in our second largest market.
We continue to gain scale in mobile, and we are also taking steps to adjust to our cost structure and mitigate the effect of the 16% increase in minimum wage that went into effect in January in that country. Panama EBITDA was down slightly in Q4. Again, this is because of some large B2B contracts in Q4 of 2021. Our full year performance is more representative of the trends we are seeing there. And on a full year basis, Panama EBITDA was up more than 6%, which was a good result in the year where our main competitor was not allowed to raise prices under the terms of their merger approval and our OCF increased over 20% during the year in a dollarized market. Bolivia EBITDA declined almost 12% as we saw a full quarter impact of the regulatory change from last quarter, which dropped straight to the EBITDA line.
Additionally, results were impacted by the strike in the Santa Cruz region, with slowed commercial activity during the quarter. Anduris, which we do not consolidate, had impressive growth of 13%, reflecting both improved revenue trends in Q4 of 2022 and an easy comparison against a mute performance in Q4 of 2021. Banderas is the one country where we recently upgraded our mobile network, as Mauricio outlined earlier, and we have seen revenue growth accelerate nicely in the second half of the year in this market.
Looking at EBITDA margins on Slide 21. Margins were broadly stable and even improved compared to last year’s Christmas selling season of Q4 of 2021. We achieved this despite the investments in our carve-outs and the tougher macro situation. Energy costs were up almost 11% on average during the quarter. We have seen higher minimum wage increases in our footprint given the inflationary environment. We continue to invest in preparing the carve-outs of our Tigo Money and TowerCo businesses, although this impact moderated somewhat in Q4 as we begin to lap some of the earlier investments in Tigo Money in particular. Meanwhile, we continue to implement price increases across our businesses in Q4, and we will continue to focus on price increases in 2023.
Finally, we are starting to implement our efficiency program, Project Everest, which we expect will help us achieve our financial targets. Let me spend a moment providing more details on Everest. As you can see from this slide, Everest is a very broad-based efficiency program that will touch every part of the business and in every country, including our headquarters. This will include revenue initiatives around convergence, commercial OpEx savings from improved churn and customer base management and truck roll costs, network OpEx savings from energy optimization and NOC consolidation, IT savings from simplifying platforms and CapEx avoidance with improved reverse logistics. So this is not simply a cost-cutting exercise, but improving the way in which we operate. We have been working on this for the past several months, and the program is the result of a very detailed bottom-up assessment of all of our operations, and we are now implementing Phase 1.
We expect savings from Project Evers to ramp up to an annual run rate of more than $100 million by the end of 2024. So it will be a key pillar of our EBITDA and OCF growth over the next couple of years as we focus on delivering our equity free cash flow targets. Moving to Slide 23. You can see our operating cash flow, that is EBITDA less CapEx performed in 2022 compared to 2021. OCF more than doubled during the year to $1.264 billion mainly due to the consolidation of Guatemala. Organic OCF growth was 8.4%, which adjusts for both the acquisition of Guatemala as well as for the OCF that we spent in Africa prior to exiting in April 2022.
Excluding the one-offs we called out in the previous quarters in both ’21 and ’22, organic OCF growth would have been 8.6%. This organic growth was due to organic EBITDA during the year as well as lower CapEx as we completed some key investment projects that began during the pandemic. Slower home customer growth also means that we spend less than expected on installs and customer premise equipment, which typically is one of the biggest components of our annual CapEx spend.
Now let’s look at acquiree cash flow on Slide 24. As Bruce outlined, we generated $171 million during the year, in line with the guidance that we gave you during our third quarter call. This was the first year that we provided guidance on this metric. So I wanted to provide you a bit more visibility on all the main line items that go into our equity free cash flow, which reshow describes as being after everything. Starting with EBITDA of $2.25 billion. We then deduct cash CapEx of about $960 million. This was a bit below our guidance of around $1 billion, which reflects the variable nature of a portion of our CapEx related to CPEs for customer home additions. There was about $1 billion of fixed charges for financing leases and taxes. There’s another $200 million for working capital and spectrum and these items can vary somewhat from year-to-year.
