America Movil SAB de CV (AMX) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the America Movil fourth-quarter 2015 earnings conference call and webcast. My name is Stephanie and I will be your operator for today.

At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I will now like to turn the conference over to your host for today Ms. Daniela Lecuona, Investor Relation Officer. You may proceed.

Thank you. Thanks, everyone for joining us this morning to discuss our fourth quarter 2015 financial and operating results.

We have today on the call Mr. Daniel Hajj, our Chief Executive Officer; Mr. Carlos Garcia-Moreno, Chief Financial Officer, and Mr. Oscar Von Hauske, Chief Operating Officer; and also with us, Mr. Carlos Robles, Chief Financial Officer from Telmex.

Thank you, Daniela. Welcome everybody. Carlos is going to make a summary of the fourth-quarter results. Carlos.

Thank you, Daniel. Good morning, everyone and thank you for attending the call.

Well, 2015 came to a close with the Fed finally moving to increase its benchmark interest rate for the first time in nine years, bringing along renewed volatility in financial markets that has intensified throughout this year on the continued decline of the price of crude oil and on speculation that the Chinese economy may be weaker than expected, maybe also the US economy. Emerging market financial assets and currencies, among them those from Latin America, have been impacted by these factors.

We added 1.5m postpaid wireless subscribers in the fourth quarter including 513,000 in Brazil, and [361,000] in Mexico. Our postpaid subscriber base increased 5.9% year on year.

We had net disconnections of 4.3m prepaid wireless subscribers of which 4.9m were in Brazil, 651,000 in Ecuador, and almost 300,000 in Peru.

All in all, our wireless subscriber base ended 2015 at 286m clients and our fixed-line RGUs reached 81m units for a total of 367m access lines.

Our fourth quarter revenues were up slightly in Mexico peso terms, 0.6% year over year to MXN231b bringing to MXN894b the figure for the full year 2015.

At constant exchange rates service revenues were down 0.6% from the year earlier quarter, the same rate that was achieved in the third quarter. That is we are seeing stable revenues.

By product line, there wasn't much change in the services revenue in the fourth quarter relative to the prior one with data service revenues continuing to expand on both in mobile and fixed platforms, 10.3% and 10.9% respectively, but our PayTV revenues grew 6.6%.

There were significant improvements in service revenue growth in the fourth quarter relative to the third in Argentina, from 24% in the third to 35% in the fourth, in Chile and in Telekom Austria Group.

It is important to note that at the consolidated level, A, the share of mobile service revenues in total service revenues has kept on increasing reaching 68.5% in the fourth quarter compared to 65.8% in the year earlier quarter. And, B, within mobile service revenues, the share of data-based revenues reached 50% for the first time.

In Mexico, service revenues in the [fixed voice continued their] downward trend as can be seen in the chart while mobile services revenues are stabilizing. This is important. We have seen the decline in the fixed voice service revenues that begun mostly on account of the elimination of national long distance tariffs beginning on January 1 of 2015 and we are seeing that this reduction of [those] revenues have leveled off and it's now making some increase. We expect that by the first quarter of this year when we will have a clean comparison after the regulatory measures that we will see even better figures.

And, as you can see also in the chart, mobile service revenues in Mexico have stabilized (technical difficulty) in 2015 and 2014.

As for EBITDA, it totaled MXN63.9b in the quarter, a 5.1% reduction relative to the prior year in Mexican peso terms. Although at constant exchange rates, it was down by 2.9%.

I think it is important to note that here that we had a one-off event in Ecuador. That basically has to do with, for the most part, with an old litigation. That was something that was there in the Company from even before we acquired it. It had to do with the rounding off (inaudible) and it applied to all the operators in Ecuador.

This is something that had been in litigation for several years and finally over the last few months we were notified that we were supposed to pay this. So this was again something that was in the Company for the most part out of -- since before we bought it and it's something that we have materialized in this quarter.

It is important in Mexico, and this is something that I would like to highlight. In Mexico, as we mentioned before, we had a 361,000 net adds in postpaid. Well, this number of net adds in postpaid was 51% higher than what we had seen in the year earlier quarter and that obviously explains part of the reduction in the EBITDA in Mexico.