Finally, we add back repatriations from our Honduras joint venture, which was just north of $80 million in 2022. I should point out that we own Tanzania through early April. So all the numbers above include about 3 months of Africa. So we removed the net effect of that down at the bottom to give you equity free cash flow from our current footprint.
Now please turn to Slide 25 for our usual debt bridge. Net debt is down $1 billion in 2022, with a reduction of more than $200 million in Q4 due to the very strong equity free cash flow generation during the quarter. We ended 2022 with $5.8 billion of net debt and net debt to EBITDA after leases of 2.94x. This is down more than 30 basis points from 3.28x at the end of 2021 — if we include lease obligations of just over $1 billion, our leverage was 3.04x at the end of Q4, well aligned with our deleveraging targets.
With that, we are now ready for your questions.
Question-and-Answer Session
A – Sarah Inmon
Thanks, Seldon. We’ll now move to the Q&A portion of the call. And now as a reminder, analysts and investors who would like to ask a question should contact the IR team via e-mail at investors@millicom.com, and we will add you to the queue. Now before we begin, let me also provide some additional ground rules for today’s Q&A session. As most of you are aware, we published a press release on January 25, in which we confirmed that we are having discussions with Apollo Global Management and Cloud Group about a possible or potential acquisition of all outstanding shares in Millicom and that there is no certainty that a transaction will materialize nor as to the terms timing or form of any potential transaction. And we have no new updates on this topic today and for legal reasons that should be clear to most of you, we cannot and will not be taking any questions on this topic. So with that, we’ll take the first question today from Poland of JPMorgan.
Unidentified Analyst
So you mentioned the Everest project efforts to increase prices across the regions — we wanted to understand what are the key levers for the further free cash flow acceleration into next year? What is the main source of that acceleration? And if we could expect a similar seasonality as the one that we saw in 2022? And the second question would be if you could give additional color on the competitive environment in Guatemala mobile market and what has the impact been on prices?
Mauricio Ramos
Michael, you scared me more than all the lawyers in the last few days with those comments. So we got a CFO here who’s been around now for over a year. So we can fully tackle number 1, Troy, and I’ll talk a little bit about working on how about that.
Unidentified Analyst
Okay, great.
Mauricio Ramos
Yes, first of all, just on our equity progression, look, we’re not giving guidance specifically on sort of 2023 versus 2023, 2024 in our 3-year range. So I think what you picked on what’s underlying or underpinning our 3-year equity cash flow target is ultimately sort of our 10% organic OCF growth that we expect over that 3-year period. And the key levers there. I think you try to pick that one of the most, at least what can we do on the top line or what we expect on the top line price increases will be a big component of that. It’s something we started introducing in the second half of 2022. It’s something that’s going to be a big focus in 2023 and beyond. So that will be a key piece of driving that as well as that approach how we drive margins. Project Nevers is going to be a big component of that. We’ll get to, as I said, exiting 2024 at 100 in excess of $100 million of benefits. 2023 will be ramping towards that I would say it’s exactly a straight line ramp. There will be recent one-off costs, probably a bit more in the beginning part of this exercise — versus what we probably see in 2024. So it won’t be exactly a straight line to that $100 million exit, but that will be a big contributor for both years and Portella that 10% organic OCF growth over the 3-year — all right.
And then on the dutiful country of Guatemala, the historic provide the context, of course, as you all know, for the endemic period, we took a lot of market share. We were just active on investing as we did the acquisition of the assay have about 15 months or so in a row. We had expected that our competitor would launch some of that back compared to the budgeted for that invested also year in sales and marketing and network and launch 5G policy to make sure that in Bacman we remain healthy as we are now. So the updates on that, if I can take them holistically for this was your specific question is none, Q4, so no deterioration much rather in competitive environment in case now specifically your question. That’s a result of the way I think we have milked for the year. So the market remained during Q4, stable on prepaid. I believe that we have responded worksmart and presenting long-term health of the business, but it also allowed our competitor to not be in a position where they needed to escalate and they have not some return to a more stable prepaid market there as we imagined.