It is important also to note that in Mexico (inaudible) have been (inaudible). Equipment revenues linked as they are to the exchange rates have increased much faster than service revenues. Therefore, looking at the EBITDA margin in relation to total revenues will amplify the real impact on margins.

The reduction in EBITDA margin, for instance, is 50% higher, if expressed in relation to total revenues than if it is expressed in relation to service revenues. So, it is important to correct for the distortions, for the distortions [incurred] by FX volatility on total revenue. So this is very important.

So I would say this, when you look at the reduction of EBITDA margins in Mexico, one-third is attributable simply to the comparison to total revenues where the equipment revenue component has increased a lot given the FX depreciation. One-third, a little bit less than a third could probably be attributable to Telesite and the remaining is attributable to the faster pace of net additions in Mexico which really have taken place also in a more competitive environment.

Anyway, our fourth quarter operating profit was down 5.9% year on year to MXN32.2b, but our net profit was 6 times higher than in the year earlier quarter as our comprehensive financing costs came down, along with foreign exchange losses.

Our net profit was equivalent to MEX0.24 per share, or $0.28 per ADR.

Net debt ended the year at MXN585b as compared to MXN537b a year earlier. The former figure considers MXN44b in marketable securities available for sale. That is the value of our KPN stake after deducting the value of KPN shares that underpin the mandatory exchangeable bond issue in September in the amount of EUR750m.

Our capital expenditure totaled MXN164b in 2015 while our shareholder distributions amounted to MXN71b, including the extraordinary dividend paid out in September.

Our net debt to EBITDA ratio stood at 1.8 times at the end of December allowing for the equity credit on our hybrid bonds and for the market value of our derivatives position.

We have, as you can tell, a strong balance sheet which has -- it's an important reason for the -- for why we have the first rating in the telecom sector today, the best ratings in the telecom sector. But, basically, it lead to show that we have a lot of financial flexibility which we will be able to use it when convenient.

So with that I would like to finalize this part of the call and hand it over to Daniel.

I would start with the -- we can begin the Q&A session.

(Operator Instructions). Amir Rozwadowski, Barclays.

Thank you very much for taking the questions. If I may, thank you first for the color on how to think about the margins in Mexico and the various impacts there. But I was wondering if you could give us an update on how you folks are viewing the competitive landscape.

Obviously we've seen some new competitors in the market. They've just started to report some of the results and would love to hear your thought process in terms of how we should think about the potential impact to pricing trends in the market and your own sort of subscriber acquisition costs? Thank you.

Well, as Carlos said, he gave us an overview on the costs. Well, first I have to say that in Mexico the devaluation of the peso is increasing a little bit all our costs. So we are having not only in Mexico, Mexico, Brazil, Colombia, our programs on cost controls that it is very important. As the exchange rates goes higher, then some of our costs are in dollars, so we have to review them and work on all of our costs in the Company.

Second, in terms of the competition. I think as you can see in Mexico, there is effective competition. Even everybody is in the news. Even some regulatory persons are saying that the -- we already have effective competition in Mexico.

We had some changes in the structure of the market with this new competitor, plus the other competitors that we have, plus the MVNOs that we have in Mexico which have more services. And that -- all of that is bringing a big reduction in the prices in the market. So, the consumers are the ones that are gaining here in Mexico.

As you could see in the fourth quarter, prices are going down. We have been very successful in the postpaid market. We can -- we have been -- I think we have 51% more postpaid subscribers than what we have in the fourth quarter of 2014. So, we're doing good.

We are doing good in the market even that the market is very competitive. It's going to bring us a higher cost of acquisitions. It's going to bring us a higher cost on retain our subscribers. But overall, I think Telcel is doing good in Mexico.

In number portability we are gaining -- still gaining in number portability and we feel that this year still is going to be very competitive in the market and that's what you could see for 2015.

Thank you very much.

One important thing that I have to mention is that still Mexico is one of the lowest markets in Latin America in terms of penetration. So still we have a big share of growth in the future. So we still can grow in smartphones and in the market for new subscribers. It's also one important thing for Mexico, specifically for Mexico.

Michel Morin, Morgan Stanley.

Hi. Good morning. So, the question was regarding buybacks. You've announced a MXN12b plan. I was wondering if you could elaborate a little bit more on the thinking around that number considering that it seems to be lower than what you've been doing in recent years.

And then secondly, Carlos, on your comment on the impact of handset sales in Mexico and the impact on margin, did you actually also increase your handset subsidies in Mexico, or what is the trend on that front? Thank you.

Hi, Michel. In terms of subsidies, I think all around America Movil we are trying to reduce the subsidies. We're reducing a little bit the subsidies. It has been like a race because all the handsets are in dollars, so as the exchange rate is moving so we have to actualize the prices. But, all overall, I think the numbers are that we are reducing our subsidies in Mexico and in Latin America.

In the buybacks, we announced yesterday $12b because we have a remaining balance of last year of $17b. So we're going to add this $17b to the -- sorry, MXN17b to the MXN12b that we have and we're always open to ask for more if we need it in the future.

Okay. That's very helpful.

Hi, Michel. As you know, we have done it before and we obviously come at the beginning of the year with an idea for what our financial planning looks like. As Daniel said, we have some balance left over from last year that will be added to whatever we are increasing.

But I think the important thing to note is, as I mentioned today, we have financial flexibility to do what we think makes sense. And having these limits is really not an issue because all limits can always be redefined over time as we have done in the past.

Okay. Great. Thank you very much.

Thank you.

Thank you.

Vera Rossi, Goldman Sachs.

Thank you. Good morning. Could you talk about your discussions with the regulator about the preponderant status? And what will be the priorities in these discussions that are likely to start in March? What are the AMX priorities to get from these discussions?

And second is about your 4G users. What is the percentage of subscribers you already have with 4G devices and what countries you are ahead and behind in this migration to 4G? Thank you.

Good morning, Vera. In terms of the regulation in Mexico, I think the process starts in March. Two years since they declare us as a preponderant player. What they are going to review are the effects that the measures that they put -- they have in the market.

So I think in America Movil, we have accomplished in Telcel and Telmex everything on -- in -- on terms of the regulation. During these two years we have the regulator review with us all the measures and I think they are -- we are happy the way we have been accomplished all these measures.

What they are going to review in March, and I don't know how long they are -- it's going to take for the regulator to review, is if there is some changes in the market. So it's structure in the market, new competitors, MVNOs, reduction in prices, I think more services, more investment in Mexico and looking for all these things that they are going to review.

I'm optimistic that there is, as they said, more effective competence in the market and that the revision is going to be in good terms for America Movil. It's my personal view.

And what will be the priorities of AMX in this discussion? It's eliminate of asymmetric regulation, or there are other things that AMX would like to discuss with the regulator in this revision?

Well, of course, there is a lot of revisions in terms of commercial issues that we want to review with them, small commercial issues. Things that we have to give to our customers that the competition is not giving. Or our position is that we give them to all the customers or nobody gives that all the customers. So this is still a lot of small things that we want to review.

We want also to review, as you said, the asymmetric interconnection. The price of the unbundlings we want to review because in some things we are not on an agreement with them. But there is a lot of things that we're going to start to review on March.

But there is no doubt, Vera, no doubt that what they were looking two years ago, the regulator were looking with this telecom reform is that they want more competition and they are looking for more competition in the market. And if you could see prices, if you could see investments, if you can see the structure of the market, there is no doubt that we have that.

Vera, you remember in those earlier years in Mexico and other countries it was when all of the penetration, wireless penetration, was increasing and it was happening very quickly, there was a lot of advertising. There was a lot of investment. They were very lively markets.

Well, that's exactly what you have today in Mexico. There's a lot of new investment for the first time in years taken from the competitors. There is much, much more advertising. You see a very energetic market out there. As Daniel said before, it's a market that we think is going to grow. So I think there will be a share for everyone in this expanded market.

Wireless penetration in Mexico, by last count, is probably still less than 90% which is below what we have in other countries in the region. And we think that there is going to be some increase of penetration over the next several years, several months that will be helping out a little bit.

And all of this is for the benefit of the consumers, Vera. If you can review some of the commercial information in Internet you could see that the prices in Mexico today are much lower than the prices, let's say, in the United States. So, you could see that in these last two years and specifically in the last six months, the prices has been dropping in Mexico a lot. Much lower than, let's say, what you could see in the US.

Okay. Could you also talk about the 4G migration and what are the countries that are ahead and behind in this migration?