The second point, the other businesses called them the subscription business Bostad — they’ll continue to go. And although there are now when issues in Guatemala, they’re growing very, very well. Point number 3, which is, I think, from this and important bring up is this is a year-end call, just kind of take stock of the year on RL as a whole. And it’s also been about 15 as since about 100% of it. So it’s a good time to kind of figure out how we’re doing. Point number one, in that session is we’ve sustained market share, same market share we obviously. Number two, it’s actually improved to a better network than the day before. We launched 5G throughout the year, where the first one state to do that. It’s NSA 5G is have said a number of times, so it doesn’t change the CapEx into there are no more CapEx sensible, you create a capital in — we’ve actually improved a strict position.
We were able to impair some spectrum we have bought from model on, a ot of us to write options 700. So we now have to say market share, better able to improve spectrum position, and most importantly, sustained equity cash flow, as you just saw out of Guatemala. With our ability to do more debt down, which, of course, is increasing mocumequity in water. So we are very, very happy if we see how it comes on the and whatnot this. And there’s 3 things that are also important for the long-term nature. We make 100% of the tower portfolio there. So that makes a reliable; two, as you’ve seen, our DB business is something we’re putting parents on. And now it is a bolus part will be the new portfolio because each of the great the product stream to 100% of it.
And we’re relaunching to roll money in aeragain, it’s easier when you own some of the business, and it can be incorporated everything on or scheme. And all of those things were part of the acquisition plan, all simply say, 15 years, 2 to 18 months into this, it’s all working out according to the acquisition of plan. So that’s paginations in upshore manner.
Unidentified Analyst
Thank you so much.
Sarah Inmon
Thanks. Next, we’re going to go to Stefan Gauffin of DNB. Stefan?
Stefan Gauffin
So I had a turbo hopefully, you can hear my question. I was going to touch on omelelopment of the or build our plans. You have clearly accelerated the geographical buildout. We had 800 homes passed, which is a target of around 1 million homes did have not taken off way lower than the target of era. I know there’s some heightened back-to-work defects in order to accelerate the — and without better would you consider slowing down your network build and still demand peaks I’ll start with that, and then I can more short questions.
Mauricio Ramos
I think our — the connection was not helping. And as good as my Swedish is right now, the links is far better, Stephen. So I think the connection was not helping out. But I think we got a gist of the question is around hole-bild, penetrations, our commitment long term. So I think we got most of that. So kind of short term sort of what we’re seeing this year and why be the slowdown in the net adds and how that makes sense in the context of us continuing to build for the long term. So the slowdown, we think, is due to one market. And you can see that because the slowdown out in terms of the second average year. That makes sense to us. People are watching their consumption evermore — and number two, that’s also consistent with like oleaginous on mobile versus home in a context start coming out in the either demand shifted from their own towards the office and that’s consistent as people are in a context of point number one, slower macro otherwise for wallets. And there’s also some specific country issues, which looks related to EVINE where the strikes were not just the last quarter throughout the year, they were very meaningful in our to sell or install despite an elite few on 20,000.
And the most important while all of these step fans even extremely price-disciplined — whereas some of our competitors, we may have not foraging price increases, we are where some of our competitors may have not state line in installation costs we have. And we think this is what to serve as a long-term health mix of the business. Even if we take some short-term pain, we have to explain to you on the net adds in tensioning evaluates mix going forward. And that gives you an idea of why indeed we keep the ones because we think that it alone will look on home than you normally do on our businesses because those penetration will come. The underlying factors for that build facility beyond population, adopting digital household formation, middle class formation and to nutrition would all generate increasing demand towards broadband services and media long term, and we want to build the networks as we have been doing that cater to that and fulfill that demand. So we’re very happy with to build.
Now do we need to abjure according to the demand. Yes, in the short term, yes, we need to slow down according to the demand. So we don’t need a lot of capital. We don’t cut it off out there, it’s something for convenient news. But overall, you will see, as you have seen now for a few years that we will manage the business so that we sustain the anomic of the residential program, which has 30% to 35% penetration. And we’re always just to try to get there and I’m going ahead of ourselves or behind it or since — and we’re happy with what we’re seeing in terms of deploying that network, 800,000 is a good reading. 40% of that is already fiber. It’s a pretty good number within — we’ve done the logistics to work. That’s not an easy team. etiologists work in 6 of our markets, we will not be to any tier.
And of course, as we’ve said, anything going forward will be to ramp up the percentage of that fiber to we’ll get to the 9 are — all of the sea to say, we remain extremely validation content deploying fiber and residential dormant services is directly from business. I won’t even go into FMC, which will remain great as a company. I think I got your question.
Stefan Gauffin
You had some test business, but EUR50 million of risk business, could you just update where you are for [indiscernible].
Mauricio Ramos
I didn’t get it Danielle’s going to have to go on. I think give us as sort of where we are in AFS revenues as we’re seeing this year versus what we’ve been talking about historically of $50 million. Is that the question? Yes. Okay. Okay. So we haven’t disclosed the numbers, but we’re growing at sort of high single digits to low double digits year-over-year. At this point in time, I think the important point to note around MPS is we’ve essentially spent a lot of this year as recently say in the prepared comments on establishing the new platform and rolling out the new platform this year. That rollout was really happening in the second half, frankly, the latter part of the second half of the year. So a lot of the benefits from that, it hasn’t really been never to realize at this point in time. But I think it’s — we’ve been encouraged by sort of the digital adoption and the like on this platform, but it hasn’t sort of translated into sort of within your revenues in 2022 or something amort.
This is why where I would have wanted to give you Q4 numbers, but we would have been really persistent and everybody during the presentation to be like how doing talking about full year in Q4 because it’s really in Q4 actually November, December, and you see the runout that MFS is high because you see the digital subscribers coming in, the merchants coming the revenue coming and significantly, the NPS really staying on very, very high in some really, really good results on our trials or through the entering. We all seem to say that we’re happy with Nebrantain the last quarter.
Sarah Inmon
Thank you, Stefan. We’ll now go to Klas Danielson at Nordea [ph].
Unidentified Analyst
Yes, I saw that…
Mauricio Ramos
Sorry, submissions with the new patents here in Stockholm. So no, I was only going to ask questions on the acquisition, but Michele’s cared me a bit to here, so I’m going to avoid that. Compliance guys give me a red card. And not to over line, you just show it and I was like, okay, that works…
Sheldon Bruha
It’s a good gesture, I think, for sure.
Unidentified Analyst
A couple of follow-ups, I guess, on Stefan’s questions on the CapEx levels. So I mean, you had cash CapEx of roughly SEK960 million in 2022. You guided for SEK1 billion previously. I guess that’s been the kind of headline numbers, I guess. And that’s kind of despite inflation being what it is to a certain degree and just the impact that, that is having. So I guess it’s partly due to a slowing momentum in home during this year. But I think with Project Everest, I mean you’re guiding for kind of additional CapEx cuts. But then on the flip side, you still want to invest in the home business. Could you maybe talk about some of the kind of puts and takes within the CapEx older? Is this a sustainable level in the long term? Or what should we be expecting in absolute CapEx spend over the next few years?
Mauricio Ramos
So I’ll give you some color, and maybe Sheldon can bring it down to one just to some more specific in a time — we’ve been investing, as we showed in the presentation, we usually see around EUR1 billion, just to give that lack number, obviously, we’re coming in middle of that number with under names of an extremely healthy CapEx-to-sale ratio CapEx intensity over the last few years. And that’s because Classen investing a bit in the business. often say to the group and to the board, we’re coming out of a big investment cycle. Most of the big things that are not variable in nature are behind us. That’s important. So what are those things? We modernized the down, we will show you, all of them in the last few years. We put 5 deep quarter malls. I’m talking about now and the safe corin every operation. And that’s important, not only corporate there, but also because it is our view that 5G would be any same in the meeting. And that’s a very important point because it means that the CapEx associated with it is similar to consistent with what you would expect us doing in minority mortgages.
We’ve also spent the last few years expanding average. That 80% coverage is important because what it means is going forward is less coverage finance on for general more variable cabins for capacity and CapEx, and you will should have traffic revenue associated from here. And of course, as you surely know, we are almost done with the Corona were built — watches in December in the past. And on fixed, we actually had a bit of a tag with Stephen’s question, our bill continues to be heavy in new fix. We’re now almost 13 million passes, 700 those are already fiber, and we’ve got a limit billion many patients. The most important thing as we said in our Investor Day is that — our existing network is fiber deep with deep, deep capacity. All of the copper upgrades, remember those are done. We’ve got need 2,000 300,000 homes still with copper we just get tricky in a trickle manner that are rated.