I don't have exactly the 4G numbers. What I can tell you a little bit about the penetration on the smartphones. I think Mexico is doing good. It's Mexico, Chile, Colombia are the ones that are the higher countries who has penetrated. Let's say Central America, Ecuador, Peru are still, so we need to do more and more penetration on that. Brazil is in the mid -- on the chart it is in the mid place on the chart. And America Movil, in terms of smartphone penetration is around 36% penetration all overall.

In postpaid, we have around 56% as the average penetration of the smartphones in America Movil with Mexico one of the highest with 78%. It's more or less the numbers that I can remember. If you want to go deeper on that you can talk with Daniela to give you some more sense on that.

Daniel Federle, Credit Suisse.

Okay, good morning. Thank you for taking my questions.

My first question is related to CapEx. It was mentioned during the AMX Investor Day last year that the CapEx to sales ratio could decline in 2016 and onwards. Now with the currency depreciation, how do you see CapEx evolving in the coming years? That is the first question.

And the second question is related to the PayTV because the Company has been saying it's ready to ask for a pay TV license in Mexico. I'd like to hear from you how you -- how the Company is evolving in this matter as well. Thank you.

Well, I think, let's start on the pay TV. The pay TV I think we are working on the pay TV permission and when we think it's the right moment then we're going to ask for that permission. So, we're working. We're doing things, but we're waiting to see when is the right moment to ask for the pay TV permission.

In terms of the CapEx, well, we said last year in the Investor Day what we want is to have around 15% CapEx to service revenues and we are on that trend.

What I can say is that in the last two years, 2015, 2014, and 2013, we have a big investment, $33b on CapEx for the last three years. I think we invest good. We've put all our networks on shape. We grow coverage. We move from 2G to 3G and from 3G to 4G. So we do big investments and I think this year we can reduce the CapEx around 25% of what we do last year. So we are starting to reduce our CapEx.

It's difficult to give you a number today because with all the exchange rates that we are having. We are working on that and when we have already the number, we can give it to you. So -- but it has been difficult for us because it's moving some of the things in local currencies, other ones are in dollars. So we are reviewing very good. We're reviewing exactly what are going to be the number for this year.

But I can tell you that we can reduce from 20% to 25% the CapEx of last year.

I think it's important to note that the [ForEx] component, FX rate component of CapEx is only about 40%. So, the rest of that is basically to stable growth and things that are basically local costs.

So, what Daniel said, it is difficult to gauge what the impact in dollars will be because obviously there has been different depreciations in different countries. So, if you look at 60% of CapEx in each country, is going to be local currency, we don't really know exactly where that will be coming out in dollar terms.

But yet we have just finished a phase of heavy investment in the last five years. $50b as you know were invested in our infrastructure. From here now on we will not need to invest as heavily. A lot of what needed to be done has already been done and that's why we are stepping down the intensity of CapEx for the next five years. This is not only something to -- for this year alone, but it's something that will happen over the next five years.

Okay. Thank you very much. Just to clarify. This 20%, 25% decline is in US dollars, right?

Yes.

But again, the final effect is going to be dependent on the exchange rates because of what I just explained. That's why I didn't want to give you a figure.

But, yes, it could be in dollars, but it's approx. We can -- I cannot give you a number. Still today we're reviewing new pricing, we're reviewing exchange rates. So there is a lot of things that still we are working on.

Marcelo Santos, JP Morgan.

My first question is about the US dollar component of costs. So you gave earlier a bit of detail on the handset side. Are there other relevant costs which are not handset that are also denominated in US dollars in the subsidiaries? This is my first question, a little bit of clarification on that.

And the second question is how much of your data revenues are comprised of SMS? I ask this because in some countries the data growth is at single digits. So I was wondering if that was not because you have Internet growing and SMS shrinking. So, an idea of how much SMS still left would be interesting. Thank you.

Well, in terms of the first question on the dollar, there is other costs that are in dollars. IT, software, content. There is other things. I don't have it right now, but there is other things that we purchase and they are in dollars. And then we are reviewing and seeing exactly what part of our costs is in dollars and that's why you see that the margins and the costs can increase a little bit.

The second question, can you repeat it, please?

My second is about SMS. I mean we see in some operations the mobile data grows below 10% and I would expect sometimes them grow any faster. So I wonder if that's not because of SMS component which might be shrinking. So I just want to get a general idea of how much SMS do you have.