So on fixed, it’s really — and we’ve ramped up the FTH for the FTTH machine, which means we’re going to get our reverse logistics to start our team there. So all of the for lack telfixed, heavy lifting, if you will, on CapEx is sort of behind us. And from here on, it becomes a lot more variable. We even did this year with an action on the Candelaria fiber, which we’re very happy about. It’s not only relevant for us, but it first in the network of the business. I would just add a little on project ever. I mean from a CapEx perspective, I would expect to see a lot of savings on the CapEx side, at least in terms of what ends up in terms of being our bottom line number that we’re reporting. I mean, there’s some opportunities there on CapEx. I think that also just means sort of more from what we’re spending than actually a reduction in spend. So we’ll be getting more bang for our dollar on the CapEx side.
And then just the other one of CapEx kind of we’ve been mentioning kind of throughout the call. I think the other variable on our spend for next year is going to really come down to the demand and pace of our home net adds. That was a little bit lower this year. Therefore, in sellout lower spend on that in terms of what we report this year. And IFRS is all about doing things more efficiently, better on digital is because what you would expect us to be doing over the long term, it’s not about cuts as part but it’s about tissue going forward.
Unidentified Analyst
All right. No, very good. And then just a quick follow-up also on that side, but the other line, I guess, on the spectrum and licenses part because there you’re also tracking a bit lower than what we were kind of expecting since the CMD. Is this the kind of full level? Or again, what should we kind of expect on that side?
Mauricio Ramos
I think we said spectrum under Investor Day would track 250 kind of where the worth we were before. or telecast, the structure is very numb. Very long. Any given year, you have it depends on whether something didn’t happen didn’t get delayed. So don’t read too much into any given year and rather take the averages and go back some time. I’m sure part of your question has to do with the Colombia spectrums. I would imagine there is a large chunk of that. And just the question is going to come out later and use yours is a good segue to go into what we’re in the middle of those negotiations this year as you’re very well aware. So I’d rather not comment too much only to say that we’re not really expecting any prices against our targets over the long term because we’ve been conservative in that regard, as we should be. It does not need to say a class that spectrum prices grow don’t remain higher than they should be for international began. It just means that we’re conservative and realistic in our approach to forecasting as a result, we don’t expect surprises.
Unidentified Analyst
All right.
Sarah Inmon
Thank you. So next, we’re going to go to Masaba [ph] at Barclays.
Unidentified Analyst
Can you hear me well?
Sarah Inmon
Perfect.
Unidentified Analyst
So I had 3 questions, please. The first one was if you could give a bit of color in terms of your pricing activity in the different markets. You’ve talked about some of them already. But when I take a step back, look at the inflation, look at your service revenue growth, it seems that it’s hard to catch up with inflation. So maybe if you could help us understand a bit more how that’s playing out? Are the price increases front book, back book, are you seeing spin-down? So that’s the first question. The second question was on Everest. I just wanted to clarify that the EUR100 million annual savings, that’s something that should enable you to reach the guidance or potentially even go above the guidance. And within that, although it’s maybe not part of Project Everest, I imagine that the higher financing costs due to the high interest rates could also have an impact on your free cash flow. So maybe you can comment on that. And then the last question, which may give Maurice for the opportunity to use its threat card. I feel a bit safe regarding Shelters an ocean define. But the question is when you consider the deal, are you — do you need to follow the U.S. rules, the Swedish rules, both? How is the context there?
Sarah Inmon
Definitely, that rent’s going to be used that fourth well. We’re not going to be going there. But the first 3 are good for you, Moise.
Unidentified Analyst
All right. So I’m going to hand over the address to our Everest expert. Give me actually end up time at risk by the way. So well I hand out and I’ll take the pricing one right after that. I’m not sure if everyone was looks for just on the adverse rate you were asking, does that kind of tell us, I think, beyond sort of what we’re talking about from network free cash flow range? Or I think I kind of mentioned some of the earlier comments, that helps underpin the 10% organic operating cash flow growth that we’ve been talking about.