No, no. I think SMS is -- in my view, SMS is very related to WhatsApp as people have -- people is using more smartphones and they have the availability to use WhatsApp, then they use WhatsApp instead of using SMS. I think that's the relation that we are having mostly in all the countries. As they use more WhatsApp, they use less SMS. So that's what you could see.

But how much of the data revenues, rough numbers, are SMS just percentage-wise ballpark numbers?

I don't have the number. It's very different in each country. Some countries they use a lot, still they use a lot of SMS. In the other ones, other countries, they don't use a lot of SMS and they start to use more WhatsApp. So I don't have the number right now.

It's directly linked as Daniel said with the penetration of smartphones in each country.

Walter Piecyk, BTIG.

Thanks. I just want to go back to the capital investment question. So, you're saying 2016 versus 2015 is going to drop 20% to 25%. So you're talking basically $8b as far as capital investment. Did I hear that correct?

That's what we have as a previous number. As we are saying, we have good investments, some big investments, heavily investment in 2013, 2014, and 2015 and I think we can reduce our investments in 2016.

I don't know if it could be $8b. It could be $7.5b. It could be -- I don't know exactly the number. What I can tell you is that our investment in 2016 is going to be lower than what we do in 2015. It's going to depend. Still too early for us to say. It depends a lot on pricing, the dollar, and the growth also.

[So it's important] about what's going to be the growth let's say in the peaks now because part of the CapEx is variable. It's set-top boxes and all of those things. So, it's going to depend on a lot of things that we don't have clear today. But, as I said, at least we can reduce 20% to 25%.

So, I think it was asked earlier, or maybe I missed the answer. I think there is a pretty low percentage of your customers that are using LTE phones today. So I get that there was capital investment, but as data grows, theoretically you have to keep up with the networks. I mean I think in Brazil, as an example, one of your competitors, TIM Brasil, is like spending 20% or 25% of revenue in anticipation of this LTE growth. So your strategy seems a bit different given this kind of expectation of data growth which is hopefully what's going to provide revenue growth.

So I'm just trying to understand. Like where exactly are you cutting the CapEx? Is it US dollar denominated type things like radios from Nokia and Ericsson? Is it -- and that you're spending more on the local stuff until the currency recovers? Help us understand. That's a big -- because that's a very big cut and no other operator I think has identified yet.

Well, I don't want to. My answer to you is going to be we are not reducing the CapEx because we're going to cut LTE or we're going to cut capacity, or we're going to cut moving 3G subscribers to LTE subscribers. We're not going to do anything on that.

I think in the last two years we have been investing heavily. We have been investing in the backbone, in the links, in the fiber, in everything and that's exactly what it is. Let's say in some countries if you add some more frequency, then you don't have to do anything. You have to do a little bit more of radios and then you have a lot more of capacity. So -- and I don't want to get involved in the engineering side on how we are going to grow.

But we have been investing a lot. We have a very robust network in all of our countries compared to a lot of our competitors and that's what's going to give us the ability to invest less this year.

So, in terms of competitiveness, I think still in 2016 and 2017 (inaudible).

As we said repeatedly, Walter, in the past, to manage data you really need to have a good fixed-line platform and a lot of the $50b that within the last five years were deployed precisely to build, as Daniel said, more fiber optic links, fiber to the towers. A lot of the things that are really required. All of that is behind us. When you look at the cost of radios, as you say, relative to the rest, of building the fixed-line platform it's nothing.

So, the fact that we are reducing CapEx is simply because we have already finished with a lot of the construction that needed to be done on the fixed-line side. It's not that we are going to be curtailing now. Now that we have everything done, we won't be curtailing the easy part which is the radios.

We invested last year the cable submarine satellite, the fiber, metropolitan rings. So look at what Net is doing in Brazil. Net is the one that's in cable. It's the one in pay TV. It's the one that it is growing in subscribers in Brazil and that's really because we have the network to go to all these new houses.

So I feel pretty comfortable on what we have been doing in the last years and what we are going to do this year.

It's the difference of being an integrated player as opposed to being only a mobile one.

Carlos Antonio de Legarreta, GBM Research.

Good morning. Thank you for taking the question. I think it will be helpful for all of us to understand what's at stake at this regulatory review in March obviously aside from the possibility of getting the pay TV license?

I mean some people are thinking about worst case scenarios. I mean certainly the asymmetric regulation we have seen so far has been pretty stringent and I think the -- on competition it's pretty obvious. I was wondering if there is any specific issues that are currently being discussed with the regulator that we could be looking at? Thank you.

Well, talking about -- well, as I told you, in March we're going to review the effects that the measures that they put to us two years ago, we're going to review if they work or if they don't work. They can put more asymmetric regulation, they stay where they are, or they can reduce their regulations that they put to America Movil. So it's what they are going to do.

In terms of the asymmetric interconnection, well, the position of America Movil is that America Movil can -- should not subsidize companies like AT&T and Telefonica that are strong international operators. And that I don't think that America Movil would subsidize paying them interconnection and they don't pay interconnection to America Movil. So, that's the position of America Movil and those are the things that we are going to review.

As I said before, there is effective competition in the market. So if there is not competition, the prices -- look on the pricing that we have. I think Mexico today is one of the lowest pricing countries maybe in the world. So I think those are the things that IFETEL are going to review and well, let's see what's going to happen.

Okay. Thank you and a follow-up if I may. On Brazil, you acquired a small cable company. I was wondering if you could give us any details about that particular acquisition, or any others that could be on the radar going forward. Thank you.

Yes, the Company was Blue. It's a small company, a company that has close to 8,000 home passes, 300,000 customers. The company is already operate a network. It's fully directional so it complements well all what we've been doing in Net. So that company will be integrated through Net. I think it expand the reach that we have and we get into a market that we don't have network, so we complement the network position on Net.

So we will integrate in the next three or four months the company. We have been some approvals to do all the integration. That will occur in the next two or three months.

Richard Dineen, UBS.

Thanks very much for taking the question. Good morning, guys.

Yes, you mentioned in the release about cost reduction efforts behind the margin gains specifically in the US and Brazil. I'm just wondering if you can specify whether the cost reduction is more driven by internal efficiencies, you know, streamlining operations or whether it's more a case of being less aggressive in your commercial strategy, lower subsidies, discounts and promotions and so forth?

And then secondly to that, whether Brazil and the US are perhaps unique situations in that regard, or whether you think there are opportunities to lift margins by similar methods in other markets? So, that's my question. Thank you.

Hi, Richard. Let me start on Brazil. I think on Brazil, what we have been doing in the last two, three years is we are integrating the networks. We have one platform for fixed, for mobile, and for pay TV and that integration is giving us a reduction on costs. So, I feel very competitive in Brazil.

I feel we have the best platform in Brazil for the growth and the best platform for taking share in the market. We're still growing good in the fixed platform. We're growing in the pay TV and I think this last quarter looks much better in the mobile. We have gaining in number portability in postpaid, so the indicators that we have looks like, in Brazil, we're doing good. Even that the economic situation that we're living there, we feel that Brazil could give us better margins for this year.

In the US, well, the competition in the US is tough. So as an MVNO we have to be also more aggressive in the market and that reduce a little bit our costs. But we are, for this 2016, reviewing new plans for the market that will give us again growth and give us again margins. Still we think 2016, for TracFone is going to be very competitive, but I'm sure that we could have good plans to compete in the market. So that's what we have in Brazil and in the US.

The other question? About the cost control that we have. We're putting cost control in all the countries. As Carlos said in the beginning of the conference, there are some countries that, let's say El Salvador, Puerto Rico, Ecuador, that we sell in dollars so the exchange rates don't hit us. In other ones like in Central America we haven't had any devaluation there, so we still having cost controls.

And in the other ones like Colombia, Mexico, Peru that we have big devaluations on the exchange rate, we are putting more and more cost controls. And we're working very hard to maintain as much as possible our cost down. So that's more or less what we need to do all 2016.

I think further to what Daniel is saying, as you know, we have a, what we call our core EBITDA which is basically the EBITDA that we have before factoring in subscriber acquisition costs. What you can see is that in substantially all the countries, and I would say only there's two of the smaller countries in South America that are an exception, but of the rest, all of them have seen increases in core EBITDA margins.

So that's important because it basically shows that all of them in the commercial networks, there have been important -- there have been important progress in terms of streamlining costs. So it's not through a reduction in the commercial presence. It's simply by having a more efficient structure.