Mauricio Ramos
So that is — that just helps support the company that target is not to the supplemental to that target. With regard to the interest expense cost, look, from that perspective, be comment quieter, we’re pretty well positioned in this environment of increasing interest rates. More than 80% of our debt is fixed rate. So we have a very little that’s actually floating and exposed to that. We don’t have a lot of debt maturities here in the near term, which you’ve shown in our maturity profile. So there’s not a lot of need for us to be going out the repricing deinsure environment. So that’s positive. And then of course, even better than that, we’ve generated some good cash here that are going to be used to reduce leverage, and you will probably even reduce our need to go out and hit the capital markets for financing. So on a deleveraging standpoint, which is a positive from that perspective too.
So I think we’re pretty insulated and well positioned in this raise environment. So let me try the pricing, Matthew, in a constructive manner with a little bit of detail and also some big picture associated with it. So let’s play the question in the segment. So you get a better feel for what’s going on because a statin whether you’re doing prepaid favor, residential broadband book. So prepaid because it’s dynamic, price on a daily basis. or as soon as a new top office things and comprise market. it largely is done, of course, on the gross basis. In most of the markets, we’ve been adjusting as much as we can. And the should there, of course, is price sensitivity. And as you ended up elasticity with the exception of some markets where we’ve been more careful like already talked about, of course, and Bolivia, where our competitor has kept competition significant on prepaid. We’ve not been able to do that.
So with the exception of those markets and everywhere else, we we’ll be pricing up to the new offer as much as we can in general terms. When you look at postpaid, the same is true, we focus with the price increases on the new offers rather than 10 days, we’re a lot more careful with the base because you have big, big massive butane which we are too. And generally, we’ve been very good at doing that, particularly in Sator Paraguay and we see that in the results. We’re actually going able to do that in a interland we’ve held back in Panama for the reasons that I think Sheldon mentioned. And we’re also being a little bit more careful for the same reasons in Unde. So that gives you an idea on DAC. And then on home, I talked about has been very price dicing. So we’ve been slowly putting price increases. And we do this in our port. We don’t give to everyone in day, we do a small retime. And this is across the region in measured way with some delay in Bolivia to get the positional back to do.
Now your question had an element you were okay, what’s the mismatch? I think it is a word you use of this one I wrote down, there’s a neatening timing. So inflation, which is part of your question, it hits the cost base immediately. It hinges rate, and we’ve shown you the impact of energy, which we’ve been able to observe on labor, which we’ve been able to observe on the bottom line, but we’re not able to pass on inflation on pricing with the same level of experience in terms of timing. So there’s a memantine. And as I think I seleneferto us managing ARPU a little more into next year. That’s part of managing that signage. Now being careful with expectation, we all know that this business does not have elasticity on which we price inflation into customers. thereinafter issues, et cetera. And that’s just part of this initiative. So I hope I’ve given you a lot of color point on the timing of it and some expectations on it’s difficult to pass it on.
Unidentified Analyst
Absolutely. Just a follow-up on the home, just to make sure I understand clearly, you are also increasing the front book and the back book, both.
Mauricio Ramos
Yes, based on the growth processing.
Sarah Inmon
Thank you, Matthew. So next, we’re going to go to Fannie at HSBC.
Unidentified Analyst
I have a couple of questions. So it’s been a year since you went to the Investor Day and gave some guidance. So I wanted to understand where we stand on a couple of issues there. First, we expect at the time, we expected that organic service revenue growth would be mid-single digit. Is it still viable now? Or is it that the project test would offset any weakness there? The second one is, I know we saw that the share buybacks would be expected to commence in 2023 was what we had received at the time. Is that in the plan? Or is still too early to say anything — so I’ll ask other questions later.
Mauricio Ramos
Hilton is having a lot of fun today because these are both for a — so chaotic. I think just the first year just asked in sort of the underlying — some of the targets we had at the Capital Markets Day and sort of are we reiterating that. I think the key one we mentioned were just the ones in the press release and mentioned earlier in the call, right, the operating cash flow of organic cash flow growth of 10% over the years 3 year. And then of course, the debt free cash flow over the 3 years of $800 million to $1 billion. So those are the ones that targets we’ve pointed to. There’s also the deleveraging target that will also be striving for is 2.5x by year. This is by 2025 and then down to 2x thereafter. We did comment at the Capital Markets Day about our intention to do share buybacks in 2023. I would say that’s still our ambition.