Mauricio Fernandes, Bank of America.

Thank you. Good morning, everyone. So, I want to go back to the buybacks and in fact the capital question, Carlos and Daniel. But the renewal of the fund doesn't mean much since you can renew the fund whenever the Board meets. But it seems, based on what you've said at the Investor Day last year the plan is to achieve 1.5 times net debt to EBITDA. I just wanted to confirm that that's still the case given a lot has changed, particularly in the macro environment in fact since then.

And two, when would you expect to achieve that 1.5 times? Thank you.

Mauricio, hi. Well, what we have said is the 1.5 times is kind of our medium-term target. We have always had a medium-term target. You're never exactly there. But yes, we intend to remain hovering around the target.

We are today, as we showed in the presentation, at 1.8 times EBITDA. And when you factor in the -- you do the methodologies (inaudible). So I think that we are pretty much where we need to be today on that regard. We don't need to make any special arrangements to our financial plan.

But what is important, Mauricio, is to understand that having the financial flexibility is something that is important when you're willing to use it. And I think we -- I think the bottom line is yes, we have the financial flexibility. And, as I said at the beginning, it's something that we may use if and when we see -- we think it makes sense. So that's where I would leave it.

Obviously there is a long-term goal, a mid-term goal, in terms of overall leverage. I think that we are satisfied with where we are today. I think that we are going to see good progress on the financial front and this does not impede us from continuing with what we have basically said in terms of overall distributions.

But having said that, we have the flexibility and may use it if it makes sense.

Okay. Is there any intention, Carlos, to reduce the activity of buybacks, particularly given the share price has come down? You know, it would make sense actually to perhaps increase buybacks, not to reduce buybacks in spite of the strategy. You're not that far away from being that close to, you know, around the level of 1.5 times net debt to EBITDA.

As I said the leverage ratio, the medium-term ratio, it's something that we are hovering around. We do not have a deadline that says we need to be at 1.5 tomorrow. No, we don't. We have flexibility and this is obviously something that we can always raise it with our -- with the rating agencies.

But, having said that, you do have an outstanding plan. As Daniel said, we have roughly MXN30b already in reserve and as you say it may be increased as we have done in the past. We have increased in the middle of the year as we said if we think it makes sense.

Chelsea Konsko, TIAA-CREF.

Hi. My first question is just more of a clarification on what you spoke about at the beginning of the call in terms of the contribution to the margin contraction in Mexico. It was a little bit difficult to hear you. I think you were saying a third from one factor, a third from another, and a third from a third factor. So, if you could just repeat that.

And my second question is related to your capital market plans. Considering the debt that you have coming due this year, in which currencies would you prefer to issue and refinance that debt?

Well, what Carlos said is that in Mexico we have a very competitive market. So part of the reduction of the -- of our margins are first because we grow a lot on postpaid subscribers. Second, because we have a lot more competition, reduction on prices. It's very important. And the third is because the exchange rates.

The exchange rate hit us in two things. First, because the revenues in handsets are growing more. Third, because we have other costs like Telesite. Telesite is more or less costing 1.5% of our EBITDA because the costs that we are having in dollars. So, all of those things are playing all around in the margins of Mexico, so that's what. Carlos can explain a little bit what we think.

On the refinancing, this is a year that I think that we are going to see reductions in debt. Already Telekom Austria paid EUR750m I think two or three weeks ago which means that already last -- since the end of December until today they have already paid roughly EUR1b, so there has been a net reduction. That is not being refinanced.

We are -- we have approximately EUR3b, EUR4b in amortizations left for the year -- have $3b amortizations left for the year. And I don't expect that we will go to the market for more than [$1b].

And do you have a currency preference?

I think that it is really determined at the time when we launch the transaction depending on the conditions in different markets. As you know we have established a presence in various markets so we can afford to look at which appears to be best for our objectives. But I don't think that we will have more than one offering in the market this year. Maybe [$1b] and we're done.

So we are going to actually see a good reduction in gross debt for America Movil in principle. And all of this is consistent with everything else that we have mentioned in the absence of all the extraordinary situations where we might want to use Movil's financial flexibility.

And now I would like to hand the call over to Daniel Hajj for final remarks.

I just want to thank for everybody for being in the call. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.