Clearly, a lot has changed in the world over the last 12 months, and we’re now operating in a higher risk environment, kind of per capital markets and higher interest rates and the like. But it’s February. Let’s see how the year plays out. And in the immediate term, we’re going to continue to prioritize deleveraging and paying down our debt because we think that’s the appropriate allocation of capital for the business to ensure we meet those deleveraging targets, but near-term buybacks remain our ambition. My secret coach is to say never forget that soccer games have 90 minutes nowadays a little bit more with the new rules and make sure you play all the way until the end of what…
Unidentified Analyst
So the other question that I had is regarding the repatriation from Honduras. I mean it’s kind of making more than 50% of your equity free cash flow. I think you had $88 million of repatriation from Hondros, I believe. So is that sustainable going forward? And what is in your target for the next couple of years?
Mauricio Ramos
Well, look, we’re not giving guidance for revatuation for specific segments. And I would point out, but I think your comment is about a 50% of our equity free cash flow. But we’ve talked about in the past that Guatemala actually generates $450 million plus of equity free cash flow. So that’s — you can’t, I think Isat one single country’s contribution because there’s also interest costs and costs essentially of the center that needs to be absorbed. So I just want to caution you against that point can try to think that over great cash flow is not really dependent on Honduras, which is that’s not big. It only looks that way because of the accounting, right, along in those sites are saying, but in reality, every country is a contributor, as you know, with the exception of Colombia, and they will give Lentenand they all get a team with their quarter costs.
And then, we do this looks like that’s it concisely, right? That’s just the way looks reality of being 50% of our equity cash — it’s 10% of the I think the question helps us clarify that. We’re going to worry on the way in the way looks — thank you for the question.
Unidentified Analyst
And just a final question on the fixed competition as you said that the competition is not responding to your price increases. Is there any specific market that is not responding? Or is it a broad-based kind of a response from the operators?
Mauricio Ramos
Any specific markets or competitors at this point. Just if you have more questions on our board, in good. That’s good. Questions are good. So we talked about what the mapping Colombia, which is very important, we will talk about this. The market has a now. And I already talked about 6 in Colombia. So our mobile in Colombia Aberconpusion in pricing significantly over the last few quarters. And you see that our prepaid ARPU in local currency is up our memory about 6%. And postpaid is also up. And both of those lines and businesses, prepaid and postpaid are now contributing to our mobile in Colombia, which is growing 13%, 15%. That’s more volume, but also prismatic in in Colombia is being recomposed.
That’s an important element of that. You see on Nulaas well. There’s a fair good behavior in the market, which is consistent with the notion that it’s a 2-player market in which market shares are healthy for it. We expect that like Guatemala and Panama, that will be a total a healthy market share market. We talked about Panama as well in the same that there being a holdback on any price movements in realize market. So we’ll see 2023 as to talk early in our regard. Hanawa very constructive in normal pricing and also reconstructing on home pricing intrusion. We’ve seen that now. Pias had now 6 or 7 consecutive orders of Servirevenue growth, margin expansion and reconstructing of the engines. And what am I missing alive talked about, so I don’t think any go back there. So I think I’ll cover them all. I hope that’s helpful.
Sarah Inmon
Thank you, Fanny. So that is — that was our last question. Mauricio back to, if you want to make any final remarks.
Mauricio Ramos
Is used to work for on track. That’s a. We had an investor call about a year ago, we laid out a number of initiatives. And as you don’t point out, we gave a 3-year outlook that is composed of 3 key targets, 10% of credit cash flow both in average for that period to relative equity free cash flow or an $1 billion and reducing leverage to 2.5 by 2025 2x by long term. All I need to say is that the first year of that consists on track. That’s really the summary on this. The second point is we’ve made a couple of big acquisitions over the last few years, both Batimala and Anima. Both are working, as I hope you can see, after a year of Guatemala or a year ban about 3 years of Panama, that they are on track to our acquisition plans in the resonator. So with that, that’s really doing the 2 closing remarks that — and thanks for joining today.
Sarah Inmon
Thank you.
Be the first to comment